Erich Honecker proclaimed as late as in the year 1989 – the year the Berlin wall came down – that this wall separating East Germany from West Germany would stand for another 50 or 100 years, when in fact “his people” had already set out for the West via Hungary and Romania. Today we are facing the question of the degree to which the wall currently surrounding the German state monopoly on sports betting has retained its strength. Can this “wall” in the form of a monopoly withstand the coming decades (and if so, should we approve of it), or is it irretrievably torn down even today (and would that be the effect of the law)?
The fact that in March 2006 the Federal Constitutional Court held that gambling monopolies were not inherently inadmissible could be seen as strengthening the case for the monopoly’s survival: the German state monopoly on gambling could thus be said to have at least a theoretical right to exist.
Right before PlacanicaThis right to exist was recently confirmed by Jean Bergevin, head of unit in the European Unions’ Directorate General Internal Market and Services, when speaking at a conference in Trier from 8-9 February 2007 organised by the Academy of European Law (Europäische Rechtsakademie ERA) and entitled “The Future of Gambling in the Internal Market – The demise of state monopolies?”. However, this proved no real cause for happiness among the gambling officials of the Länder who had turned out in large numbers: the influential EU politician Bergevin expressed severe discontent over plans to use ISP-blocking, and thus an ineffective tool, to control the internal market of online gambling in times of the internet. For details to the „ISP-blockings“, please refer to BLN 5/06. There Rechtsanwalt Dr. Hendrik Schöttle (Hambach & Hambach) summarised as follows:
„The State does not dispose of any effective means to block unwanted internet sites against access from Germany. Current methods can easily be suspended with as little as two mouse clicks without even the need for any special knowledge or additional hard- or software. In addition to that, it is not technically possible to ensure that a particular blocking will not also affect numerous other offers which had never been targeted by the original blocking order. And where only one or two websites are supposed to be blocked, a system is additionally required which will allow for regular automatic updates of the blocking lists. In the light of intense financial demands and the great number of staff needed, in the light of extensive collateral damage, and not least in the light of the fact that everybody can easily manage to circumvent blocking orders, each such order must be seen to fail the proportionality test and therefore as being against the law.“Bergevin made similar remarks in Trier: he spoke of the measures in question as “unproportional“ since they affected the wrong kinds of people and had too much of an impact on people not otherwise involved. According to Bergevin, recent experience in the USA provided evidence for this disproportionality in that the aforementioned measures lead to extremely high costs for all those concerned. The said disproportionality would then inevitably lead to a rise in the number of law suits, which in turn could not fail to increase legal uncertainty.
Bergevin went on to point out that as a consequence of a complete ban as described above, consumers would move from private internet gambling sites to those sites which where not controlled by the EU authorities and which could not effectively be blocked to consumers given how easily such bans could be circumvented. Users would thus migrate into the grey zone of the gambling market where due to the absence of control they would be helplessly exposed to fraudulence and other dangers. The influential EU politician therefore emphatically called on Member States to finally start fighting against what he called the „real illegal gambling“.
Professor Siegbert Albert (former Advocate General at the ECJ – i.a. in the Gambelli case) and the director of the ERA, Dr. Wolfgang Heusel, took the same line. The latter stressed that in the light of the EU principle of non-discrimination one could not really speak of “illegal providers” in the case of EU-licensed gambling companies since to do so would run counter to the realisation of the internal market. Dr. Heusel noted that if the EU internal market as introduced in December 1992 truly was, as stated in Article 14 of the EC Treaty, an area without internal frontiers in which the free movement of goods, persons, services and capital is to be ensured, then a refusal to mutually recognise EU gambling licenses was always going to be problematic and would remain so. In connection with his claim for a mutual recognition of EU gambling licences Prof. Albert emphasised the urgent need for a control of gambling through EU-wide cooperation between gambling control agencies which would have to be set up in individual Member States (cf. http://www.ra-hambach.com/cms/front_content.php?idart=122). He maintained that provided an adequate justification was advanced (such as the promotion of general interests) it would even be possible for individual Member States to arrange for revenue-based tax liability of gambling companies in a manner which was in conformity with EC law. When asked about the threat of gambling addiction in the context of private gambling providers, Prof. Albert dryly remarked that the issue of addiction was merely being abused in order to justify a state gambling monopoly – all persons of age who were determined to gamble away their fortune could do so in state gambling just as well as they could in private gambling. Prior to this Robert Young of the London based economics consultancy Europe Economics had already stressed the need for further research in the field of gambling addiction. According to him, studies so far – particularly those on the British gambling market – indicated that a broadening of gambling services on offer in the context of a liberalisation of the gambling market did not automatically lead to a rise in the number of problematic gamblers.Shortly after the ERA conference the German Football League (Deutsche Fußball-Liga GmbH DFL) and the German Football Association (Deutsche Fußball-Bund DFB) published an opinion by Professors Dr. Rupert Scholz und Dr. Clemens Weidemann which dealt with the legality of the Draft for a Treaty on Gambling dated 14 December 2006. Much to the chagrin of the proponents of the monopoly, and in accordance with the interpretation of the law as advanced by the abovementioned critics of the monopoly, Professors Scholz and Weidemann declare that the draft, which is presently in the process of being ratified, is in violation of both German Constitutional and European Community Law. With regard to the incompatibility of the new draft with EC Law their argument goes as follows:
