Contributed By Melchers
On 1 July 2021, the new Interstate Treaty on Gambling 2021 (the “Interstate Treaty”) came into force in Germany and introduced the possibility of new licences for the online gambling market. Prior to the introduction of the treaty, the heads of all German federal states had decided upon a transitional regime in order to assess market behaviour but also to allow operators to enter the white market on a tolerance basis. However, this tolerance regime will soon come to an end as both responsible authorities (ie, the Regional Council of Darmstadt for sports betting, and the Administration Office in Saxony-Anhalt for virtual slots and online poker licences) have indicated through official correspondence that avoidance of any form of enforcement can only be obtained through licensing. Simultaneously, due to the fact that more and more licences have been issued, the necessity for such tolerance has been reduced. From 1 January 2023, the joint gambling supervisory authority of the German federal states (GGL) will take over from the Regional Council of Darmstadt and the Administration Office in Saxony-Anhalt.
The Expansion of Licensable Forms of Gambling
While sports betting continues to be licensable, operators can now, for the first time, apply for licences to organise virtual slot-machine games and online poker in addition to organising and brokering sports betting. This marks a significant transition from the previous treaty-based regulatory regime, which postulated a total ban on these games of chance, to the expansion of forms of gambling that can be licensed, especially on the internet. While casino gaming licences are subject to numerical limitations, at least sports betting licences, virtual slot gaming licences and online poker licences have no such limitations. The regulator is obviously trying to control the black-market supply in this way.
With this as the main basis, operators face numerous challenges throughout their licensing procedures and thereafter; ranging from practical issues concerning the various measures intended to protect players – deposit limits and their regulatory enforcement, security deposits and overall technical implementation of minor legal requirements, to name a few – to an opaque network of competencies and a new and unfavourable taxation law. Above all, several legal questions with regard to the data protection law and overall compatibility with European law remain a structural predicament of the Interstate Treaty. Moreover, the Interstate Treaty contains numerous new rules that are open to interpretation; eg, the permissible range of sports bets or advertising restrictions.
Following the newly introduced regulatory system, interested parties could apply for licences to organise virtual slots and online poker for the first time. Licensed sports betting operators had to adapt their permitted offer to the new regulations and those that had not completed the licensing procedure by 30 June had to fulfil extended licensing requirements. Those that have not yet been granted a licence remain in the transitional regime. However, as this transitional regime will soon end, it is expected that any offer, licensed or unlicensed, will be governed solely by the Interstate Treaty.
While the Darmstadt Regional Council has not yet issued any new sports betting licences (these are, however, imminent at the time of writing, ie, November 2022), the Saxony-Anhalt State Administration Office has issued the first licences for virtual slot machines in 2022. The first online poker licences are also about to be issued.
Further regulatory changes are expected in the field of advertising law, because each operator licence will include extensive ancillary provisions regarding permissible realms of advertising. Those will, to some extent, reproduce well-known advertising regulations, but will simultaneously provide further details.
The most significant change to the gambling market is the new Interstate Treaty and the simultaneously ratified new taxation law, which flanks the operation of all permissible games of chance by a 5.3% tax on players' stakes. The tax obligation applies to all gambling operators, regardless of their registered office, as soon as the gambling offer can be accessed within Germany. The tax obligations generally must be observed by any operator irrespective of whether they hold a licence. The new tax rate will result in burdening the player with the tax rate or a reduction of gross gaming revenue (GGR). Not only were new licensable games of chance introduced, but also a new regulator, the Joint Gambling Authority (Gemeinsame Glücksspielbehörde der Länder) seated in Saxony-Anhalt, which is responsible for permitting and supervising all games of chance in Germany that are operated online. The new regulator has subsequently begun to actively take on its regulatory duties. Its licensing competencies are being upheld by an interim authority until the end of 2022, but the new authority has been in charge of enforcement since July 2022.
Regarding the COVID-19 pandemic, only land-based premises were affected by state measures to protect public health, including lockdowns.
Under the Interstate Treaty, online sports and horse race betting are licensable. All other forms of online betting are considered to be games of chance that are still not licensable. If offered online, such activities would be considered unauthorised gambling by the Interstate Treaty. Betting on social or political events (eg, who will be the next German chancellor) is prohibited. At the time of writing, 35 sports betting licences had been issued.
