Schleswig-Holstein vs. the other Federal States of Germany – Agreement on new Gambling Law?

Rechtsanwalt Frieder Backu
Fachanwalt für Steuerrecht und für Informationstechnologierecht
SSW Schneider Schiffer Weihermüller
Beethovenstr. 6
D - 80336 München
Tel.: +49 89 54349-100
Fax: +49 89 54349-170
E-Mail: frieder.backu@ssw-muc.de
The present Interstate Gambling Treaty expires at the end of 2011. Therefore and since the present legislation has been criticized severely by the European Court of Justice the Federal States of Germany have to establish a new gambling law (for further details please see my article http://www.isa-guide.com/law/articles/33481.html).

1. Schleswig-Holstein

The Federal State of Schleswig-Holstein made the first step in September and passed a new gaming legislation. The new law allows online betting exchanges and sports betting, online poker and online casinos except roulette, blackjack and baccarat games. The draft has already been approved by the European Commission.

The key points of the law include:
  • from 2012 on private operators can apply for a license which will be valid for five years,
  • the number of licenses is not limited,
  • licenses issued by the state will be valid from March 1, 2012,
  • there is a 20 % tax on gross profits.
The law has been understood as provocation to the other Federals States of Germany (“Bundeslaender”) since it follows a substantially more liberal approach than the other Bundeslaender.

2. Agreement of October 28, 2011

Therefore the conference of the Laenderministers was eagerly awaited. The main results of the conference were made public on October 28, 2011. As expected the outcome does not seem breathtaking. Instead it appears that the legal chaos which has been in place for several years will continue in 2012.

The remaining 15 Bundeslaender roughly speaking agreed on a continuation of the old Interstate Gambling Treaty with some changes:
  • the complete internet ban for games of chance is abolished;
  • sports betting by private operators shall be allowed;
  • however, the number of licenses for private sports betting operators is limited to 20.
  • there is a levy / tax of 5 % on the turnover;
  • online casinos and online poker remain prohibited;
Although the details and the wording of the revised draft have not been published yet, it is doubtful whether the new law complies with Constitutional and European Law.
  • A major problem of the old law which has been criticized by the European Court of Justice will not be solved by the new law: The ECJ condemned that slot machines and gambling halls were regulated less strictly than lotteries or other games of chance which were deemed less dangerous with regard to addiction. Although the draft includes restrictions on gambling machines and gambling halls it remains unclear whether the Laender have the competence for such legislation or whether the Federal legislator will implement such restrictions in Federal Law.
  • Moreover such restrictions could lead to constitutional problems. The slot machine industry would be virtually expropriated.
  • In addition, it is not clear how a limited number of 20 licenses for sports betting operators could be justified. The European Commission and various experts already have questioned a number of 7 licenses. Why should a number of 20 licenses be appropriate? What is more, the licenses for private operators are meant to be an experiment up to a maximum duration of 5 years. However, the German legislator has been experimenting for many years. It remains open how another experiment could be justified under European law.
  • The only substantial principle which has been accepted until recently by most German administrative Courts, namely the complete internet ban for all games of chance, is abolished. It has been recognized that under such ban taxes cannot be generated. As a consequence such argumentation path is history.
  • Besides, at the current state of negotiations there will be no uniform regulation. Providers who will be licensed in Schleswig-Holstein will then be able to offer sports betting, casino games and poker from there. Whereas in the other 15 Laender only sports betting will be allowed on the internet, subject to strict conditions. It should be noted, however, that Schleswig-Holstein gave in to the pressure of the other Laender in 2007. At the end Schleswig-Holstein followed their approach.
  • These regulations as well as the state’s monopoly on lotteries are justified with the objective of combating gambling addiction even though detailed studies on the gambling addiction potential have never been presented and despite strong indications that there is no risk of addiction with regard to lotteries. This could mean the end of the state‘s monopoly on lotteries.
  • It is still unclear how the licenses will be granted. Probably this question has not been clarified yet. However, it will be a hardly manageable task to grant 20 licenses legitimately taking into account National and European public procurement law. But here, too, major disputes can be expected.
  • Finally, it remains to be seen how it can be justified at all that partially identical objectives within one and the same Member State are pursued by different, inconsistent regulations.
  • It is not unlikely that the Commission will again express their concerns about the revised draft.
  • Finally, the question is how the above listed problems which can hardly be ignored will be solved until the signing on December 15, 2011.
3. Outlook

The resolution by the 15 Laender Minsters to liberalize the gaming market in Germany to a greater extent than it had previously been planned is another step in the right direction.

However, the question is whether the revised draft will meet the standard of European and Constitutional law as it was outlined by the Commission in its detailed opinion against the revised law on July 18, 2011.

The revised draft, of course, ignores market reality. Let us give an example: according to the revised draft online poker is still prohibited. The German online poker market is meant to be one of the largest markets of the world although this market should not exist. The problem is evident: Excluding a very big part of the online market from the framework will again lead to legal uncertainty.

What is more, the fact that licenses are limited to a number of twenty raises the question how this total number of sports betting licences can be justified under European law as it seems that it is again chosen randomly.

It is rather unlikely that everything changes on January 1, 2012. It is more likely that the ambiguous situation continues in 2012. Putting aside the fact that the Commission might not be satisfied with the revised draft, Germany will end up with two (or more?) gambling laws which differ fundamentally. This will not lead to a consistent and coherent regulation under the jurisdiction of the ECJ. And the legislator again has not achieved the goal of consumer protection or of regulating the market.

The revised draft has not been approved yet. It is to be hoped that the remaining weeks are used for additional discussions and improvements.