Regulatory Blog: Germany’s new gaming laws will fuel black market warns industry giant

Jay DossetterNews

7 August 2020

Germany’s new gaming laws will fuel black market warns industry giant

In article originally published at Politico.EU, Martin Lycka, GVC's Director of Regulatory Affairs looks at the future of gambling regulation in Germany.

German gambling is on the brink of a revolution. From July 2021, regulation will come into force that will allow the registration of an unlimited number of sports betting providers, virtual slot machines and online poker games. A limited number of online casino game providers will also be permitted.

This reorganization of German gaming regulation is the result of a treaty between federal states and is subject to their individual discretion and defined limits. The treaty represents a compromise between these states, which include opponents of private gambling markets. It therefore contains restrictions on the design of the various products, as well as their advertising.

Unfortunately, from the perspective of player protection, many of these requirements are neither effective nor necessary. What they achieve, instead, is the creation of a wholly unfulfilling gaming experience for customers, rendering the measures counterproductive to their stated aim of channeling players towards licensed and legal providers. Far from opening up the market, this is a gaming revolution built on sand.

What they achieve, instead, is the creation of a wholly unfulfilling gaming experience for customers.

The restrictions include:

  • A ban of live streaming on betting sites.
  • No commercial advertising on radio and internet for virtual slot machines, online poker and casino games between 6am and 9pm.
  • A one-minute delay for customers when they switch between different games on the same internet domain, such as from sports betting to virtual slot machines.
  • A five-minute delay when switching between different gambling sites.
  • A €1 stake limit on virtual slot machines.
  • In-play sports betting limited to the final score and associated markets; however, this situation remains unclear.

Due to the many restrictions surrounding the new rules, licensed products will be much less attractive and less competitive than their unlicensed counterparts. There is, therefore, a huge risk that customers will move to the black market, where there is zero responsibility, zero protection and zero tax being paid. This risk is compounded by some of the hardliners among the federal states, who have sought to impede legitimate operators and payment service providers. The federal state of Lower Saxony, for example, has asked various payment providers to block customer payments to operators of online services such as poker or casinos.

Regional inconsistency is inevitable for online casino table games. The 16 German states will be free to prohibit such products entirely or impose limits, either unilaterally or in tandem with other states. Given the limited number of concessions that may be permissible, monopolies or oligopolies will likely form. Clearly, this means an unlevel playing field and is, therefore, highly questionable under EU law. This also contrasts with the legislation’s provisions for virtual slot machines, online poker and online sports betting, which can be offered nationwide in an open permit model.

There is, therefore, a huge risk that customers will move to the black market, where there is zero responsibility, zero protection and zero tax being paid.

The new treaty also requires extensive storage of data, by central authorities and operators. Stored data will include all player deposits and information on the prevention of parallel play across providers. Sharing of data will be required to enforce these measures, which could constitute a breach of data protection rules.

This type of data falls under the protection of the Charter of Fundamental Rights of the EU and is particularly sensitive, because it allows conclusions to be drawn about the financial situation and health of the players. According to the established case law of the European Court of Justice (ECJ), the processing of such personal data must be “limited to what is absolutely necessary”.

Unfortunately, under the new German gambling treaty, the data of all players will be recorded in a blanket manner without any pattern of problematic behaviour necessarily existing. Both the German Federal Constitutional Court and the ECJ regard such retention of telecoms traffic data as a “particularly serious encroachment on fundamental rights”.

Appropriate monitoring is necessary, but the federal states fail to make the vital distinction between addicted and non-addicted players. Clearly, players not in danger of becoming addicted do not require any further protection. Therefore, some data storage is necessary, but only that which records the data of players who actually have an addiction problem and not the information of those wagering a few euros on the weekend football.

Before the new state treaty can enter into force, the German government must send it to the European Commission for approval. This is a mandatory step for some laws, especially those relating to online services.

The Commission will examine the draft law for its compatibility with EU law and assess the potential for any unlawful restrictions on fundamental freedoms. The new gaming regulation, which will see state monopolies in individual German federal states competing against concession models with approved private providers in other states, will probably give rise to concerns about its lack of consistency, a key ECJ requirement of national laws. As such, the new regulation runs the risk of being diagnosed as incompatible with EU law and thus partly inapplicable.

The  Commission has already lodged extensive criticism of previous adjustments to German gaming regulation in both 2017 and 2019, illustrating this is a subject it takes seriously. In particular, the Commission bemoaned the fact that a prohibition on online casino games in Germany was continued despite authorities not complying with their responsibility to assess the adequacy and effectiveness of this ban. In 2011, the Commission also questioned the economic viability of fixed betting limits. This criticism was also the subject of their 2017 notification, which makes it likely the same point will be raised again.

In principle, the new German measures are an important step towards modern regulation of people’s digital lives. However, Germany has missed a massive opportunity to follow the likes of Denmark, Spain and Italy, which allow all products in a competitive open permit model and is in compliance with EU law.

Efforts to criminalize and prohibit on the basis of the current legal situation, which is unlikely to comply with EU law, is misguided and counterproductive. In order to achieve the goal of the new state treaty — channeling players towards licensed and legal providers — German lawmakers must work with the European Commission to devise a safe, user-friendly and attractive gaming sector.