In contrast to other jurisdictions where ‘gaming’ or ‘gambling’ might serve as useful terms to distinguish between products that will be subject to specific gambling regulation, in Germany, a product must qualify as a ‘game of chance’ to fall under the scope of the Interstate Treaty on Gambling (the Interstate Treaty), the main legal framework of relevance in this context. This is the case whenever valuable consideration is given in exchange for a chance to win and the determination of winnings is entirely or predominantly a matter of chance in the context of a game. In this chapter, such games of chance will also be referred to as ‘gambling’.
Bets are also considered games of chance as per the Interstate Treaty, yet a licensing regime open to private operators was only established for fixed-odds sports betting offerings. Horse race betting offerings are also licensable. Betting on events other than sports (and horse races) – such as political events or financial products and tradings (including spread betting, FX trading, binaries, contracts for difference, etc.), sometimes also referred to as ‘social betting’ – is impermissible as per German gambling laws and may be subject to other regulation, namely financial services and banking regulation, rather than gambling regulation. Pool betting offerings are reserved for the state monopoly, since such offerings are commonly classified as a kind of lottery.
Lotteries in general are defined as games of chance that are directed at a majority of persons, involve a certain payment, a specific game plan and the chance to win money as opposed to other prizes of monetary value (this would be referred to as a draw in Germany).
Games that do not fall under the Interstate Treaty’s definition of a game of chance and, consequently, are not subject to specific gambling regulation (but may likely still be subject to other rules and regulations that are aimed at ensuring consumer protection),2 depending on the element of a game of chance they lack, are commonly either referred to as skill games (no predominant element of chance) or free-to-play games (no consideration paid to participate, free prize draws acting as an example). Although ultimately subject to a case-by-case analysis, where German jurisprudence may, but only to a limited extent, provide some guidance, so-called social games will mostly classify as skill games. In the absence of specific regulation, the legal classification of fantasy league games offered to German players will depend on the specifics of the product (i.e., its overall design and structure), and the question of whether, with this design and structure, the game qualifies as game of chance as defined in the Interstate Treaty.
Against this background, skill competitions and competitive sports for prizes also do not typically fall within the scope of gambling regulation in Germany.
ii Gambling policy
Consumer protection, in particular the prevention of gambling addiction and protection of minors and other vulnerable persons, the channelling of players towards the regulated market, the guarantee of an orderly and fair gambling offering, combatting of fraud and other gambling-related crimes as well as the protection of the integrity of sports are the declared goals of German gambling regulation. While Germany has been known to take a fairly restrictive position towards gambling, gambling – with the exception of online casino gambling – is neither generally prohibited nor particularly encouraged through licensing in German gambling laws. The protectionist approach of the German states over their lottery (and sports betting3) monopoly and years of continued criticism under EU law (which go hand in hand), however, must be seen to be characteristics of German gambling regulation. As a result, gambling regulation in Germany is constantly undergoing some kind of reform usually triggered by a decision from the Court of Justice of the European Union (CJEU) or national courts or intervention on the part of the European Commission confirming that the European fundamental freedoms are not sufficiently ensured, and the regulatory goals cannot be achieved by means of the current regulation and licensing opportunities. However, the European Commission announced in December 2017 that, as a general policy regarding the gambling sector, it would close all pending infringement procedures and complaints. Still, German policymakers are called to act since the problems identified in relation to the current Interstate Treaty regarding compliance with EU law have not yet been resolved.
iii State control and private enterprise
The principal German legal framework on gambling allows, only to a limited extent, for gambling to be operated by private enterprises rather than the state. For example, in most German states land-based casinos are owned by the state and the operation of lotteries is exclusively reserved for the state-owned lottery companies, which the German states are very protective of. With regard to lotteries, private operators may only apply for brokering licences, which allow them to sell lottery tickets on behalf of the state lottery companies to promote their products, (i.e., the traditional lotteries). In the sports betting sector, as prominently confirmed by the CJEU in the Ince case (336/14), an unlawful de facto state monopoly persists despite the state monopoly having already been held to contravene EU law in 2010.4 The sports betting licensing process that was introduced by and initiated under the current Interstate Treaty, and was supposed to allow for the issuance of 20 licences, was confirmed to have been unlawfully designed and conducted, and could never be completed because of multiple legal flaws.
