Q&A: Tipico on how Germany is getting back to sports betting regulations

The German gambling market has long been something of a challenging one for operators, where a coalescence of state and federal objectives meet to create a de facto grey market. A key characteristic of this market has been one thing: experimentation, many of the states wish to exploit online sports betting and online casino but only do so in small steps, while some dismiss gambling entirely.

In 2012 Schleswig-Holstein was the only German state to decline to adopt the German Interstate Treaty (IST) due to the presence of its own law. It issued 23 online casino licences plus an extra 35 sports betting licences with an expiry date of December 2019.

Last month, the parliament of Schleswig-Holstein, agreed an extension to June 2021. The legislation process has started and is expected to be concluded by end of May.  Less than a fortnight later, the German federal states took the decision to adopt an amended version of the IST. This new version removed the 20-licence cap on sports betting, while also establishing a practical timescale for possible online gambling regulation within two years.

As one of Germany’s biggest gambling operators and market leader in sports betting, Tipico has witnessed many of the twists and turns in the saga of German regulation. Now the path towards regulation seems clearer, Karin Klein, Tipico’s chief regulatory officer, chats to EGR Compliance about the road ahead for operators in central Europe’s most enigmatic market.

EGR Compliance: Several operators have expressed surprise that the amended IST was adopted, what was Tipico’s reaction?

Karin Klein (KK): We welcome the amended IST as an important step in the direction of a more wide-reaching reform of German gambling regulation, planned for 2021. The federal states are currently debating the contents of said reform. We believe it is essential to establish a coherent framework which responds to customer demand. We look forward to further support reform efforts.

We’re confident it will pass this time because of the presence of a solution to the transition period issue which was agreed by the Länder in the run up to the amended treaty being unveiled. Everybody understands the importance of getting German regulation to this stage and planning for the post 2021 environment.

EGR Compliance: What preparations had you made if the IST was not passed?

KK: As a responsible operator, we have always been committed to the highest standards. In Schleswig-Holstein we have already implemented systems quite similar to the ones being requested following the IST. Nonetheless, we welcome the agreement on the IST and the political will to take further steps towards a comprehensive framework for the time after 2021. We believe that this will greatly enhance legal certainty for all actors.

EGR Compliance: Has the German government missed a trick by not dealing with the issue of online gambling?

KK: The German online casino market is growing, hence the presence of many well-established operators which all offer online casino gambling. If the regulator should force licensed sports betting operators to switch off online casino games, this would channel the existing players into the black market, which is a huge problem for the player protection goals. In the end the success of any regulation depends on the consumer’s choice.

Everyone, operator and regulator included knows this and this will undoubtedly form one of the major questions of the debate surrounding the new market. Furthermore, the parliament of Schleswig-Holstein is currently adopting legislation to extend the licences for online casino offers, which it had granted under its own state law. We welcome this move, which gives an example of the direction in which the debate is currently moving.

EGR Compliance: Does Tipico foresee the introduction of wide-ranging limits on gambling advertising, as a way of addressing the unlawful advertising of online gambling?

KK: We believe in responsible advertising and attach great importance to compliance with the existing regulation on advertising (“Werberichtlinie”). Furthermore, responsible advertising allows us to draw a clearly visible line between regulated gambling offers and those in the black market. Customers need to be able to make an informed choice on where to gamble. The State Treaty on Gambling highlights the necessity to direct gamblers towards regulated offers. To achieve this goal, an attractive product and the opportunity to responsibly advertise legal gambling offers are essential. We support decisionmakers in creating a regulated market with the necessary responsible advertising.

EGR Compliance: Why do you think it is taking so long to develop a system of regulation for the German market which can be accepted by all the states?

KK: Gambling regulation in Germany is within the competence of the 16 federal states, which need to come to an agreement. This principle of federalism generally complicates finding a consensus. However, a growing number of federal states has recognised the need to develop a suitable regulatory framework for online gambling. We welcome this development as an important step towards a coherent and uniform regulation across all states.

