The Gambling Law Review: Germany

Overview

i Definitions

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' or 'novelty bets' – 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.

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 statutory objectives of German gambling regulation. While Germany has long been known to take a fairly restrictive position towards gambling, the entering into force of the new Interstate Treaty 2021 finally led to the introduction of licensing regimes for virtual slot games, online poker and even 'online casino' games (meaning in particular bank–holder games such as roulette, blackjack and baccarat). The protectionist approach of the German states over their lottery (and, with respect to one of the previous Interstate Treaties, 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 entered 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 will be opened to private operators or more likely run on a federal state-based monopoly. The new law also clarifies that in-play betting per se is permissible, but the regulatory discussion on the scope of permissible sports events to bet on has not been concluded yet. In anticipation of the Interstate Treaty 2021 a transitional regime was introduced, tolerating the virtual slot and online poker offerings of operators who were already active in Germany prior to the entering into force of the Interstate Treaty 2021 and have submitted a licence application to the responsible regulator in Saxony-Anhalt. While no virtual slot and online poker licences have been granted yet, 33 licensed sports betting operators are already active on the German market at the time of writing.

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 (C-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. Subsequently, Interstate Treaty 2021 also introduced a licensing regime for virtual slot machine games and online poker. Licences for online casino games (i.e., virtual versions of bank–holder games such as roulette or baccarat and live broadcasts of these games) will not be granted on a national level but on a federal state level. Each German federal state can decide whether it wants to grant these licences to private operators or not. Apart from that, only a very limited number of operators will receive an online casino licence in federal states, since they can only grant as many online casino licences as they have issued local (bricks and mortar) casino licences in their territory.

iv Territorial issues

Within the German federal system, gambling law is traditionally regulated at state level. Accordingly, gambling regulation is predominantly 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 and the virtual slot and online poker sector, where the State Administration Office of Saxony-Anhalt is acting as the responsible licensing authority.

In Germany, no localities have been given favoured status for gambling such as in other countries, tourist islands, reservations and integrated resorts. Only Germany's northernmost state, Schleswig-Holstein, granted online casino licences in the past and allowed its residents to participate in the respective gambling offerings that were licensed solely on a federal state level. 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 continue to be valid for a transitional period until a licence is granted under the Interstate Treaty 2021, but not beyond 31 December 2024.

v Offshore gambling

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 the past. In a judgment handed down by the Federal Administrative Court in October 2017,4 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 since 2018 it has been 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 issued multiple payment-blocking orders against major payment service providers (PSPs) in the past.5 The Interstate Treaty 2021 also introduced the option to issue IP blocking orders against internet service providers (ISPs). It remains to be seen to what extent this measure will be used for the protection of the regulated market against illegal gambling.

Legal and regulatory framework

i Legislation and jurisprudence

As explained in Section I.i, the basic legal framework for gambling in Germany is the Interstate Treaty 2021, which was introduced on 1 July 2021 and marks the fourth attempt of the German states to create uniform and EU-law-compliant gambling regulation.

The first amendment of the Interstate Treaty took place in 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.

In spring 2020, the German federal states agreed on the Fourth Amendment of the Interstate Treaty on Gambling, which entered into force on 1 July 2021. Since 15 October 2020, a transitional regime has also been in place for already active virtual slot and online poker operators. The new legislation broadened the extent of permissible sports betting and introduced licensing of virtual slot games, online poker and online casino games, although the latter is expected to remain predominantly 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.

ii The regulator

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. While the Regional Council of Darmstadt in the state of Hesse is responsible for conducting the sports betting licensing process in Germany, the State Administration Office of Saxony-Anhalt is in charge of the virtual slot machine and online poker licensing process. Both authorities will lose their competency on 31 December 2022. After this date, the competency will switch to the Joint Gambling Supervisory Authority in Halle.

iii Remote and land-based gambling

The Interstate Treaty allows the licensed operation and brokering of online gambling. As outlined above, only online casino games (i.e., online versions and live broadcasts of bank–holder games) are still subject to a state monopoly, whereas virtual slot machine games and online poker are licensable on a national level but subject to substantial product restrictions, such as limits on stakes per spin, minimum duration of each spin and the number of poker tables allowed for simultaneous play. In contrast to online gambling, land-based gambling is subject to a variety of licensing systems on state and municipal level, including bricks-and-mortar casinos, gaming halls, betting shops and lottery agents.

iv Land-based gambling

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.

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. This also affects the number of online casino licences available in the respective state, provided that the state wants to grant these licences to private operators at all.

