Market Focus: Germany

Modern Germany consists of 16 states, each with their own assembly, constitution and laws. Because of this separation, most of the laws related to gambling are addressed at state level, with very little intervention by the wider federal government.

However, the main legal framework governing egaming exists at a federal level, enshrined in the Interstate Treaty on Gambling (IST), first introduced in 2012. The three core objectives of the treaty are centred around combatting illegal gambling, preventing fraud and consumer protection.

To ensure that the IST does not conflict with local laws, it is implemented into state law by the Transposition Acts and the gambling laws of individual states. Under the treaty, participation in an unauthorised game of chance is an offence under German law. In addition, individuals who advertise unauthorised games of chance can also be found guilty. Because of the interrelationship between state and federal law, there is no federal regulatory body. Instead, most of the duties of licensing, supervision and enforcement are carried out at state level.

The strange case of Schleswig-Holstein

There is no list of permitted and unauthorised games, but poker, sports betting and casino gaming have been identified as falling under German regulation. There is also no specific inclusion of egaming anywhere in this definition, although any game of chance operated on the internet is understood to be egaming, including via mobile.

The IST does, however, provide for the creation of a committee of representatives from all 16 states to deal with process-related issues. A de facto committee was involved in aspects of sports betting licensing and drafting advertising guidelines, but its role in regulation has been repeatedly deemed by German courts as unconstitutional.

Altogether, 15 of the 16 German states chose to adopt the IST in 2012, with only Schleswig-Holstein declining because of the presence of its own law, which issued 23 online casino licences as well as a further 35 licences to operate sports betting in the state.

Despite this, the election of a new state government in 2012 prompted a dramatic reversal, leading to the repeal of the Schleswig-Holstein Act in February 2013 and the acquiescence of the state into the IST. However, the existing licences issued under the Schleswig-Holstein Act are still in force and will continue to be so until expiry.

So, with licences still valid, can the Schleswig-Holstein act be resurrected as a national framework? For Jochen Biewer, managing director of Chevron Consultants, from “a material perspective, the provisions of the Schleswig Holstein gambling act may be a suitable approach for a licensing framework for entire Germany”.

“Schleswig Holstein has, recently, offered an acceptance procedure for sports betting operators in the state, which has been widely recognised and which may be considered as a first ‘foot in the door’ to the German market. Also, the widespread interest for the licensing procedure, we experience, shows that legal initiatives aiming to regulate sports betting offers are commonly considered to be an opportunity by the industry.”

Licensing

The provision of online casinos in Germany is prohibited under the IST, however the ban has been questioned by German courts and the European Commission. Because of the ban, the only online casinos licensed to operate are those previously licensed by Schleswig-Holstein.

The cost of a sports betting licence is based on the anticipated betting turnover of the business, with fees increasing on a sliding scale. The maximum fee charged on a company with turnover exceeding €100m is €71,000, with an additional 0.03% charge on the amount over the €100m threshold.

Since 2015, all online operators are subject to VAT and are taxed at 19%. Following pressure from operators, the German Ministry of Finance confirmed in September 2017 that this would be applied to gross gaming revenue. A separate VAT rate of 20% for operators in Schleswig Holstein was superseded by subsequent legislation.

The IST does not explicitly regulate ISP blocking but contains a legal basis for payment blocking, under which the Ministry of the interior for Lower Saxony may ban financial institutions from processing payments and can arbitrarily allow refusal of payments following contact with a bank or financial institution.

This system was brought under scrutiny in September when a German gambler refused to pay outstanding credit card debts incurred from gambling on illegal sites. In a subsequent court case between the bank and the debtor, a judge found that as the bank had full knowledge that the debts were incurred because of gambling and had processed the payments despite their illegality, the credit card debts were unenforceable and as such the player had no obligation to pay them back.

The treaty provides for up to 20 sports betting licences being issued, however as with the online casino ban, this has also been challenged by local courts and European authorities, with the latter declaring such limitations contravene EU law. In 2016, following the challenges, the authorities put in place an Amended Treaty which would abolish the licence limits during what it called an “experimental” phase.

A total of 35 operators who fulfilled all the conditions to qualify for a licence were to receive provisional licences ending on the date at which the Amendment Treaty came into force. Licences for sports betting were to be valid until 30 June 2019 under the treaty, when the experimental phase ends, coinciding with the seventh anniversary of the IST’s adoption into law.

However, the revised treaty did not come into force as originally planned in January 2018, principally due to objections raised by three German states: Hesse, North Rhine Westphalia and Schleswig-Holstein that the amended treaty contravened EU law.

Ranier Lauffs, chief operating officer at Veltyco Group believes these objections were entirely valid. “There is no question, mainly because they were simply quoting previous decisions from European Court of Justice (ECJ). Their actions simply just saved some time and costs because the amended interstate treaty would have been challenged at the ECJ right away after implementation, with a very high likelihood of being successful.”

The so-called experimental phase remains in effect, leaving these operators in limbo. So, nearing end of the experimental period, has it been a success? For Ranier, it has “has become a disaster, which was predicted when the idea was published”. “The draft Bill was full of weaknesses and contradicted European law in so many ways that it could not have developed any different.”

Deutschland über alles?

Eventually, German politicians will have to address the elephant in the room and either adopt the revised Interstate treaty, amend it even further to accommodate the concerns over EU law, or rip it up and start again. The problem is with the expiry of licences in 2019, they face a race against time to preserve the market they currently have.

The key for Biewer is “a consistent and attractive regulatory framework”. He adds: “Considering the market situation, as well as the needs of operators and, of course, players, would have the potential to really change the situation and, therefore, effectively support the goals as set out in the current treaty.”

And these comments have not fallen on deaf ears, as officials are reportedly considering two different licensing systems. The first will see a complete licensing model, including sport betting, online casino and poker. The other option will focus on licensing of sport betting only.

Speculating on who will choose what approach, Lauffs adds: “There are rumours about which states are going for the more liberal approach – Schleswig-Holstein, North Rhine-Westphalia, Hesse – and potentially others, but nothing seems decided yet, except that Schleswig-Holstein will lead the way for this approach as they have successfully done it in the past.”

Yet with a consensus on the IST proving virtually impossible, the omens for these new proposals don’t look promising.