Playing the long game: how German regulators' stance on transitional rules is shaping the future market

Gambling regulation in Germany is facing a major change: on 1 July 2021, the new Interstate Treaty on Gambling is set to enter into force. For the first time, operators of online slots and of online poker will be able to apply for German licences. Moreover, the future starts already now: since 15 October 2020, an interim regime is in place. Operators that offer online slots and online poker which fulfil the requirements of the upcoming Interstate Treaty will no longer be at the centre of enforcement efforts.

Still, a rather basic question arises: if the new regulation enters into force only on 1 July 2021, why should operators adapt their product to the upcoming regulation – and the upcoming restrictions – already now?

The answer lies in the regulator’s perspective on the interim regime and on the status of operators of online slots and online poker. Regardless of the legal debate on the applicability of EU licences in Germany, the basis for the regulator’s assessment is – first and foremost – the current Interstate Treaty on Gambling. This Treaty does not foresee a German licensing option for online slots, nor for online poker or online table games.

Still, consumer demand for those games is already high, and has been growing further for some years: between 2014 and 2017 alone, the German online casino market has grown from a total of €736m in gross gambling revenue (GGR) to €1.76bn in GGR, which represents an increase of 139% over those four years.[1] This increase was one of the driving forces behind the Federal States’ decision to establish a regulatory framework for those games in the new Interstate Treaty.

Yet, with the new Interstate Treaty agreed by all 16 heads of the State Chancelleries since January 2020 (and by the 16 prime ministers since March 2020), the question of the rules for the transition period until July 2021 was still unanswered. While the agreement on an Interstate Treaty would not change the present legal situation, most Federal States acknowledged the need to ‘transfer’ the existing online gambling market into the new regulatory framework. Simply ‘switching off’ the market, only to ‘switch it back on’ a year later was not a promising option: consumers would have turned to the non-European black market and might have stayed there permanently. On the other hand, letting the status quo continue until July 2021 was also not seen as an option. Thus, a solution satisfying both sides and ‘transferring’ most consumers into the new regulated market was needed.

This is how the interim regime came into being: it is a long fought-over compromise. After some delays, all 16 Federal States eventually agreed to it. Content-wise, it is an application of tomorrow’s regulation already today, in order to ensure a smooth transition. Most provisions of the upcoming Interstate Treaty had to be applied already by 15 October 2020. For two requirements, the maximum stake of €1 per spin and the minimum time per spin of five seconds, the implementation deadline was 15 December 2020.

This is now the Federal States’ shared basis for enforcement. In principle, enforcement is still carried out by each State individually. However, they now have a common point of reference: the interim regime. Even shared measures which require a qualified majority (11 out of 16 votes) in the Federal States’ Gaming Council (Glücksspielkollegium) – such as financial blocking, which is carried out by Lower Saxony’s Ministry of the Interior – are now a lot easier to agree upon. The definition of what constitutes “illegal gambling” is clearly set out in the interim regime. For instance, if an operator still has online table games on offer, they are in violation of the interim regime. In consequence, Peter Beuth, Hesse’s minister of the interior and sports, has underlined that non-compliant operators will now face legal action and the blocking of payment flows.[2]

Moreover, the interim regime is seen not just as an indicator of operators’ current compliance. Both the present licensing procedure for sports betting and the new Interstate Treaty make operators’ “suitability” a decisive benchmark for obtaining (or keeping) a licence. This suitability is ‘measured’ already today through operators’ compliance with the interim regime, also with effect for the upcoming licensing procedures for online slots and online poker.

Thus, the interim regime’s ‘legacy’ will continue after the new Interstate Treaty enters into force: it determines which operators have a chance of obtaining a licence. Yet, this will not remain the only point carried over into the new regulatory regime.

Changes and continuity from 1 July 2021

When the new Interstate Treaty on Gambling eventually enters into force on 1 July 2021, many of the changes it brings can directly be implemented.

Most importantly, the licensing procedures for online slots and online poker can start directly on that date. However, the newly created Common Gaming Authority of the German States will only take over the task of granting gambling licences on 1 January 2023.

From 1 July 2021 until 1 January 2023, the licensing procedures for online slots and online poker will be carried out by the authorities of Saxony-Anhalt. Just as for the present licensing of sports betting operators – where Hesse remains in charge until 1 January 2023 – these licensing procedures will be conducted in close coordination with the Federal States’ Gaming Council. Thus, until the Common Gaming Authority takes over the licensing procedures from Saxony-Anhalt and from Hesse, the Gaming Council remains the institution which ensures that each one of the 16 Federal States gets to vote on each licence application, with a threshold of 11 votes (a qualified majority) needed for each licence to be granted.

Also, the entry into force of the new Interstate Treaty does not change the status of existing licences: Sports betting licences granted before 1 July 2021 will remain valid until 31 December 2022 – under the condition that the licensed operators respect the new Interstate Treaty’s provisions. Thus, there is no reason for operators to delay their licence application. On the contrary: if an operator is active in the German market already now, but does not hold a licence, they will not be considered as suitable to obtain one after 1 July 2021 either.

Regardless of the debates on the exact legal status of the interim regime, operators should therefore take the regulator’s perspective into consideration. The strategic planning for mid-2021 cannot be separated from fulfilling the interim regime’s requirements already today.

Kevin Rieger is a senior associate at Bernstein Group, a consulting firm specialised in complex political decision-making processes, regulatory issues and special communication situations. Rieger advises both international and domestic clients on efficiently addressing regulatory challenges. With a particular focus on the areas of gaming, gambling and the digital economy, he has developed and implemented targeted public affairs strategies for both established companies and start-ups looking to enter new markets.

[1] Glücksspielaufsichtsbehörden der Länder: Jahresreport 2017 der Glücksspielaufsichtsbehörden der Länder (26/11/2018). URL: https://innen.hessen.de/sites/default/files/media/hmdis/jahresreport_2017.pdf (last checked on 04/12/2020).

[2] Hessisches Ministerium des Innern und für Sport: Onlinespiele unter strengen Auflagen möglich (11/09/2020). URL: https://innen.hessen.de/presse/pressemitteilung/onlinespiele-unter-strengen-auflagen-moeglich (last checked on 03/12/2020).