Many providers in the German gambling market had high hopes for the year 2020. The long-awaited liberalisation of gaming regulations was about to finally begin: In January, the new licensing procedure for sports betting came into force and applicants expected to receive a corresponding permission shortly afterwards. In March – following several years of negotiations, an already failed draft for a revised law, liberalisation measures and "solo efforts" from Schleswig-Holstein – the federal states finally agreed on a new, more liberalised law, entering into force in July 2021.
After this initially promising start to the year, however, disillusionment quickly followed. Even before the first sports betting licence was granted, the Administrative Court of Darmstadt stopped the sports betting licensing procedure with immediate effect in April. Thus, there is concern that, instead of the anticipated reformation, there will only be further uncertainty for the gambling market.
The new German Interstate Treaty on Gambling
In March 2020, the German federal states agreed on a new German Interstate Treaty on Gambling (ISTG 2021). The new law is to come into force on 1 July 2021. It was submitted to the European Commission for notification. After the end of the standstill period in August, it still needs to be ratified by the individual federal state parliaments.
The decision on the new law was preceded by years of legal uncertainty, numbers of court proceedings and conflicting views by the different state regulators. Correspondingly, it was widely appreciated that the federal states have now agreed on a new set of rules that will open up the online gambling market, including online poker and to some extent online casino games. Nevertheless, the enthusiasm of the market participants is not without limits as the law provides for very strict requirements.
Probably the most relevant change concerns the liberalisation of the online gambling market through a licensing process. The law provides for a proceeding to obtain a license to offer online sports betting, virtual slot machines (online simulations of terrestrial slot machine) and online poker. Licenses will endure for a period of five years. The regulation does not include online casino games. These are defined as virtual simulations of casino games (such as Black Jack and Roulette) and live broadcasts of a terrestrially conducted casino games with the possibility of participation via the internet. The possibility for obtaining a license for online casino games will be subject to separate laws of the individual federal states. Likely, the legislators will model the laws on the specifications for a license to operate a land-based casino.
The requirements for obtaining a license to offer online sports betting, virtual slot machines and online poker are very similar and only vary in specific topics. The main aspects of the common requirements cover the following:
- Security deposit: The applicant must provide a security deposit of at least 5 million euros. In individual cases, this amount can be increased up to the amount of the expected monthly average turnover (maximum 50 million euros).
- Provision of online gambling offerings: To the extent different online gambling offerings are provided via the same internet domain, the operator must provide an independent and graphically separate area for each form of gambling. The division also prohibits cross advertising. A player must not play in different areas at the same time.
- Advertisement: Advertising is generally permitted. However, there are time limits. Further, the license shall specify compulsory information to be provided by the provider together with the advertising.
- Player accounts and limitations:
- Players must create a multi-provider player account. This means one account that shall be used to play on platforms of different providers. The account creation requires the player’s true credentials that need to be verified by the provider.
- A player must not play offerings of different providers at the same time.
- Upon registration on a website, the player must set a monthly deposit limit of a maximum of EUR 1,000.00. The limit applies per player and not per provider. This means that, generally, a player may use 1.000 EUR per month across all gambling platforms.
- The competent authority will monitor compliance with the limit via a central “limit control file”. Providers must pay a fee to connect to and use the limit control file.
With regard to online sports betting, the authorities allow more flexibility than under the current regime. Bets will be allowed on the outcome of a game as well as on events during the game or a combination of both. Also, live bets will be allowed under specific requirements.
Further, the law provides for organisational changes. The German federal states will establish a joint gambling supervisory authority. Thus, licenses will be granted (and enforced) by one single authority in the future. There will therefore no longer be parallel proceedings in different federal states.
Over the next few months until the new regulations come into force, the supervisory authority in Hesse has already agreed to suspend ongoing proceedings. Instead, the authority is trying to find out-of-court arrangements with the providers for the transition period. It remains to be seen whether other supervisory authorities will follow this example.
