Is liberalisation of German gambling law imminent?

Paul Voigt looks at recent, if slow, progress on the issue of eGaming licences in Germany

Under German gambling law, the provision of (online) gambling services without a valid administrative licence is prohibited. However, administrative licences are – subject to limited exceptions – only available to State providers, preventing private providers from operating in the ‘white market’. The German regime has been under sustained attack, accused of violating fundamental European freedoms. Over the last couple of months, the attacks have become more significant, potentially opening a window to liberalisation of German gambling law.

Court of Justice of the European Union proceedings

In mid 2012, the German gambling market was slightly liberalised and sports betting licences were potentially made available to up to twenty private providers. However, the licensing procedure which started at the end of 2012, has been beset by problems and has been heavily challenged in the courts – so far, not a single sports betting licence has been granted. The Court of Justice of the European Union (CJEU) now has to decide whether the problematic German sports betting licensing procedures comply with European law (“Ince”, C 336/14).

In an opening statement, the Commission raised significant concerns which were largely upheld by the Advocate General (AG) in October 2015. The referring German Court was clear that it considers the German sports betting stipulations and procedures to be incompatible with EU law and, consequently, unlawful. As a result, the AG did not take a close look at the German gambling law provisions nor at the sports betting procedures themselves. However, the AG did give important guidance regarding the connection between the German State monopoly provisions and the legal requirement for an administrative licence in order to offer gambling services lawfully.

In the eyes of the AG, both requirements are closely linked. If a State monopoly is in place, it is evident that no private provider can receive an administrative licence as obtaining one is linked to the characteristics of a State provider. To the extent that a State monopoly is considered unlawful, this will automatically impact on the requirement to obtain an administrative licence. This means that if the German State monopoly for gambling is considered unlawful (which it is in the opinion of the referring German court), authorities must not enforce against private gambling providers on the grounds that they do not have a valid German licence because in a State monopoly, there is no possiblity of acquiring one.

This connection between a State monopoly and the requirement for an administrative licence has been denied by most German Courts so far. Should the CJEU follow the recommendations of the AG (which it does in most of the cases), this will have a considerable impact on enforcement actions of German authorities against private providers of sports betting and, possibly, also of other gambling services.

National court proceedings

Recent national case law also puts pressure on the relevant regulatory and political stakeholders, in particular, regarding the flawed sports betting licensing procedure. In a highly relevant, incontestable injunction decision of 16 October 2015 (– 8 B 1028/15 –), the Higher Administrative Court of Hesse comes to the conclusion that one of the most important decision making bodies of German gambling law, the so-called “Glücksspielkollegium” (Gambling Committee) is not set up in compliance with German Constitutional Law. Accordingly, the decisions of the Committee (such as the selection of the providers to be awarded a sports betting licence) are considered unconstitutional too. In addition, the sports betting licensing procedures are considered to be flawed and unlawful as they have not been well organised. Even though the findings of the Court are not shared by all German Courts dealing with the sports betting licensing procedures, the Hesse decision is of particular relevance. The Court decided that no sports betting licences can be handed out under the current gambling law until revised procedures have been issued. This is likely to take at least another year, during which no sports betting licences can be granted, making a mockery of the entire licensing procedure, rendering uncertain whether this type of sports betting licence will ever be handed out, and also thereby furthering the State monoplies.

Furthermore, Germany’s highest – and rather conservative – civil court, the Federal Supreme Court has rescheduled an oral hearing in current gambling matters (matters I ZR 203/12 and I ZR 241/12) from 12 November 2015 to 2 June 2016, pending the CJEU judgment in Ince. This is a strong indication that the Federal Supreme Court, which was initially inclined to decide against the private providers in the current proceedings, now also has doubts about whether a decision against the private providers is still possible in the light of the European developments.

“Pilot letter” of the European Commission

Not only the courts question the legality of the German gambling laws – political pressure is also being brought to bear to make changes to the law. In June 2015, the European Commission sent a letter to the sixteen German Ministers of the Interior regarding the gambling law situation in Germany in which they state in no uncertain terms that the current situation in Germany is not regarded as complying with EU requirements.

In particular, the “on-going monopoly on sports bets which is incompliant with European law”is criticised, and the German States are questioned about which specific steps they are going to take to dissolve the monopoly on sports bets. Also, the rules for online casino and poker are questioned, as the regulation of the German market does not seem to work and player and youth protection measures are insufficient. The Commission explicitly asks Germany to consider “rethinking” the current, unenforceable approach regarding the regulation of poker and casino games.

In the Commission’s opinion, the regulation of different gambling sectors in Germany does not comply with EU law, in particular as slot machines with high addiction potential are strongly liberalised while lotteries with low addiction potential are strongly regulated. Also, enforcement is not considered to be effective. The Commission explicitly requires Germany to take action and could – even though this currently does not seem the most likely option – start treaty violation proceedings against Germany if the outstanding issues in German gambling law are not resolved.

Suggestions for law changes by the Federal State of Hesse

As a consequence of the legal issues with current gambling law in general and the sport betting set-up specifically, the government of the Federal State of Hesse (the State which is responsible for the sports betting licensing procedure) officially declared that it considers the provisions for the sports betting licensing proceedings legally problematic in October 2015. It suggests that the market for online casino, online poker and online sports bets should be entirely liberalised, allowing an unlimited number of private providers to offer a wide range of gambling services in Germany. Existing limits for stakes of the players should be abolished.

Similar suggestions had already been made by the Federal State of Schleswig-Holstein years ago, but were not supported by other Federal States. This led to Schleswig-Holstein implementing a separate Gambling Act for Schleswig-Holstein in 2012, which was only in place for about a year (see Gambling law in Germany – an update). Still, the situation has changed since 2012: the sports betting licensing procedures are at a dead end. Since the decision of the Higher Administrative Court of Hesse, it is virtually impossible for sports betting licences to be handed out within a reasonable timeframe. The licences would be basically worthless given their expiry date in 2019. Accordingly, there is a significant need to remedy the current licensing process in order to actually be able to grant licences.

Furthermore, Hesse’s political impact on nationwide proceedings is likely to be bigger than Schleswig-Holstein’s, which is one of the smaller German Federal States. Due to Hesse’s leading involvement in the sports betting licensing procedures the other Federal States are forced to actually consider Hesse’s suggestions. Last but not least, Hesse’s suggestions seem to be in line with the views of the European Commission.

The legal basis for liberalisation of the German gambling market appears to have been established, even if progress is being made in baby steps.