Gambling legislation in Germany keeps getting stranger



Hartley examines the current state of affairs for online gambling in Germany, as the confusion among states and lawmakers continues.

Germany continues to muddle through gambling legislation

One of the most compelling stories in the gambling industry for the last several years relates to the German gambling market and specifically the issuing of licenses for sports betting and online casinos. The details of the situation have been written here many times but for those not familiar with the whole situation, the following is a synopsis:

Until 2012, the only legal forms of gambling in Germany were horse racing (including on track bookmakers), land-based sports betting shops and land-based casinos. Online gambling in all forms was illegal, but that didn’t prevent many Germans from betting at online casinos and sportsbooks located elsewhere. Realizing they had to compete with online sportsbooks, in 2012 the German national government indicated that it wanted to create a way to legally bet on sports online to generate some revenue and also to institute some rules that they expected operators and bettors to abide by. So, in that year, the government created an online betting law called The Interstate Gambling Treaty.

German online gambling lawsUnder the rules of the treaty, 20 operators would be awarded the right to offer online sports betting in Germany and all other operators would be declared illegal. Any company that did not have a license and offered sports betting to Germans could be arrested if any of their management team entered German territory and there were plans to block their Internet Service Providers (ISPs). The rules also clearly said that casino gambling, including poker, was strictly prohibited. When the 20 license winners were announced they were given almost exclusively to German companies. This led to those that were not given a license, such as Bet365 and Ladbrokes, to launch an appeal with the German courts and EU for unfair practices in choosing the license winners and also for violating EU rules on trade in gambling services by restricting licenses at all.

The German courts first ruled for the national government saying the process for choosing licenses was fair and legal, but higher courts in Germany reversed that decision and said the method they were using to award licenses was not transparent and was unconstitutional. Furthermore, the EU courts told the German government that the legislation was clearly in violation of EU rules and said that if Germany tried to implement the plan it would lead to a lawsuit in front of EU courts. Consequently, the German government scrapped the original plan and instead agreed to double the number of licenses to 40. But, when even that was struck down as a violation of EU rules, the national government said they would scrap the whole plan and go back to the drawing board.

Schleswig-Holstein

In the meantime, seeing the opportunity to capitalize on the limited sports betting licenses and the banning of online casino licenses under the interstate treaty, in 2013 the German state of Schleswig-Holstein opted out of the interstate treaty and instead set up their own gambling legislation. Schleswig-Holstein would allow companies to apply for an S-H license, and unlike the Interstate treaty, it allowed companies to offer for all forms of online gambling, including casino games and poker. The national government tried to fight the decision by Schleswig-Holstein, but under German law any state has the right to opt out of the national treaty.

Schcleswig-Holstein German sports bettingSchleswig-Holstein issued 48 licenses to various companies, including stalwarts like Bet365, PokerStars and Betway which were valid for six years. However, the following year the citizens of Schleswig-Holstein voted in a new government with more favorable ties to the national German government and the new Schleswig-Holstein Minister-President (similar to a governor) announced that the state would now agree to abide by the interstate treaty.

At the same time, in order to avoid breach of contract lawsuits, the state also indicated that they would abide by the six-year licenses handed out, meaning those companies could continue to operate until the licenses ran out in 2018 and 2019. That situation seemed to be settled until the state voted in a new leader without favorable ties to the national government and in 2017 and the new Schleswig-Holstein Minister-President announced that he was revoking the license suspensions and said that all existing licenses were now valid until July 1, 2021!

Defeat in 2019

In 2019 the national government more or less admitted defeat in the process and said that they were prepared to create a whole new treaty on July 1, 2021, which would not limit the number of licenses and would even allow online casino betting. In the meantime, they wanted companies to still abide by the rules, until that date took effect.  The rules said that that those applying for a license had to be approved by the national government, had to pay a hefty tax, and had to abandon any casino products if they exist on their betting platform. They also had to agree not to advertise in Schleswig-Holstein, if they had a license there. Not surprising the number of applications for new national licenses since that announcement has been few and far between. Aside from the fact that the rules are very restrictive, there is also little incentive knowing that things are going to be turned upside down in less than 18 months.

