05-27-2020  | Update IP, Media & Technology

Finally: State Premiers give the green light for new gambling regulations from 2021




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Introduction

German federalism makes it difficult for those affected to appreciate it: Whether in education policy and culture or in the fight against epidemics - when the federal government is not able to make uniform specifications in the areas falling under the federal states' responsibility, but the issues cry out for nationwide solutions, the federal state's track record is quite sobering. Gambling law is a blatant example of this. The gambling regulations of the German federal states, constantly invoked by judgments of the German Federal Constitutional Court (BVerfG) and the European Court of Justice (ECJ), but then declared inapplicable again by the same courts in their specific form, have completely failed in various state treaties. Finally, under the leadership of the head of the North Rhine-Westphalian State Chancellery, Nathanael Liminski, the "Glücksspielneuregelungsstaatsvertrag [new state treaty on gambling regulation] (GlüNeuRStV)" was approved with the consent of all state premiers on March 12, 2020 and was transferred to the state parliaments for ratification. It is due to come into force in mid-2021 and will replace the largely void and inapplicable "German Interstate Treaty on Gambling (GlüStV)” which has been worthless for a long time.

  1. Where are the markets today?

Before the decisive alterations are presented, let's take a look at the markets, which will see little change until mid-2021:

  1. Lotteries are organized in a state monopoly by state-owned companies and, due to their unattractiveness compared to other European offerings, have seen dramatic revenue declines for years.

  2. Online lottery sales by the organizers are prohibited. Private online distributors exist, but they have remained small due to narrow margin regulations and the obligation to transfer stakes to the state company of the state the player is located in. There are plenty of providers of bets on the outcome of the German lottery in the Internet (so-called synthetic lotteries or secondary lotteries). They are licensed in other EU countries, work legally across borders according to their home law, i.e. they provide a service to recipients based in Germany (online players). This also leads to a domestic tax liability in relation to the revenue generated with players based here, which pleases the tax authorities. The gambling regulators, on the other hand, believe that they are illegal, gray market products. As they cannot prosecute the providers based abroad, they take action against payment intermediaries domestically. No action is de facto taken against the online players as public prosecutors and criminal courts do not want to ridicule themselves when faced with the GlüStV, which has repeatedly been declared inapplicable under EU law, as they cannot base their fines or even imprisonment on it. 

  3. In the area of sports betting there are no approved betting providers, as the relevant "experimentation clause" limited in time and to 20 licenses was classified as illegal by all courts concerned. If business can still be considered booming, it is for companies that are also based in other EU countries and are tolerated in Germany. Again, these may not advertise pursuant to the (dead) wording of the GlüStV and the advertising guidelines issued, but they do. The advertising regulations of the GlüStV are also inapplicable, so Oliver Kahn as the protagonist of a large sports betting provider does not have to go to prison due to his advertising activities.

  4. Finally: Online casino games in the broadest sense of the phrase (including several types of games) and online poker are prohibited in Germany. That which may take place in the corner bar or in the rooms of the stationary (terrestrial) state-owned casinos, is a sin in the living room via the Internet. Here, too, the states completely fail with their prohibition attempts. Providers licensed in Malta or Gibraltar also provide Germans the chance to land, for example, three strawberry symbols in a row at home via the Internet. These offerings are "organized" here, according to the wording of the GlüStV, as the offerings can be taken up here by online players. However, this prohibition will be lifted in approximately one year, as is shown below. This means that Germany can no longer prosecute such providers or even players under administrative and criminal law. According to ECJ case law, a national gambling regulation may only restrict cross-border service trade if that regulation serves consumer protection and social order, i.e. if imperative reasons of general interest justify such, and the proportionality principle is preserved. One element of proportionality is the suitability of the regulation to actually pursue the stated objectives (the legislator's true motives) and to enforce them systematically in all substantive law (consistency).

    The ECJ refers to this as a coherence requirement. If German authorities were to now ban gamblers for playing virtual slot machines, online poker and online casinos on the eve of their legalization, or even punish them and take measures against providers from other EU countries, this would clearly lack consistency. The legal property protected by the prohibition (which one actually?) will be put up for disposition in its own legal system in a few months, and from that point onward, it cannot be seriously argued that prosecution is still required.