The Interstate Treaty does not provide a maximum number of sports betting, virtual slot machine or online poker licences. It has yet to be determined how this 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.

v Remote gambling

In principle, the Interstate Treaty imposes a general ban on online gambling. Exceptions only apply for licensed traditional lotteries, horse racing, sports betting, virtual slot machine games, online poker and to a limited extent online casino games.

Former iterations of the Interstate Treaty did not provide a licensing system for online gaming (with the exception of sports betting). This situation had 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 considered 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 considered the restrictions to online gambling under the former Interstate Treaty to comply with EU and constitutional law.6 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 changed this fundamentally and finally introduced 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 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 versions 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. However, the first states to regulate have already passed bills that include licensing regimes for these games.

vi Ancillary matters

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. While the provisions on the licensing proceedings under the Interstate Treaty 2021 do not stipulate a specific licensing process for gambling-related B2B services, it is required by law that each virtual slot machine game and online poker game must be approved by the regulator in Saxony-Anhalt. Due to the large number of games, the authority will only review the essential characteristics and compliance with the crucial restrictions.

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 record checks, 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.

vii Financial 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

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 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:

  1. 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.
  2. Land-based 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. As outlined above, some states will also grant licences for online casino games (i.e., virtual versions and live broadcasts of bank-holder games such as roulette or baccarat) to private operators.
  3. 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.
  4. 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.

Since the beginning of the licensing process for sports betting under the Third Amendment of the Interstate Treaty on 1 January 2020, a large number of operators submitted applications to the Regional Council of Darmstadt, and over 30 licences have been granted so far. All sports betting licences issued under the former regime (i.e., prior to 1 July 2021) will be valid until 31 December 2022. The application process for the new licences, which will then be valid for a period of five years, started in the first quarter of 2022. Already licensed operators benefit from a significantly reduced procedure.

The minimum application requirements for sports betting licences were published by the Regional Council of Darmstadt on its website. The requirements for virtual slot and online poker licences can be found on the website of the State Administration Office of Saxony-Anhalt. In the respective licensing proceedings, 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.

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. A judgment of the Higher Administrative Court of Hesse that could influence the administrative practice and thus lead to a significantly reduced security deposit is still pending.

The former stake limit of €1,000 per month stipulated by the former Interstate Treaty has been replaced by the deposit limit, which is one of the essential changes that comes along with Interstate Treaty 2021. Hence, the monthly deposit limit of €1,000 that was first introduced by the transitional regime of 15 October 2020 for tolerated virtual slot games and online poker now also applies to sports betting if no deviation from the limit (i.e., up to €30,000) is granted in the respective sports betting licences. While exemptions from the €1,000 deposit limit can already be applied for within the framework of sports betting licensing procedures, such exemption requests will not be possible for virtual slot machine games and online poker until 1 January 2023. This also applies to exemptions from the €1 stake limit per spin for virtual slot games. Operators who offered virtual slot games and online poker in Germany prior to 1 July 2021 are still tolerated without being licensed, if they have applied for the respective licences and comply with the provisions of the transitional regime.

ii Sanctions for non-compliance

Since regulators are subject to the principle of proportionality, breaching licence conditions in the first instance is unlikely to trigger penalty payments 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 penalty payment, 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.7

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 the respective licencing processes, effectively excluding them from obtaining licences. While the legal basis and the severity of this sanction are questionable, operators are strongly advised 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.

The Interstate Treaty 2021 reintroduced 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 penalty payment, 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 penalty payment 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 it8 or, ultimately, by revoking the licence.

Finally, the Interstate Treaty 2021 also introduced a catalogue of administrative offences. Violations against certain provisions of the Interstate Treaty can, therefore, be sanctioned by the regulator with fines up to €500,000, or, alternatively, regulators can utilise the instrument of 'skimming of profits' obtained in response to the violation. However, this range is unlikely to be exploited fully. The actual fine always depends on the severity of the violation and the specifics of the individual case. So far, the authorities do not seem to make use of this possibility.

Wrongdoing

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 the event 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.9

Taxation

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. On 1 July 2021, an amendment of the Race Betting and Lottery Act entered into force. Uniform taxes must be paid for virtual slot games, online poker and sports betting. A tax of 5.3 per cent is levied on player stakes. As the included tax is factored out of the tax base, the effective tax rate on the whole payment of the player is 5.03 per cent. The new tax rate is 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. While sports betting, virtual slot games, online poker and lotteries are exempt from VAT so that a one-off taxation in Germany is ensured, online casino games will remain subject to VAT. In summary, any operator offering licensed or unlicensed online gambling products is subject to taxation.