Bingo is considered to be a lottery product. Lotteries in general remain subject to a state monopoly.
Online Casino, Virtual Slots and Online Poker
Since 1 July 2021, operators may apply for licences for virtual slot games as well as online poker. At the time of writing, the interim authority in Saxony-Anhalt had issued ten licences to slots-operators; poker has not yet been licensed for online operators and applications remain pending.
Special requirements apply to virtual slot games; eg:
In terms of marketing/branding, in connection with the operation of slot machines, operators may no longer use the term "casino" or "casino games". Due to a high tax on stakes, low return to player (RTP) is to be expected.
Online poker – now being permissible – will also be restricted; eg, players may not play at more than four tables at the same time. The licence will contain further restrictions in its ancillary provisions. Video poker is prohibited. Online poker is only allowed in variants without a banker, where different natural persons play against each other at a virtual table. The player is also not allowed to choose a particular table; the allocation must be random.
Under the Interstate Treaty, the federal states may decide to run online casino games as a state monopoly, in collaboration with private operators, or to grant licences to private operators. The number of licences will be strictly limited and must not exceed the number of licences of brick-and-mortar casinos in the respective state. Each federal state may decide individually and the licence will be valid only within that state. States may join their territories for licensing purposes. The first federal states have drafted legislation, and North Rhine-Westphalia and Schleswig-Holstein will issue online casino game licences to private operators based on their initial drafts.
Lotteries are subject to a state monopoly. Private operators may only obtain licences allowing them to sell lottery tickets on behalf of the state lottery companies. Secondary lotteries are considered as unauthorised betting and, therefore, are a priority for regulatory enforcement.
There are no specific rules under gambling law with respect to fantasy sports. Whether a fantasy sports offering qualifies as a game of chance or falls outside the scope of German gambling regulations needs to be assessed on a case-by-case basis.
Whether a social gaming offering qualifies as a game of chance or falls outside the scope of German gambling regulations also needs to be assessed on a case-by-case basis.
Land-based sports betting is permitted at various points of sale operated by the state lottery companies as well as in betting shops operated by licensed private operators. As the licensing procedure for sports betting was carried out unlawfully in 2012, operators were left without licences at first. Now that the sports betting licensing process is continuing and the first licences have been granted, betting operators are expected to implement further requirements to their retail business.
Under the Interstate Treaty, live sports events may not be shown in a betting shop. Furthermore, betting shops must be separated legally, economically and organisationally from the organisation of sporting events or the sporting event itself. Terrestrial betting shops are restricted to offering and distributing only a single betting operator's bets. Apart from the nationwide regulations based on the Interstate Treaty, further legal cornerstones will have to be set out by the federal states.
Poker is generally considered to be a game of chance and, as such, is defined as a licensable product in most state casino acts and ordinances. It forms an integral part of land-based casino offerings. Under exceptional circumstances and only when adhering to strict requirements, cash poker tournaments may be offered outside of licensed casinos.
Bingo is classified as a form of lottery, and the regulations on lotteries apply accordingly.
Retail casino regulation is a matter of state law and, accordingly, regulatory requirements and licensing differ from state to state. It will depend on the state in question as to whether licences are only available for state-owned companies or private operators as well.
Slot machines outside casinos are restricted at federal level under the Trade Regulation Act and the Gaming Ordinance. In addition, the Interstate Treaty and the gaming acts/transposition acts of each state include further restrictions. These concern slot machines that may be set up in restaurants and bars but also those set up in gaming halls. The relevant laws restrict the maximum spin amount and maximum winnings, and they define the minimum spin duration as well as the maximum number of machines that may be set up in any one gaming hall.
Lotteries are subject to a state monopoly. However, sales of state lottery products may be licensed to private companies.
The Interstate Treaty is the main legal framework for online and land-based gambling in Germany.
Beyond the Interstate Treaty and the gambling acts transposing it into state law, the casino acts and casino ordinances of each German state constitute the main gambling legislation. These, however, only affect brick-and-mortar casinos.
