The Gambling Law Review: Germany
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 or other prizes of monetary value (the latter 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), 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, social games will mostly be classified 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 a 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.
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 statutory objectives of German gambling regulation. While Germany has been known to take a fairly restrictive position towards gambling, gambling – with the exception of parts 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, with respect to the previous Interstate Treaty, sports betting2) 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. After years of interstate negotiations, German policymakers in March 2020 agreed on a reform of the regulation, which again follows a more restrictive approach. While the fourth iteration of the Interstate Treaty, which is going to enter into force on 1 July 2021 (the Interstate Treaty 2021), provides for the licensing of 'virtual slot machines' and online poker with limited stakes and winnings, it remains to be seen whether or not 'online casino games' (meaning in particular bank–holder games such as roulette, blackjack and baccarat) will be opened to private operators or more likely run on a federal state-based monopoly. The new law will also clarify that in-play betting per se is permissible, but the scope of permissible sports events to bet on is yet to be determined. In anticipation of the forthcoming Interstate Treaty a transitional regime has been introduced, tolerating the soon-to-be legalised products under certain conditions. Also, at the end of 2020 the roughly two dozen sports betting licences have finally been issued.
iiiState 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), the persistence of an unlawful de facto state monopoly despite the state monopoly having already been held to contravene EU law in 2010,3 led to the introduction of a new licensing process for sports betting. The licensing process started on 1 January 2020 for retail and online sports betting. It was claimed by the government of the state of Hesse in January 2020 that the applications would cover 75 per cent of the market.4 The process was temporarily suspended by a local administrative court due to transparency concerns over the process, and then resumed in October 2020.
Within the German federal system, gambling law is traditionally regulated at state level. Accordingly, gambling regulation is subject to the state law of each of the 16 states. In order to achieve some uniformity, the states agreed on common principles and regulations for areas fields of gambling law in the Interstate Treaty. This includes the sports betting sector, where the state of Hesse is authorised to act on behalf of all 16 German states.
In Germany, no localities have been given favoured status for gambling such as in other countries, tourist islands, reservations and integrated resorts. However, in a Conference in March 2019, the German states decided to accept the special status of Germany's northernmost state, Schleswig-Holstein, in terms of deviating from the Interstate Treaty's internet ban and introduce a law that will reinstate Schleswig-Holstein online casino licences. These licences were issued between January 2012 and February 2013, when Schleswig-Holstein pursued its own gambling policy before joining the other 15 states in the Interstate Treaty, and were reinstated in May 2019 by local legislation. According to the transitional rules under the Interstate Treaty 2021, Schleswig-Holstein licences valid on 30 June 2021 shall continue to be valid for a transitional period until a licence is granted under the new Interstate Treaty, but not beyond 31 December 2024. Since advertising online casino is prohibited under the Interstate Treaty, the Schleswig-Holstein licence for online casino is seen by some operators in the market as a workaround regarding this advertising ban.
The attitude of German gambling regulators 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 prevent and combat gambling addiction and 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 EU market 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. In a judgment handed down by the Federal Administrative Court in October 2017,5 the requirements enforcement authorities have to adhere to were, however, considerably loosened, and the compliance of the restrictions under the Interstate Treaty to online gambling with EU law was essentially confirmed.
The German authorities would derive the legal basis for acting against foreign operators from the Interstate Treaty, which, as per Section 9, allows them to undertake 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, and over the course of 2018 it was noticeable that the responsible authority was changing its approach. Although payment blocking still raises a number of legal questions, mainly connected to data protection laws, the responsible regulator of the state of Lower Saxony has taken a rather rigid stance and, in a precedent case, even issued a payment-blocking order against a major payment service provider (PSP).6
Legal and regulatory framework
iLegislation and jurisprudence
As explained in Section I.i, the basic legal framework for gambling in Germany is the Interstate Treaty of 2012, which was amended as of 1 January 2020 in the third attempt of the German states to create a uniform and EU-law-compliant gambling regulation.
The Interstate Treaty originally 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 contravened EU law.