iv Territorial issues
Within the German federal system, gambling law is traditionally regulated at state level. This means that, in principle, gaming is regulated by the respective state law of each of the 16 states. In order to achieve some uniformity, the states agreed on common principles and regulations for certain fields of gambling law in terms of the Interstate Treaty. This includes the sports betting sector, for example, where the state of Hesse was empowered to act on behalf of all 16 German states. Under the Second Treaty Amending the Interstate Treaty on Gambling (the Amendment Treaty), which did not enter into force on 1 January 2018, this responsibility was to be assumed by the state of North Rhine-Westphalia.
In Germany, there are no particular localities that have a favoured status for gambling in terms of, for example, tourist islands or reservations where particular groups have autonomy. From January 2012 until February 2013, the state of Schleswig-Holstein pursued its own gambling policy, which allowed for online casino and sports betting licences to be issued, instead of joining the other 15 states in the Interstate Treaty. However, after a change in government, Schleswig-Holstein ultimately joined the Interstate Treaty. Consequently, with the exception of Schleswig-Holstein licensees (i.e., operators who obtained a licence under the Schleswig-Holstein gaming regime),5 in relation to whom the former Schleswig-Holstein regulation continues to apply, the Interstate Treaty restrictions also apply in Schleswig-Holstein.
v Offshore gambling
The attitude of German gambling supervisory authorities to offshore gambling operators (i.e., those who offer gambling products to German citizens but are based outside of Germany) can be considered to be problematic as the German states continually fail to strike a lawful balance when selecting the operators that they intend to enforce against. Ignoring the main goal of German gambling regulation (i.e., to ensure consumer protection), the enforcement activity of German states with regard to offshore operators tends to be targeted at EU-licensed operators for reasons of practicality rather than at operators that do not have adequate licensing or sufficient consumer protection measures in place. Irrespective of the question of how, in light of the fundamental European freedoms, enforcement taken against EU-based and licensed gambling operators can be legally justified in the current situation, the proportionality and consistency of such an enforcement practice can be questioned – an aspect that certain German administrative courts have also identified as a problem, and which may become more difficult as a result of a judgment handed down by the Federal Administrative Court in October 2017, where the legal grounds were published on 13 March 2018 and the court considerably loosened the requirements enforcement authorities have to adhere to.
German authorities would derive the legal basis for acting against foreign operators from the Interstate Treaty, which, as per Section 9, allows them to make investigations into alleged violations of the Interstate Treaty and to interdict the respective offering or advertising therefor. They may also resort to payment blocking measures under this provision. However, payment blocking raises a number of legal questions, namely connected to data protection laws that still have to be resolved, which is why German authorities tend to act behind the scenes speaking to payment service providers rather than strictly imposing payment blocking measures.
II LEGAL AND REGULATORY FRAMEWORK
i Legislation and jurisprudence
As mentioned in Section I.i, above, the basic legal framework for gambling in Germany is the Interstate Treaty of 2012 – the third attempt of the German states in recent years to create a uniform and EU-law-compliant gambling regulation.
The current Interstate Treaty entered into force on 1 July 2012 following a legislative process that had to be initiated as a result of the CJEU finding that the state monopoly on sports betting that was provided for in the Interstate Treaty of 2008 (which was itself introduced because the former state monopoly stipulated in the then applicable Interstate Treaty6 was held to be unlawful for lacking justification by the Federal Constitutional Court)7 contravened EU law.
The current Interstate Treaty has been subject to criticism from the time it entered into force and the failure of the sports betting licensing process, which was introduced by the current Interstate Treaty and confirmed by national courts and most prominently by the CJEU in the Ince case to be unlawful, finally triggered the reforms that are currently still being dicussed (see Sections VII and VIII, below).