At federal level, retail slot-machine gambling is regulated under the Trade Regulation Act and the Gaming Ordinance. Horse race betting at racetracks is also regulated at federal level. The relevant law is the Race Betting and Lottery Act of 2021 (Rennwett- und Lotteriegesetz), which is also relevant from a tax perspective as it includes the tax base for a variety of gambling taxes, such as the lottery, sports betting, online poker and virtual slot games tax.
Other federal laws impacting on gambling are the German Criminal Code, the Anti-Money Laundering Act, the Act Against Unfair Competition, youth protection laws and regulations on advertising, including sweepstakes. In the near future, online casino acts in each federal state are expected.
As per the legal definition of a game of chance, a game of chance consists of three elements that have to be met collectively in order for an activity to be subject to German gambling regulations:
A game of chance is defined in Section 3 of the Interstate Treaty.
The Interstate Treaty does not include an express definition of land-based gambling. It merely defines what constitutes a game of chance. In general, any game of chance offered in a land-based premises and not remotely may be considered to be land-based gambling.
The Interstate Treaty only defines what constitutes a game of chance. Online gambling must be assumed whenever games of chance are offered via the internet or by any means of remote communication within the meaning of Section 312c (2) of the German Civil Code. This includes games offered via mobile devices.
What constitutes a "key" offence depends on the gambling sector and how this sector is specifically regulated. In relation to licensed operations, key offences will mainly be licence violations. Operations that are affected by the Interstate Treaty’s total ban on unauthorised – ie, not licensed – gambling, or product or marketing restrictions may be confronted with other allegations; particularly, alleged unlawful operations and/or advertising. Enforcement in this context will mostly be under administrative law based on the practice applied by the German authorities. There are provisions in the law, however, that would theoretically allow enforcement under administrative offence law or criminal law.
The public organisation of "unauthorised" gambling may incur criminal liability. Enforcement has mainly focused on regulatory measures. Criminal proceedings against operators have only become publicly known in a few high-profile cases. These are usually aimed at major operators, and it is reasonable to assume that the public authorities use such cases to deter unregulated operators. However, there is also a clear tendency for public authorities to significantly increase the number of enforcement measures, including those against payment service providers.
The Interstate Treaty provides for penalties of up to EUR500,000 per issue or retaining the profits gained as a result of the violation. The latter is usually calculated by means of a gross evaluation and will not consider any expenses or costs.
Penalties that are not set in the Interstate Treaty vary between the states as they are defined in state legislation. In administrative proceedings, interdiction letters will be issued on pain of fine in the range of approximately EUR10,000–50,000 per infringement, depending on the relevant state law. Penalties under an administrative offence law would be higher (up to EUR500,000/proceeds of the crime) but again, depend on state law. The sanctions set out under criminal law range from monetary fines to imprisonment for up to five years (Section 284 (1), (2) of the German Criminal Code).
Germany underwent one of the biggest legislative changes in 2021, when the Interstate Treaty came into force. The new regulatory framework brought new forms of games of chances to the white market, it introduced a new and comprehensive regulator, the Joint Gambling Authority, and it established various monitoring systems to ensure safer gambling and player protection.
In order to assess whether the provisions of the Interstate Treaty may be changed in the near future, one must make a distinction between regulations in the the Interstate Treaty that do not grant the Joint Gambling Authority any room for interpretation or discretion, and those that do contain room for discretion.
The latter (namely, those that grant the regulator room for discretion) can be re-evaluated on an ongoing basis and adjusted in a practice-oriented and purposeful manner. Other regulations, which do not provide for any discretion on the part of the authority in their application and interpretation, can be re-evaluated for the first time at the end of 2023 and in detail at the end of 2026. This is based on Section 32 of the Interstate Treaty.
The New Regulator in Saxony-Anhalt
The prime ministers have decided that the federal states will delegate their responsibilities to the Joint Gambling Authority, which will be responsible for the supervision and licensing of gambling on the internet going forward. The authority will be located in the federal state of Saxony-Anhalt. The new Joint Gambling Authority will commence operations from 1 January 2023. Until then, responsibilities remain with the existing authorities. The State Administration Office of Saxony-Anhalt will be responsible for new online poker and virtual slot game licences until the end of 2022. Meanwhile, the new regulator in Saxony-Anhalt has partially taken up its responsibilities, meaning that the Joint Gambling Authority has been responsible for the enforcement of the ban on illegal gambling and advertising for illegal games of chance since July 2022.
