Germany – Alles Gut?

A vital question for the online sector has always been whether the opportunities provided by a newly regulating jurisdiction were worth the wait. Germany – where progress towards regulation can best be described as glacial – is the next up to test the sector’s tolerances when the new Treaty of Interstate Gambling comes into force next July.

Ahead of that, transitional licences are now in place that will allow for operators to continue offering sports betting and a restricted gaming offering until then.

“Considering where we came from – no sports betting licences and a total ban on online casino games – we have made substantial progress in the last few months,” says Luka Andric, managing director at Deutscher Sportwettenverband (DSWV), the German bookmakers’ association.

Yet as Andric goes on to say, the regulatory situation is far from ideal and “there is still room left for improvement”. This might be an understatement.

Broadly there are four areas of concern, each connected to the theme of channelisation. One is around the deposit and staking limits; there are worries over the separate licensing of slots and table games; then there are the worries over what the Treaty demands in terms of data; and finally the issue of restrictions on advertising and the ban on revenue share-based affiliate marketing activity.

The web of restrictions are perplexing when viewed from the industry standpoint but the outcome makes more sense if it is viewed as the result of a compromise brought about by the system which forged it.

In the German political system, regionalism and localism are deeply engrained. It is a properly federal system and the states or Länder have a large degree of autonomy. “Since gambling policy is set by the 16 Länder – rather than the central government – we will always have to think in terms of difficult multi-party political negotiations and anticipate compromise scenarios,” says Andric.

The online gambling sector benefitted from this in the case of Schleswig Holstein which forged its own path on licensing back in 2012/13. But other Länder have always been much more conservative on the issue, hence not only the restrictions but also what sources suggest are differing views on what will constitute success under the new treaty regime.

As was pointed out by the president of the DSWV Mathias Dahms during the recent Gaming in Germany event in Berlin, as it stands the authorities have no target figure for the rate of channelisation that they wish to achieve under the new Treaty. In this sense, there is no mechanism for measuring the quality of the regulation. “There is no starting point,” he told the audience.

Says his colleague Andric: “The new regulatory authority – once set up – will have to ensure that the regulation addresses consumer needs and will need to propose evidence-based reforms.”

Enter the consumer

The evidence for whether the Treaty is a success ultimately comes down to how it serves the interests of consumers, suggests Karin Klein, the chief regulatory officer at leading German-facing operator Tipico.

“The market is the consumers, not the operators,” she says. “The key to success will now be that consumers embrace the regulated market. If they do, regulation will be a success. If they do not, it will not be.”

Unsurprisingly, many fear the prognosis in this case is poor. “In terms of the wider issues affecting the deposit and stake limits, one concern is that the new regime won’t attract sufficient interest from players in Germany – that there won’t be a strong enough incentive for them to play at online casinos which comply with the new regulations,” says Kimberley Broad, director of compliance at gaming supplier Microgaming.

Up to a point, operators are playing ball. Many of the bigger names feature among the 15 that have already received transitional licences and a further 53 are apparently in the process of applying. The list includes Tipico and GVC whose spokesperson said it was “vital that close attention is paid to unlicensed operators to ensure that a black market doesn’t flourish”.

This last comment hints that others are coming to different conclusions. During the NetEnt third-quarter results call in mid-October, chief executive Therese Hillman said the company has seen operators “taking different approaches” on whether to comply on what can be offered in the transitional period.

Similar comments were made by NetEnt’s prospective acquirer Evolution which said that in the pre-regulation period some operators will want a licence while “others might act in a different way”. “We don’t know what percentage of our customers will be applying for licences,” said Evolution chief executive Martin Carlesund. “You will have to ask them about their strategy.”

Meanwhile, Betsson said in its third-quarter statement that the new Treaty was “only a partly satisfying” outcome. It also questioned whether the future “restrictive” online casino regime “adhere(s) to EU law”.

Legal manoeuvres

In short, no one should be under any illusions about being able to downscale their legal bills in Germany. Thomas Dünchheim, partner in the regulatory and governmental team at Hogan Lovells International in Düsseldorf, concurs that the online casino licensing system in particular raises issues around EU law’s “coherence principle”.

He adds that there are also likely to be legal challenges in respect to the data protection issues raised by the database rules in the Treaty. Martin Arendts, a lawyer with Arendts Anwälte, agrees and says the rules on having central databases are a “data protection nightmare”.

As for the potential for the rules of the Treaty to be amended or indeed reversed there is a planned evaluation which will take place by 2023. “If, as we believe, the existing limits will lead to a considerable loss of customers to black-market operators, the ’sharp edges’ will be ironed out sooner or later,” says Andric, hopefully.

Says Broad from Microgaming: “I think only time will tell on that, but the hallmark of any effective regulatory body is the ability and willingness to adapt and implement changes that benefit the whole market, so in that regard I’d fully expect all issues to be ironed out one way or another.”

Others are less hopeful, however. Dünchheim points to the greater efforts now being undertaken both organisationally and financially by the states to set up the new authority and suggests this might point to even stricter regulatory oversight.

The new Gemeinsame Glücksspielaufsichtsbehörde der Länder charged with oversight of the new online gambling regime is to be established in Saxony-Anhalt. The new body will be an Anstalt des Öffentlichen Rechts or institution under public law, meaning it is an agency of the 16 German states (should all states ratify the new Interstate Treaty).

The cost of the new entity are hence shared between the states. Between now and the end of the year, the Saxony-Anhalt government estimates expenditure on setting up the new agency to come to just under €1m will soon escalate to a further €4m between January and its launch date in June 2021. This is largely taken up by IT costs.

However, in terms of when the new body takes over the task of issuing licences and overseeing the running of the new treaty, this will not take place until 2023. Instead, the current licensing authorities will continue with the task of oversight.

Nevertheless, Saxony-Anhalt will be hiring for the new agency and the state government has identified it will need 110 full-time staff. Hiring will begin in January. Running costs after that date will be around €3m a year.[/box]

Indeed, he suggests that as far as the operators are concerned, what they get under the transitional arrangement might be better than what is to come. “Until the (new authority) takes up its work, the operators and their practices are not regulated as strictly as they would be in the future,” he warns.