Opinion: Schleswig-Holstein creates precedent days before elections

The Government of Schleswig Holstein, Germany’s northernmost state, announced Thursday that it had issued the first three licences for online sports betting operators under the new regional Gambling Act.

Betfair (via Polco Limited), Jaxx (via Personal Exchange International) and Schleswig-Holstein-owned Nordwestlotto/Oddset are the first operators that are now officially licensed to provide online sports betting services to customers in Schleswig-Holstein. An additional 37 applications have been submitted to the competent Ministry of Interior (23 for sports betting, 14 for online casino games) that announced that further licences would be issued in the next couple of weeks.

The Schleswig-Holstein situation

Schleswig-Holstein is the only German state which did not join the other 15 German Länder in adopting a new Interstate Treaty on Gambling. Instead, it passed its own regional Gambling Act in October 2011 and has received a number of applications for licences since the act came into force on 1 January this year. This relates to both online sports betting and online gaming providers. The three licensees may now provide online sports betting services until May 2018.

Although a so-called “Monitoring Ordinance” relating to the required level of performance and technical requirements has not yet been released, the official press release of Schleswig-Holstein’s Ministry of Interior states that the licensees may commence business as of today.

Sunday’s elections

The timing of the issue of the first licences is significant. The government, a coalition of Christian Democrats (CDU) and Liberal Democrats (FDP), has issued these licences just before Schleswig-Holstein goes to the polls on Sunday. According to recent surveys it is likely that the opposition will prevail against the current government. The opposing Social Democrats (SPD) have strongly criticised the state’s Gambling Act ever since its introduction, and only last month another of their attempts to nullify the act failed to pass through Parliament.

Potential implications if licence regime is abolished after elections

Irrespective of the outcome of the elections on Sunday, the current Gambling Act and the various ordinances issued under it will remain in force unless, and until, Parliament resolves on a bill to abolish the act. This could take months for an SPD-led government to present a new bill and get it through a newly formed Parliament. While a new Prime Minister could unofficially attempt to use his influence on the authorities dealing with the licence applications to slow down the process and to not grant further licences, the legal basis for the licences would remain in place until officially abolished.

In addition, the fact that there are now licences in place might well have an impact on a new government’s decision whether or not to abolish the Gambling Act. In order to render existing licences null and void, a new government could either adopt a bill stating that all previously granted licences are no longer valid, abolish the existing act or give the authorities a legal basis to formally revoke these licences. The two latter options would, however, likely only work under German administrative law if the respective operator has by then not made any use of its licence.

In all three cases there is a very strong risk of Schleswig-Holstein becoming liable for compensation towards the licensees based on the principle of protection of trust. While the recipient of a decree such as a sports betting licence cannot claim that the legal landscape must remain unchanged forever, a licence validly granted under existing law for a period until 2018 cannot simply be ignored. Hence, an operator would have a valid argument to claim compensation from the government for any investments made in reliance on the issue of a valid licence. Such compensation claims could, for example, cover costs for establishing a branch in Schleswig-Holstein and managing the application process ““ it would, however, be unlikely to extend to future lost profits.

Another, more balanced option for a new government could be a reduction of the existing licences from six to fewer years ““ which might potentially mitigate the risk of being liable for compensation payments.

Forecast

Sunday’s elections in Schleswig-Holstein will be an important test for the political landscape in Germany in general ““ and the outcome could possibly add yet another wrinkle to the never-ending discussions surrounding Germany’s gambling regulation. Interestingly, other than the majority of his party comrades, the SPD’s candidate for Prime Ministry, Torsten Albig (currently the mayor of Kiel), publicly supported betting and gambling providers setting up in the region. This could make it even harder for him as the potential new Prime Minister to change horses and to join the Interstate Treaty of the other 15 Länder.