The 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 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 led to the Third Amendment of the Interstate Treaty. Since its entry into force on 1 January 2020, the regulator responsible for the licensing process for sports betting, the Regional Council of Darmstadt, has urged the industry to participate in the process notwithstanding a variety of open issues, including an open letter urging all operators to apply (see Section III).
In spring 2020, the German federal states agreed on the Fourth Amendment of the Interstate Treaty on Gambling, entering into force on 1 July 2021. Since 15 October 2020, a transitional regime has been implemented. The forthcoming legislation will broaden the extent of permissible sports betting and introduce licensing of 'virtual slot games', online poker and 'online casino games', although the latter is expected to remain subject to a state monopoly.
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.
The responsibility for regulating gambling is vested in regulators at state and municipal level. The responsibilities range from individual municipalities acting as regulators (e.g., in the land-based gaming hall sector) to the state ministries (or their subordinate authorities) that are responsible for bricks-and-mortar casinos, coordinating enforcement actions against suspected unlawful gambling operators or violations of the Interstate Treaty and the applicable state Gambling Acts. Further, some authorities have been appointed by all states to act with central responsibility for a certain sector. The Regional Council of Darmstadt in the state of Hesse is responsible for conducting the sports betting licensing process in Germany. The Interstate Treaty 2021 provides for a new joint authority to be established, which will be based in the state of Saxony-Anhalt. Once operational, the new supervisory authority will be responsible for the licensing virtual slot machine games and online poker. Until 31 December 2022, the responsibility for regulating sports betting licences remains with the gambling authority of Hesse, the Regional Council of Darmstadt.
iiiRemote and land-based gambling
The Interstate Treaty generally prohibits operating and brokering online gambling, with the exception of sports betting, horse-race betting and lotteries. Online casino games, virtual slot machine games and online poker are not licensable yet, but under the Interstate Treaty 2021 coming into force on 1 July 2021, a licensing process for 'virtual slot machines' and online poker is supposed to be introduced. Online casino will be subject to a state monopoly, whereas virtual slot machine gaming will be licensable but subject to substantial product restrictions, such as limits on stakes per spin and the minimum duration of each spin. In contrast to online gambling, land-based gambling is subject to a variety of licensing systems on state and municipal leval, including bricks-and-mortar casinos, gaming halls, betting shops and lottery agents.
Land-based gambling is only permissible in certain venues. 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, while other states provide a limited number of licences for private operators. The number of casinos allowed per state will, however, always be limited and varies 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 no longer provides a maximum number of sports betting licences. It has yet 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, which vary considerably depending on the state in question. The limitations on the number of permissible betting shops have been criticised for having been arbitrarily determined.
With regard to gaming halls, the regulations do not stipulate a 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 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 limit the number of available gaming hall venues in practice.
In principle, the Interstate Treaty imposes a general ban on online gambling. Exceptions only apply for licensed traditional lotteries, horse racing and sports betting. The Interstate Treaty does not provide for a licensing system for online gaming. This situation has been 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. In parallel, the Federal Administrative Court confirmed in a precedent judgment on 26 October 2017 that it considers the restrictions to online gambling under the Interstate Treaty to comply with EU and constitutional law.7 These developments weakened the legal position of operators of online gaming in Germany that used to rely on the freedom of services to justify operating in the unregulated market. Foreign licences are generally not recognised by German regulators and courts.
The Interstate Treaty 2021 is going to introduce licences for 'virtual slot machine games', online poker and 'online casino games'. 'Virtual slot machine games' are defined as replicas of terrestrial slot machine games. Limitations include the maximum €1 stake amount per spin and the five second minimum duration per spin. Among the restrictions specific to 'virtual slot machine games', the prohibition of jackpots (i.e., stakes or winnings may not be accumulated for the purpose of creating winnings for future games) and of autoplay functionality are to be mentioned. Online poker is also going to be restricted, including the prohibition of video poker, restrictions on the number of tables to be played at the same time (i.e., a maximum of four) and limitations on stakes and blinds. 'Online casino games' are defined as virtual replicas of bank–holder games and live broadcasts of a terrestrial banker game. These restrictions specifically address roulette, blackjack and baccarat and subject them to a state monopoly. Whether or not individual states will consider opting for issuing licences to private operators in this market remains to be seen.
