Online gaming in Germany – a legal minefield

Author: George Mangion
Published on Business Today 1st April 2019

One thing I can tell readers is that online gambling is popular in Germany. More importantly, not a single German has ever got in trouble by placing a bet over the internet.

Having said that, Germany is one of those places where it’s definitely illegal to host a gaming site, but the legality of just placing bets online is uncl ear. Legal battles in Germany mostly revolve around the right of operators to offer their services to the public.

The difficulty in discussing the German market is that the laws have experienced a great deal of turbulence in recent times. Adding to the confusion is the ability of each state to regulate gambling how it sees fit. Many will tell you that Germany has a mix of wide-reaching national laws regulated by more limited state laws.

Up until 2008, online gambling was unregulated in Germany. As can be expected, the laws previous to 2008, didn’t address the internet in any way. Things changed when the Interstate Treaty on Gambling was passed in 2008. This effectively banned all forms of online gambling other than sports betting and horse racing offered by state-owned monopolies.

As can be seen in this article, some forms of betting are allowed in some states while most others are banned. It was more than six years ago that I travelled to the German state of Schleswig-Holstein where at an impromptu organised conference, I enjoyed listening to a debate by experts on the topic of online licenses that were planned to be issued on an exclusive basis in this northern state.

Looking back with nostalgia, one lauds the legislative adventure pioneered by Schleswig-Holstein which led to the issue of a limited number of gaming licenses. These licenses are still valid but they are limited in scope to the territory of Schleswig-Holstein and were due to expire in 2018.

From January 2012 until February 2013, the state of Schleswig-Holstein pursued its own gambling policy, which included granting online casino and sports betting licences at the same time, omitting to join the complete ban instituted by the other 15 states in the Interstate Treaty. No doubt, this unilateral move created an anomaly and it was in March 2017 when there was a collective drive by all leaders of Germany’s 16 Bundesländer to regularise the situation.

They voted to approve a new Interstate Treaty on Gambling. This had to take effect on 1st January 2018. In essence, the Interstate Treaty generally prohibits the operation and brokerage of online games of chance. The only exceptions concern sports betting, horse race betting and state lotteries.

Online casinos therefore are not currently licensable. Such restrictions were challenged under the EU law and test cases have instituted more pressure on Germany to relax its online prohibition. Slowly, this led to reforms that were initiated by the 16 Lander at the end of 2016. Unfortunately, these are referred to as minimalist reforms since they only concern sports betting.

But an over-arching condition of the Interstate legislation required the unanimous approval of each state’s legislature. The fly in the ointment was that legislators in Schleswig-Holstein voted to opt out of the treaty. In a curious twist of legislative history, Schleswig-Holstein had announced its intention to team with the state governments in North Rhine-Westphalia, Rhineland-Palatinate and Hesse on a new regulatory scheme based on its own original licensing regime. It hoped the rest of the states would eventually join.

Sadly, the horse was taken to the water but refused to drink. All this in a country with the largest economy in the EU family and it is not a surprise how online prohibition has consistently led to the industry’s growing impatience with the country’s 16 states in their failure to put together a cohesive strategy.

In fact, only three years ago, the EU ruled that Germany cannot continue to penalise or restrict unlicensed foreign operators, because it made it impossible for them to acquire licenses. The only exemption was Schleswig-Holstein, which as stated above, has challenged the rest and allowed for online casino licences to be issued.

The good news for gaming operators that went through the trouble of getting licensed in 2012/3, this empowered them to operate under a six-year license. These included real money casino games and poker to players within the state of Schleswig-Holstein until end 2018.
As things stand now, online gambling is largely outlawed across Germany with the exception of the two dozen or so operators who signed licenses to operate in Schleswig-Holstein. There are no other legal gaming sites in the 15 Bundesländer and there’s no way to obtain a valid license to offer games.

Recently talks started to pave the way for an interim solution. This agreement opens the way for the state of Hesse to start accepting applications for sports betting licences. The state of Schleswig-Holstein which had previously broken away from the inter-state treaty to set up its own online gambling licensing system which expired last year, will grant a short extension to its 23 licence holders till June 2021.

Quoting Steinkrauss (managing director of Merkur Sportwetten): “A new licensing process will take place with permits beginning in 2020 without a limit on the number, but would only be valid until June 2021, which is a quite unreasonably short time-frame.” He said that the agreement was no more than “an interim plaster rather than a long-term solution”.

The unhappy situation for foreign operators is that the status quo will prevail in Germany for the foreseeable future. Does this mean German-facing sports betting operators holding licenses in other European Union jurisdictions can continue to serve their German punters provided they pay attention to anti-money laundering responsibilities and don’t violate advertising restrictions.

One cannot but mention the deleterious effect in the media by the publishing of the so-called “Panama Papers” in November 2017. Newspapers commented on the role of various large German banks which were involved in payment transactions for private gambling operators.

The pay-out of winnings arising from supposedly unlawful gambling could be regarded as money laundry resulting out of aiding and abetting the illegal organisation of gambling. This has added more pressure on state regulators to tighten the screws on casino operators especially where AML rules are concerned.

No doubt, it will further strengthen their resolve to maintain the status quo on the uncertain licensing regime prevailing in Germany.

George Mangion

Author: George Mangion
Published on Business Today 1st April 2019
Get in touch: | +356 21 493 041

Daily fantasy sports – baptising a new Unicorn

Author: George Mangion
Published on Malta Today 3rd February 2017

It started in 2004 when Malta saw the promulgation of online gambling licences and since then there has been a steady growth in the industry, albeit little or no change in the regulations. Sadly, it was in 2006 when online gambling was decreed illegal in the USA by President George W. Bush and this single law has since exterminated the unstoppable online poker industry in the USA. Since this enactment, the growth of poker, which fuelled the rise of so many transatlantic operators, started to fade. Observers hoped that with the proliferation of social media, the improved speed of the internet and cheap smartphones this technology would blazon the path for another Renaissance overshadowing the stricken US poker king.

