The regulatory process for online gambling in Germany has been complicated since 2006. Schleswig-Holstein passed its own legislation in 2011, awarding licenses to operators, but a new government plans to return to the Interstate Treaty signed by other states. The Treaty has been criticized by the EU as incompatible with EU law. Legal challenges have stalled implementation of the Treaty. The future of regulation in Germany remains uncertain as multiple conflicting frameworks exist simultaneously.

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DEMYSTIFYINGGERMANYFEATURE
Long-lasting challenges
The regulatory and licensing process in Germany has been
riddled with complications since 2006, when the state
of Schleswig-Holstein first declined to join an interstate
treaty. Seven years on little progress has been made
towards the opening of a dot.de market. Only Schleswig-
Holstein’s online gambling legislation has gained approval
from operators as well as the European Commission (EC),
in May 2011, while the Glücksspielstaatsvertrag (Interstate
GamblingTreaty)signedbytheother15LänderinDecember
that same year has been heavily criticised by both.
But potential revenues underline the importance of the
Germanmarket.AccordingtodataprovidedbyH2Gambling
Capital, gross gaming yield (GGY) from online grew from
€771m to €838.2m between 2010 and 2012, a compound
annual growth rate of 4.3%.
With the right legislation, the potential is huge – a gross
winof€1.87bncouldhavebeengeneratedbetweenJuly2012
and December 2015 if the market had opened for all product
verticals last year.
But to reach these rewards,
several problems which have
existed for years must first
be overcome. Several issues
surrounding lotteries remain
unresolved.
The Monopolkommission
(Monopolies Commission) said last year the Interstate
Gambling Treaty amounted to an “attempted
monopolisation”, effectively making it all but impossible
for private operators to complete with the recently-formed
national lottery, Gemeinsamen Klassenlotterie der Länder.
With numerous unresolved issues still circulating, eGaming
Reviewoutlinesthekeyconclusionstobedrawnfromevents
so far.
Support for liberalised legislation
While Schleswig-Holstein’s decision to break away from
the Treaty may have ultimately failed, it has at least given
operators a chance to establish a foothold in the German
market.WhentherevisedTreatywaspublishedinDecember
2006, the northern state initially refused to sign, with then-
Prime Minister Peter Harry Carstensen of the CDU party
arguing that Germany should make changes to ensure the
legislation was compliant with European law, after the EU
issued strong opinions against the proposals.
But even after Carstensen reluctantly signed, the CDU
eGaming Review looks at the obstacles and battlegrounds on
Germany’s journey to regulating its online gambling industry,
drawing out the key conclusions of events to date
By Robin Harrison and Richard Weston
DEMYSTIFYING
GERMANY

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FEATUREDEMYSTIFYINGGERMANY
continued to push for changes to the Treaty, proposing a
series of changes to create a “dual system”, according to
lawyer Martin Arendts. The proposal, Arendts told eGR,
would maintain the state lottery monopoly but would open
up the market for sports betting and casino licences to be
awarded to private operators, adding that German sports
confederations and football leagues had made “very similar”
proposals in 2011.
After this was rejected by the 15 other German states,
Schleswig-Holstein pushed ahead with its own leglisation
which allowed for an unlimited number of six-year
licences and all products – except roulette, blackjack and
baccarat – to be awarded. Operators were to be taxed on 20%
of gross profits.
This liberal form of regulation appealed to operators and
thefirstthreesportsbettinglicenceswereawardedtoBetfair,
mybet and Die NordwestLotto Schleswig-Holstein on 3 May
last year. However the CDU-Freie Demokratische Partei
(FDP) coalition lost a state election soon after, with a new
coalition formed by the Socialdemokratisches Partei (SDP)
and Greens taking charge. The newly elected government
quickly moved to return to the State Treaty, though Henrik
Armah of Olswang says that “the legal basis for the licences
would remain in place until officially abolished”.
ItshouldalsobenotedthatwhiletheactionsoftheCDUin
Schleswig-Holstein were arguably an isolated incident, the
partycouldbeviewedasbeingmoreamenabletoaliberalised
form of regulation.
Legal complications stall shutdown
A total of three bills have so far been published with the
aim of abolishing Schleswig-Holstein’s online gambling
legislation. Yet Armah explains that such measures are open
to legal challenges from licensees.
“In order to render existing licences null and void, a new
government could 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,” he says.
“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.”
“Another, more balanced option for a new government
couldbeareductionoftheexistinglicencesfromsixtofewer
years – which might potentially mitigate the risk of being
liable for compensation payments,” Armah adds.
