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New regulatory movement for gambling on the horizon in Germany – An earthquake for the industry?

The current version of the State Treaty on Gambling, which entered into force on July 1, 2012, is set to expire on June 30, 2021. While already leading to major changes on the admissibility of gambling in Germany at the time, including the (partial) removal of sports betting from the state gambling monopoly as a direct result of a ruling of the Court of Justice of the European Union, the current version of the State Treaty also left various areas of online gambling in a legal twilight or prohibited it entirely.

1. Introduction

The lacking regulation has left sufficient wiggle room that has since been exploited by foreign and illegal gambling ventures. Particularly in terms of sports betting, the German providers Oddset and Toto were unable to keep up with the odds of their foreign competitors, which by now hold a market share of well over 90 % in Germany. Gambling’s “black market share” in Germany is said to make up 20 % of the overall market. In the end, the current statutory provisions achieved the opposite of what it were meant to do: Online gambling in Germany is dominated by unregulated foreign providers, while the German gambling industry finds itself at a distinct disadvantage.

All this might change once the 16 German states agree on jointly re-regulating the German gambling market. Since last week, a new legislative draft of a so far unpublished overhaul of the State Treaty on Gambling by all 16 states has been disseminated. The draft might bring numerous attractive alterations to the benefit of German online casinos, online poker, virtual machine games, and event betting in particular.

The draft outlines the following main contents.

2. Which form of gambling might additionally be admissible in the future?

The nationwide introduction of licensable gambling on the Internet, including virtual machine games, online casino, and online poker, most certainly represents the biggest change that the draft in its current version provides.

Any application for a license for virtual machine gambling will need to incorporate the intended version of the game of chance for review by the competent authority. Games corresponding to the table games roulette, black jack, and baccarat, however, shall not be admissible at all. Several additional requirements and restrictions relating to the format, scope, and gambling conditions are yet to be added.

In terms of online poker, all versions of online poker are supposed to become subject to individual licensing. Technical measures will have to be taken to prevent players from simultaneously playing at several tables and to ensure that only individual persons participate in online poker games, without any aid of additional software. Specific centrally managed file-systems shall be introduced to support this objective.

Furthermore, online casinos may either be organized by the German states themselves, by a legal entity established under public law, or by a private company in which a public/state entity holds a majority stake. Additionally, up to 20 licenses for online casinos may be granted under the relevant applicable casino law of the individual states.

The draft finally provides for the extension of admissible sports bets to include event bets such as goals scored in a soccer game, in addition to the already permissible bets on results. However, live betting shall remain prohibited for the time being.

3. Rules on gambling advertising

Gambling providers would consequently also be allowed to advertise and sponsor the licensed games of chance. The specific form, particularly on TV and on the Internet, are currently planned to be further specified and defined in the individual license that is to be issued by the competent authority. Advertising via means of telecommunications and via broadcasts and on the Internet between 6:00 a.m. and 9:00 p.m. would be prohibited per se.

4. Protection of players and minors

In addition to social concepts to be adhered to by the gambling providers, the German states are set to introduce a comprehensive catalog of additional rules to ensure the achievements of the Treaty’s objectives of decriminalization and protection of players from gambling addiction within the new scope of gambling on the Internet.

Player accounts to be maintained by the gambling providers must also contain and enforce a monthly limit to be set by players, which according to the current draft may not exceed 1000 euros. Furthermore, explicit obligations of the gambling providers shall entail notifications of the respective player about the content, scope, and type of the game via their player’s account. Gambling providers also are held to create a technical concept to prevent gambling by minors and to introduce a uniform IT protection concept to automatically detect abuse, manipulation, and illegal processing as well as ensure the availability and integrity of the games at all times. Finally, the German states provide for the introduction of a further automated system based on algorithms to detect at risk-gamblers and gambling addiction at an early stage.

5. Supervision by a joint centralized regulator

In particular for gambling on the Internet, the German states are furthermore to establish a joint, centralized gambling supervisory authority in the form of a public institution with full legal capacity in one of the 16 states. It remains to be seen which state this will be.

The centralized supervision authority would be commissioned to include, in particular, the licensing procedures for cross-state gambling offerings on the Internet, including the grant of licenses for sports betting, online poker, and virtual machine games, market observation and academic research on gambling.

Finally, the centralized supervision authority will play a key role for the special “file-system” for central control and monitoring of gambling and the prevention of gambling addiction on the Internet. As such, the centralized supervision authority will also be responsible to maintain a “ban file-system” to effectively enforce player bans via a centralized, cross-game banning system, a “limit file-system” to limit the maximum possible deposits by a player across all platforms and a file-system to prevent parallel games of chance on the Internet.

6. Conclusion and outlook

At first glance, the draft signals a groundbreaking liberalization of online gambling in Germany and a landslide-like alignment with the regulatory level in other countries in Europe as well as internationally.

Despite the comprehensive provisions on player protection, critical voices in Germany are already pointing out, however, that this is by far not sufficient enough to achieve the Treaty’s objectives of the further prevention of gambling addiction – in particular a monthly minimum limit of 1000 Euros would be considerably too high. The more so, since the drafted measures will not prevent players from simply continue playing in the next (offline) casino whenever the online deposit limit has been reached.

It is still too early to predict whether the states will be able to use this draft to combat the current problems caused by foreign and/or illegal gambling services in Germany or whether the intended liberalization will not go far enough.

As a next step, the associations might be consulted about this draft and the State Treaty could potentially be adopted at the Conference of Prime Ministers on March 5. Afterwards, the overhauled Treaty would also have to be transformed into 16 individual state laws to finally enter into force on July 1, 2021 in time.

It will be interesting to watch the further course and development of this legislative endeavor by the German states.