Bwin Bottoms on EU Test of German Gaming Monopoly

Bwin Interactive Entertainment AG, Germany’s biggest private online sports-gambling company, may win a legal fight that threatens 118 million euros (USD 188 million) in annual revenue, or a third of its take.

Johannes Caspar, a law professor at Hamburg University and legal adviser to the Schleswig-Holstein state legislature, says the Vienna-based company may succeed with lawsuits challenging a January 2008 ban in Germany on Internet sports wagering. Bwin argues the prohibition, approved in all 16 German states, violates European Union law.

„It won’t stand the test at the European Court of Justice,“ Caspar said. The EU‘s executive arm started „infringement proceedings“ against Germany Jan. 31 over the state laws, a process that may lead to its own lawsuit.

Bwin may return to 35 euros, a 54 percent rise from the shares‘ closing price of 22.38 euros in Vienna yesterday, if the ban is overturned, said Christine Reitsamer, 27, an analyst for the German banking firm Sal. Oppenheim Jr. & Cie.

The shares today rose 92 cents, or 4.1 percent, to 23.30 euros in Vienna trading.

Reitsamer, who’s based in Vienna, has a neutral rating on the stock, which she doesn’t own. Bwin has lost a third of its value in the last 12 months.

The prohibition threatens the German online gaming market, which produces revenue of about USD 900 million a year, according to Warwick Bartlett, a partner at Global Betting & Gaming Consultants in West Bromwich, England.

Still Open

Bwin has kept its German Web sites open following the bans, as have competitors led by Sportingbet Plc, 888 Holdings Plc and PartyGaming Plc.

The company fell 7 percent March 17 after losing an interim ruling in a case brought by a state monopoly company to enjoin one of the company’s operations in Germany. Bwin has filed lawsuits against several German states, which have countersued.

The new gaming laws are the latest effort by all 16 states to preserve sports-betting and lottery monopolies. Their previous attempt in 2004 was ruled illegal by Germany’s Federal Constitutional Court in 2006.

The judges gave the states until the end of 2007 to change their laws. They said the governments can keep the monopolies if their prime goal is to combat gambling addiction and protect consumers, not to generate income. The states approved amendments to combat gaming habits. Their bans and revisions went into effect Jan. 1.

Illegal Offers

The association of state monopoly companies, Deutscher Lotto- und Totoblock, took in 276 million euros in sporting-bet sales before paying off customers in 2007, about 20 percent less than the year before. The association said the decline was caused partly by „numerous illegal offers“ from Internet betting companies.

Bwin had gaming revenue — sales minus customer winnings — of 353.5 million euros last year, according to preliminary figures. A third came from Germany, according to Reitsamer and other analysts. The company is scheduled to release its 2007 earnings tomorrow.

The company holds a license from the former German Democratic Republic that was issued after the fall of the communist regime and before reunification in 1990. It also has a permit from Gibraltar, a U.K. territory that is part of the EU.

Citing legal promises made at reunification and the pre- emption of EU law, Bwin argues neither license can be voided by the new state bans. German courts have been spilt on the legality of the revised laws, creating a conflict for appeals.

Court Rulings

„One day a high court will clear up this mess,“ said Clemens Weidemann, an attorney with Stuttgart-based law firm Gleiss Lutz, who represents Bwin in some of the cases.

Like Germany’s constitutional court, the European Court of Justice said in previous cases that a government can regulate gaming markets if rules are „consistent and systematic.“

Germany may not pass that test, the European Commission, the EU‘s executive arm, said in its Jan. 31 warning.

„A member state cannot invoke the need to restrict its citizens‘ access to these services if at the same time it encourages them to participate in state games of chance,“ the regulator said in a statement.

The commission cites Bwin’s argument that state rules are inconsistent because they don’t apply to horse betting or to slot machines and electronic devices in gambling halls.

„No one in Europe will understand that contradiction,“ Weidemann said. „You can’t explain that you need a monopoly for dog-race betting but don’t need it when horses are running.“

Preparing a Reply

The new gambling rules violate European rules because they lack a coherent approach, Hans-Detlef Horn, a Hesse Administrative Appeals Court judge and professor of European and German public law at Marburg University, said in an interview.

The German states are preparing a reply to the commission’s position, said Eric Braum, a spokesman for the Hesse government in Wiesbaden. He declined to comment further.

Joerg Ennuschat, a law professor at Konstanz University, said it’s not certain that Europe’s top court will strike down the ban. The Court of Justice doesn’t oppose monopolies per se and may allow them in one branch of the gaming market, he said.

„The judges could argue that there’s a difference between sports betting, where one operator receives big sums of money, and a gambling hall, where the takes are rather small,“ he said.