While most of the major markets in Europe allow offshore operators to apply for licenses and offer their services to locals, the German gaming market remains—to a large degree—a closed shop. This is at a time when many countries in Europe are making steps to further liberalize the market. In 2010, Italy abandoned its protectionist policies when it came to gaming and permitted online gambling with just a few restrictions, and then in 2012 gave the green light for sports betting exchanges, cash poker and online slots. In 2010, France passed a long-awaited gaming act that permitts offshore operators to offer their services online. Perhaps the most important change of late has happened in Spain, where in May 2011, the Senate approved a wide-sweeping new gambling act that regulates the online gambling industry, created a new gaming board and allows online gambling companies to freely promote themselves in the media and via sporting events.
The lack of progress in Germany is more surprising still given the popularity of gaming amongst Germans. The casino market in Germany is one of the most developed in Europe. Germans are keen gamblers, and this is especially true when it comes to poker and sports betting. Although gambling offshore on interactive casinos is currently illegal in 15 of the 16 German states or Länder, almost 300 online sites offer products to Germans, and in the local language. Indeed, despite the current ban on online poker throughout Germany (apart from in Schleswig-Holstein), online poker remains popular and the number of players is rising rapidly. The same is true of sports betting, where it is estimated that more than 90 percent of bets made are done online via offshore operators and not through the state-owned sports betting monopoly Oddset.
So if the German gaming market were to be liberalized, what would the market have to offer potential operators? And what would be the effect of Schleswig-Holstein liberalized gambling laws on the rest of Germany? The Schleswig-Holstein gambling act of 2011 was welcomed by private operators and received no objections from the EU. Could other states soon follow suit? Or will Germany continue to cling to its protectionist measures when it comes to gaming?
For many years, Germany has restricted offshore betting sites and forbidden foreign companies to offer brick-and-mortar sports betting shops on the grounds that it had to restrict the gaming offer in order to combat gambling addiction. In 2008, the government banned offshore betting companies from operating in Germany and also allowed for the blocking of IP addresses and financial transactions with e-gaming companies. Legally speaking, Germans can only place a sports bet via one of the 22,000 or so Oddset lottery outlets which offer fixed odds sports betting on a limited number of sporting events.
In 2010, the European Court of Justice ruled that Germany’s restrictions on gaming were in contravention of European Union rules. As a result, Germany began to gradually relax its gaming laws. Under the new act, which was put forward to the EC in 2011, seven licenses would be granted to run sports betting for a trial period of five years, and a tax of more than 16 percent of turnover for licensed gaming companies would be imposed on sports betting, including German football matches. In addition, only those casinos already established in Germany would be permitted to run online casino games. However, this too predictably fell afoul of the EC and in July the commission warned Germany that the new draft would have to be amended quickly; if not, Germany could face formal sanctions and be fined for breaching EU rules.
A year later, 15 of the 16 states passed a new reform to the German Inter State Treaty on Gambling. Although the law opens the way to offshore operators, it is still restrictive and only slightly relaxes Germany’s gambling laws; it allows for only 20 locally run online betting sites and forbids most types of online gambling with the exception of live table games. In addition, live table games may only be offered by local casino operators.
As a result of the restrictive nature of the new act, it looks increasingly likely that the EC may well have something to say regarding Germany’s new gaming laws. Pressure is already mounting—in October 2012 the European Gaming and Betting Association (EGBA) filed a complaint with the EC claiming that the newly revised Inter State Treaty on Gambling was “not designed to pursue the declared purpose of conducting an open, fair and transparent Europe-wide call for bids.” And on Oct. 23, 2012, after a long and in depth public consultation, the European Commission adopted the Communication “toward a comprehensive European framework on online gambling.” The first priority set out by this framework is the compliance of national regulatory frameworks with EU law.
Meanwhile, the state of Schleswig-Holstein has adopted its own policy when it comes to gaming. In September 2011 the state passed a gaming law that opened up the online gambling sector to offshore operators. In June 2012, the state began to award licences to some of the world’s leading e-gaming companies and opened up the market to online casinos and sports betting and—although no license has yet been awarded—poker. But bad news for the industry came in July when the newly elected coalition government announced plans to reverse its gaming laws, to quickly join the other fifteen states in the Inter State Treaty on Gambling and, according to some reports, not pay any compensation to those companies that had already been awarded a license.
So what does the future hold for the German gaming market? I talked to the gambling industry’s leading consulting, market intelligence and data team, H2 Gambling Capital, which is based the U.K. According to Joel Keeble, director of mobile, poker and special projects, the land-based market is long standing and stable.
“In terms of GGY, we expect the market to grow at fairly low CAGR of 0.3 percent to 2015,” he said. “Today the market generates gross win of €739 million. Casinos are regulated at the Länder level and can pay high GGY tax of 80 percent-plus. Some of the tax pressure is reduced as employees are largely paid via tips. In terms of land-based activity, we expect the status quo to remain with around 78 casinos. But there have been a couple of closures since 2007. There is little room for increased competition in the short to medium term., with the exception of interactive live dealer gaming.”
According to Keeble, this type of gaming is where growth will come from in Germany. “Growth in the casino sector is going to mainly come from the interactive live dealer, which has been introduced under the 2012 state treaty. Only licensed land based casinos will be able to offer interactive live dealers and no other interactive casino products are allowed, meaning live dealers will be the only option for players with the land based casino gaining the most. They will of course have to sign with third-party providers or pay for a costly in-house solution. This is a big growth area, forecast to grow at a CAGR of 19 percent-plus to 2015.”
According to H2 Gambling Capital, live dealer and sports betting is the only option for the other 15 Länders, and it is unlikely that the market will be fully liberalized in the near future. But if it were to be, Germany has the potential to be one of the largest interactive gambling markets in Europe. Even under present conditions, the market remains significant, especially the online sports betting market.
“Due to the current regulation, the offshore market will remain large for casinos, but the onshore sports betting market will be larger than all offshore products combined,” Keeble said. “For 2015, we forecast the total interactive market to generate just under €1.3 billion of gross win.”
Will other states follow in the footsteps of Schleswig Holstein? According to Keeble, probably not in the short term. “The market has been opened to offshore sports betting operators only,” he explained. “There is currently a process for granting 20 licenses. The market is very unlikely to be liberalized further than this for the time being—there may be changes as of EC proceedings, but these look to be far off. Schleswig Holstein is very small, somewhere around 3 to 4 percent of the market.
“In Schleswig Holstein, licenses will continue to be issued; there have been some this week as the law is passed and must continue until repealed,” he further explained. “The current government wishes to repeal and join the state treaty with the other 15 Landers. For operators who have already been issued licenses, there will be a legal battle should the state look to revoke licenses in the future.”
It would seem that while Germany has made some concessions and has liberalized the market to a small degree, it falls short of what operators would like. For now, Germany looks more set than ever on restricting the gaming market to only a limited handful of operators and protecting its own monopoly. Consequently, the gaming situation in Germany could continue very much as it did before, meaning that the majority of Germans will turn to offshore operators to gamble, especially when it comes to online poker and sports betting.