While no rules for the new July 1, 2021 treaty were announced at first, and while the government said there would likely be tweaks throughout the process, the national government, in consultation with states and various interests, did come up with a set of requirements earlier this year. They said these conditions would be a starting point for the new legislation, particularly for those offering casino gambling. These included:

- All slot games must last at least 5 seconds
- Monthly deposit limits based on set criteria
- All slot games were to have a maximum €1 stake
- Stakes and wins could not be used to build jackpots
- Strict limitations were to be put on advertising the casino products
- No cross promotions between the sports and casino products were allowed
- No one could have accounts with competing German licensed verticals
- Technology that spots and prevents problem gambling

The tax rate for the licenses was also significantly higher than they were at Schleswig-Holstein.

Coronavirus

So, the ball was finally set in motion for this new treaty to be developed, but what no one could foresee in the government was COVID-19. Like all countries, the pandemic led to all land-based casinos being shut down for several months and even now most land-based casinos in Germany are closed. Germany was one of the hardest hit European countries early in the pandemic and to date the country has seen 262,000 positive cases and over 9,400 deaths. Once the country started to reopen, however, the one place that almost all Germans avoided were casinos.

online gambling COVID-19In fact, an independent survey conducted this year indicated that few Germans were comfortable with land-based gambling and would only wager online. Consequently, the number of Germans playing at non-German casino sites has skyrocketed since March 2020 and projections are it could increase by 50% before the end of 2021. But most Germans also said in the survey that they would prefer to bet with a legal and licensed German site over a non-German site even with the proposed restrictions if allowed to.

68% of respondents in the survey said they would play with a German licensed site while 32% said they would continue to play on non-German licensed sites, citing deposit limits and low betting stakes as the reason they would not switch. Strangely, many Germans also indicated that they prefer betting with offshore companies that allow bitcoin payments, since they view the option of depositing and withdrawing by bitcoin convenient. Many Germans apparently love the ease and anonymity associated with betting via cryptocurrencies.

Time is ticking away

The biggest problem for the national government though is that time is not on their side. It appears that most Germans are not willing to wait until July 2021 to place their bets and have set up accounts in Schleswig-Holstein or at non-German websites in droves over the last few months. And there is concern by the national government that despite the survey responses a lot of these German bettors may decide not to give up those accounts once the interstate treaty takes effect. Schleswig-Holstein has already responded by announcing that companies licensed in their state will now have the licenses extended until 2024, instead of just to July 2021. In addition, many companies that had planned to sign up for a national gambling license for 2021 have now changed their minds due to what they deem are unreasonable restrictions.

Casino gambling in GermanyIn December 2019, Bet365 said it would no longer offer casino wagering to German customers and ordered all advertising aimed at German customers to halt and all promotions for the casino to stop. Other companies followed suit. Apparently, the companies just don’t view the new treaty restrictions as viable, plus they realize they now have the upper hand as Germany continues to scramble. Bet365 also has their Schleswig-Holstein, license.

And to make matters more confusing, a source from an Austrian-based sportsbook has told me that he has it on good authority that some German officials are now looking at a solution similar to what the UKGC has implemented and may allow all companies to cater to the market without requiring a specific license or a need to set up any physical locations in Germany. Instead, they will require that operators adhere to all rules around underage and problem gambling and separate all betting that comes from German bettors and pay a tax on that amount to the government. By doing so, it would give the government the needed tax revenue it wants and appear like they are doing something for the public good, but will end the infighting regarding the treaty itself and will probably also make the unrealistic July 1, 2021 date irrelevant. The source, however, believes there will be strong pushback to that plan from those who truly view online gambling as evil.

So, the German betting fiasco just continues to get more convoluted every day. The national government is reeling from the negative reaction to the new treaty and they are definitely concerned that many Germans are turning away from land-based gambling and betting online instead. They are also concerned that until the coronavirus threat goes away, they may have no way of stopping the slews of German citizens from setting up accounts and wagering at non-German online sites.

The only thing that is certain is that the Schleswig-Holstein government must be patting each other on the back for breaking away from the national treaty to begin with, as they are still realizing significant license fees and taxes thanks to their decision to opt out from a bad plan.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!


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