The burden of proof concerning the necessity and proportionality of restrictions to the principle of freedom is on the Member State. The Draft Treaty does not live up to these requirements as established by the ECJ. Germany is far from having a coherent and systematic policy approach to a restriction on gambling. The different approaches taken with regard to the licensing of private providers in such important areas as horse race betting, casinos and gambling machines on the one hand, and general sports betting and lotteries on the other hand, are clearly in contradiction to the respective addictive potential of such gambles as recognised by the gambling authorities of the Länder themselves. A true coherency in gambling law cannot be achieved for the simple reason that the Bund (Federal State) is not considering the introduction of an administrative monopoly with regard to gambles regulated by Federal Law (horse betting, gambling machines), while according to the Draft Treaty such an administrative monopoly is to be established in all other areas of gambling.On the issue of the incompatibility of the new draft with EC Law the legal opinion continues as follows:
An administrative monopoly in selected areas of the gambling market is not even necessary according to the criteria of Community Law (as interpreted by the ECJ). There are no indications that the areas of gambling dealt with in the Draft Treaty show any heightened addictive potential compared to other areas of gambling in which private providers are allowed to continue as before on the basis of Federal Law, nor have the Länder ever claimed that there were any relevant indications that such was the case.In addition to that, the legal opinion finds that there has been an unjustified violation of the principle of free movement of payments as enshrined in Art. 56 (2) of the EC Treaty and a violation of the EU principle of freedom of competition. The legal consequences of a contravention of the basic freedoms are spelled out by Professor Müller-Graff of the Heidelberg Institute for German and European Commercial and Economic Law (Institut für Deutsches und Europäisches Gesellschafts- und Wirtschaftsrecht) in the legal commentary “EGV-Kommentar Streinz”:
In the case of an (…) incompatible restriction in the form of Member State action such restriction is prohibited by the law. The prohibition is directly applicable, which means it has to be followed by all Member State authorities and courts. Any contravening Member State law of whatever kind cannot be applied by national courts due to the primacy in application of Art. 49. Individuals as well as companies or firms within the meaning of Art. 48 EC accordingly have a subjective right to freedom to provide cross-border services.
“It follows from the current legal situation in the Free State of Bavaria that the legal opinion of the District Court to the effect that the definition of an official authorisation in § 284 extends to those licenses which have been granted to a bookmaker resident in a Member State of the Community in accordance with that Member State’s law cannot be challenged by way of appeal.”
„that on the basis of the aformentioned reasons an application of § 284 of the Criminal Code is out of question even for the period of transition (so-called “new-cases”).
The Court of Justice has given a clear signal towards the liberalisation of the sports betting market. While the decision itself was concerned with an Italian case it also bears on the German market. In the opinion of the ECJ, „that blanket exclusion goes beyond what is necessary in order to achieve the objective of preventing operators active in the betting and gaming sector from being involved in criminal or fraudulent activities. Indeed … there are other ways of monitoring the accounts and activities of operators in the betting and gaming sector which impinge to a lesser extent on the freedom of establishment and the freedom to provide services.“ If such stringent demands are applicable to liberalised markets such as the one in Italy they have to apply a fortiori to state monopolies as found in Germany.
The CDU Parliamentary Group of Schleswig-Holstein has argued in favour of opening up the sports betting market and has presented an alternative draft for the Treaty on Gambling on 6 March 2007. This draft envisages a licensing of German and foreign sports betting operators. Several representatives of sports betting operators active on the German market already indicated that the (other) draft for a Treaty on Gambling (which is currently being signed and is in favour of the monopoly) could no longer be justified in the light of the Placanica decision. The chairman of the Bavarian CSU Parliamentary Group, Joachim Herrmann, equally declared himself in favour of rethinking the present draft Treaty by the Länder in the light of Placanica. “After all it is still unclear how a common position of all the Länder including Schleswig-Holstein is to be achieved” Herrmann said in a press release of the Bavarian CSU Parliamentary Group.The former Advocate General Prof. Siegbert Alber commented on Placanica as follows:
Monopolies cannot and should not be the only means of regulating gambling. Granting licenses can serve the same objectives. The justifications advanced for the Italian monopolies in the Placanica case are far more candid than statements by other Member States in that Italy admits that its scheme of simultaneously granting licences aims to increase revenue and wants to fight only illegal gambling operators.Summary If the monopolists succeed in convincing the judges at the Federal Constitutional Court of their legislative motives, which are essentially regulatory and not influenced by financial policies, the “wall” surrounding the gambling monopoly has a good chance of continuing to stand, however fragile it might already be. This way the alleged irrelevance of fiscal interests becomes the decisive factor in further developments. But one thing seems certain: the pressure which the European Commission exercises on the German “wall” of the gambling monopoly is very strong indeed. Just as Ronald Reagan, standing in front of the Berlin Wall in June 1987, shouted in the direction of Moscow: “Tear down this wall“, the EU Commissioner for the Internal Market, Charlie McCreevy, now wants to tear down the walls of the state gambling monopoly. Being asked recently whether he believed that state-owned providers were truly less profit-oriented than private providers and rather more oriented towards general welfare, he replied:
I don’t believe a word of it. Of course state lotteries are just as interested in profit. Many of them invest several millions in advertising. What do you reckon, are they doing it for the sake of general welfare – or to increase their turnover?