Germany: will gaming reform unleash market potential?

German-facing sports betting firms – and their customers – look set for a rare period of stability after state prime ministers agreed on a set of amendments to the country’s outdated gambling laws.

Imogen Goodman

The crux of the changes – and the news that will be most welcomed by operators in the region – is the lifting of the cap on the number of private sports betting licenses available.

Bookmakers will no longer face a bloodthirsty fight over a scant 20 licences on offer, but will be permitted to operate on the basis of certain criteria such as appropriate player protections, anti-money laundering measures and technical standards.

These changes will form part of the Second Interstate Treaty on Gambling, which is unlikely to come into force until January 2018. In the meantime, sports betting firms that are able to meet the minimum requirements for a licence will be allowed to continue operating in the country.

At least 35 operators allegedly stand to benefit from this interim measure, including many of the members of the German Sportsbetting Association ( DSWVB ) such as Tipico, bet-at-home and bet365.

The latest developments were agreed upon at a meeting of prime ministers from Germany’s various state governments at the end of October.

As well as agreeing to lift the cap on licences, the conference raised a further set of recommendations for the German gambling authorities (Glücksspielaufsichtsbehörden) to consider.

Firstly, the authorities were asked to report back on the effectiveness of anti-illegal gambling initiatives and consider how they could be sustainably improved in the medium term.

Enforcement, casino regulation Mathias Dahms, president of the DSWVB, had previously suggested that a federal body could be developed to enforce the law on gambling and it looks like that suggestion could still be on the table.

Secondly, the prime ministers’ conference recommended replacing the current 1,000 EUR monthly deposit limit with a 1,000 EUR loss limit and simplifying the convoluted player identification process.

Finally – and most significantly – the conference asked the gambling authorities to consider ways of regulating the online casino sector, taking into account the experiences of other European countries.

According to legal sources, “this decision hints in the direction that even licensing of online casinos might be possible in the future".

But despite the immediate concessions on sports betting and the positive noises around online casinos, a note in the amendment to the State Treaty submitted to the European Commission seemed to indicate that this was as far as many parties were prepared to go.

“By partially amending the State Treaty, the overdue regulation of the online betting market is completed and clarity provided for the providers and participating third parties (payment service providers, media, sporting clubs and associations),” the amendments read.

“At the same time, authorities supervising games of chance are given the possibility to impose a widespread ban on unauthorised offers. This ends the progressive erosion of the rule of law.”

Germany’s betting operators have been mired in uncertainty since 2012, when lawmakers first passed the Interstate Treaty on Gambling.

The legislation was intended as a means of testing the water for the regulation of online betting by opening the market to a limited number of private operators for a period of seven years.

To date, however, none of the 20 available licenses in this “experimental clause” have actually been issued.

The Hesse Ministry, charged with issuing licenses, initially selected its 20 preferred licensees in late 2014, but a group of spurned applicants including Bet365, BetVictor, Sportingbet, Tipico and Betclic rapidly launched a legal challenge against the decision.

This led to the Administrative Court of Hesse finding the licence-issuing process to be unlawfully discriminatory and lacking in transparency.

The situation once again prompted the European Court of Justice (ECJ) to step in, stating in February this year that the German government would not be lawfully able to impose penalties on unlicensed operators because its licensing process didn’t comply with EU law.

It seems this decision went some way towards forcing the hand of the German authorities and prompting the most recent decision to move to a qualitative licensing regime rather than a quantitative one.

But although this appears to ease concerns about Germany’s betting laws, legislators will undoubtedly face criticism from industry stakeholders for not going far enough – especially when it comes to remedying the blanket ban on online casino gaming.

At this year’s Excellence in iGaming (EiG) conference, the Deutscher Online Casino Verband (DOCV) – German Online Casino Association – was officially launched, giving igaming operators and suppliers a collective voice in German politics for the first time.

Headed up by Dirk Quermann, chief executive of Merkur Media, the newly-established trade body will be calling for a total rethink on the country’s gaming laws. “The market for online casino games exists,” said Quermann, commenting as president of the DOCV.

"How to regulate" an already active  market “This development of digitisation cannot be ignored or reversed. If lawmakers want to protect online consumers, they must also recognise the realities of the digitised and interconnected world and regulate the market in an orderly way.”

The association is pushing for what it terms an “ orderly opening of the market ”, with licences distributed on a qualitative basis rather than the defunct quantitative approach.

Members say it is vital that consumers can differentiate between the legitimate service providers who take player protections seriously and an unscrupulous black market operating alongside them.

“The current uncertainty in the market is as bad for the policy makers as it is for consumers and suppliers,” Quermann said in a statement.

“Black market operators are the only ones to benefit from this situation, while serious providers are disadvantaged. Regulation should be in part led by the consumers. That’s why our aim, together with the politicians, is to set out clearly defined rules for competition and player protection in the digital age.”

The members of the DOCV, including major Germany- and Europe-facing operators and suppliers such as Mr Green, Tipbet, William Hill and bet-at-home, have said they are prepared to take an active role in helping to draft regulations and would be willing to submit to a new set of licensing conditions.

According to the DOCV, “the question is not whether we should regulate, but how”.

“Only serious operators can guarantee the appropriate player protections and prevention measures and can guarantee that they will be responsible with their promotions,” said Quermann. The stakes are high for getting the new gambling legislation right in Germany.

According to a 2016 report by Goldmedia Consulting, the total value of betting wagers placed with tax-paying operators grew by 6.4% to €4.86bn from 2014 to 2015, with the vast majority of bets being placed with private operators.

According to Klaus Goldhammer, the author of the report, this figure is likely to surpass the €5bn mark in 2016 – without including bets placed with black market and offshore operators. With transparent regulation and licensing, there’s every chance that this figure could soar.

No official figures exist for Germany’s online casino market, but state regulators estimate annual gross gaming revenues from grey- and black-market casinos and online poker to be around €885m.

Other sources estimate that the total illegal gambling market in the country could be worth anywhere between €4bn and €22bn annually.

For many commentators, the only certainty in German gaming law is the uncertainty of German law – and for the moment at least, the country remains a symbol of untapped potential in Europe’s rapidly growing gaming market.