Currently, the states are searching for ways to protect the states’ monopoly on offering lottery products, while also developing a coherent general regulatory framework. We support these goals. We believe it is necessary to first find a legally sustainable reasoning to protect the monopoly on the organisation of lottery games (which could for example be based on guaranteeing a non-manipulated game and the protection of the public good). As a second step, a coherent framework for all gambling products which customers demand can and should be developed.

EGR Compliance: Would the presence of a centralised regulator be welcomed in Germany?

KK: No. Rather than pursue a centralised regulator, the Länder is currently discussing the formation of a gambling authority for all states, but this may fall flat as many of the states will refuse to give up their influence on the market. It would certainly be advantageous to operators, but I don’t think we will see a central regulator any time soon.

EGR Compliance: What is the most challenging aspect of operating in the German market?

KK: Our focus is primarily on sports betting. We have the leading online sports betting platform and around 1,200 land-based shops in Germany and Austria. We also offer online casino products, but our clear focus is sports betting. We would welcome online casino regulation. Right now, we have a couple of political processes taking place at the same time. Firstly, the Länder has agreed on a new transition period, up to 2021 for sports betting but in parallel the Länder is preparing to issue licences. At a political level, the Länder is dealing with the future makeup of the new market post 2021, which includes the regulation of online casino.

One challenge resulting from the federal structure is the transposition of the State Treaty into the federal states’ gambling laws. This leads to 16 different gambling laws. Further adding complexity are additional requirements for our retail offer, defined directly by the cities. While this makes the legal requirements less uniform and must entail very specific measures on our side, we continue to attach the utmost importance to compliance with relevant provisions.

EGR Compliance: How important is it to have a pro-gambling state like Hesse in charge of drafting the licensing laws?

KK: The process of drafting the licensing laws is still ongoing. However, we’re confident that the laws’ contents will reflect the current debate on a substantive reform for the time after 2021. We welcome the constructive role taken on by several states, including Hesse.

We have a good relationship with the regulator in Schleswig-Holstein, which is quite interested in understanding the experiences of the industry and operators. Compared to the other Länder, it is the most experienced regulator, it has been regulating the online casino and sports betting market since 2012 and is quite familiar with the permutations of online and land-based gaming regulation.

As to the question of whether the Schleswig-Holstein model could be adopted nationally, it would be great if the other states could act in the same way, but they have some prejudices about the SH regulation model, claiming it is too lenient. The other Länder would prefer a stricter regulation of the industry.

EGR Compliance: What is an essential part for you in getting a new treaty in place by 2021 (ie. when the licences run out)?

KK: A new treaty should take into consideration customer demands – it should thus regulate all forms of gambling. Concrete aspects which should be addressed include state of the art technologies when it comes to “know your customer” solutions, the betting offer and a risk-based player protection framework. The need for a regulation covering all products becomes visible in the annual reports of the states’ gambling authorities. For instance, in 2017 alone, the online casino market grew by 36% (from €1.29bn in 2016 to €1.76bn in 2017), as the report on that year states. We believe that a market developing that quickly needs to be considered in a coherent regulatory framework.

If this market was to be left unregulated, customers could not benefit from an offer with a guaranteed high level of consumer and player protection. Furthermore, regulating the market would allow the state to collect the taxes which legal gambling operators pay, like we already do. In contrast to unregulated, then clearly illegal offers. Both customers and the state would therefore benefit a lot from a reliable legal framework in a regulated market.

EGR Compliance: What role can German licensed (via Schleswig-Holstein) operators play in developing this new regulatory regime?

KK: We believe that all relevant actors – be it scientists, associations or operators – should be heard in the development of the new regulatory regime. We welcome opportunities to share our experience with regulators. We are willing to contribute to the development of a sustainable regulation which guarantees the highest standards of player protection and the best possible customer experience.