German Gambling Law - Update 2016/2017

2016 was another eventful year with respect to German gambling law, and new major changes lie ahead.

1. A never-ending story – problems with the German sports betting licensing proceedings

The sports betting licensing procedure which started in 2012 and which should have provided up to 20 private providers with sports betting licenses was beset with problems from the start (see Gambling law in Germany – Update 2014). In 2016, things got even worse.

a) CJEU Decision Ince

In February 2016, in a ground-breaking decision (Ince – C-336/14), the Court of Justice of the European Union (CJEU) held that German criminal authorities must not prosecute European intermediaries of sports betting services, as the relevant stipulations penalising private operators in Germany do not comply with EU law (see TW Play – February 2016 for more details).

In a nutshell, the CJEU ruled that an unlawful state monopoly on sports betting has been upheld as – even though a sports betting licensing procedure theoretically existed – no sports betting licenses have been granted during the period in which the current gambling law has been in place, whereas the State sports betting providers were allowed to continue their offers. In consequence, German authorities experienced difficulties to issue prohibition orders against private sports betting providers which have licenses from other EU Member States merely because they do not hold the required German license for offering sports bets (as such license cannot be obtained in practice).

b) National decisions

However, the sports betting licensing proceedings have not only been attacked on a European level. Inter alia, various decisions in favour of private providers have been issued by the Wiesbaden Administrative Court (e.g. decisions of 15 April 2016 (5 K 1431/14) and 31 October 2016 (5 K 1388/14)). Being influenced by the CJEU, the court considered the sports betting licensing procedure as non-transparent and the limitation of licenses up to 20 as unlawful for lack of a plausible justification. According to the court, this resulted in the inapplicability of the respective provisions. Hence, the court obliged several authorities to grant a license (valid for 7 years) to private operators who had fulfilled the minimum prerequisites of the licensing procedure, even though the licensing proceedings had never been formally finalized.

Beginning of 2017, the Higher Administrative Court of North Rhine Westphalia also decided that despite the lack of a license, intermediaries of sports betting being located in North Rhine Westphalia were allowed to offer their services to operators who are authorised in another Member State of the EU, as long as private operators cannot obtain a license within Germany (decision of 23 January 2017 (4 A 3244/06)). This is, according to the court decision, currently the case in view of the non-transparent, discriminatory licensing procedure and the de facto state monopoly.

c) “Toleration” proceedings

In order to cope with the fact that the sports betting licensing requirements could not be legally enforced, some Federal States, above all the Federal State of Hesse, implemented so-called “toleration proceedings” in mid-2016. Holders of such “toleration” would not officially receive sports betting licenses, but their offerings were supposed to be “tolerated” in the respective Federal State that issued the toleration.

In the Federal State of Hesse, the toleration was supposed to cover the online sector as well. However, the Hesse procedure has been suspended due to a decision of the Wiesbaden Administration Court of 9 November 2016 (5 L 1609/16), ruling that private operators are not obliged to take part in the toleration proceedings if they already fulfilled the requirements for a license. With final and binding decision of 29 May 2017 (8 B 2744/16), the Higher Regional Administrative Court of Hesse confirmed this view and added that the Federal State of Hesse must not request the participation in toleration proceedings from sports betting providers licensed in other EU Member States even if they had not participated in the German sports betting licensing proceedings, as both the initial sports betting licensing proceedings as well as the toleration proceedings contradict EU law. In consequence, the toleration proceedings are not likely to be pursued in the future.

2. Strict requirements for gambling prohibition orders

In mid-2016, with decision of 27 May 2016 (6 S 1406/14), the Higher Administrative Court of Baden-Wuerttemberg judged against an administrative prohibition order in which the offering of online scratch cards and casino games were prohibited. The court ruled that prohibition orders need to contain very specific reasoning. The authority has to describe in detail which gambling services on which homepage must be banned. Furthermore, the Court questioned the overall legality of the prohibition of online gambling due to incoherence according to EU law and emphasized that the authorities must proceed in an equal and uniform manner against comparable gambling models and not act arbitrarily against a limited number of providers.

3. Offline Casinos

In 2017, severe changes with regard to existing arcades (private offline slot machine casinos) lie ahead which are rooted in the ISTG from 2012 and are now about to enter into force after a 5 year transition period. From July 2017 onwards, a minimum distance between such arcades must generally be met, and the arcades must not provide more than a specified number of slot machines at a time. Besides, only one arcade may be run in the same building. As a consequence, hundreds of arcades may have to shut down.

As expected by the Federal States, a multitude of lawsuits against the orders to close the respective arcades were filed. However, the Federal Administrative Court confirmed the legality of the new stipulations with decision of 16 December 2016 (8 C 6/15). On 7 March 2017, the Constitutional Court also validated the changes of the ISTG and declared them constitutional (1 BvR 1314/12; 1 BvR 1874/13; 1 BvR 1694/13; 1 BvR 1630/12). Hence, they will likely be enforced from July onwards.

4. New Interstate Treaty on Gambling

In March 2017, a new German Interstate Treaty on Gambling (ISTG) was agreed upon by the Prime Ministers of the 16 German Federal States. The new ISTG, which will rule gambling law in all of Germany, still has to be approved by the State Parliaments. If approved, the new ISTG is supposed to enter into force on 1 January 2018.

The ISTG 2018 will uphold the legal requirements of the ISTG 2012 to a large extent. However, the new ISTG will trigger a new licensing procedure for sports betting operators. The new licensing procedure shall be open to an unlimited number of applicants and there is no limitation regarding the amount of licenses to be handed out. The new licenses are expected to be issued in January 2019 at the latest. Successful participants of the former licensing procedure held in 2012 will receive interims licenses for the year 2018.

Even though many private providers will welcome the more liberal sports betting licensing procedure, the debate regarding the lawfulness of German gambling law is not likely to stop in 2018. The European Commission already criticised the new law, highlighting the fact that the growing online casino and poker market will still not be regulated, leading to negative consequences for the protection of players and minors. Besides, the European Commission fears a competitive distortion due to the issuance of temporary licenses to some providers which may already lawfully penetrate the German market, whereas most providers may have to wait up to one year or longer for a license.

Potentially, these legal concerns may become irrelevant due to political reasons: While the approval of the Federal States seemed safe at the beginning of 2017, things are about to change: After recent elections, the Federal State of Schleswig-Holstein announced in June 2017 that it will not pass the new law, but re-implement the very liberal Schleswig-Holstein Gambling Act, which also permitted the provision of online casino and poker games to private providers. Apparently, other Federal States (such as North Rhine Westphalia, Hesse and Rhineland Palatinate) are considering joining Schleswig-Holstein’s approach – the pack will be reshuffled.