Germany - the current state of gambling regulation

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The results of the most recent elections in Schleswig-Holstein could add yet another chapter to the never ending story of gambling regulation in Germany. 1 July 2012 now marks the date of the entry into force of a new gambling regulation in Germany: Both the Interstate Treaty on Gambling and a federal act introducing a general tax on sports betting will enter into force on this day.

Wind of change in Schleswig-Holstein?

After the May elections in Germany's northernmost state Schleswig-Holstein, the Social Democrats (SPD) - to date the biggest opposition party and ever since opposed to the solitary gambling legislation of the region - have formed the new governing coalition with the Green Party and the SSW (the party for the Danish minority in Schleswig-Holstein). The new government only has a majority of one vote in the state's parliament.

The parties recently presented a draft coalition treaty which expresses their intention to join the Interstate Treaty on Gambling of the other 15 Länder. The coalition treaty states: "The state government will evaluate how to abolish the Schleswig-Holstein Gambling Act without incurring a risk of becoming liable for compensation towards the existing licence holders and if and how the Gambling Act could be amended to stop the current licensing process without infringing competition law."

Members of the new coalition strongly criticised that four additional sports betting licences were granted to operators shortly after the elections. It appears that the new government will aim to suspend the current licensing process. The timing and details of such potential change remain, however, unclear. Strictly speaking, the Gambling Act and the various ordinances are still in force and the competent authority remains entitled and obliged to act in compliance with the existing laws until the current legislation has officially been amended by an act of the parliament. The new government has not yet revealed any details of how the proposed changes shall be implemented without risking liability and how and when the current licensing process could be stopped. Having said that, the Ministry of the Interior of Schleswig-Holstein has announced that there are some 40 other applications pending and that the state will likely issue further 4 to 6 licences to sports betting operators in the near future.

As far as the seven existing licences are concerned, the draft coalition treaty does not indicate whether these will be revoked or not (for an outline of the potential implications of such revocation, please refer to a previous issue of our newsletter: click here). It would not come as a surprise if Schleswig-Holstein tried to maintain the seven existing licences even after joining the Interstate Treaty with the other 15 Länder.

The coalition treaty has meanwhile been approved by the three parties' conventions. On 12 June 2012, the parliament of Schleswig-Holstein elected the new regional government which is led by Prime Minister Torsten Albig. At a prime ministers' conference on 14 June 2012, Mr Albig once more stressed his state's willingness to join the Interstate Treaty. Albig's new government will commence the legislative process necessary to abolish the Gambling Act and to join the Interstate Treaty after the summer break. In this context, it will be interesting to see the details of how the new government intends to implement its plans.

Status of the new Interstate Treaty on Gambling

The new Interstate Treaty on Gambling will enter into force in the 15 Länder on 1 July 2012. The Interstate Treaty had to be transformed into local law in each of the 15 Länder. For the Interstate Treaty to become effective as of 1 July 2012, at least 13 Länder must have passed their respective local act by then. The ratification process had started in the respective state parliaments and the necessary number of 13 was reached on 21 June. Currently, only North Rhine-Westphalia's implementation act is outstanding.

This process had become more and more time critical as the European Court of Justice had stated that the legislation of the old Interstate Treaty on Gambling regulations concerning a public monopoly on sports betting - which comprises restrictions that are incompatible with the freedom of establishment and the freedom to provide services - cannot continue to apply during a transitional period (although most of the draft ratification acts of the Länder actually contain a related provision).

Taxation of sports betting

The Bundesrat (Federal Council) had proposed a bill on the taxation of sports betting under which all kinds of sports betting will be taxed at a rate of 5% on the nominal value of each bet. On 13 June 2012, the competent finance committee of the Bundestag postponed a scheduled debate on the draft bill. The debate was now held on 27 June and the Bundestag passed the bill on Thursday, 28 June 2012. Only a day later, the Bundesrat also approved of the act which will now enter into force on 1 July 2012 (concurrently with the regime of the Interstate Treaty). The act will amend the existing Federal Horse Racing and Lottery Act "RWLG".

One of the purposes of the amendment is to include foreign sports betting providers which had not been taxed in Germany in the past. Technically speaking, the tax under the amended RWLG will overrule the local gambling charge levied by Schleswig-Holstein

Besides sports betting, the amended RWLG will also bring changes for the horse racing industry. The tax for horse racing totes and bookmakers will be reduced from 16.67% to 5%. A provision of the previous RWLG stating that 96% of the revenues from the tax on horse racing totes are to be distributed among racing horse breeders shall continue to be in force. However, as far as a distribution of the revenues from the tax on horse racing bookmakers is concerned, the amended RWLG needs to be notified to the EU Commission for state aid approval. Until then, the decreased tax on horse racing totes might well mean a serious cut for the budgets of racing horse breeders.