Back in Europe, since the mid-twenties, there has been a gradual change of heart as some of the member states which previously banned online gambling (to protect their own monopolies) have started offering licences, albeit at a high tax rate. Betting companies licensed in Malta argued that if an operator is legally licensed and fully regulated in one member state (say Malta) then using the logic of the freedom of services, there should be no restrictions to provide services in other EU countries. Still, access was denied by countries such as France, Spain, Italy and Germany, which opted to protect their own domestic gambling empires (mainly horse racing, lotteries and land based casinos).

Following pressure from the European Commission (starting with the Gambelli ECJ court ruling) such countries allowed entry into their markets to accredited foreign operators – some at a high application fee. This means that operators licensed in Malta paying local gaming tax will also need to apply for a foreign licence and pay extra gaming (not corporate) tax in the country where their foreign players are domiciled. Changes in VAT regulations also made it obligatory to charge VAT on bets for players residing in countries where it is not exempt. This again, has added another overhead cost to local operators wishing to provide trans-border business. Nevertheless, the industry in Malta is regarded as a major hub in Europe. It did not let grass grow under its feet and a number of studies were commissioned to Big Four audit firms and other experts to pave the way for innovation.

Two years ago, over €2 million in consultancies were invested by the Malta Gaming Authority (MGA) to spawn the Unicorn that will lead the nascent industry to greener pastures. The new-born Unicorn is christened as the protégé of skill-based gaming. This is a clever variant to classic board games untainted by the spicy flavour of major gambling tournaments.

Really and truly it offers participants a chance to compete based on one’s ability. Today, games of skill are available on most major media sites like AOL, MSN, and Yahoo, and are complemented by an emerging electronic sports industry that lets professional gamers compete in popular video games with real money at stake. In this regard, the local “Skill Games Regulations” have been notified to the European Commission as part of the process for the Gaming Authority to roll out its licensing framework and start to regulate such skill-based games, including fantasy sports.

Last year saw a legal notice in Malta which facilitates the recognition of fantasy skill games. The Minister for Competitiveness and Digital, Maritime and Services Economy, approved Legal Notice 271 of 2016, entitled the Fantasy Sports (Exemption) Regulations (S.L. 438.10), exempting fantasy sports from the requirement of a gambling licence issued in terms of the Lotteries and Other Games Act (Chapter 438 of the Laws of Malta) or the Remote Gaming Regulations (S.L. 438.04).

This initiative has borne fruit and last year we saw the first major DFS company apply to relocate its business in Malta. Typically, Oulala is a French company based in Malta since France does not yet shelter any major DFS providers but may soon join in the fray. It is already licensed by the UK Gambling Commission and last year struck another deal with the Cardinal House Group to expand into the Australasian and Indian subcontinent markets.

In the meantime, Oulala has struck a deal with Game Interaction Group Ltd., to introduce its model in the Italian regulated market. The latter provides a modular gaming platform which has already been certified in Italy. Quoting Francesco Arena, CEO of Game Interaction Group, he commented that DFS is taking off in Europe so we’re looking forward to offering something new to our clients, besides what we already offer within our existing platform.

Quoting MaltaToday, it announced this week that Draftkings has been granted a controlled skill games licence that will allow it to operate in Malta and other European Union states. Its users can place bets on fantasy sports related activities, potentially winning money based on their ability to predict professional sports results. Uniquely, the game is considered a game of skill, rather than chance.

Jeffrey Haas, the company’s chief international officer, said there is some controversy in the US regarding whether the company’s activities constitute gambling. The company strongly argues that the game is purely based on skill. It is good to note that recently, the company reached an agreement to merge with FanDuel, making it the largest company in the daily fantasy sports industry, with a combined five million users.

Here one may ask: what are the chances that DFS are allowed to penetrate the vast pool of players in the USA – a primary market. The answer is that already eight states in the US allow such skill games but for example not in Nevada. Last year, daily fantasy sports was approved in New York when Governor Cuomo signed into law a bill that said it did not matter that the popular pastime walks, talks and smells like good old-fashioned sports betting – it really is a game of skill and merely a form of entertainment.

However, it’s extremely unlikely that any new operator will be granted a licence in Nevada because of the legal implications of being termed “gambling” in a US jurisdiction. In Nevada, it is the casino industry lobby which appears unwilling to allow DFS to enjoy a lower barrier to entry, meaning less regulation and taxation.

This raises the question – are DFS tournaments gambling? The industry argues that cash-based tournaments in games of skill are not considered gambling because the generally accepted definition of gambling involves three specific things: (1) the award of a prize, (2) paid-in consideration (meaning entrants pay to compete) and (3) an outcome determined on the basis of chance. Without all three of these elements, a cash competition is not classified as gambling.

In the case of DFS tournaments, outcomes are not determined by chance, but are rather achieved through a player’s skill or ability, requiring a physical or mental ability and a learned capacity to carry out a result. These games commonly include the use of strategy, tactic, physical coordination, strength, technical expertise, or knowledge. By contrast, games requiring skill like poker, blackjack, etc are games with an outcome strongly influenced by random chance or uncertainty, making use of randomization devices such as dice, playing cards, or an inbuilt random number generator. To conclude, the race is on for the new-born Unicorn (soon to enjoy superior 5G technology) to trail blaze a bright future for fantasy games following a gradual opening in the US market.

Author: George Mangion
Published on Malta Today 3rd February 2017
Get in touch: | +356 21 493 041