Alongside the Interstate Treaty, gambling law is regulated by other state legislation, for example the Gambling Acts implementing the Interstate Treaty, Casino Acts and ordinances. For historic or general reasons, some federal laws also influence gambling, such as the Race Betting and Lottery Act, the Trade Regulation Act, the Criminal Code and the Fiscal Code.
ii The regulator
In a gambling regulation context, Germany has more than one regulator, which makes the question of which authority will be responsible very complex. As a general rule, the type of gambling offered and where it is offered will be influential factors for which regulator will be responsible. The responsibilities range from individual municipalities acting as regulators (e.g., in the land-based gaming hall sector) to the respective ministries (or subordinate authorities) of the German states (e.g., in relation to brick-and-mortar casinos or in relation to coordinating enforcement actions against suspected unlawful gambling operators or violations of the Interstate Treaty and the applicable state Gambling Act) to authorities that have assumed a central responsibility for a certain sector and, as such, act on behalf of all German states in relation to this sector.
Again depending on the product, and specifically the relevance of products that do not qualify as ‘games of chance’ (see Section I.i, above), other authorities, such as the Federal Financial Supervisory Authority, may occasionally be considered the responsible regulator.
iii Remote and land-based gambling
The Interstate Treaty generally prohibits the operation and brokerage of online games of chance. The only exceptions made by the Interstate Treaty in this context concern sports betting, horse race betting and lotteries. Online casinos therefore are not currently licensable, yet some German state are currently pushing for licensing opportunities to be included as part of ongoing reform discussions. In contrast to online gambling, land-based gambling is widely permissible. While the operation of traditional lotteries is covered by the state monopoly, the operation of other types of gambling can generally be licensed.
iv Land-based gambling
Land-based gambling is only permissible in certain venues. Such venues have to fulfil certain requirements. Details will either be stipulated in the law, detailed in the application requirements or form part of the licence.
Casino games can only be operated in casinos. The operation of casinos in some states is reserved for the public authorities, other states provide a limited number of licences for private operators. The number of casinos allowed per state will, however, always be limited and will vary between the states. In Baden-Württemberg, for example, three land-based casinos are allowed whereas in Mecklenburg-Western Pomerania six casino locations are provided for in the respective Casino Act.
The current Interstate Treaty provides for a maximum number of 20 sports betting licences to be issued – a restriction that supposedly will be lifted at least to some extent under future legislation. It also has to be determined how this change will impact the limitations on the number of permissible betting shops per operator that are set out in the current state Gambling Acts or other acts transposing the Interstate Treaty, and vary considerably depending on the state in question. Like the limitations on licences, the limitations on the number of permissible betting shops have been criticised for having been arbitrarily determined. For example, Brandenburg allows for 18 betting shops per licensee, Lower Saxony provides for 2,400 shops with a maximum of 500 per licensee and Baden-Württemberg provides for a maximum of 600 shops. The limitations raise further questions when compared with the number of existing lottery ticket sale venues (e.g., about 3,250 in the state of Baden-Württemberg), which the states may be expected to want to protect.
Concerning gaming halls, there is no statutory limit on the number of available licences, but this sector is undergoing some major changes. The strict minimum distance requirements that gaming halls must adhere to (i.e., between other gaming halls, and between gaming halls and institutions such as schools or addiction centres) and the requirement that gaming halls may not be operated in the same building as land-based casinos or betting shops, effectively limits the number of permissible gaming halls in practice.
v Remote gambling
The Interstate Treaty imposes a general ban on online gambling. As per the law, exceptions only apply for licensed traditional lotteries, horse racing and sports betting. The Interstate Treaty does not provide for a licensing system for online casino offerings. This situation is criticised by experts of the industry as well as the European Commission. In a pilot process initiated in 2015, the European Commission made clear that it considers the ban ineffective in achieving the goals set out by the Interstate Treaty. However, in December 2017, the European Commission announced that, as a general policy regarding the gambling sector, it would close all pending infringement procedures and complaints.
Interestingly, at least one German state, Schleswig-Holstein, has in the past allowed for online casino licences to be issued. These licenses are still valid but they are limited in scope to the territory of Schleswig Holstein and are supposed to expire in 2018.
vi Ancillary matters
Operators applying for a licence will, as part of the licensing process, have to prove that any equipment used has been approved as per the requirements that will be set out in the respective licensing process, including that operators must provide certificates or other documents on their business-to-business (B2B) partners. There is no specific licensing process for gambling-related B2B services.
