German Online Gambling Act Faces EU Scrutiny

The German state of Schleswig-Holstein (SH) has made an attempt to stuff the genie back into the bottle by legislating an end to their liberal online gambling regulatory system after only a year in operation.

German gambling laws were such that much leeway was left for the individual states to create their own rules. Nevertheless, the only state to implement a permissive regulation was SH. The state issued 36 licenses under the law, including to such major operators as Betfair or Poker Stars.

Last year, however, a new federal regulation levied a 5% tax on all sports betting turnover, payable by operators regardless of licenses held, whose customers include German players. Failure to comply would make their executives criminally liable in Germany.

This law was in stark contrast with SH’s own law, which did not tax these revenues. This discordant situation (i.e., the state could not tax those very same revenues, which the federal government did) combined with a less than unified political support for the status quo, essentially removed the incentives for the state to maintain its tolerant regulations.

The new federal Act, which is thereby supported by all of Germany’s states, allows the issuing of only 20 sports betting licenses nationally, while keeping online casino and poker rooms in Germany unregulated.

Since the new law does not affect the licenses already issued, this creates a rather peculiar situation. Moreover, the German Federal Court has also been asked to opine whether the Act was consistent with the relevant EU laws.

The Court in turn decided to escalate the matter to the EU Court of Justice, asking for guidance on the issue. While in principle such domestic restrictions are contrary to the EU free trade laws, prior rulings – i.e. about the Greek gambling monopoly – have indicated that member states retain the right to be restrictive if “legitimate public interest” can be demonstrated very clearly.

Considering that SH will have existing online gambling licenses that remain valid for another six years. Germany will have a hard time to prove that an accommodating legislation is contrary to public interest, if at the same time it allows these licenses to remain in force.

It is also unclear how can the 13 casino and poker licenses as well as the 23 licenses for internet betting in Germany issued by SH be harmonized with the national cap of 20 licenses.

So, the matter is now in limbo, awaiting an EU decision. One thing is certain, though. Operators licensed in SH will not rush to pay federal taxes until the final decision.