Considering making all licences invalid would be such a
long and potentially costly process, the SDP Minister for the
Interior Andreas Breitner has hinted that the six-year term
will be allowed to run its course, suggesting that cancelling
licences is “not realistic”.
It appears all licensees will be allowed to continue to
operateunderthecurrentframeworkinthestateatleastuntil
2018 when the first wave of licences will expire. However
with a number of companies certified this year, it will not be
until 2019 that the liberalised market is finally closed.
State treaty “incompatible”?
From the moment 15 of Germany’s 16 member states signed
the revised Interstate Gambling Treaty, there has been
strong opposition from the European Union, which has
repeatedly stated that its terms are “incompatible” with
“THE LEGAL BASIS
FOR THE LICENCES
IN SCHLESWIG-
HOLSTEIN WOULD
REMAIN IN PLACE
UNTIL OFFICIALLY
ABOLISHED”
HENRIK ARMAH, OLSWANG

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DEMYSTIFYINGGERMANYFEATURE
EU law. Perhaps the most damning opinion came in March
2012, with the European Commission issuing a detailed
response that rejected the terms of the Treaty and accused
thememberstatesoffailingtojustifythetermsoflegislation.
The response explained there was a lack of data or new
research to show exactly how the strict terms of legislation
wouldsatisfytheobjectivesoftheTreatyandnojustification
for the ban on all products aside from sports betting.
In addition, it continued, if the law showed any signs of
restricting fair competition and freedom to provide services,
it would consider bringing legal action against the states
involved.
Consequently, a number of leading operators withdrew
from the market. William Hill and 188Bet, which pulled
their whole German-facing offerings, as well as Betfair,
which withdrew its exchange offering, were among the
highest-profile.
Despite this and with the future of the Interstate Treaty
in its current form dependent on the Court of Justice of the
European Union's (CJEU) opinion, a number of operators
have pursued licence applications. Even bwin.party, which
saw 16% of its share price wiped out when the original
revised terms were published, announced its intention to
apply despite admitting the 5% turnover tax would knock up
to €10m off its full-year EBITDA for 2012. Yet despite this,
the operator maintained that the Treaty “fails to meet the
requirements of EU law”.
There have since been a number of applications for one of
the country’s 20 sports betting licences, and while this may
suggest a grudging acceptance of the framework, operators
looktobeworkingonthebasisthattheincompatibilityofthe
treatymayforcechangestolegislationratherthangenuinely
embracing it.
Starting over again
Despite the likes of bwin.party complaining bitterly about
the regulatory framework in Germany, few were deterred
from applying for a licence, with lawyer Martin Arendts of
Arendts-Anwälte estimating that almost 150 companies
had moved to secure approval. Despite two extensions to
the second stage of the application procedure, for operators
to supply the Ministry of the Interior and Sport of Hesse
(HMDIS) – the state body responsible for the licensing
procedure – with pages and pages of documentation, the
Ministry invited just 14 applicants to progress to the next
stage of the process.
With no clear reasons for the majority of operators
seemingly having their applications rejected, BetVictor
became the first to file a legal complaint with the state’s
Administrative Court in Wiesbaden. The court ruled in
BetVictor’s favour, stating that “neither the reference
to a Memorandum nor the documentation meets the
requirements of a transparent process”.
“Theapplicantsarenotabletoassesstheapplicationcosts
and their actual chances before beginning the application
process,” the ruling read.
CJEU rules
interstate online
gambling treaty is
incompatible with
EU law
SEPTEMBER APRIL MAY JULY SEPTEMBER OCTOBER DECEMBER MARCH
MAY JULY AUGUST NOVEMBER DECEMBER DECEMBER MARCH MAY
German
government
issues proposals
for a new state
treaty
EC rules
Schleswig-
Holstein’s draft
gambling
legislation is
compliant with
EU law
Commission
criticises
German
proposals in its
detailed
opinion
Schleswig-
Holstein
passes
gambling
legislation
German
government
proposes an
amended
treaty
15 of the 16
Länder signs
treaty but will
only implement it
if the Commission
gives them the
green light
EC sends Länder
a letter
criticising new
German
proposals that
fail to address its
main concerns
Schleswig-
Holstein issues
first online sports
betting licences
State Treaty
comes into effect
Schleswig-
Holstein joins
State Treaty
after SPD
defeats CDU in
state election
Hesse extends the
application
deadline for
sports betting
licences to 21
January
EC issues
damning opinion
on Schleswig-
Holstein’s
decision to
return to the
State Treaty
Schleswig-
Holstein issues
first online casino
and poker
licences to 12
operators
Hesse carries out
consultations with
only 14 operators
despite nearly
150 applications
Hesse appeals for
legal firms to
handle 80 cases
to be brought by
private operators
excluded from the
consultations
START
TIMELINE
END
08 1510 18 14 28 15 20
03 01 01 23 10 19 18 24
2010 2011 2012
2013

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FEATUREDEMYSTIFYINGGERMANY
It also highlighted the fact
that as BetVictor had been
awarded a Schleswig-Holstein
licence and queried why
this certification was being
disregarded in the licensing
process.