In relation to persons acting in key positions, it will again have to demonstrated in the licensing process that these persons are sufficiently qualified and have the necessary expertise to conduct the business reliably and responsibly. There is no specific licensing process (e.g., for personal licences) that employees of gambling operators would have to undergo.
III THE LICENSING PROCESS
i Application and renewal
In terms of general requirements that apply throughout all gambling sectors, gambling operators are usually required to demonstrate individual reliability and capability, as well as the transparency and security of their business. A peculiarity of licensing procedures in Germany is the requirement to submit ‘concepts’ (i.e., comprehensive descriptions of the gambling operation to be licensing that cover these aspects), such as a security concept (covering IT security and data protection), social concept (describing protection of minors and responsible gaming measures), business concept (detailing the viability of the operation and projected development over the licence term), sales or marketing concept (of particular relevance for franchising in land-based gambling operations) as well as a payment processing and AML concept (which overlaps with the requirement for internal AML policies under the federal AML Act).
With regard to the individual reliability of managerial staff, German gambling law neither prescribes nor provides for obtaining personal licences, such as in the UK. Hence, the operator applying for a licence will have to provide evidence in the form of, for example, criminal records, CVs and qualifications of the relevant individual. The reliability of the applicant has to be proven by disclosing details on shareholders and, if applicable, on trustees. Capability involves being able to properly conduct gambling both from a financial and an operational perspective.
Although the Interstate Treaty provides an overarching framework for the regulation of gambling in Germany, additional laws may apply to the licensing process dependent on the gambling product:
- a Operating licences are reserved for the state lottery companies but privately owned lottery brokers may apply for a licence to distribute the state lottery products online and offline. Licensing requirements to retail outlets are included in the local Gambling Acts.
- b Casino gaming, including slots and table games such as poker, baccarat and blackjack, is licensed under the Casino Acts of the 16 states. Licences may either be issued by the respective state government or a city, but the number of available licences is usually limited by the law.
- c Slot machine gaming in gaming halls, bars and restaurants is subject to a plethora of licensing conditions and product restrictions under the Interstate Treaty and the federal Trade Regulation Act, specifically minimum distance requirements between gaming hall premises, limits to stakes, payouts and winnings.
- d Horse race betting may be licensed online and offline by the gambling regulators of the states to bookmakers and the horse racing associations (totalisers), which may exclusively offer race track betting. The number of licences for bookmakers is not limited under the federal Horse Race Betting and Lottery Act, although stringent licensing conditions have in fact reduced the interest of bookmakers in such licences.
The licensing of sports betting under the Interstate Treaty is subject to a complex licensing regime that the German states have so far failed to implement because of a lack of transparency in the process.8
ii Sanctions for non-compliance
Since regulators are subject to the principle of proportionality, breaching licence conditions in the first instance is unlikely to immediately trigger fines or revocation but an order will be given demanding the licensee to explain the breach and remedy it within a deadline of a few weeks. If the order is not adhered to it will usually be followed by a fine, which may range from a few thousand euros to tens of thousands of euros depending on the size of the gambling operation and the severity of the breach, and may be imposed in case of non-compliance within the given deadline. The regulator may also attempt to enforce compliance by suspending the licence, reducing its term or revoking it (Section 4e(4) of the Interstate Treaty).
Unlicensed gambling operations are subject to the general means of enforcement outlined under Section 9 of the Interstate Treaty, where the administrative enforcement cycle usually consists of (1) a hearing letter, (2) delivery of an interdiction letter, failure of which would result in a fine, and (3) subsequent court proceedings involving a principal lawsuit on the lawfulness of the interdiction and its legal basis (the Interstate Treaty) as well as a claim for interim legal protection to suspend the interdiction. As a consequence, it may take years for interdiction letters to become legally executable.
Although the Interstate Treaty provides a legal basis for payment blocking, no such blocking order has officially been issued to banks or payment processors by the responsible regulator at the Lower Saxony Ministry of the Interior. Instead, over the past years, this regulator has resorted to a ‘harassment strategy’, which means contacting banks or payment processors with unsolicited information of alleged non-compliance of gambling operations with German regulations.
