Germany: Federal Administrative Court decides unlicensed gambling remains illegal

German gambling regulation and its enforcement have been subject to cyclical fluctuations for more than a decade now but the outcome always remains the same: organising unlicensed gambling is prohibited by law, no licences are granted, the authorities increasingly fail to enforce the law as courts hold the law to be in conflict with either the German Constitution or the EU Treaty, a new law comes into force banning unlicensed gambling and a new cycle starts.

On 27 October 2017, the Federal Administrative Court published a press release on a decision confirming the current ban on unlicensed gambling. The Federal Administrative Court upheld two prohibition orders issued by the authorities of Baden-Württemberg against online games and sports betting operators based in Malta and Gibraltar. Even though this decision does not seem to fit into the above described typical lifecycle of German gambling regulation it is unlikely to change much. As regards the organisation of unlicensed sports betting, the decision is unlikely to have a great impact because it concerned operators who did not apply for a licence. Operators who unsuccessfully applied for a licence under the current regime can continue to rely on a number of lower courts' decisions according to which the licensing process was run so badly that the prohibition of unlicensed gambling infringes the applicants' freedom of services guaranteed by the EU Treaty.

As regards the organisation of unlicensed online games other than sports betting, the decision is consistent with earlier decisions of the court confirming the legality of the general ban on online games. Irrespective of the relatively clear position of the Federal Administrative Court on this point, many operators continue to offer online games of chance in Germany. According to a gambling law evaluation report published by the state of Hesse in spring 2017, unlicensed online casino games and poker are offered on 487 German speaking websites and the amount of stakes placed from within Germany amount to a total of EUR 30 billion annually. Many authorities are hesitant to enforce the general ban as they have learnt the lesson of the typical lifecycle of German gambling regulation described above and do not trust that the differentiation drawn by the Federal Administrative Court will hold at EU level. Furthermore, they have learnt how difficult it is to enforce prohibition orders against operators based abroad. It is not surprising that in this situation more and more authorities are raising their voice in the political process and strongly arguing for a radical reform of German gambling regulation. The above mentioned evaluation report concludes that an unlimited number of licences for sports betting, online casino and poker operators should be available subject to qualitative criteria.

The Federal Administrative Court's decision does not ease the political pressure for another reform of the law and it remains to be seen whether it is the starting point for a new enforcement wave. The Federal Administrative Court confirmed that the current law provides for a fair and transparent licensing procedure while several lower instance courts have concluded that the licensing process was in fact run so badly that it renders enforcement of the law in many cases impossible. Also the ECJ in the Ince-decision has already held that the prohibition of sports betting provided for in German law cannot be enforced as long as no licences were granted to private sports betting operators. These two lines of case-law show a clear dilemma: the authorities responsible for the licensing process cannot live up to the high standard envisaged by the legislator and thus the intention of the legislator to create a legal sports betting market has completely failed.

The evaluation report published by Hesse clearly shows the effect of this cyclical regulation and enforcement practice. The size of the unlicensed gambling market has steadily grown and the size of the regulated market compared to the so called grey-market is only marginal.