Proposed Legislative Restructuring of Gaming Law, based on the Sports Betting Regulation

Rechtsanwalt Dr. Wulf Hambach

Hambach & Hambach Rechtsanwälte
Haimhauser Str. 1
D - 80802 München
Tel.: +49 89 389975-50
Fax: +49 89 389975-60
A Proposal by Dr. Wulf Hambach and Dr. Michael Hettich, attorneys at law

Aims of the New Regulation

One of the main priorities of the new gaming law regulation should be to protect the interests of the common good. This is regularly mentioned in the decisions of the German Federal Constitutional Court and the European Court of Justice in connection with the liberalisation of the gambling market. The main aspects of this are prevention of gambling addiction, the proper and transparent operation of gaming (based on the idea of transparency in the Law of New Media), the prevention of associated criminality (e.g., the referee scandal in Italy and the Hoyzer-betting scandal with Oddset in Germany) as well as the protection of youth and consumers. Given the level of profit generated, the desire to continue to develop popular sports with revenue from the organisation of gambling (in particular, from sports betting) must also be considered.

To realise the aims of the new gaming law regulation, it may be off assistance to draw upon research findings, especially those regarding the prevention of addiction, as well as the experiences of (both state and private) gambling organisations. In order to avoid going outside the scope of Betting Law News, the focus of this article will be on the topical discussion regarding the availability of sport betting services in Germany, which are provided by private providers available over the Internet.

Regulations that may offer Guidance

A gaming law regulation de lege ferenda has to do more for youth protection and the prevention of addiction as well as the orderly conduction of games than e.g., the Bavarian sports betting law could. The German Federal Constitutional Court has already, in considerable detail, outlined deficits in the implementation in Bavaria in its decision (case no: 1 BvR 1054/01) of the 28/03/2006 (see, the report “Questions in place of Clarity: The Decision of the German Federal Constitutional Court on Sports Betting” in the 02/06 edition of betting law news). Due to the fact that the laws, which regulate the state gambling monopoly, are short and imprecise, there has been a development of gambling practises, which border on unconstitutional. In so far as existing regulations may be drawn upon to assist in the drafting of a new consolidated law, the focus must be on sports betting laws, which provided for licenses for private providers (e.g., in Brandenburg), prior to the introduction of the State Lottery Treaty (which proscribed a general state monopoly for sports betting). Regulations in other gaming sectors, which already allow private providers (e.g., the current Casino Law in Lower Saxony and Baden-Württemberg or the regulations in the State Lottery Treaty regarding the organisation of smaller lotteries), might also be of assistance. Other EU countries, where there have been efforts to liberalise gambling law, or where there are successful liberalised systems, may provide useful insight for Germany (e.g., the U.K. Gambling Act 2005).

Legal Framework regarding the Organisation of Gambling on the Internet

Before the detailed implementation of the aims of regulation can be discussed, there should be some consideration of the legal framework that is necessary for the organisation of gambling on the Internet.

Because cross-border provision (within Germany) is possible, only unified legislation at federal level makes sense. Where Internet participation is possible, the territorial limitation of legislation to individual federal states is not feasible and can only be achieved through disproportionate expenditure. In the past, fruitless measures were made to prevent participation in the 2002/2003 operated Online-Roulette Hamburg by players from other federal states. The new regulation of sports betting law, whether by a federal law or a state treaty concluded between the states, enables the creation of unified national legislation.

A logical consequence of such unified regulation would be that only one regulatory authority be responsible within the Federal Republic for the issuing of licenses and the monitoring of gambling organisations. This would be strongly advisable in order to avoid diverging decisions and the tendency of operators to apply to the authority with the most lax system. Furthermore, licenses from EU countries must have nationwide validity because of the possibility of cross border participation.