Internet service provider blocking was removed from the German gambling regulations in 2012 and is highly unlikely to be included in the regulations in any future reform as it failed to satisfy expectations in the area of enforcement of media regulators against illegal pornography on the internet.
Participating in money laundering is a crime for any individual in Germany and land-based casinos as well as operators of online gambling under the current AML Act are required to take risk-adequate measures to prevent money laundering in their respective operations. Failure to do so may amount to liability for an administrative offence, which may be sanctioned by a fine of up to €100,000 or skimming of gross profits. In case of gross negligence, it may even incur criminal liability resulting in punishment by a fine or imprisonment.
In April 2017, the criminal offence of ‘sports betting fraud’ (i.e., match-fixing) was incorporated into the Criminal Code. Manipulating sports competitions as an athlete or coach – whether related to sports betting or not – may incur criminal liability for a fine or imprisonment up to three years (Section 265c and 265d of the Criminal Code).
The type of taxes imposed on gambling operators heavily depends on the gambling product in question and to what extent state legislation will be of relevance. The land-based casino sector acts as a good example in this context. While online casino offerings in some states will be subject to a combination of gross gaming revenue and profit taxation, operators in other German states will have to pay taxes on gross gaming revenue (i.e., the amount by which the total of all stakes exceeds the total of all winnings paid out) while being exempted from corporate taxation. Tax rates range between 20 per cent and 80 per cent depending on the respective state. Additional levies may be imposed or progressive tax rates that depend on the economic capability of the casino operator will be applied. Similarly affected by state legislation, slot machine operators are subject to municipal amusement taxes (tax rates vary from 12–20 per cent and the tax will be based on the gross income generated from the slot machines) that they have to pay in addition to regular corporate tax.
Other gambling offerings are subject to federal taxes. Any operator offering licensed or unlicensed sports or horse race betting to German customers, for example, is subject to a 5 per cent federal sports betting tax on stakes. Online casino operators targeting German customers are subject to 19 per cent VAT. There had been some debate regarding the applicable tax base. The Federal Ministry of Finance, however, finally confirmed gross gaming revenue as the tax base in Autumn 2017.
VI ADVERTISING AND MARKETING
Advertising and marketing of gambling overall must be considered to be subject to a very restrictive regime and influenced by a number of laws and regulations including, for example, the Interstate Treaty, the Gambling Acts of the individual states, the Advertising Guidelines, the Act Against Unfair Competition and specific laws for the protection of children and minors.
In general, advertising of gambling offerings – irrespective of where the operator is based – is only allowed for games of chance that can be legally offered in Germany. German authorities interpret this to mean that only German-licensed operators may legally advertise the licensed products. Arguably, in the current situation and on the basis of the Ince case, exceptions apply in relation to EU-licensed sports betting operators. Online casino operators, with the exception of Schleswig-Holstein licensees, will have more difficulties in arguing that their advertising activities are legal given the total ban on online games of chance that is stipulated in the Interstate Treaty.
Any advertising of unauthorised games of chance, misleading advertising or advertising that is directed at minors or other risk groups, or does not comply with basic advertising standards,9 is regarded as being unlawful advertising and as such is prohibited, as is most online and TV advertising. Online and TV advertising, in principle, is prohibited, but may be allowed for licensed sports betting, horse race betting and lottery operators subject to these operators obtaining a permit from the responsible authority.
In terms of possible penalties for unlawful advertising, Section 284(4) of the Criminal Code provides for a fine or imprisonment for up to one year to be imposed. However, state prosecutors have been very reluctant to prosecute gambling operators for advertising, most likely because of the legal uncertainty and criticism under EU law, and the constitutional requirement to ensure consistency of criminal statutes.
VII THE YEAR IN REVIEW
In 2017, the legal landscape for gambling regulation in Germany was primarily characterised by a struggle between the German states to find common ground in relation to changing the current Interstate Treaty, which is ongoing, and an important court decision that could have a significant impact on the risk assessment gambling operators have to undertake when targeting the German market.
