Jörg Hofmann, Head of the Betting and Gaming Group at Melchers Law Firm
Exciting times in Germany. Over twenty operators have already obtained sports betting licenses. The transitional regime for virtual slot machine games and online poker is being implemented.
Legal certainty for compliant operators?
Does the current regulatory system in Germany provide sufficient legal certainty? The classic legal answer is: "It depends." It depends on the products being offered and what specific certainty is being sought.
As far as certainty is concerned, we can say that, from a regulatory point of view, those operators who offer sports betting with a German license and comply with the requirements of the transitional regime for virtual slot machines and online poker may feel safe. These requirements were confirmed on 30 September 2020 by a joint guideline issued by the gambling supervisory authorities of the sixteen federal states. As of 15 December 2020, all requirements of the transitional regime must be met.
Providers who do not comply are not only considered illegal but also unreliable. This explains why the Regional Council of Darmstadt is currently threatening applicants for a sports betting license with the rejection of their applications if they offer online games of chance that do not meet the requirements of the transitional regime.
Certainty – but not without its limitations
While sports betting offers are legalized through the operators’ licenses, the transitional regime for virtual slot machines and online poker has no legalizing effect as it only provides for a waiver of administrative enforcement measures. The transitional regime does not supersede the formal requirement that gambling offerings be licensed in order to be legal.
Beyond administrative law, this leads to unsatisfying consequences. A public prosecutor could still regard an offering as illegal gambling because of the lack of a valid license.
Thus, apart from the discussion on European law (which has still not been finally settled), the question arises whether, under criminal law, the transitional regime can be considered sufficient to justify nominally illegal actions. Under certain conditions, this should probably be the case.
Under civil law, too, the lack of legalizing effect of the transitional regime could perpetuate the uncertainty as to whether the gaming contracts between players and providers are void and, therefore, lost stakes can be successfully reclaimed in court.
Different standards for different advertising
As advertising is only allowed for licensed gambling, the curious situation arises that regulatory-compliant providers are not allowed to advertise their virtual slot machine and online poker offerings. However, advertising for licensed sports betting providers is permitted. This requires approval from the District Government of Düsseldorf.
Will there be something to transition to?
A very important aspect of the current transitional regime is its projected duration. The forthcoming Interstate Treaty is set to come into force on 1 July 2021. Subsequently, there will be a licensing procedure for virtual slot machine games and online poker. This license will solve the uncertainties described above.
However, the responsibility for this licensing procedure will lie with an authority that does not yet exist. The Prime Ministers of Germany’s federal states have decided to set up a new central gambling supervisory authority in the Land of Saxony-Anhalt. At present, work is underway to establish this authority. It is uncertain whether this authority will be able to take on its official duties on 1 July 2020, and thus issue licenses promptly.
Estimates of the feasibility of this schedule range from "work is in full swing" to "it may well take a year and a half." Assuming that on 1 July 2020 this authority is not yet sufficiently established to perform the tasks assigned to it in the Interstate Treaty on Gambling 2021, this will be problematic. A licensing system without licenses and a functioning licensing authority would contradict the politically agreed regulation.
July 1, 2021 and beyond
Politicians and regulators may have to extend and adapt the current transitional regime, in order to give those operators who are willing to comply with the applicable regulations the legal certainty that the new Interstate Treaty aims to provide from 1 July 2021. At the very least, compliance with the transitional regime should provide the status of legality.