Other State Regulators
Certain states have assumed the role of a centrally responsible regulator for clearly defined areas of the law. The Regional Council of Darmstadt (state of Hesse), for example, is competent for issuing sports betting and horse race betting operating/brokering licences. The licences it issues cover all German states. The Ministry of the Interior of Lower Saxony was competent for implementing payment-blocking measures and issuing/supervising nationwide lottery brokering licences until mid-2022, however, the Joint Gambling Authority has now taken up this role. The states of Hamburg, Rhineland-Palatine and Baden-Wuerttemberg each have central competences for certain forms of lotteries. Finally, the Ministry of the Interior of Schleswig-Holstein is responsible for supervising its licensees under the former Schleswig-Holstein Gaming Act.
Since the states are primarily responsible for regulating retail gambling or such offerings that do not cross state borders, the majority of licensing, supervisory and enforcement powers are vested in regulatory authorities at state level. Most key responsibilities are assigned to the Ministries or Senates of the Interior, which may employ lower authorities to act on their behalf. Those responsibilities comprise the licensing and supervision of land-based casinos, and co-ordinating enforcement actions against suspected unlawful gambling operators.
The regulatory approach in Germany aims to prevent gambling addiction, ensure the protection of minors and players, ensure fairness, channel players to licensed offerings to combat the black market and crimes related to gambling, and ensure the integrity of sport. The means envisaged by the Interstate Treaty to achieve these objectives are a state monopoly on lotteries; licensing opportunities in selected areas such as sports betting, online poker and virtual slot games; and player protection measures, including the range of permissible sports bets, the deposit limit database and activity database (LUGAS), and an exclusion database (OASIS), as well as stake limits in online poker and virtual slot games.
Germany saw one of its biggest legislative changes in 2021, when the Interstate Treaty came into force. With this regulatory update, new forms of games of chance were introduced to the legalised market. In addition to sports betting, which had been permissible prior to 2021, online poker, virtual slot machine games and online casino games (ie, bank holder games) all became permissible. Application procedures are pending and the competent regulator has already issued various slots licences for private online operators. The Joint Gambling Authority was then instated and established in 2021 but only took up its responsibilities in 2022, taking over the enforcement against illegal gambling on 1 July. All other areas, in particular licensing supervision, regulation, research and evaluation, will be completely and solely administered by this regulatory authority from January 2023. Prior to this date, competencies were split, which meant that several bodies had to manage similar fields of regulation.
Licences are only available for certain products, such as sports betting, online poker and virtual slot games; other licences, including the licence to operate lotteries, may not be issued to private operators. Unless a licence is issued by a centrally responsible regulator, such as the Regional Council of Darmstadt in respect of sports betting, licences will be issued on a state-by-state basis and will only take effect in the state or in relation to the premises for which they are issued. German licences will always be issued to B2C companies. There is no B2B licensing system.
The following licences are available for private operators:
Schleswig-Holstein became one of the first states in Germany to initiate casino licensing, meaning that private operators were able to apply for casino licences for the internet. The application process ended in May 2022. The outcome of that licensing regime remains to be seen.
The duration of available licences varies depending on the product in question and the licence conditions, which are often determined by state laws.
Under the Interstate Treaty
Sports betting licences that were issued under the former Interstate Treaty had a licence term until 30 June 2021. The Interstate Treaty stipulated that these licences should be further extended by virtue of the law until 31 December 2022.
Sports betting, online poker and virtual slot games licences, granted since the Interstate Treaty came into being, have a duration of five years. Licence renewals have a term of seven years.
Schleswig-Holstein Online Gaming Licences
Schleswig-Holstein online gaming licences (online sports betting and online casinos) had a licence term of six years and were supposed to be extendable for another four years. Instead of simply extending the licences, however, the Schleswig-Holstein Ministry of the Interior introduced transitional arrangements for online sports betting and reinstated the online casino licences in 2019. Under the transitional arrangements, online casino licences were extended until the end of 2024, while sports betting licences were extended until the end of 2022.
Land-Based Casino Licences
In the land-based casino sector, the average licence term is 10–15 years. Often there will be an option to extend licences for another five years.
