EC comments on German Draft Interstate Treaty on Gambling

Regulatory Update

A letter sent out to the German federal states by the European Commission (Commission) on the German Interstate Treaty on Gambling on 21 March 2012 (2012 Treaty) led commentators to draw inconsistent conclusions. The letter contains the Commission's reaction to the new draft 2012 Treaty between 15 of the 16 German states which is supposed to come into effect on 1 July 2012 and preserves the state monopoly on gambling to a large extent. The state of Schleswig-Holstein elected to pass its own Gambling Act which came into effect on 1 January 2012 and provides extensive liberalization of sports betting and online gambling.

The Commission expressed its doubts whether the intended limit of 20 sports betting licenses is indeed a suitable way to achieve the 2012 Treaty's legitimate objectives, namely, combating illegal markets, preventing addiction and fighting criminal and fraudulent activities.

With respect to the 2012 Treaty's ban on online gaming (including casino and poker), the Commission stated that a general prohibition of online gambling may be suitable for pursuing such legitimate objectives. However, whether or not this is case needs to be evidenced by the German states. Such evidence could not be asserted from the information provided to the Commission.

The Commission clearly considers that the statement is not an assessment on the compliance with European laws which explains the contradictory reactions. While the politicians who were responsible for the negotiation of the 2012 Treaty see the statement of the Commission as confirmation of its legality, service providers and the government of Schleswig-Holstein go so far as to say that the 2012 Treaty has been torn to shreds.

The question now is what will happen next? Initial reports claim that the secretaries of the federal states plan to go ahead without further amendments and to ratify the 2012 Treaty within the coming weeks, risking that the 2012 Treaty will be challenged by service providers. However, the ratification requires that at least 13 of the 15 signatory states undersign the 2012 Treaty. Whether this majority is secure is far from certain. In addition, several state elections will be held in the coming weeks which may result in a shift of political power and acceptance of the 2012 Treaty.

The uncertainty how the Commission statement should be read clearly strengthens the liberal approach taken by Schleswig-Holstein and gives weight to the argument that a Schleswig-Holstein license also covers the remaining territory of Germany. It has been notable, however, in some of the recent results announced by leading operators with significant German business, that many plan to use Schleswig-Holstein as a hub to transact throughout Germany. However, such operators acknowledge the legal uncertainly in doing so.