An extract from The Gambling Law Review, 5th Edition

Overview

i Definitions

In contrast to other jurisdictions where 'gaming' or 'gambling' might serve as useful terms to distinguish between products that will be subject to specific gambling regulation, in Germany, a product must qualify as a 'game of chance' to fall under the scope of the Interstate Treaty on Gambling (the Interstate Treaty), the main legal framework of relevance in this context. This is the case whenever valuable consideration is given in exchange for a chance to win and the determination of winnings is entirely or predominantly a matter of chance in the context of a game. In this chapter, such games of chance will also be referred to as 'gambling'.

Bets are also considered games of chance as per the Interstate Treaty, yet a licensing regime open to private operators was only established for fixed-odds sports betting offerings. Horse-race betting offerings are also licensable. Betting on events other than sports (and horse races) – such as political events or financial products and tradings (including spread betting, FX trading, binaries, contracts for difference, etc.), sometimes also referred to as 'social betting' – is impermissible as per German gambling laws and may be subject to other regulation, namely financial services and banking regulation, rather than gambling regulation. Pool betting offerings are reserved for the state monopoly, since such offerings are commonly classified as a kind of lottery.

Lotteries in general are defined as games of chance that are directed at a majority of persons, involve a certain payment, a specific game plan and the chance to win money as opposed to other prizes of monetary value (this would be referred to as a draw in Germany).

Games that do not fall under the Interstate Treaty's definition of a game of chance and, consequently, are not subject to specific gambling regulation (but may likely still be subject to other rules and regulations that are aimed at ensuring consumer protection), depending on the element of a game of chance they lack, are commonly either referred to as skill games (no predominant element of chance) or free-to-play games (no consideration paid to participate, free prize draws acting as an example). Although ultimately subject to a case-by-case analysis, where German jurisprudence may, but only to a limited extent, provide some guidance, social games will mostly be classified as skill games. In the absence of specific regulation, the legal classification of fantasy league games offered to German players will depend on the specifics of the product (i.e., its overall design and structure), and the question of whether, with this design and structure, the game qualifies as a game of chance as defined in the Interstate Treaty.

Against this background, skill competitions and competitive sports for prizes also do not typically fall within the scope of gambling regulation in Germany.

ii Gambling policy

Consumer protection, in particular the prevention of gambling addiction and protection of minors and other vulnerable persons, the channelling of players towards the regulated market, the guarantee of an orderly and fair gambling offering, combatting of fraud and other gambling-related crimes as well as the protection of the integrity of sports are the declared goals of German gambling regulation. While Germany has been known to take a fairly restrictive position towards gambling, gambling – with the exception of online casino gambling – is neither generally prohibited nor particularly encouraged through licensing in German gambling laws. The protectionist approach of the German states over their lottery (and, with respect to the previous Interstate Treaty, sports betting) monopoly and years of continued criticism under EU law (which go hand in hand), however, must be seen to be characteristics of German gambling regulation. As a result, gambling regulation in Germany is constantly undergoing some kind of reform usually triggered by a decision from the Court of Justice of the European Union (CJEU) or national courts or intervention on the part of the European Commission confirming that the European fundamental freedoms are not sufficiently ensured, and the regulatory goals cannot be achieved by means of the current regulation and licensing opportunities. However, the European Commission announced in December 2017 that, as a general policy regarding the gambling sector, it would close all pending infringement procedures and complaints. After years of interstate negotiations, German policymakers in March 2020 agreed on a reform of the regulation, which again follows a more restrictive approach. While the fourth iteration of the Interstate Treaty, which is supposed to come into force in July 2021, provides for the licensing of 'virtual slot machines' and online poker with very limited stakes and winnings, online casino in general will not be licensable. The new law will also clarify that in-play betting per se is permissible, but the scope of permissible sports events to bet on is yet to be determined.

iii State control and private enterprise

The principal German legal framework on gambling allows, only to a limited extent, for gambling to be operated by private enterprises rather than the state. For example, in most German states land-based casinos are owned by the state and the operation of lotteries is exclusively reserved for the state-owned lottery companies, which the German states are very protective of. With regard to lotteries, private operators may only apply for brokering licences, which allow them to sell lottery tickets on behalf of the state lottery companies to promote their products, (i.e., the traditional lotteries). In the sports betting sector, as prominently confirmed by the CJEU in the Ince case (336/14), the persistence of an unlawful de facto state monopoly despite the state monopoly having already been held to contravene EU law in 2010, led to the introduction of a new licensing process for sports betting. The licensing process started on 1 January 2020 for retail and online sports betting. No licences have been issued at the time of writing, and it remains to be seen how the coronavirus pandemic and potential shutdown of government institutions affect the further process. The government of the state of Hesse claimed in January 2020 that the applications cover 75 per cent of the market.

iv Territorial issues

Within the German federal system, gambling law is traditionally regulated at state level. This means that, in principle, gaming is regulated by the respective state law of each of the 16 states. In order to achieve some uniformity, the states agreed on common principles and regulations for certain fields of gambling law in terms of the Interstate Treaty. This includes the sports betting sector, where the state of Hesse is authorised to act on behalf of all 16 German states.