An overarching requirement is that the applicant entity and its representatives are “reliable”, meaning that they are expected to demonstrate that they are capable of operating a licensed business in compliance with the regulations. Certain documentation – eg, criminal records, certificates of good conduct, confirmations regarding tax compliance and other commercial records – will need to be provided for that purpose. This includes excerpts from corporate registers and disclosing relevant shareholders. Disclosure thresholds, however, are not always clearly defined and vary depending on the specific licensing process. Certain key staff will further need to prove their expertise in the respective field by submitting CVs, certificates and other qualifications.
Another common aspect in all German licence application procedures is that operators will be asked to submit so-called concepts, which are essentially company policies describing how the applicant intends to conduct its future business under the licence. Key policies include details on how to ensure responsible gambling and IT security, but also a business and marketing plan and payment processing concept, as well as an anti-money laundering concept.
The application timing varies depending on the licensing process in question, the number of staff available to review applications and other factors. The issuance of licences will, for example, be delayed or even prevented if the licensing process is not designed and conducted in a lawful manner. This occurred in relation to the sports betting licensing process that was initiated under the Interstate Treaty in 2012. Under the former Interstate Treaty, the granting of licences was again delayed, as it was suspended by court order.
Based on experience, land-based casino application proceedings tend to take between six and 18 months. The duration of the licensing process for gaming halls/amusement arcades is generally a matter of weeks or a few months. The issuance of sports betting licences under the former Interstate Treaty took about six to nine months.
Application, or rather licensing, fees vary depending on the licensing process in question, but will usually depend on projected turnover. In addition, certain state laws on fee calculations can apply.
Ongoing annual fees vary depending on the licence in question as well as the state laws on the calculation of administrative fees applicable in the state issuing the licence. There will usually be different types of administrative actions that take into account the time spent on the part of the authority to undertake the supervision.
Land-based gambling includes slot machines in gaming halls, bars and restaurants; gambling in land-based casinos; horse race betting at racecourses; sports betting in local premises; and lottery brokers.
Requirements for retail outlets for lottery brokers are regulated by the local gambling acts of each German state.
In relation to gaming halls, certain minimum distance requirements apply, which are specified in state legislation. They vary between 250 and 500 metres between licensed premises. In some German states, gaming halls must further respect a minimum distance from schools, other child and youth institutions and/or addiction centres. The number of slot machines allowed per premises is also regulated and depends on the type of premises (gaming hall, restaurant or bar) and, in relation to gaming halls, the size of the premises. In general, a maximum of 12 slot machines per gaming hall licence are permissible, and a maximum of two slot machines in restaurants or bars.
Since gaming hall regulation became part of the gambling regulation under the Interstate Treaty in 2012, the legal situation for operators of gaming halls has become considerably stricter over recent years. Gaming halls used to be regulated only at local level applying federal trade laws; specifically, the Trade Regulation Act. While the Trade Regulation Act provided for licences, these were not gambling licences. Operators of gaming halls now require a gambling licence to conduct their business. Such gambling licences may only be issued if the gaming hall meets the criteria set out in the law. In particular, the gaming hall must not violate the applicable minimum distance requirements. Due to the number of existing gaming halls in Germany, this is a problem for both newcomers and existing gaming hall operators. This led to a wave of litigation to prevent regulators from closing established premises that could not meet those distance requirements. In some cases, lawsuits are still pending.
In a land-based sports betting context, similar problems as in the gaming hall sector are expected to arise because multiple state laws stipulate minimum distance requirements and/or limit the number of available betting shops. Litigation against disproportionate restrictions must therefore be expected.
Under the regulatory framework of the Interstate Treaty, only B2C licences for online sports betting, horse race betting, online poker, virtual slot games and distribution of state lottery products are available. Online casino games licences may become available on a state-by-state basis.
B2B licences do not exist in Germany. Relevant B2B partners will merely need to be included in the B2C operators’ applications.
Generally, there is a far-reaching liability for operators that employ affiliates. Therefore, a gambling operator will want to make sure that its affiliates respect relevant marketing requirements for gambling operators to avoid being held accountable for any infringements. Those could, in particular, trigger interdiction letters and claims under competition law.
In the Interstate Treaty, no "variable remuneration" may be paid for advertising on the internet. This includes affiliated links. In particular, revenue, deposit or stakes-based remuneration is prohibited. Regulators aim to prevent risks from players placing the highest possible stakes or making the highest possible deposits and suffering large losses.