Even the wording of the criminal law provision of §§ 284 et seq. StGB (German Criminal Code) „Anyone who, without an official license, … organises a game of chance …” is not precise enough because European licenses are not explicitly mentioned. One possible solution would be to accept all licenses issued in the EU as “official licenses” within the meaning of §§ 284 et seq. StGB or to regulate possible restrictions to the freedom of services guarantee solely administratively. In the former case, the wording could be: “Anyone who … organises a game of chance … without a license of an EU authority”. In the latter case, the wording would have to be: „Anyone who organises a game of chance … without an official license, as is necessary under a German law …”. Therefore, provisions must be included in the individual administrative laws for the recognition of licenses from EU states, which justify the inevitable restrictions of the freedom of services guarantee that arise. Alone due to the necessary detail and consolidation, the criminal law cannot
sufficiently do this.

Application Procedure and Supervision

Items, which have already been discussed, include the requirement for a license and the determination as to whether it is the federation or the states that are responsible for this area. The federal administrative law to be created to regulate the organisation of sports bets on the Internet should also include a written application procedure and rules regarding appeal procedures as well as a legal and professional monitoring body. A key part of the new regulation will be the conditions to be satisfied for the granting of a license. This will have considerable influence on the protection of the youth and consumers, the prevention of addiction as well as the orderly organisation of games and the prevention of associated criminality.

It should not be underestimated that the involvement of crucial authorities, e.g., a Ministry of the Interior, would mean a more successful implementation of the priorities of the regulatory law than if a Ministry of Finance was assigned this task, which has also been considered. An appeal procedure, which would go the next superior authority, would serve to relieve the courts. This is in consideration of the large number of applications, which are expected from abroad.

The need for a special legal and professional supervisory body arises from the complexity of the gambling matters, which can only be dealt with by specialists, who’s independence must be ensured, particularly because of the high revenue which can be generated with such a license.

While the primary function of the legal and professional supervisory body would be to supervise the correct issuing of licenses, the supervisory body would also continue to carry out supervision to ensure that the providers do not just fulfil the above requirements, such as e.g., the prevention of addiction, to organise sports betting at the time of application but continue to do so on an ongoing basis. Annual audits are just as essential as the possibility of unannounced special audits.

It has become apparent, through the Hoyzer-betting scandal and the biggest football betting scandal in Italy (there is a state sports betting monopoly in Italy too), that the existing state monopoly on gambling is not capable of sufficiently monitoring its own betting service and betting events. The scandal in Italy revealed particularly grave weaknesses in the monitoring of betting events. According to newspaper reports, Giovanna Melandri (Minister for Sport and Youth in the Government of Romano Prodi) considers extensive reform to be necessary. “Italian football and all European football needs new regulations” said Giovanna Melandri in an interview with the Tagesspiegel newspaper. Following the many corruption scandals in European football causing damages of millions of euros, the “de-railed football industry” must be brought “back on track” explained the 44-year old. In connection with this, Melandri referred to an initiative of the English Government, under which ministers and sports organisations are required to prepare guidelines for the areas of betting, player agencies, and under-age players. In relation to this, I would like to draw your attention to the exemplary DFB (German Football Federation) betting conference in 2005, which dealt with similar guidelines. The aim specified for this betting summit was to examine the possibility of cooperation between the betting sector and sports organisations, particularly with regard to forming an agreement about the introduction of a common early warning and reaction system to prevent game manipulation (see, Betting Law News 3/05 and 04/05). This system has been running successfully in German football since the German Bundesliga season 2005/2006. It must, however, be emphasised that this must be continually expanded and further extended in order for it to remain efficient. This is a major challenge, which must be taken on politically and not just by betting organisers and football functionaries. It would be desirable that e.g., a German Federal Gaming Supervisory Body (see, the article: Betting Law Experts call for a moderate Opening of the German Sports Betting Market in the Berliner Rundschau) would be set up to coordinate and monitor such security networks.

Requirements to be satisfied by all potential Providers

In the discussions to date, the measures to be undertaken by gambling organisers have been limited to the provision of information and a reduction in advertising, about which there has been a great deal of discussion. A legislative regulation only allowing for the provision of information and prohibiting any actual advertising (which also stipulated that references to the dangers of gambling and the names of help organisations would have to be provided) would indeed make sense but this would not be enough. It is more important that there is a precise regulation of the course of the game and monitoring of gaming behaviour. Organisation over the Internet provides many options in this respect, e.g., a limited ban could be imposed where a certain loss is made in proportion to a certain period of play. Equally, in addition to the option of a gaming ban, a permanent ban could be imposed after a certain limit is exceeded, where there is a lack of evidence as to the financial capacity of the player. A regulation of the quotas at which bets are offered is to be balanced in order to keep the incitement to gamble under control.