Déjà vu on sports betting licenses
Separate to the liberalisation applicable from July 2021, the German federal states had already passed a revised gambling law in 2019, allowing the issuing of online sports betting licenses from January 2020 on. However,at the beginning of April 2020, the Administrative Court of Darmstadt stopped the procedure for granting sports betting licenses. The ruling is strongly reminiscent of the decision of the Wiesbaden Administrative Court in November 2016, which suspended the Hesse toleration procedure at that time and was later confirmed by the the Higher Regional Administrative Court of Hesse. The decisions in Hesse were the result of a multi-year process during which not a single licence was actually granted, despite the licensing procedure laid down by law.
The origin of the 2020 proceedings was an action brought by an Austrian operator who aims at entering the German market. The claimant criticised a lack of transparency in the licensing procedure causing the entire process to be discriminatory. The Administrative Court Darmstadt followed this line of argument. It temporarily suspended the awarding of licenses, requiring the competent authority to address the identified shortcomings. It is unclear how and in particular when the procedure will be revised. Furthermore, there is uncertainty whether the shortcomings of the licensing procedures will lead to a de facto toleration of sports betting offers – as it happened in 2016. In any case, the issue may potentially not be resolved before the new regulation on online gambling enters into force in July 2021. The supervisory authority of Hesse has lodged an appeal against the court decision; the proceeding is still pending. If the court annuls the decision, the licensing procedure is revived. Sports betting licenses granted before 1 July 2021, would then remain effective until 31 December 2022.
Payment Blocking
The competent supervisory started to take enforcement measures against payment providers by issuing prohibition orders in 2019. As a result, some payment service providers have discontinued the processing of payments in connection with online gaming and adjusted their terms and conditions accordingly. However, this consequence is not mandatory because respective orders might potentially be unlawful. In a different context, German courts found that it was hardly possible for the payment service provider to verify the legality of the gambling services offered because it was already not recognisable from where the player took advantage of the gambling offers and which games he/she actually played. This is relevant as a large number of gambling offers are lawful in other countries. Thus, the payment service provider cannot assess whether each individual game actually constitutes non-permitted gambling. Further, there are reasonable doubts as to the data protection compliance of financial blocking measures.
Claims for refund
Online gambling operators regularly receive letters from players (or their lawyers) requesting their stakes back. The claim is usually reasoned by arguing the gambling offer to be illegal if the provider did not hold a respective license and thus, the payment had been made without legal grounds.
However, it is questionable whether these requests for payback of stakes are valid. On the one hand, there are considerable doubts about the lawfulness of the German gambling regulations. For this reason alone, the argument that the offer is illegal can be challenged. In addition, it should also be noted that if the online offer were indeed illegal, the player would act unlawfully by participating in the online games, too. Claims for repayment are excluded in case of violation of legal prohibitions. Thus, this would also provide a challenge to a refund claim.
Criminal law implications
In June 2020, the German Federal Court of Justice (BGH) published a decision from February 2020. The judgement concerns a strongly broadened criminal liability of providers of gambling services . Although it related to the operation of a land-based casino, the decision may potentially impact the assessment of criminal liability for online gambling providers.
At the heart of the decision was a criminal law provision. The German Criminal Code prohibits organisation of gambling without a gambling permission from authorities. The criminal prosecutors have made only limited use of this provision in the past. One reason for this were the uncertainties linked with offering gambling in Germany, and the arguments for non-compliance of German gambling law with EU law. With regard to the decision of the BGH this aspect would potentially become less important. The Court based criminal liability on the mere fact of not holding a gambling licence, even if a license had been applied for and this gambling license was unlawfully rejected by the authorities.
It remains to be seen to what extent the decision actually has an impact on the gambling market until July 2021. In any case, it cannot be excluded that the number of criminal proceedings will increase – proceedings against Tipico, Bwin and Bet3000 have already been commenced.