Remuneration models in which the advertiser receives from the operator a previously agreed fixed amount per customer to whom an advertisement is displayed and who clicks on the advertisement therefore remain permissible.
German gambling laws do not include specific provisions on white-label constellations. The entity entering into contracts with players is usually considered to be the operator. Licence holders must specify the domains on which players may play and these domains become part of the licence.
The most recent development is the introduction of the new Interstate Treaty. As mentioned before, the authorities and operators will have to adjust to the new rules, including their interpretation. A transitional period has to be expected during which new databases will be implemented and will become fully operational. In 2023, the new Joint Gambling Authority in Saxony-Anhalt is going to take over responsibility for online gambling licences, with the exception of online casino games.
The extent to which the opening clause with regard to online casino licences is used in the individual federal states, also remains to be seen.
Lastly, the new gambling tax will also be open to interpretation.
New databases have been introduced with the Interstate Treaty 2021. While the barring database remains to filter blocked players, a new limit database has been introduced. Across online gambling operators, the limit database ensures that players do not deposit more than EUR1,000 per month. Certain players may be eligible for a higher deposit limit up to EUR30,000 monthly across all sportsbook operators.
The new activity database will prevent simultaneous play on several domains or websites. Therefore, a check with the activity database is concluded once a player wishes to participate in any game of chance. Additionally, the database OASIS, by which the regulator intends to supervise the exclusion of players due to unsafe or worrying gambling behaviour, concludes the list of the three nationwide server files in Germany. An integration with all three databases is obligatory for any operator wishing to obtain a licence, irrespective of the specific game of chance to be offered.
Furthermore, blocking of websites has been introduced under the Interstate Treaty. The authority may also enforce action against payment service providers that process payments for gambling operators which act unlawfully; ie, without a licence.
Protection of Minors and Players
Land-based and online operators are required to ensure the protection of minors and players by suitable responsible gambling measures. In a licensing environment, these measures have to be documented by way of responsible gambling policies and guidelines, also referred to as a "social concept". First and foremost, this means blocking access for minors by age verification procedures and players who have opted to exclude themselves or have been excluded from gambling, particularly due to problematic gambling behaviour, by checking them against OASIS. They must also not be targeted by advertising.
In addition, operators will need to train their staff to be able to detect early signs of problem gambling behaviour and apply the appropriate responsible gaming measures. Such measures can include speaking to the customer, suggesting breaks be taken and, if necessary, offering advice on where to find help. In an online context, it is necessary, for example, to offer the possibility for the player to set stake, deposit or loss limits, or exclude themselves, and to offer information on the risk of addiction. Operators are required to use technical measures to detect potential addicts early.
Additionally, operators have to provide information about responsible gambling. Among other resources, operators must include general and specific information on the addiction risk associated with the offering, an overview of the available responsible gaming measures, and contact details for institutions that provide help. Further measures include gaming breaks every hour and for virtual slot games, five minutes every hour. The activity database must prevent players from using several online gambling sites simultaneously. Advertising must be tailored to the specific risks attached to the games of chance and must also avoid any deliberate addressing of minors or players at risk.
Germany’s new regulatory framework, namely, the Interstate Treaty on Gambling, introduced several changes that were intended to extend the level of player protection. Those provisions range from specific in-game restrictions, set limitations on deposits and stakes, session time limits and obligatory information to be put on websites, during advertising and within session breaks.
One of the key gambling management tools is to verify the player's identity prior to allowing access to the gambling offering. In an online context, the Interstate Treaty defines a EUR1,000 monthly deposit limit per player and sets out that players must be given the opportunity to define daily, weekly and monthly stakes, deposits or loss limits at registration. It must also be possible for them to change the limits they have set. However, if a player opts to increase a limit, operators have to ensure that the increase only takes effect after a period of seven days. Reductions of limits take effect immediately.
In addition, players must be offered sufficient self-exclusion tools and, in relation to some products, operators are expected to check the central player barring database (OASIS) for excluded players before allowing a player to register or log in. The same applies to the limit and activity database.
On top of that, operators are obliged to limit sessions to an hour; after which, so-called reality checks have to be performed. These are intended to notify the player of the time already spent gambling and the risks that align with any form of game of chance.