As part of the licensing process, operators applying for a licence will have to prove that any equipment used has been approved in accordance with the applicable technical requirements and IT security standards. Certificates or other documents on their business-to-business (B2B) partners are usually expected by regulators. However, the provisions on the licensing proceedings under the Interstate Treaty 2021 do not stipulate a specific licensing process for gambling-related B2B services.
In relation to individuals acting in key positions, it has to be demonstrated in the licensing process that these persons are sufficiently qualified and have the necessary expertise to conduct the business reliably and responsibly. Typical requirements include criminal records, tax clearance certificates, CVs and evidence of professional expertise, including training certificates. Beyond those requirements, there is no specific licensing process (e.g., for personal licences) that employees of gambling operators would have to undergo.
viiFinancial payment mechanisms
According to the German Anti-Money-Laundering (AML) Act, before a transaction is carried out, it has to be verified that the payment account is set up in the name of the player and must be with a bank, payment institution or electronic money institution licensed in the EU. This was also reconfirmed in the Implementation Guidelines regarding the implementation of the German AML Act in the gambling sector (the Implementation Guidelines), which were published on 1 February 2019 and updated again in November 2020 by the highest gaming supervisory authorities of the German states. The use of anonymous payment methods is not permitted. The same requirements would apply for the use of cryptocurrencies, such as bitcoin; however, gambling regulators have not approved bitcoin as means of payment in a licensed environment yet. Considering that the Gambling Committee of German regulators (i.e., the regulatory body that makes key decisions on issuing licences and licence conditions) tends to take a more conservative approach and has not swiftly adapted to new trends in the online gambling sector as yet, it seems unlikely that this would be permitted in the near future.
The licensing process
iApplication 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 licensed 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:
- 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.
- 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.
- 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.
- 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. When applying for an online horse betting licence at the competent regulatory authority, the Regional Council of Darmstadt, a mandatory land-based licence according to the German Racing Lottery Act can be applied for as well.
On 1 January 2020, the licensing process for sports betting was initiated under the Third Amendment of the Interstate Treaty. The first licences were issued in October 2020, and a large number of operators have submitted applications to the Regional Council of Darmstadt. In terms of timing of the process, the regulator had suggested that a first batch of licences may be expected to be issued in the first quarter of 2020; however, the process was delayed when the Administrative Court of Darmstadt in Hesse considered the sport betting licensing procedure to be non-transparent and discriminatory. The court, therefore, stopped the issuance of licences for roughly six months.8
The minimum application requirements for sports betting licences were published by the Regional Council of Darmstadt on its website. Applicants are expected to demonstrate the capability to operate under a licence by submitting 'concept' documents (i.e., company policies and guidelines on a number of areas, including responsible gambling, know your customer, payments, IT security, marketing and sales, and the prevention of match fixing). Responsible gambling is the key area from the perspective of German regulators, and applicants are expected to demonstrate sophisticated player-protection and monitoring systems as well as transparent information of the player on all transactions. Exclusion of addicted players has to be ensured by interfacing with the public player-barring database called 'OASIS', which is operated by the state of Hesse.
Affordability checks are not considered a key requirement in Germany at this stage. In addition to the comprehensive concept documents, sufficient funds for the licensed operation are to be proven. Upon issuance of the licence, operators are expected to deposit a security in the form of a directly enforceable bank guarantee in the minimum amount of €5 million to secure payment obligations of players and of the state. However, the Administrative Court of Darmstadt in an injunction issued in March 2021 criticised the minimum €5 million bank guarantee as being 'likely unconstitutional and in violation of European law' as this minimum amount would exclude small operators without justification.