In Germany, there are no particular localities that have a favoured status for gambling in terms of, for example, tourist islands or reservations where particular groups have autonomy. However, the German states agreed in the Prime Ministers' Conference of 21 March 2019 to allow Germany's most northern state, Schleswig-Holstein, to deviate from the Interstate Treaty's total ban and introduce a law that will revalidate Schleswig-Holstein online casino licences, which have expired. Such licences were issued between January 2012 and February 2013 (when Schleswig-Holstein pursued its own gambling policy before joining the other 15 states in the Interstate Treaty), and were revalidated in mid-2019 by local legislation.

v Offshore gambling

The attitude of German gambling supervisory authorities to offshore gambling operators (i.e., those who offer gambling products to German citizens but are based outside of Germany) can be considered to be problematic as the German states continually fail to strike a lawful balance when selecting the operators that they intend to enforce against. Ignoring the main goal of German gambling regulation (i.e., to prevent and combat gambling addiction and to ensure consumer protection), the enforcement activity of German states with regard to offshore operators tends to be targeted at EU-licensed operators for reasons of practicality rather than at operators that do not have adequate licensing or sufficient consumer protection measures in place. Irrespective of the question of how, in light of the fundamental European freedoms, enforcement taken against EU-based and licensed gambling operators can be legally justified in the current situation, the proportionality and consistency of such an enforcement practice can be questioned – an aspect that certain German administrative courts have also identified as a problem. In a judgment handed down by the Federal Administrative Court in October 2017, the requirements enforcement authorities have to adhere to were, however, considerably loosened, and the compliance of the restrictions under the Interstate Treaty to online gambling with EU law was essentially confirmed.

German authorities would derive the legal basis for acting against foreign operators from the Interstate Treaty, which, as per Section 9, allows them to make investigations into alleged violations of the Interstate Treaty and to interdict the respective offering or advertising therefor. They may also resort to payment-blocking measures under this provision, and over the course of 2018 it was noticeable that the responsible authority was changing its approach. Although payment blocking still raises a number of legal questions, mainly connected to data protection laws, the responsible regulator of the state of Lower Saxony has taken a rather rigid stance and, in a precedent case, even issued a payment-blocking order against a major payment service provider (PSP).

Legal and regulatory framework

i Legislation and jurisprudence

As mentioned in Section I.i, the basic legal framework for gambling in Germany is the Interstate Treaty of 2012, which was amended as of 1 January 2020 in the third attempt of the German states to create a uniform and EU-law-compliant gambling regulation.

The Interstate Treaty originally entered into force on 1 July 2012 following a legislative process that had to be initiated as a result of the CJEU finding that the state monopoly on sports betting that was provided for in the Interstate Treaty of 2008 (which was itself introduced because the former state monopoly stipulated in the then applicable Interstate Treaty was held to be unlawful for lacking justification by the Federal Constitutional Court) contravened EU law.

The Interstate Treaty has been subject to criticism from the time it entered into force, and the failure of the sports betting licensing process, which was introduced by the Interstate Treaty and confirmed by national courts and most prominently by the CJEU in the Ince case to be unlawful, finally triggered the reforms that led to the Third Amendment of the Interstate Treaty. Since its entry into force on 1 January 2020, the regulator responsible for the licensing process, the Regional Council of Darmstadt, has continuously increased the pressure on the industry to participate in the process notwithstanding a variety of open issues, including an open letter urging all operators to apply (see Section III).

Alongside the Interstate Treaty, gambling law is regulated by other state legislation, for example, the Gambling Acts implementing the Interstate Treaty, Casino Acts and ordinances. For historic or general reasons, some federal laws also influence gambling, such as the Race Betting and Lottery Act, the Trade Regulation Act, the Criminal Code and the Fiscal Code.

ii The regulator

In a gambling regulation context, Germany has more than one regulator, which makes the question of which authority will be responsible very complex. As a general rule, the type of gambling offered and where it is offered will be influential factors for which regulator will be responsible. The responsibilities range from individual municipalities acting as regulators (e.g., in the land-based gaming hall sector) to the respective ministries (or subordinate authorities) of the German states (e.g., in relation to bricks-and-mortar casinos or in relation to coordinating enforcement actions against suspected unlawful gambling operators or violations of the Interstate Treaty and the applicable state Gambling Act) to authorities that have assumed a central responsibility for a certain sector and, as such, act on behalf of all German states in relation to this sector. The Regional Council of Darmstadt in the state of Hesse is responsible for conducting the licensing process in Germany.