The most relevant AML legislation in Germany is the AML Act, which implemented the Fifth Anti-Money Laundering Directive. Its newest amendment came into force in January 2021. It follows a risk-based approach and requires gambling operators that are affected by the scope of the AML Act to undertake a risk analysis of their business and to implement appropriate measures to prevent money laundering and the financing of terrorism. Only certain gambling sectors are excluded from AML obligations:
Although the Interstate Treaty foresees enhanced monitoring and due diligence obligations, the German Anti-Money Laundering Act remains applicable nonetheless. This affects not only the registration process for players to some extent, but also the range of permissible payment service providers.
Just recently, in August 2022, the German Minister of Finance Christian Lindner announced that he intends to counteract non-transparent financings and money laundering through the establishment of a Federal Financial Criminal Police Office, in which competencies are to be bundled in order to recognise complex cases of (international) money laundering in the future and to combat them sustainably.
In order to prevent money laundering and terrorist financing, obliged entities must have an efficient risk management system in place, which must be proportionate to the nature and size of the business. It must include a risk analysis – ie, an identification and assessment of the money-laundering risks of the business, considering the risk factors that have been identified in the law/the national risk analysis – and adequate customer and transaction-related internal safeguards need to be implemented to manage and mitigate the risks of money laundering and terrorist financing by means of policies, procedures and controls.
Drafting an AML concept that describes in detail how the internal safeguards are implemented in practice and why the implemented measures are adequate is certainly useful in this respect. Measures are deemed adequate if they are proportionate to the risk exposure of the respective obliged entity and sufficiently cover such risks. The risk analysis has to be regularly reviewed and updated (at least once a year) and the efficiency of the internal safeguards has to be monitored and updated as and when required.
A member of the management (who may not at the same time act as the AML officer) must be appointed as the person responsible for the overall risk management system. The risk analysis and internal safeguards will be subject to that member’s approval.
Transparency of payments is also a key requirement that needs to be observed; particularly, operators are obliged to ensure that the identity of the player account holder aligns with the identity of the payment account holder.
Under the Interstate Treaty, advertising permits are no longer required. While the Interstate Treaty sets the framework for advertising, additional conditions are set within the licence.
German law applies a very broad interpretation of what constitutes advertising. Article 2 litera a of Directive 2006/114/EC provides a helpful definition: “Advertising is the making of a representation in any form in connection with a trade, business, craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations.”
Other laws and guidance may apply depending on the product in question.
As a general principle, only licensed operators may advertise and only licensed products may be advertised. The Interstate Treaty, however, defines additional restrictions with regard to TV and online advertising applicable to licensed sports betting, horse race betting, online poker, virtual slot games, online casino games and lottery advertising.
According to the Interstate Treaty, advertising and sponsorship for licensed gambling operators in Germany will be permitted in general, whereby individual special features of the game of chance may also be highlighted, such as in the case of lotteries, the size of the jackpot or the use of the proceeds for good causes. However, on the internet and on radio and television, gambling advertising for virtual slot games, online poker and online casino games is only permitted between 9pm and 6am. Additionally, virtual slot-machine games must not be described as "casino games".
This “watershed” does not concern advertising for sports betting but it is worth noting that immediately before or during the live broadcast of sporting events, advertising for sports betting on that sporting event is not permitted on the broadcast channel.
Section 5 (3) 3 of the Interstate Treaty is important for companies engaged in sponsorship, since according to this, advertising for sports betting with active athletes or sports officials is not permitted. This applies, in particular, to the popular kind of advertising with brand ambassadors. Perimeter advertising and jersey advertising would still be allowed in sports arenas and stadiums. However, the advertising of games of chance in sports facilities (on jerseys and boards, as well as similar advertising material) will only be permitted in the form of family brand advertising (umbrella advertising). Advertising of unauthorised gambling remains prohibited (Section 5 (7) of the Interstate Treaty).
Certain advertising standards apply, such as the prohibition of misleading, excessive or native advertising.
Finally, affiliates may only receive fixed – and not variable – remuneration for advertising.
