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Arendts: Sports betting licensing procedure in Germany

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  • 1. G ­ermany, like other EU member states, recently decided to abandon the state monopoly system with regard to sports betting, and to start a licensing procedure (as well as to tax sports betting with a five per cent turnover tax on wagers). The new Interstate Treaty on Gambling, effective as of July 1, 20121 , contains an experimentation clause in section 10a which allows for up to 20 sports betting licences. However, after more than a year, no licences have been granted. It is also quite obvious that this licensing procedure does not fulfil the criteria of the Court of Justice of the European Union (CJEU). So, the Administrative Court of Wiesbaden described the procedure as non- transparent. Experimentation clause: up to 20 sports betting licences As the old Interstate Treaty on Gambling of 2008 turned out to be legally questionable after the CJEU decisions of September 8, 2010, on the German sports betting referral cases (Stoss, Carmen Media Group2 and Winner Wetten), the German states decided to open up the market only for sports betting (in order to keep the state monopoly on other forms of gambling, especially lotteries which generate a considerable parts of the state income). Therefore, the Treaty’s lack of consideration of online poker and casino games has been heavily criticised. The Hessian Ministry of the Interior was appointed to organise the sports betting licensing procedure and to issue the licences on behalf of the newly created gambling board (Glücksspielkollegium), which consists of 16 members (one for each state). The tender for the 20 sports betting licences was published in the Official Journal on August 8, 2012. After the second step, however, the procedure seemed to have stopped in spring 2013. In a further public tender for a law firm, Hessian Ministry of the Interior recently declared that it expected up to 80 court proceedings, involving both unsuccessful applicants and licence-holders3 . Criteria of the CJEU on the granting of gambling licences From the basic freedoms and the principles of equal treatment and non-discrimination, the CJEU formed a concept of how gambling licences should be awarded under EU law. The CJEU developed a very detailed obligation of transparency. Especially after the recent Costa decision4 , in which the CJEU recapitulated the criteria, these guidelines can be regarded as settled case law. According to the CJEU, “the public authorities which grant betting and gaming licences have a duty to comply with the fundamental rules of the Treaties and, in particular, with Articles 43 EC and 49 EC, the principles of equal treatment and of non- discrimination on grounds of nationality and the consequent obligation of transparency.”5 According to EU law, requirements for licence holders, which infringe the fundamental freedoms, have to be proportionate. With regard to the licensing procedure in Germany, there is no factual basis for the maximum amount of 20 licences (as well as for the seven licences mentioned in the first draft). Secret selection criteria Even more essential is the fact that the detailed licensing criteria have not been published yet. According to the CJEU, the licensing procedure has to be transparent and must be based on objective, non-discriminatory criteria known in advance6 . Some selection criteria were sent as a confidential document to applicants that successfully passed the first step. The European Commission already criticised that the licensing criteria were not clear enough and should therefore be specified in the tender7 . However, the tender document only referred to an “information memorandum” with more detailed criteria, especially for the five concepts which have to be elaborated by the applicants in the second step of the licensing procedure. This information memorandum has not been published yet, so not all material information is know in advance, as required by the obligation of transparency. Even the “reasonably informed tenderer”8 could not evaluate his chances in the licensing procedure. Not only gaming operators from other member states, but also potential market entrants, like media companies, must have an appropriate possibility to know the licensing criteria (in order to decide whether to apply or not). The secret selection criteria (a points 1) In 14 of the 16 Germans states: North Rhine-Westphalia followed on December 1, 2012. The state of Schleswig-Holstein joined the new Interstate Treaty as of February 8, 2013, after revoking the Schleswig-Holstein Gambling Act (under which about 50 licences were granted to bookmakers, as well as to casino games operators). The Schleswig-Holstein licences will remain in force, so there will be a completely incoherent regulation for the next years. 2) CJEU, judgment of 8.9.2010 – C-46/08. The plaintiff in the main proceedings, Carmen Media Group Ltd, applied for a sports betting licence in the German state of Schleswig-Holstein. 3) http://wettrecht.blogspot.de/2013/05/sportwetten-konzessionsverfahren.html 4) CJEU, judgment of 16.2.2012 – Joined Cases Costa and Cifone - C-72/10 and C-77/10. 5) Costa decision, para 54. Martin Arendts, M.B.L.-HSG, attorney-at-law for Arendts Anwälte, provides an update on licensing in Germany Sports betting licensing procedure in Germany: a never-ending story? Martin Arendts, Arendts Anwälte THE SPECIALIST international GAMING law MAGAZINE 18 | Issue 1 2013 intergamingLAW www.intergameonline.com GLOBAL REPORT “The public authorities which grant betting and gaming licences have a duty to comply with the fundamental rules of the Treaties”