    The incoherence of local law to date has led the states to supporting the online gambling prohibition by strictly regulating the installation of slot machines in a gambling sector where German law has so far not effectively protected the legal interest of combating addiction. The distances between the amusement arcades have been increased and the number of devices per establishment has been reduced. This has led to a flood of administrative court proceedings. The regulation, however, does not take effect quickly, as the authorities have refrained from an immediate implementation of any closure measures to protect the economic interests of machine installers and operators

From this chaotic view of the current situation, we now turn to the "target situation" under the new law:

2.  The new law

     a)      Lotteries and lottery brokerage

Various baskets were formed in the federal states' unification process, whereby, given the regulation pressure, some were included that had to be urgently revised. This did not include lottery law, as it was indisputably not in the interest of any federal state to open a group of organizers alongside the state-dominated regional companies. As the ECJ has not complained in principle about the freedom of the Member States to establish such monopolies, but rather about there being recognizable fiscal motives, the legislative confirmation of the current situation should not be open to attack by the Luxembourg judges in every case. However, it will remain problematic that, according to Sec. 4 para. 4, the license for Internet lotteries can only be granted for self-distribution and brokerage, i.e. in simple terms, only the state lottery monopoly companies are allowed to sell their products in the Internet. The State Treaty therefore reverts to earlier law, more precisely to the penultimate German Interstate Treaty on Gambling: In order to show consistency, the last State Treaty prohibited state companies from operating online lotteries in order to consistently maintain the inadmissibility of foreign offerings. Justifying this under a reversion to the old law, so that only German state lottery operators are permitted to mediate lotteries online, remains a legal balancing act, the outcome of which may be forecast as politically promising for the states, but not legally. The unchanged, unattractive right of the gambling broker does not help here either. The business is sustainably unattractive due to the ongoing margin determination in Sec. 19.

In Sec. 12 - 18, 22 and 23 the lottery monopoly remains with the exceptions for lotteries with minor risk potential (Sec. 12). The Treaty uses the term “instant lotteries” in an undefined manner for the first time, section 22 para. 2. They are to limit what is new in the license, after the - albeit inapplicable - advertising guidelines had previously expressly prohibited advertising for instant lotteries, so that, in the absence of any other mention of the term, a previously intended prohibition was to be assumed.

     b)      Horse betting / sports betting

Horse betting has not experienced any significant changes. The new Sec. 27 subjects stationary events and mediation to the general (revised) license procedure and provides for expanded Internet offerings. EU providers are integrated on a non-discriminatory basis, but must establish a ".de" domain.

The law on sports betting is essentially new: In contrast to previous laws, there is neither a numerical nor a time limit (experimental clause according to Sec. 10 a GlüStV old version), but the "license ... is granted upon request" (Sec. 4 b para. 1 sentence 1). It is granted for five years for the first time or seven years thereafter, Sec. 4 c para. 1 sentence 1. The approval of result bets and event bets is new in Sec. 21. The number of stationary betting agencies can be limited and these may only take bets from one organizer.

     c)       Virtual slot machine games / online poker / online casino games

For the first time in Germany, online casino offerings will be opened outside of the federal state of Schleswig-Holstein, which has been liberally active for a good decade. By definition, virtual slot machines are "replicas of terrestrial slot machines offered in the Internet"; online casino games are "virtual replicas of dealer games and live broadcasts of a terrestrial dealer games with the possibility of participation via the Internet". Online poker is a "variant of poker, but without a dealer, in which different natural persons play opposite each other at a virtual table" (Sec. 3 para 1 a).

Among the virtual slot machine games that are not permitted to be called "casino or casino games” are roulette, blackjack or baccarat, which are not permitted as dealer table games (Sec. 22 a para. 2, 11). The granting of a license corresponds to the general rules. The stake and winnings must be in euros and the stake per game is limited to one euro (five seconds minimum game duration). Playing several virtual slot machines at the same time is not permitted (paras. 5 - 7, 10).

With online poker, the standards are quite general. The organizer must submit its rules of the game for approval and is dependent upon further approval if there are significant changes (Sec. 22 b). Only natural persons are allowed to play, the table composition has to be random (para. 3 and 4).

The online gambling games (= dealer games) are reserved for the state casino companies pursuant to Sec. 22 c. There can be no new concessions that exceed the number of casino concessions as at January 17, 2020 (para. 1 (2)). An audiovisual transmission from casinos and other gambling device locations as well as participation in these games on the Internet is prohibited (para. 4).

     d)      Casinos / amusement arcades

In the area of terrestrial casino and amusement arcade law, the new State Treaty does not contain any changes to the previous law.

     e)      Gambling supervision authorities / transitional regulation

In contrast to the previous unsuccessful license distribution, which was equally as restrictive as in sports betting, the federal states have recognized that an established, nationwide unified procedure is required. And furthermore: a new institution is to be established called "Gemeinsame Glücksspielbehörde der Länder" [joint gambling authority of the states] with head office in Saxony-Anhalt which will be responsible for the license pursuant to Sec. 4 (including all Internet, self-distribution and brokering offers) and supervision from 2022 (Sec. 27 a). It will primarily issue the licenses to be granted with effect for all states pursuant to Section 9 a para. 1 and exercise other powers under the State Treaty (Section 27 f). The institution is integrated into the law and the legal and specialist supervision of the federal state of Saxony-Anhalt (Sec. 27 l).

