A general introduction to gambling law in Germany

86 01/07/2022

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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' or 'novelty bets' – 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 or other prizes of monetary value (the latter 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 statutory objectives of German gambling regulation. While Germany has long been known to take a fairly restrictive position towards gambling, the entering into force of the new Interstate Treaty 2021 finally led to the introduction of licensing regimes for virtual slot games, online poker and even 'online casino' games (meaning in particular bank–holder games such as roulette, blackjack and baccarat). The protectionist approach of the German states over their lottery (and, with respect to one of the previous Interstate Treaties, sports betting2) 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 entered into force on 1 July 2021 (the Interstate Treaty 2021), provides for the licensing of virtual slot machines and online poker with limited stakes and winnings, it remains to be seen whether or not online casino games will be opened to private operators or more likely run on a federal state-based monopoly. The new law also clarifies that in-play betting per se is permissible, but the regulatory discussion on the scope of permissible sports events to bet on has not been concluded yet. In anticipation of the Interstate Treaty 2021 a transitional regime was introduced, tolerating the virtual slot and online poker offerings of operators who were already active in Germany prior to the entering into force of the Interstate Treaty 2021 and have submitted a licence application to the responsible regulator in Saxony-Anhalt. While no virtual slot and online poker licences have been granted yet, 33 licensed sports betting operators are already active on the German market at the time of writing.

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 (C-336/14), the persistence of an unlawful de facto state monopoly despite the state monopoly having already been held to contravene EU law in 2010,3 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. Subsequently, Interstate Treaty 2021 also introduced a licensing regime for virtual slot machine games and online poker. Licences for online casino games (i.e., virtual versions of bank–holder games such as roulette or baccarat and live broadcasts of these games) will not be granted on a national level but on a federal state level. Each German federal state can decide whether it wants to grant these licences to private operators or not. Apart from that, only a very limited number of operators will receive an online casino licence in federal states, since they can only grant as many online casino licences as they have issued local (bricks and mortar) casino licences in their territory.

iv Territorial issues

Within the German federal system, gambling law is traditionally regulated at state level. Accordingly, gambling regulation is predominantly subject to the state law of each of the 16 states. In order to achieve some uniformity, the states agreed on common principles and regulations for areas fields of gambling law in 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 and the virtual slot and online poker sector, where the State Administration Office of Saxony-Anhalt is acting as the responsible licensing authority.

In Germany, no localities have been given favoured status for gambling such as in other countries, tourist islands, reservations and integrated resorts. Only Germany's northernmost state, Schleswig-Holstein, granted online casino licences in the past and allowed its residents to participate in the respective gambling offerings that were licensed solely on a federal state level. These 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 reinstated in May 2019 by local legislation. According to the transitional rules under the Interstate Treaty 2021, Schleswig-Holstein licences valid on 30 June 2021 continue to be valid for a transitional period until a licence is granted under the Interstate Treaty 2021, but not beyond 31 December 2024.

v Offshore gambling

The attitude of German gambling regulators 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 EU market 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 the past. In a judgment handed down by the Federal Administrative Court in October 2017,4 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.

The German authorities would derive the legal basis for acting against foreign operators from the Interstate Treaty, which, as per Section 9, allows them to undertake 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 since 2018 it has been 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 issued multiple payment-blocking orders against major payment service providers (PSPs) in the past.5 The Interstate Treaty 2021 also introduced the option to issue IP blocking orders against internet service providers (ISPs). It remains to be seen to what extent this measure will be used for the protection of the regulated market against illegal gambling.

A general introduction to gambling law in Germany

Legal and regulatory framework

i Legislation and jurisprudence

As explained in Section I.i, the basic legal framework for gambling in Germany is the Interstate Treaty 2021, which was introduced on 1 July 2021 and marks the fourth attempt of the German states to create uniform and EU-law-compliant gambling regulation.

The first amendment of the Interstate Treaty took place in 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 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 for sports betting, the Regional Council of Darmstadt, has urged the industry to participate in the process notwithstanding a variety of open issues, including an open letter urging all operators to apply.

In spring 2020, the German federal states agreed on the Fourth Amendment of the Interstate Treaty on Gambling, which entered into force on 1 July 2021. Since 15 October 2020, a transitional regime has also been in place for already active virtual slot and online poker operators. The new legislation broadened the extent of permissible sports betting and introduced licensing of virtual slot games, online poker and online casino games, although the latter is expected to remain predominantly subject to a state monopoly.