  • 2. www.intergameonline.com intergamingLAW Issue 1 2013 | 19 6) Sporting Exchange decision, para. 50; Carmen Media Group decision, para. 87; Costa decision, para. 56. 7) European Commission, letter of March 20, 2012, in the notification procedure 2011/0188/D (reaction of the Commission to the response of a member state notifying a draft regarding a detailed opinion). 8) The CJEU refers to a ‘reasonably informed tenderer exercising ordinary care’ as a standard. 9) Engelmann decision, para. 51. 10) Costa decision, para. 57. 11) Verwaltungsgericht Wiesbaden, decision of April 30, 2013, file no. 5 L 90/13.WI. 12) Hessischer Verwaltungsgerichtshof, decision of June 28, 2013, file no. 8 B 1220/13. scheme of maximum 5,000 points) are applied retroactively and its weighting is also obviously not based on the aims of the Interstate Treaty. It also will be very hard to argue that the licensing criteria are unequivocal, as required by the CJEU. Until now, the Hessian Ministry of the Interior collected more than 800 questions of applicants and sometimes quite contradictory answers of the ministry (220 Q & A in the first step, 587 Q & A in the second step). The grant of a concession, in the absence of any transparency, to an operator located in the member state of the awarding authority constitutes a difference in treatment to the detriment of operators located in other member states, who have no real possibility of manifesting their interest in obtaining the concession in question. Such a difference in treatment is contrary to the principle of equal treatment and the prohibition of discrimination on grounds of nationality, and constitutes indirect discrimination.9 Level playing field for established licence holders and new applicants The principle of equal treatment requires that all potential tenderers be afforded equality of opportunity and accordingly implies that all tenderers must be subject to the same conditions10 . In its Costa decision, the CJEU expressly requires a level playing field for established licence-holders and new applicants. In Germany, the principle of equal treatment is clearly infringed by the fact that the former monopoly operators (one for each of the 16 German states) can use their distribution network of about 26,000 agencies, while new licence holders will be allowed to have only a very limited amount of betting shops (e.g. in Berlin 10 betting shops for each licence holder and three betting shops in Saxonia-Anhalt). A grandfathering clause provides that the monopoly operators and their agencies do not need a licence in the transitional period of one year after the 20 licences are issued (section 29 para. 1 sentence 3 Interstate Treaty). Other provisions do not seem to apply to state operators. Section 21 par. 3 of the Interstate Treaty commands that the operation and intermediation of sports bets are strictly separated (“Trennungsgebot”). No “organisational, legal, economic or staff connection” is allowed. Several of the 16 state operators do not fulfill this requirement. At least four operators are partly owned by sports associations. The most blatant example is Lotto Rheinland-Pfalz GmbH, the operator for the State of Rhineland Palatinate. This operator is partly (49 per cent) owned by three sports associations. The biggest member of one of these associations, Sportbund Pfalz, is 1. FC Kaiserslautern (known as the “Red Devils“). This football club is playing in the Bundesliga (at the moment, in the second division) and bets are offered on matches with 1. FC Kaiserslautern. The proposed new sports betting operator of the state operators, ODS Oddset Deutschland Sportwetten GmbH (which applied for one of the 20 licences), is partly owned by Lotto Rheinland- Pfalz. So, ODS does not fulfil the requirement of separation and should have been excluded from the licensing procedure for this reason. While a bank guarantee (in the amount of €5m, up to €25m), originally required for the second step of the licensing procedure (suddenly this requirement was withdrawn), might be justified to protect customers, the additional insurance which the applicants have to verify, is questionable (as one insurance company, mentioned by the ministry, declined to offer such insurance protection). Several court cases with regard to the licensing procedure are already pending. Until now, only two interim protection decisions have been published. In its BetVictor decision11 , the Administrative Court of Wiesbaden granted one applicant to the up-to-20 sports betting licences interim protection. The court mentioned that the whole procedure was not transparent. As described above, the CJEU expressly stated that interested operators must have a fair chance to evaluate their chances at the beginning of the procedure. The Administrative Court held that there was no such possibility in the current procedure: “(...) the requirements with regard to a transparent procedure are not fulfilled.” The Hessian Administrative Court of Appeal overturned this decision12 , but did not decide on the merits of the case. The court mainly argued that BetVictor could not claim an immediate need for judicial relief. The applicants should wait for a final decision in the licensing procedure and then ask for interim protection. “The principle of equal treatment requires that all potential tenderers be afforded equality of opportunity” Reichstag, Berlin