While the Interstate Treaty on Gambling still stipulates a stake limit of €1,000 for sports betting,9 the transitional regime of 15 October 2020 introduced deposit limits of €1,000 per month for tolerated 'virtual slot games' and online poker. The transitional regime essentially anticipated regulations of the Interstate Treaty 2021 which provides for a €1,000 deposit limit from 1 July 2021. Exemptions from the €1,000 stake limit can be applied for within the framework of sports betting licensing procedures. Under the Interstate Treaty 2021, operators are likely to be able to apply for exemptions from the deposit limit and the €1 stake limit per spin for virtual slot machine games. For the latter and online poker, however, this will only be possible from 1 January 2023. Offering 'virtual slot games' and online poker is tolerated during the transitional regime, yet not formally legalised. From 1 July 2021, operators can submit licence applications to the regulator of the state of Saxony-Anhalt, who will be responsible for conducting the process. Whether or not licences for 'online casino games' become available remains to be seen.
iiSanctions for non-compliance
Since regulators are subject to the principle of proportionality, breaching licence conditions in the first instance is unlikely to trigger fines or revocation immediately, 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.10
Unauthorised gambling operations are subject to the general means of enforcement outlined in Section 9 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.
Non-compliance with the transitional regime for virtual slots and online poker may result in operators being considered unreliable in future licencing processes, effectively excluding them from obtaining licences. While the legal basis and the severity of this sanction are questionable, operators are recommended to comply to the transitional regime.
The Interstate Treaty provides a legal basis for payment blocking. The competent regulator, the Lower Saxony Ministry of the Interior started discussions with banks and payment processors, as well as hearing proceedings and finally started to intervene in 2016. The responsible minister confirmed in a state parliament hearing that his authority will respect the transitional regime and not proceed against PSPs collaborating with operators compliant with the transitional regime.
While internet service provider (ISP) blocking was removed from the German gambling regulations in 2012, the Interstate Treaty 2021 will reintroduce IP blocking as a means of enforcement. Internet service providers can, therefore, be forced to implement IP blocking for websites that offer unauthorised gambling. Blocking orders will only be issued if measures against an operator prove to be impracticable or not promising. This may, for example, be assumed if supervisory measures against the operator were impracticable or unsuccessful in the past.
Non-compliance with licence conditions is likely to trigger a regulatory order demanding the licensee to explain the breach and remedy it within a deadline of a few days or 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. The fine may be imposed for non-compliance within the given deadline. The regulator may also attempt to enforce compliance by suspending the licence, reducing its term or revoking it11 or, ultimately, by revoking the licence.
Gambling operators and brokers are required to implement risk-adequate measures to prevent money laundering in their respective operations under the current AML Act. With a few exceptions, gambling operators and brokers are obliged entities under the AML Act. Failure to comply may incur liability for an administrative offence, which may be sanctioned by a fine of up to €1 million or the seizure of profits. In case of gross negligence, an operator 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.12
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. Land-based casino operations are subject to gross gaming revenue-based taxation, where tax rates range between 20 per cent and 80 per cent depending on the respective federal 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 to 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. Unregulated online gaming 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. In March 2013, a new bill amending federal tax laws to introduce taxation of stakes in 'virtual slot machine games' and online poker at a rate of 5.3 per cent has been published. Governments of the federal states intend to initiate the legislative procedure at federal level so as to enact the tax with effect from 1 July 2021. This approach has been harshly criticised by the industry bodies, as it renders operating these games commercially challenging and contravenes the objective of the Interstate Treaty 2021 to channel players from the unregulated online gaming market into the licensing regime under the Interstate Treaty 2021.
Advertising and marketing
Advertising and marketing of gambling overall must be considered to be subject to a 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 Interstate Treaty on Media, 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.13 German authorities interpret this to mean that only German-licensed operators may legally advertise the licensed products. Under the Interstate Treaty as amended on 1 January 2020, as far as enforcement risk is concerned, only advertising for sports betting can be considered low-risk. Sports betting operators who have obtained a sports betting licence must apply for an advertising permit from the competent authority, the district government in Dusseldorf. Advertising for virtual slot machine games or online poker is not permitted despite regulations of the transitional regime. Accordingly, advertising virtual slots and online poker is not allowed, even though offering these products is being tolerated by gambling regulators. Advertising online casino games is not permitted as well. Jurisprudence of the Federal Administrative Court suggests that restrictions on online gambling comply with EU law; accordingly, arguments of operators of unregulated online gambling invoking the freedom of services and the CJEU's Ince case to justify advertising in the German market may be expected to be rejected by German courts. Operators licensed by the state of Schleswig-Holstein between 2012 and 2013 (and whose licence had been renewed in 2020), may continue to advertise their licensed online casino operations with regard to the Schleswig-Holstein market.