While the prime ministers of the German federal states had originally agreed on a so-called ‘Second Treaty Amending the Interstate Treaty on Gambling’ (the Amendment Treaty) earlier in the year, several state governments over time, as result of changes in their governments following state elections, were no longer convinced that they should ratify the Amendment Treaty in its minimalist (i.e., sports betting-focused) form. The Schleswig Holstein government had already advocated against ratification in June 2017, arguing that the reforms were insufficient and online casinos needed to be regulated as well. It was later joined by the states of North Rhine Westphalia and Hesse, and the Amendment Treaty was ultimately not ratified by these three states. In order to take effect, the Amendment Treaty would have had to have been signed by all 16 federal states. Reform discussions, therefore, continue.
In October 2017, the Federal Administrative Court handed down a judgment that was fully published on 13 March 2018, in which it confirmed the legality of the total ban in light of national and EU law.10 It was already feared that based on a press release issued on 27 October 2017 the judgment could considerably impact on the line of argument relied upon by operators with regard to the European fundamental freedoms to justify their offerings in Germany. In practice, the judgment can also be expected to increase the risk of enforcement action being taken. The judgment, however, turned out to be rather weakly drafted, and is heavily criticised among legal experts for its many flaws and questionable application of CJEU case law.
Since the ratification of the Amendment Treaty failed in 2017 and reform discussions regarding a broad reform of German gambling regulation can continue, there is reason to hope that German gambling regulation may actually undergo some positive changes in the foreseeable future. The German states in favour of opening the market and looking at gambling regulation properly will, however, have some considerable work ahead of them to convince the other German states, especially states that traditionally have been anti-online gambling. If no consensus for a broad reform can be found, they may even want to consider pursuing their own gambling regulations as Schleswig-Holstein did in 2012. Yet, discussions are still at a very early stage, and reform discussions could go various ways. A disappointing scenario could result in back-pedalling to only minimalist reforms, yet there are no indicators of this being discussed at the time of writing, notwithstanding the legal arguments that speak against only minimalist reforms as proposed in the Amendment Treaty, which was not ratified in the end.
An aspect that could impact on the reform discussions as well as the overall legal environment affecting online gambling operators on the German market, are the legal grounds of the above-mentioned judgment of the Federal Administrative Court, which were published on 13 March 2018. Immediate reactions have so far primarily been limited to criticism, yet we can also expect increased enforcement activity. To what extent the judgment will actually impact on the reform discussion will have to be monitored. Operators and other stakeholders in the industry will, however, be well advised to up their game in terms of lobbying.
1 Joerg Hofmann and Matthias Spitz are senior partners, and Jessica Maier is a senior associate, at Melchers Rechtsanwälte Partnerschaftsgesellschaft mbB.
2 For example, the Act Against Unfair Competition; Act for the Protection of Minors; Interstate Treaty on Broadcasting; Interstate Treaty on the Protection of Minors in the Media; and Sweepstakes Ordinance.
3 The sports betting monopoly was held to contravene the EU in the CJEU’s Carmen Media decision of 10 September 2010 (C-46/08). On 4 February 2016, the CJEU confirmed that, contrary to EU law, a de facto monopoly still persists to date in the Ince case (C-336/14).
4 CJEU, judgment of 10 September 2010, C-46/08, Carmen Media.
5 A list of all Schleswig-Holstein licensed online casino and sports betting operators may be found at:
6 Interstate Treaty on Lotteries (2005).
7 Federal Constitutional Court, judgment of 28 March 2006, File No.: 1 BvR 1054/01.
8 CJEU, judgment of 4 February 2016, C-336/14 (Ince).
9 For more details on the basic advertising standards, see the Advertising Guidelines that were issued by the Gambling Committee, a body consisting of representatives of the highest gambling supervisory authorities in the 16 states. Although the Bavarian Constitutional Court held the Advertising Guidelines to be incompatible with the Bavarian Constitution in a decision of 25 September 2015 (File Nos.: Vf. 9-VII-13; Vf. 4-VII-14; Vf. 10-VII-14), these standards must still be considered relevant for advertising content. In relation to the Advertising Guidelines, the Bavarian Constitutional Court had mainly criticised that these were issued by the Gambling Committee, which arguably is an unconstitutional body.
10 Federal Administrative Court of 26 October 2017, File No: 8 C 14.16/ 18.16.