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.10 German authorities interpret this to mean that only German-licensed operators may legally advertise the licensed products. Hence, sports betting operators who have obtained a sports betting licence are allowed to advertise if compliance with the marketing restrictions of the Interstate Treaty is ensured. Advertising for virtual slot games or online poker is not permitted according to the regulations of the transitional regime. Therefore, advertising virtual slots and online poker is not allowed, even though offering these products is being tolerated by gambling regulators. Pursuant to the provisions of the Interstate Treaty, these games may only be advertised after the respective licences have been issued. The same applies to advertising online casino games. 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, is regarded as being unlawful advertising and as such is prohibited. If marketing or social media channels offer the option to exclude minors in total, then this option must be used by operators.

With respect to sports betting advertising, immediately before or during the live broadcast of sports events, advertising for sports betting on that specific sports event is not permitted on the broadcasting channel.11

Licensed online casino, online poker or virtual slot operators are allowed to advertise their products but only to a limited extent. In particular, no advertising for these games of chance may be broadcast on TV, radio or the internet between 6am and 9pm. The exact scope and range of multiple advertising restrictions of the Interstate Treaty is still unclear. Upcoming advertising guidelines and the future licences will provide further details.

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. In addition to criminal prosecution, violations of the advertising provisions of the Interstate Treaty may also constitute an administrative offence and ultimately result in substantial fines.

The year in review

The entry into force of the Interstate Treaty 2021 on 1 July 2021 marked a fundamental change in German gambling regulation. Formerly prohibited or only tolerated games of chance now received their own licensing regime. In addition to sports betting, virtual slot games, online poker and – albeit limited – online casino games are thus now licensable in Germany. Currently, 33 licensed sports betting operators are active on the German market, and further licensing procedures are pending. As of 1 February 2022, 58 operators applied for a virtual slot licence and seven operators applied for an online poker licence.12 It remains to be seen to what extent the German federal states make use of the option to issue online casino licences. However, the first states to legislate have already published draft bills or even passed bills to introduce licensing regimes for these games on their territory.

Outlook

For the sports betting sector, the focus of 2022 will be on developing and establishing an attractive catalogue of permitted bet types, also referred to as the 'betting programme' in the regulations. In February 2022, a list of permitted bet types and markets was published by the Regional Council of Darmstadt. However, the current scope of the catalogue restricts the permissible bet types on the regulated market to such an extent that only legal action against its implementation can be considered if the list is not extended at short notice.

Another challenge related to the betting programme and already lasting for several years is to improve acceptance for betting on e-sports on the regulators' side and ultimately achieve the introduction of betting on e-sports. At present, though, little seems to be happening on this issue at the regulatory level. It remains to be seen whether the change of responsibilities on 1 January 2023 and the non-involvement of the Gambling Committee from that date on result in a different approach. In any case, the new authorities must prove themselves to be capable regulators. In addition to ensuring competitiveness (e.g., by allowing extensive betting options), enforcement against the black market must be intensified or optimised in order to protect the newly regulated market accordingly. It remains to be seen whether the start of operations of the Joint Gambling Supervisory Authority in the state of Saxony-Anhalt, including a complicated technical supervision infrastructure, will be a success or failure.

With respect to slots gaming, the impact of new implementation laws on gaming halls at state level and the introduction of licensing regimes for online casino and virtual slots games will keep market participants on their toes. Several federal states have already released draft bills to grant online casino licences. For future virtual slot and online poker licensees, the implementing of the licence conditions and complying with numerous post licensing tasks will be one of the year's key challenges. In a similar way to the sports betting sector, licensed operators will be subject to numerous reporting obligations and other requirements that must be fulfilled within the framework and deadlines to be imposed by the licences. In summary, 2022, like the years before, will hold a number of challenges for the gambling industry in Germany.

Footnotes

1 Joerg Hofmann and Matthias Spitz are senior partners and Roman Herpich 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.

4 Federal Administrative Court, judgment of 26 October 2017, file No. 8 C 18.16.

6 Federal Administrative Court, judgment of 26 October 2017, file No. 8 C 18.16.

7 Section 4d(4) of the Interstate Treaty.

8 Section 4d(4) Interstate Treaty.

9 Sections 265c and 265d Criminal Code.

10 Section 5(7) Interstate Treaty.

11 Section 5(3)2 Interstate Treaty.

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