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

The responsibility for regulating gambling is vested in regulators at state and municipal level. The responsibilities range from individual municipalities acting as regulators (e.g., in the land-based gaming hall sector) to the state ministries (or their subordinate authorities) that are responsible for bricks-and-mortar casinos, coordinating enforcement actions against suspected unlawful gambling operators or violations of the Interstate Treaty and the applicable state Gambling Acts. Further, some authorities have been appointed by all states to act with central responsibility for a certain sector. While the Regional Council of Darmstadt in the state of Hesse is responsible for conducting the sports betting licensing process in Germany, the State Administration Office of Saxony-Anhalt is in charge of the virtual slot machine and online poker licensing process. Both authorities will lose their competency on 31 December 2022. After this date, the competency will switch to the Joint Gambling Supervisory Authority in Halle.

iii Remote and land-based gambling

The Interstate Treaty allows the licensed operation and brokering of online gambling. As outlined above, only online casino games (i.e., online versions and live broadcasts of bank–holder games) are still subject to a state monopoly, whereas virtual slot machine games and online poker are licensable on a national level but subject to substantial product restrictions, such as limits on stakes per spin, minimum duration of each spin and the number of poker tables allowed for simultaneous play. In contrast to online gambling, land-based gambling is subject to a variety of licensing systems on state and municipal level, including bricks-and-mortar casinos, gaming halls, betting shops and lottery agents.

iv Land-based gambling

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

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. This also affects the number of online casino licences available in the respective state, provided that the state wants to grant these licences to private operators at all.

The Interstate Treaty does not provide a maximum number of sports betting, virtual slot machine or online poker licences. It has yet to be determined how this 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.

With regard to gaming halls, the regulations do not stipulate a 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 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 available gaming hall venues in practice.

v Remote gambling

In principle, the Interstate Treaty imposes a general ban on online gambling. Exceptions only apply for licensed traditional lotteries, horse racing, sports betting, virtual slot machine games, online poker and to a limited extent online casino games.

Former iterations of the Interstate Treaty did not provide a licensing system for online gaming (with the exception of sports betting). This situation had been 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 considered 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. In parallel, the Federal Administrative Court confirmed in a precedent judgment on 26 October 2017 that it considered the restrictions to online gambling under the former Interstate Treaty to comply with EU and constitutional law.6 These developments weakened the legal position of operators of online gaming in Germany that used to rely on the freedom of services to justify operating in the unregulated market. Foreign licences are generally not recognised by German regulators and courts.

The Interstate Treaty 2021 changed this fundamentally and finally introduced licences for virtual slot machine games, online poker and online casino games. 'Virtual slot machine games' are defined as replicas of terrestrial slot machine games. Limitations include the maximum €1 stake amount per spin and the five second minimum duration per spin. Among the restrictions specific to virtual slot machine games, the prohibition of jackpots (i.e., stakes or winnings may not be accumulated for the purpose of creating winnings for future games) and of autoplay functionality are to be mentioned. Online poker is also restricted, including the prohibition of video poker, restrictions on the number of tables to be played at the same time (i.e., a maximum of four) and limitations on stakes and blinds. 'Online casino games' are defined as virtual versions of bank–holder games and live broadcasts of a terrestrial banker game. These restrictions specifically address roulette, blackjack and baccarat and subject them to a state monopoly. Whether or not individual states will consider opting for issuing licences to private operators in this market remains to be seen. However, the first states to regulate have already passed bills that include licensing regimes for these games.

vi Ancillary matters

As part of the licensing process, operators applying for a licence will have to prove that any equipment used has been approved in accordance with the applicable technical requirements and IT security standards. Certificates or other documents on their business-to-business (B2B) partners are usually expected by regulators. While the provisions on the licensing proceedings under the Interstate Treaty 2021 do not stipulate a specific licensing process for gambling-related B2B services, it is required by law that each virtual slot machine game and online poker game must be approved by the regulator in Saxony-Anhalt. Due to the large number of games, the authority will only review the essential characteristics and compliance with the crucial restrictions.

In relation to individuals acting in key positions, it has 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. Typical requirements include criminal record checks, tax clearance certificates, CVs and evidence of professional expertise, including training certificates. Beyond those requirements, 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 licensed in the EU. 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 and updated again in November 2020 by the highest gaming supervisory authorities of the German states. The use of anonymous payment methods is not permitted. The same requirements would apply for the use of cryptocurrencies, such as bitcoin; however, gambling regulators have not approved bitcoin as means of payment in a licensed environment yet. Considering that the Gambling Committee of German regulators (i.e., the regulatory body that makes key decisions on issuing licences and licence conditions) tends to take a more conservative approach and has not swiftly adapted to new trends in the online gambling sector as yet, it seems unlikely that this would be permitted in the near future.

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