Until the end of 2022, by which time the institution will have been established, the individual state gambling supervisory authorities will remain as trustees of various responsibilities for all federal states. For example, the Ministry of the Interior of the State of Lower Saxony will continue to be responsible for gambling brokers, and the Hessian Gambling Authority for sports betting operators. The new online offerings which have been permitted for the first time are subject to the license procedure in Saxony-Anhalt, but are still subject to the existing state supervision there.

The State Treaty requires 13 ratifications in order to enter into force (Sec. 35 para. 1). It is concluded for an indefinite period, but can be terminated by any state with a one-year period of notice to December 31, 2028. It will then continue to exist among the other states, as will the joint gambling authority under the aegis of the remaining contracting states, unless fewer than 13 contracting states remain.

     f)       Protective provisions at a new level

The Treaty focuses on new substantive-legal principles that apply across all types of gambling and take into account the special features of Internet communication. Some of these principles can only be briefly discussed here:

  • The parties involved in payment transactions are able to separate unauthorized gambling from other services (separation requirement, Sec. 4 para. 1).
  • Loans may not be granted to players (Sec. 4 para. 4 no. 2).
  • The Internet domain must comply with separation and time difference requirements that give players transparency (Sec. 4 para. 4 no. 5).
  • Sec. 5 (advertising) has been fundamentally revised and also opens up the usual (supposedly still illegal) stand and jersey advertising.
  • Regulations for banning players and socio-conceptual regulations have been significantly expanded and refined (Sec. 4, 6).
  • The new Sections 6 a - 6 j are payment processing requirements for Internet gambling, contain information requirements, protection of minors and gamblers as well as data protection, are IT-security-related and provide the first measures to prevent addiction.
  • Sec. 8 - 8 d detail the player ban with a central cross-game banning system (Sec. 23).
  • Organizers and brokers are listed in a common official list (Sec. 9 para. 8).

3.  Initial assessment

The fact that the federal states are joining forces is to be welcomed. Doubts about the 13 ratifications and the establishment of the "joint gambling authority of the federal states" are no longer appropriate. The decline in state judicature in the past decade has been too painful for the laboriously achieved compromise to disappear again.

The State Treaty is detailed and answers many open questions from the past. It is not surprising that the lottery monopoly has remained and genuine online casino games can only be offered by the previous heavyweights, the state casinos. However, there are doubts that Germany will succeed in "bringing home" the revenues lost to companies from other EU countries in recent years. The legal claim that secondary lotteries from Malta and Gibraltar are unauthorized gambling games is based on the loophole of Sec. 3 no. 4, according to which the event (also) takes place where the player is given the opportunity to participate, i.e. with online offerings, at the locations of the players in Germany. This extraterritorial extension of German law to foreign companies and their online services is problematic under international and European law, however, it actually leads to the fact that the organizer's home state and the player's home state suggest two jurisdictions that conflict. The market cannot prevent this as sovereignty ends at the territorial borders, so the German gambling supervisory authorities and media outlets of the organizer's headquarters cannot implement and enforce anything. Even the online casino games from abroad will not be able to erase the new law.

The State Treaty is old-fashioned with regard to the question of a European gambling law conversion. It insists on German responsibility for foreign offerings with partial liberalization of the domestic scenarios. It is to be hoped that many EU foreign companies will come to Germany to take advantage of the new legality that will be in effect from 2021. This will only be the case if administrative practice gives both sides - players and Internet providers - the chance to find each other on fair terms and with appropriate supervision. Gambling supervision will have to mutate in future from a prevention machine to a support of Germany as a location for legal and well-controlled online gambling offerings. However, the privileging of state-controlled offerings (including the reinstated Internet lottery for the benefit of the state lottery companies) means that precisely this cannot be expected. The fight of the public against the private, the German authorities against the EU foreigners, will remain in the market. The State Treaty is a new chapter, but not really a forward-looking overall concept. Anything more was just not politically possible.

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