Again depending on the product, and specifically the relevance of products that do not qualify as 'games of chance' (see Section I.i), other authorities, such as the Federal Financial Supervisory Authority, may occasionally be considered the responsible regulator.

iii Remote and land-based gambling

The Interstate Treaty generally prohibits the operation and brokerage of online games of chance. The only exceptions made by the Interstate Treaty in this context concern sports betting, horse-race betting and lotteries. Online casinos, therefore, are not currently licensable, yet some German states have pushed for licensing opportunities to be included as part of reform discussions. However, the licensing provisions of the Fourth Amendment of the Interstate Treaty on Gambling, which is due to come into force in July 2021, suggest that online casinos would only be licensable in a very restricted form in terms of 'virtual slot machines' and online poker. The restrictions will include limits on stakes per spin and winnings. In contrast to online gambling, land-based gambling is widely permissible. While the operation of traditional lotteries is covered by the state monopoly, the operation of other types of gambling can generally be licensed.

iv Land-based gambling

Land-based gambling is only permissible in certain venues. Such venues have to fulfil certain requirements. Details will either be stipulated in the law, detailed in the application requirements or form part of the licence.

Casino games can only be operated in casinos. The operation of casinos in some states is reserved for the public authorities, while other states provide a limited number of licences for private operators. The number of casinos allowed per state will, however, always be limited and varies between the states. In Baden-Württemberg, for example, three land-based casinos are allowed, whereas in Mecklenburg-Western Pomerania six casino locations are provided for in the respective Casino Act.

The current Interstate Treaty no longer provides a maximum number of sports betting licences. It has yet to be determined how this change will impact the limitations on the number of permissible betting shops per operator that are set out in the current state Gambling Acts or other acts transposing the Interstate Treaty, which vary considerably depending on the state in question. The limitations on the number of permissible betting shops have been criticised for having been arbitrarily determined. For example, Brandenburg allows for 18 betting shops per licensee and Baden-Württemberg provides for a maximum of 600 shops. The limitations raise further questions when compared with the number of existing lottery ticket sale venues (e.g., about 3,250 in the state of Baden-Württemberg), which the states may be expected to want to protect.

Concerning gaming halls, there is no statutory limit on the number of available licences, but this sector is undergoing some major changes. The strict minimum distance requirements that gaming halls must adhere to (i.e., between other gaming halls, and between gaming halls and institutions such as schools or addiction centres) and the requirement that gaming halls may not be operated in the same building as land-based casinos or betting shops, effectively limit the number of permissible gaming halls in practice.

v Remote gambling

The Interstate Treaty imposes a general ban on online gambling. As per the law, exceptions only apply for licensed traditional lotteries, horse racing and sports betting. The current Interstate Treaty does not provide for a licensing system for online casino offerings. This situation is criticised by experts of the industry as well as the European Commission. In a pilot process initiated in 2015, the European Commission made clear that it considers the ban ineffective in achieving the goals set out by the Interstate Treaty. However, in December 2017, the European Commission announced that, as a general policy regarding the gambling sector, it would close all pending infringement procedures and complaints.

The German state of Schleswig-Holstein marks an exception. Between January 2012 and February 2013, the state pursued its own gambling policy and issued online casino as well as online sports betting licences under this regime. After a change in government, the state then joined the other 15 states in the Interstate Treaty, but the licences that had been issued continued to apply for a six-year period. These licences expired at the end of 2018 and beginning of 2019. Meanwhile, the state has had yet another change in government, and this new government has been at the forefront of advocating a broad reform of the Interstate Treaty, which should include the introduction of online casino licensing across Germany. While this goal has not been achieved so far, Schleswig-Holstein did manage to have the German states agree to allow them to deviate from the Interstate Treaty's total ban by expressly not having it apply to online casino operators who have previously held one of the Schleswig-Holstein online casino licences. As indicated above, the future licensing system to be implemented under the Fourth Amendment of the Interstate Treaty continues to be subject to substantial – and potentially unviable – restrictions on remote gambling.

vi Ancillary matters

Operators applying for a licence will, as part of the licensing process, have to prove that any equipment used has been approved as per the requirements that will be set out in the respective licensing process, including that operators must provide certificates or other documents on their business-to-business (B2B) partners. There is no specific licensing process for gambling-related B2B services.

In relation to persons acting in key positions, it will again have to be demonstrated in the licensing process that these persons are sufficiently qualified and have the necessary expertise to conduct the business reliably and responsibly. There is no specific licensing process (e.g., for personal licences) that employees of gambling operators would have to undergo.

vii Financial payment mechanisms

According to the German Anti-Money-Laundering (AML) Act, before a transaction is carried out, it has to be verified that the payment account is set up in the name of the player and must be with a bank, payment institution or electronic money institution with at least branch offices in Germany. This was also reconfirmed in the Implementation Guidelines regarding the implementation of the German AML Act in the gambling sector (the Implementation Guidelines), which were published on 1 February 2019 by the highest gaming supervisory authorities of the German states. The use of anonymous payment methods is not permitted. The same requirement applies for the use of cryptocurrencies, such as bitcoin. Hence, tokens may only be permitted when the operator is able to verify the identity between the player and payment account holder.