This idea that an operator
securing approval in one state
should act as a seal of approval
will certainly lead to further
challenges from operators,
forcing the HMDIS to submit
a request for expressions of
interest from a law firm to
handle “up to 80” challenges.
One of BetVictor’s legal
representatives, who preferred
not to be named, explained
that “ultimately all operators
licensedinSchleswig-Holstein
that have also applied for a
federal licence should have
been invited to the hearings”.
“The issue now is whether a
second round of consultations
isopened,orwhetherthewhole
process should be restarted,”
the source said. Arendts
added that the Ministry
has effectively been forced
to accept further applicants into the second stage which
“suggeststheawardingoflicencesispostponedindefinitely”.
A sporting chance
The Glücksspielstaatsvertrag has been criticised for being
too heavily weighted in favour of the existing state lottery
bodies. However, closer reading reveals that the terms of
legislation arguably make the proposed state-owned sports
betting operator ODS Oddset Deutschland Sportwetten
GmbH ineligible for a licence.
Section 21, paragraph three of the Treaty states: “There
mustbenoorganisational,legal,economicorstaffconnection
between the organisation and arrangement of sports betting,
and the organisation of sporting events, and management of
facilities where sporting events take place.”
ButasArendtsexplains,anumberofthe16stateoperators
“do not fulfill this requirement – at least four are partly
owned by sporting associations". He says that the most
blatant example of this is Lotto Rheinland-Pfalz, which
is 49% owned by three sporting bodies, the biggest being
Sportbund Pfalz – the owner of 1. FC Kaiserslautern, one of
Germany’s most popular football teams.
“From my point of view does not fulfill the requirement of
separationandshouldhavebeenexcludedfromthelicensing
procedure for this reason,” Arendts says.
Mission impossible?
While the Schleswig-Holstein market has a finite lifespan,
it throws a potentially devastating spanner in the works for
the future of the Glücksspielstaatsvertrag. Until 2019 two
distinct licensing regimes
are in place across Germany,
and considering commercial
legislation established by the
East German Communist
state the German Democratic
Republic is counted as a valid
form of licensing in Saxony,
it can be argued that three
conflicting regimes exist.
Germany’s highest civil
court, focusing on the
Schleswig-Holstein and
Interstate Treaty, ruled that
the two regimes cannot exist
in parallel, suspending the
licensingprocessandreferring
the case to the CJEU. The civil
court also aired concerns
at plans to prohibit online
casino and poker, with this
view supported by mybet chief
executive Mathias Dahms.
At the time Dahms said that
the ruling proved “a need for
comprehensive regulation of
onlinecasinoandpokergames
in Germany”.
“A ban – as is envisaged in the State Treaty on gaming of
the 15 federal states – will not work,” Dahms explains.
The CJEU’s opinion is yet to be issued, but ultimately
paves the way for Schleswig-Holstein licensees to continue
to offer their services to German customers. At worst it will
simply delay enforcement of the State Treaty, but at best it
could prompt a total rethink of the terms of legislation.
Delays, but still hope
The events to date suggest operators will still have some
time to wait until full German licences are finally awarded.
As a result of the legal complaints, eGR sources suggest the
market will not open until 2014.
A delayed German market opening would still prove to be
lucrativehowever,accordingtoH2,whichestimatesonshore
online gambling GGY to reach €751.1m in 2015. This figure
assumes a 1 January 2014 go-live date and is dependent on
Schleswig-Holstein’s regime continuing to exist by then.
Finally, the data assumes most leading offshore operators
choosetoapplyforasportsbettinglicenceandthattheother
15LänderremainapartoftheGlücksspielstaatsvertraguntil
at least the end of 2015.
Much hinges on the CJEU’s opinion on the licensing
process to determine how this complicated scenario will
play out over the rest of the year. In the meantime, it appears
likely that licences for operators in Schleswig-Holstein will
remain intact for six years, while BetVictor’s legal action
demonstrates that operators are prepared to take decisive
measures while they await further rulings from the EU. “The
situation is a total mess,” Arendts says.
“THE SITUATION IS
A TOTAL MESS”
MARTIN ARENDTS