Analysis: Confusion reigns as operators flood into Germany

The only certainty in the German online gambling market is confusion, and already 2018 looks like being a banner year in this regard. We began the results season with GVC CEO Kenny Alexander talking up the chances of German regulation, and ended it with 888 suggesting the sky was about to fall on everyone’s heads.

Alexander told analysts he had never been more bullish about Germany regulation, and expected some positive movements towards online gaming (casino and poker) during the course of the year. “We are relatively close to the lobbying scene over there, we are closer it to most, and we are more confident than we’ve ever been on it,” he said in the annual results analyst call.

But a few weeks later 888 was giving out a wildly different message to investors and analysts. “In recent months, other providers (in the online and land based sectors) have withdrawn from the German online gaming market, and recently, payment institutions facilitating approximately 9% of deposits for the Group in Germany in 2017 have decided to cease providing certain services with respect to the German online gaming market,” the firm said in its results statement.

“As a result of these developments, the Company, together with its legal counsel, is considering potential courses of action, which may include a petition to the German Federal Constitutional Court and is assessing the status and breadth of its offerings in the German market,” it added. So what is the reality in Germany? Is it on the brink of a breakthrough or a breakdown and why are so many firms flocking to be involved if it’s the latter?

Money, money, money

The answer, as always, is money. The German market is the second largest in Europe, with a total GGR of €1.39b in 2017 according to Eilers & Krejcik Gaming. But on a per capita basis it still lags some way behind the likes of the UK, Sweden or even Italy and operators feel there is a huge amount of potential growth left to be had. It’s also a market that has been relatively uncompetitive to-date and one that could explode into life with this summer’s World Cup as the catalyst.

Regulation or not, we’re not going to see anyone taking much of a backward step in Germany this year. During 2017 and the early part of 2018 we’ve seen investment in the region increase as operators increase marketing spend on gaming and acquire licences in sports betting. And the recent moves by both LeoVegas and Gaming Innovation Group (GIG) to buy into the German sports betting market are interesting as they present something of a paradoxical perspective on the market.

LeoVegas completed the €2.6m acquisition of World of Sportsbetting Ltd (Malta) on Monday as it looks to ramp up activity in Germany in advance of the World Cup this summer. The firm said the licences gave it “greater credibility and legitimacy in the German market and enable access to payment solutions that are important in Germany”. And a similar message came from GIG on Tuesday.

GIG bought an inactive Schleswig-Holstein sports betting licence from Nordbet for €500,000 to allow it to integrate with the “larger payment providers” in the country. “Combining [GIG’s] sports betting services with preferred payment providers makes GIG’s sports offering in Germany very competitive ahead of the FIFA World Cup,” GIG CEO Robin Reed said. But what really do these licences provide?

A lighter shade of grey

In many ways you could argue they provide regulatory cover rather than regulatory certainty, giving both operators and suppliers some degree of legal justification for their activities in the market. Because nothing is clear in Germany and the nation sits in a regulatory no-man’s-land. Sports betting is taxed at the federal level, online betting is regulated in one state, online gaming is subject to VAT but is technically illegal under the interstate treaty and frankly it’s all as clear as mud.

What is clear is sports betting is much less fraught with regulatory risk than casino or poker, which are not permitted under the current interstate treaty that is itself in conflict with EU law. Sports betting, however, is the least “grey” product in the market. And it’s interesting to see Sky Betting & Gaming’s German site does not include any gaming links, although the same can’t be said for most of the rest of the market including market leaders tipico and bwin.

Sports betting has always been the vertical where progress has appeared most likely. The market came very close to regulating online sports betting on an interstate basis in 2014, but this quickly fell on its face after complaints from those shut out led to a block on its progress. It is currently caught up in a seemingly endless legal wrangle, with those initial batch of licensees now waiting nearly four years for theory to become reality.

To dream the impossible dream

They should, of course, be careful what they wish for, as the law as-written would seemingly take online casino and poker off the table. And operators are lobbying for a new revised law to include all verticals if Germany is to ever move forward into the modern world of online gambling regulation. But what everyone really wants to know is are we any closer to seeing light at the end of the tunnel in Europe’s most underutilised gambling market?

“Will it be resolved in 2018? Definitely not,” Alexander said. But he was confident some progress would have been made by the end of the year. It’s not yet clear, however, in which direction that will be. Knowing the German market it is likely to be two steps forward and two steps back, and while the status quo continues there will be no shortage of firms looking to cash in.

But any German ambitions should come with a note of caution. To an industry being increasingly shut out of new regulated markets and hungry for international expansion opportunities it’s a market that looks like one of the few greenfield opportunities left in online gambling. Appearances, however, can sometimes be deceiving.