Germany Changes Online Gambling Stance

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The current status of online gambling in Germany is governed by the treaty signed by the sixteen states, which is valid till December 31, 2011. This treaty preserves the monopolistic nature of online gambling and does not permit a competitive regulatory framework. However, certain states had indicated that they were not willing to extend this further and would liberalize the online gambling laws. There also have been differences with the European Commission and court rulings against state owned monopolies. In this background, the signatories to the treaty announced this week that the German online gambling market would be liberalized, but with severe controls.

The restrictive conditions have been spelt out. Only seven licenses will be issues for sports betting and that too for a probationary five year period. Only betting on outcome will be allowed. In-play betting will not be permitted. The license holders will be allowed to advertise in stadiums and place their logos on players' jerseys, but advertising on television will not be permitted. Online casino licenses will be issued only to existing land casino operators. These will also be strictly limited in number and will come up for review after a five year period. Lotteries will remain with the state owned companies. A turnover tax of 16.67% will be collected by the government. These proposals need full ratification by the states and will come into effect earliest by January 1, 2012.

Based on the divergent views expressed by different blocs of states, the German gaming law expert Wulf Hambach had predicted in December 2010 that the German online gaming market would most likely regulate on a state-by-state basis, resulting in "a domino effect". Hence the joint action taken by the states should have been a welcome move. However the market was unprepared for the stiff conditions imposed and the stock exchanges have reacted negatively. The share prices of large quoted online gambling companies have fallen sharply. The company that took the biggest hit was the newly formed Bwin.Party, whose price fell by 16%. A 14% fall was recorded in a five minute trading spell just after the announcement was made by the German states. This is understandable as 23% of the group's revenue comes from Germany.

A Bwin.Party spokesman said that the new German proposals were even more inconsistent than the current German state treaty. These proposals would face criticism from the European Commission for not complying with European Union law. He, however, added, "There is a long way to go in our view but we are confident that in the end Germany will comply with European law and implement a viable licensing regime to the benefit of all stakeholders and not just the monopoly operators."

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