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,14 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,15 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 of the states.
In respect of sports betting advertising on television immediately before and during the live broadcast of sporting events is not permitted according to the current Interstate Treaty.16
In the Fourth Amendment of the Interstate Treaty, which is expected to come into force on 1 July 2021 and permits online casino, online poker and virtual slot machine games to a restricted degree, no advertising for the forms just mentioned may be broadcast or broadcast on the internet between 6 am and 9 pm.
In terms of possible penalties for unlawful advertising, Section 284(4) Criminal Code provides for a fine or imprisonment for up to one year to be imposed. However, state prosecutors have been reluctant to prosecute gambling operators for advertising, most likely because of the legal uncertainty and criticism concerning the restrictive regulatory approach under EU law, and the constitutional requirement to ensure consistency of criminal statutes.
The year in review
2020 has been a momentous year for the regulation of gambling in Germany – starting with the new licensing process for sports betting. The process was temporarily halted for roughly six months by the Administrative Court of Darmstadt on 1 April 2020 due to legal concerns over the transparency of the process. The litigation ended because of an agreement between the involved parties, to the surprise of many observers, and the process continued in October 2020. At the time of writing in March 2021, almost 30 sports betting licences have been issued to sports betting operators.
In parallel, the Gambling Committee of German regulators published 'Joint Guidelines' for a transitional regime in the autumn of 2020. Under the framework of the transitional regime, operators have been forced to prematurely introduce restrictions to virtual slot machines and online poker under the Interstate Treaty 2021 by 15 October 2020. In return, operators complying with the restrictions have been tolerated by regulators, and industry sources suggest a drop in player activity among those compliant operators of more than 50 per cent.
In March 2020, the Prime Ministers of the German states also agreed on a Fourth Amendment to the Interstate Treaty, namely the Interstate Treaty 2021. This new Interstate Treaty will introduce licensing procedures for 'virtual slot machine games', online poker and 'online casino games'. It was notified to the European Commission and requires ratification by all 16 state parliaments, upon which it is set to enter into force on 1 July 2021.
For licensed sports betting operators, the focus of 2021 will be on the implementing the licence conditions and complying with the numerous post-licensing tasks. A key operational issue, the scope of permissible bet types, is yet to be decided by the Gambling Committee. With respect to slots gaming, the impact of new implementation laws on gaming halls at state level and the political decisions to partially open the markets for online casino and virtual slots games will keep market participants on their toes. Regulators have yet to provide details as to when and how the new licensing process for virtual slots and online poker will be implemented under the Interstate Treaty 2021. Also, it remains to be seen whether the start of operations of the joint gambling authority in the state of Saxony-Anhalt, including a complicated technical supervision infrastructure, will be a success or failure. A new stakes-based tax on virtual slots and online poker is expected to come into force in 2021 and is seen as a risk for the viability of online operations. In summary, the gambling industry may expect to be continued to be challenged by new regulations in the German market in 2021.
1 Joerg Hofmann and Matthias Spitz are senior partners and Nikolai Straimer is a senior associate at Melchers Rechtsanwälte Partnerschaftsgesellschaft mbB.
2 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).
3 CJEU, judgment of 10 September 2010, C-46/08, Carmen Media.
5 Federal Administrative Court, judgment of 26 October 2017, file No. 8 C 18.16.
7 Federal Administrative Court, judgment of 26 October 2017, file No. 8 C 18.16.
8 Administrative Court of Darmstadt, decision of 1 April 2020, file No. 3 L 446/20.DA.
9 Section 4(5) No. 2 Interstate Treaty.
10 Section 4e(4) of the Interstate Treaty.
11 Section 4e(4) Interstate Treaty.
12 Sections 265c and 265d Criminal Code.
13 Section 5(5) Interstate Treaty.
14 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.
15 Section 5(3) Interstate Treaty.
16 Section 5(3)3 Interstate Treaty.