Total ban undermines player protection argument in Germany

Total ban undermines player protection argument in Germany

Friday, August 12, 2016 Posted by Andy McCarron
German attorney Dr. Joerg Hofmann says the ban on online gaming is counter productive

Germany is a huge gambling market, but the online sector has had some issues gaining access for casino gaming, while sports betting regulation remains opaque. caught up with German attorney Dr. Joerg Hofmann of MELCHERS Rechtsanwälte Partnerschaftsgesellschaft mbB to discuss the latest developments in German law. Hofmann is speaking at Octobers’ EiG Exhibition in Berlin on 18-20 October. Find out more here. What stage are we at with German gambling legislation at the moment? There are no online licences, but there appears to be a lot of online activity in the market?

Dr. Joerg Hofmann: At the moment we are experiencing an exciting period of transition and upheaval in relation to German gambling legislation – the focus clearly being on sports betting, but the final outcome of which remaining an open question. The current drafts for amendment of the Interstate Treaty, which in large parts has been confirmed to be unlawful and to contravene EU law, abolish the original licence cap of 20 and allow for sports betting operators, who in the failed sports betting licensing process have demonstrated that they fulfill the minimum licence requirements, to operate under a toleration and/or obtain a preliminary licence once the amended Interstate Treaty enters into force.

Online casinos at the moment are not on the agenda or mentioned in the drafts for amendment of the German regulators – the state of Hesse being an exception. Hesse has strongly advocated a broad reform which would include establishing a licensing regime for online casinos and is considering to drop out of the Interstate Treaty in order to potentially pursue its own gambling regulation, should the other German states stick to the plan of only making minimal adjustments to the existing legal framework.

This approach must be welcomed and I have my doubts that the approach taken by other German states can be justified. In order to guarantee player protection reliably and consistently the responsible authorities lack the necessary knowledge and understanding of the online gambling market and the many technological and other opportunities it offers. They fail to understand that they have the chance to regulate and organise this sector and can thereby ensure player protection.

Also, preconceptions and hidden individual interests that go way back are still getting in the way. The next 12 months provide for an opportunity for a new beginning – other EU countries might act as good examples of how this new beginning could look like.

TG: Is there a desire for online regulation from players? What’s been the hold up?

JH: Primarily, I would say that players want to play. Of course, in determining where to play, players will include certain factors such as the attractiveness of the product and the reliability and trustworthiness of the operator into their decision making process. Since all market leaders, however, already are reliable and trustworthy, I would consider the desire for online regulation from players to be more of secondary nature.

For example, there may be an interest to have legal clarity on whether the player’s actions are legal – provided of course, that the player is at all concerned about this issue. Also, players may have an interest to be able to resort to an official body in situations where problems arise or when they seek help in general. The biggest hold up for online regulation - and as a result consumer protection - clearly has been the total ban on online casinos stipulated in the law.

The total ban has proven ineffective to achieve its goals – it has neither eliminated the existing online offerings, nor protected players in the existing market. The total ban is the biggest contradiction in the player protection-orientated argumentation for restrictions on gambling.

TG: Was the Schleswig-Holstein licensing doomed to fail even before the change in government in the lander?

JH: Absolutely not. The Schleswig-Holstein licensing has been and continues to be a good regulation which works, despite its limitations and restrictions affecting the offering. The Schleswig-Holstein regulation has not failed. The shift of the standards to those of the Interstate Treaty was merely a result of a change in government. If one were to compare the different approaches taken in relation to gambling regulation in Germany one would first find there to be three different approaches - (1) the Interstate Treaty approach (2) the former Schleswig-Holstein regulation and (3) the Hessian proposals for a broad reform – and then have to come to the following conclusions:

(1) The Interstate Treaty approach has failed to achieve any of its goals, has been and will continue to be challenged in courts for years to come and has been confirmed to violate EU law.

(2) The former Schleswig-Holstein regulation has worked and if it had not been repealed would most probably continue to work and apply to a larger circle of addressees. By the way, who is saying that Schleswig-Holstein cannot be brought back to life? There are elections in Schleswig-Holstein next year.

(3) The state of Hesse has learnt its lessons from both regulations and is trying to show up a new way of how gambling could be sensibly regulated in Germany – or at least Hesse in a first step if the other German states require more time to realise that broad reforms are needed.

TG: Where does the legislatory process leave other gambling sectors? Are they pushing for change for their own regulations or do they want to be left alone?

JH: As will have become apparent from the above, the online casino sector is interested in a sensible licensing framework. The operation of lotteries remains reserved for the state monopoly. A detailed regulation has been developed and established for land-based casinos over decades. Land-based casino operators are primarily interested in securing a competitive position by pushing for sensible market conditions and a bearable tax load. Some casinos have noticed the online sector and consider it to provide opportunities for them subject to it being regulated sensibly.

The current Interstate Treaty subjected operators of gaming halls to very strict restrictions, which threaten their very existence. Gaming halls e.g. have to maintain a certain minimum distance to other gaming halls, schools, addiction centres etc. The gaming hall operators are challenging this legal situation. Other forms of gaming, which are often associated with gambling, such as social gaming, eSports, DFS etc. have so far not been identified by the German regulator to require specific regulation.

TG: What issues does the European Commission have with the German law as it stands?

JH: The European Commission has had its issues with the Interstate Treaty right from the get go and recently very heavily criticised the German gambling regulation in its pilot letter of 30 June 2015 when it initiated a pilot process, i.e. a pre-stage to infringement proceedings, against Germany. The answer given by the German states to the questions raised by the European Commission are unlikely to satisfy the European Commission’s concerns on the lack of an EU compatible regulation of sports betting and online casino as well as the overall inconsistent gambling regulation in Germany.

The Court of Justice of the European Union confirming that an unlawful de facto monopoly on sports betting continues to exist in February 2016, adds to this notion.

The total ban on online casinos, however, acts as the best example to illustrate why German gambling regulation cannot be found to be compatible with EU law. The total ban is justified by its supporters with gambling addiction arguments. It is argued that is prevents gambling addiction. This would be true if the total ban, which prohibits all kind of online casino gambling, were indeed able to achieve that no online casino offering exists and nobody can participate in prohibited online casino games.

Evidently, as the last 10 years very clearly demonstrate, the total ban has 100% failed to achieve this. The online casino market is constantly growing and millions of German players are confronted with an unregulated and (from the states’ perspective) uncontrollable online casino offering on a daily basis. As a result, the German states fail to prevent gambling addiction and to ensure player protection in this sector, i.e. the goal which they set out to achieve.

Restrictions of the European freedoms, however, have to be justified in order to be compatible with EU law. We may therefore expect the European Commission to initiate formal infringement proceedings against Germany unless the German states have the current regulation undergo a true and complete reform.

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