New State Treaty on Gambling – Consequences for the private gambling industry

Rechtsanwalt Dr. Wulf Hambach

Hambach & Hambach Rechtsanwälte
Haimhauser Str. 1
D - 80802 München
Tel.: +49 89 389975-50
Fax: +49 89 389975-60
E-Mail: w.hambach@timelaw.de
Attorneys-at-Law Dr. Wulf Hambach and Konrad Miller, LL.M., Hambach & Hambach, LLP

In the aftermath of the fundamental decision of the German Federal Constitutional Court on private sports betting in March 2006, the Prime Ministers of the German Lander decided by majority to preliminarily retain the monopoly on games of chance including sports bets. The details of this monopoly will be regulated in a new lottery state treaty which shall come into force at the beginning of 2008, i.e. within the time-limit set by the Federal Constitutional Court. In August 2006, a first draft was presented, which prohibits e.g. all gambling including sports betting, casino operations (including poker) and lotteries via TV or Internet channels. The scope of these provision was kept wide and would, therefore, have put an end to some of the state gambling services in their traditional distribution channels. For instance, telecasting of the state lotteries numbers’ drawing on TV as well as bulk mailings for class lotteries would no longer be permissible. If the planned provisions had come into force, they would have lead to considerable economic loss for the state providers. In order to avoid these consequences, the Prime Ministers of the Lander, on the occasion of their meeting on 19th and 20th October, agreed to implement certain exemptions from the general ban on advertising and provision via TV and Internet for state providers.

The revised draft dating from 25th October (available in German at http://www.stk.niedersachsen.de/master/C28438787_L20_D0_I484.html) stipulates accordingly
  • that certain charitable offers may be exempted from the ban on TV advertising, if they are traditionally presented on TV;
  • that the Lander may allow certain casinos and lotteries to be offered via Internet.
Moreover, the former prohibition on bulk mailings was deleted without substitution. These exemptions in the revised draft fail to comply with the EU legal standards and constitutional requirements. It appears that providers will be swamped out of the market, without implementing the restrictions on state providers, which are necessary if the monopoly is retained. In view of these impudent plans, the EU Commissioner for Internal Market and Services, Charlie McCreevy, reacted immediately and unambiguously. In an interview with the German magazine “Spiegel” (edition of the 23rd October 2006), he stated that he will definitely not accept the official result of the prime ministers conference. The Commission already considers the current provisions to be in breach of Community Law. According to McCreevy, the plan of the German Lander to further strengthen and expand these restrictions is not in any way feasible. He announced that, if necessary, he is prepared to fight the infringement complaint against Germany to the last instance. Generally speaking, the rules for private and state providers should be the same.

After a lengthy period of reluctance, it appears that private gambling providers will have significant backing from the Commission. If the Prime Ministers of the Lander keep to their recent plans, the provisions are unlikely to last very long. The German state would also risk extensive claims for damages.

At present, it is still not clear if the draft will come into force in 2008 at all. Its final adoption is arranged for December 13th 2006 at a further meeting of the prime ministers. After that, every single parliament of the federal states will have to approve the new treaty. However, there is considerable discussion at both Lander and federal level regarding the retention of the monopoly, e.g., the co-governing conservative party (CDU) in Schleswig-Holstein recently pleaded again for an immediate liberalisation of the German lottery market (press release number 376/06 from 27th October 2006), referring to the non-conformity of the draft with European and national legal requirements. In addition, various representatives of media companies and industry as well as sports clubs are in favour of a regulated liberalisation of the market (for instance under www.kein-monopol.de). Hambach & Hambach, is also actively lobbying against the ratification of the Treaty in co-operation with the Remote Gambling Association (RGA). Given the current political discussion, it is still possible, that there will be at least one Parliament dissent and that the State Treaty will therefore not come into force.

Meanwhile, even the strict state monopolists have recognised that the monopoly is not the correct long-term solution for the regulation of the German gambling market. The draft state treaty accordingly contains a time-limit of approx. four years duration. Sooner or later liberalisation will thus most certainly come along. The same probably applies to all other EU member states. Britain also intends to license private online-casinos in addition to private sports betting providers, which are already licensed. Thus, the situation in Europe is not in any way comparable to the situation in the United States of America which is characterised by strict protectionism. The tactics of the United States are possible in spite of international trade agreements since such agreements are hard to enforce. Within the EU such excesses will be prevented by the “guardians of the treaties”, the European Commission and the European Court of Justice.