The regulation of quotas would also have the positive associated effect of limiting ruinous competition and preventing breach of regulations by organisers shortly before insolvency.

To guarantee the orderly conduction of games, the personal and professional requirements of organisers and their businesses should be set at high standards. Alongside the proof of long-term financial ability, in the form of a definite investment capital and a corresponding business plan, there must also be proof of personal reliability by a police clearance certificate and by examination of previous business conduct. As evidence of professional competence, relevant references must be submitted. At the very least, the employees connected with the organisation of games must have relevant competence in the gambling sector.

Given that the admission of private providers creates, for the first time, the chance to put the protection of players ahead of fiscal interests, the new regulation should also take account of the fact that there is sure to be insufficient protection of the youth by state monopolies (e.g., Oddset in Bavaria) in the future.

Methods of Control

A transparent system, which allows the supervisory authority online inspection of the course of the game and the payout models, together with rights regarding on-site inspection, could enable the ongoing control of the compliance by the organisation with the above requirements.

The legislatively proscribed option of imposing conditions and the option of repealing the lucrative license at any time would provide sufficient encouragement (other than has been the case for the state monopoly to date) for private organisers to prevent manipulation and fraud, which disadvantage players. The supervisory authority would also be authorised to issue prohibition orders.

Licenses should only be awarded for a certain period (e.g., 4 years) so that the best concept is always implemented. The selection criteria must always be determined in detail. The protection of players is to be the criterion with the highest weighting. The best prevention of addiction, protection of youth and prevention of manipulation concept must be considered paramount. It is only where there is comparability between applicants on this front that better financial capabilities or greater experience should be taken into account.

An actual quota in the form of an absolute maximum of licenses would not be necessary if the regulation was in the form outlined. A quota would also be difficult to justify as a restriction of the freedom of services guarantee. The high standard set by the licensing requirements will sufficiently limit the number of successful applications.

Tax System and Development of Sports

Even if private providers are allowed access, fiscal interests cannot be ignored. Given the enormous profit margins, which can be made through the organisation of sports betting, it is entirely justified to introduce a special sports betting duty in addition to the standard tax obligations, which every company bears. This additional tax could be used for a particular social purpose, e.g., the development of popular sports. It would not be advisable to introduce a standard higher tax rate for sports betting organisations. There is greater general acceptance of a duty levied for a particular purpose and this would also better preserve the principle of equal treatment.

A look across the English Channel reveals one good possible method for resolving the German gaming tax system: By implementing an intelligent tax system for private gaming providers, with a relatively low tax burden, the State could certainly benefit from the pleasant side effect of higher tax revenue. A 2005 report on the English gaming tax year 2004 shows that “competition instead of monopoly and reduction in taxes instead of crippling tax duties” can lead to an increase in revenue. This Report, which was submitted to, and discussed, in the English parliament in 2005 is also worthy of discussion here. This is because the HMRC-Report shows that in 2004, the British state took in 1.421 billion pounds sterling in 2004 (over 2 billion euro, 2.046) in gaming taxes. What is noteworthy is the comparatively low tax rate, which is attractive for businesses. Since the British gaming tax reform in 2003 (decrease (!) in the tax rate to 15% of gross profit (bets placed minus winnings paid out)), gaming tax revenue has increased by 5.5% (from 1.347 to 1.421 billion pounds sterling). These figures show that, if there is liberalisation and a balanced tax system is introduced at the same time, the state does not have to worry about drastically decreased tax revenue or its effect on sport, culture, etc.


The new regulation of gaming law should be taken as a historic chance to create a new economic sector and associated employment as well as to considerably reduce the dangers connected with gambling for players.

By implementing a balanced gaming and sports betting (tax) system, the German State has the chance of introducing an effective regulatory instrument to protect German consumers and at the same time – as has happened in e.g., Great Britain and Austria – generating lucrative tax revenue.