Sanctions and penalties for infringing advertising regulations vary depending on the type of violation, its gravity and the overall situation affecting the gambling offering that is being advertised. Advertising-related enforcement by German authorities overall, however, has been limited in the past but is expected to pick up. Competitors, especially the state-owned lottery companies, may seek to challenge certain advertising by filing cease-and-desist orders with German civil law courts.
Until 2021, private operators were only allowed to advertise for their licensed products when they had obtained a necessary advertising licence. This was issued by a separate regulator only competent for issuing such advertising licences. Permissible advertising was regulated by the Interstate Treaty from 2020 and further advertising guidelines. Since the new Interstate Treaty came into force in mid-2021, those guidelines have become obsolete and all advertising measures are regulated by the sole regulator, the Joint Gambling Authority. Operators must apply for an intended advertising concept, which is to be reviewed by the regulator. Permissible advertising is detailed and regulated within operator licences and secures a uniform and safe advertising landscape.
Disclosure requirements for acquisition and change of control of gaming and gambling companies vary depending on the state and product in question. They tend to be rather vague and generally lack specification with regard to the exact percentages triggering notification and timings. More specific guidance is sometimes included in the relevant licences and some requirements can be derived from corporate law.
Licensed operators under the Interstate Treaty are subject to transparency rules. All partners of partnerships and all owners of at least 5% of share capital or voting rights of capital companies must be disclosed.
Provisions on corporate control triggers are usually very abstract, mostly lacking specification; eg, with regard to the exact percentages and timings. More specific guidance may sometimes be included in the relevant licences and some requirements can be derived from corporate law.
Even indirect changes of corporate control (eg, passive investors) may require notification in certain situations but these will depend on the relevant state provisions and product in question, which is why no general statements can be made and a case-by-case assessment is required.
Gambling regulators are empowered under the administrative or administrative offence law with respect to the territory of their state unless they have been authorised to act on behalf of other German states as well. Criminal enforcement falls within the competency of the state prosecutors. Usually, the place where the alleged violation took place will determine which state prosecutor may assume responsibility. Enforcement in a gambling context has been focused on administrative enforcement in the past. In the meantime, however, a few criminal proceedings have been initiated against major operators and there seems to be a tendency on the part of the authorities to take a more rigorous approach towards unauthorised gambling.
For the interim period until the end of 2022, the Regional Council of Darmstadt (state of Hesse) remains competent for issuing sports betting and horse race betting operating/brokering licences. The licences it issues cover all German states. The State Administration Office of Saxony-Anhalt will issue virtual slot game and online poker licences until 2023, when the Joint Gambling Authority in Saxony-Anhalt is going to take over responsibilities. Enforcement, however, was already handed over to the new Joint Gambling Authority in July 2022.
Historically, enforcement has been focused on administrative law. In line with general principles under German administrative law, licensed and unlicensed operators will usually be approached first by the regulator by means of a hearing letter to give them the chance to comment on the allegations. If the alleged infringement cannot be rectified or the authority continues to believe that there is a violation, the regulator will issue an order interdicting the alleged infringement. This interdiction letter will usually threaten a fine but regulators tend to actually impose fines at a later stage. In most cases, fines are only imposed after the court proceedings – initiated by the operator to challenge the interdiction – have ended and the operator has lost.
Apart from this, criminal enforcement will generally focus on the respective persons representing the legal entity, who are equipped with the power of representation. Criminal enforcement measures range from monetary fines to imprisonment and, due to the European arrest warrant, these prospects appear to be possible and enforceable, even if the operators or their managing directors are not themselves domiciled in Germany.
Enforcement has become one of the pillars to help end the black market. Hence, it is, apart from licensing, the biggest responsibility of the Joint Gambling Authority. Up until 30 June 2022, its predecessor, the Federal Administrative Authority, had begun to take action against illegal operators and affiliates. The Joint Gambling Authority has indicated it will continue this. The Interstate Treaty foresees using several measures to ensure effective enforcement against the black market. These being, namely, payment blocking, IP blocking, cease-and-desist orders and penalties of up to several thousand euros, as well as criminal prosecution.
Liability under the German Criminal Code (the “CC”) still only pertains to individuals and not to legal entities. Organising or distributing unauthorised games of chance at a commercial level may be sanctioned with imprisonment from three months to five years as per Section 284 (1) CC. In addition, managing directors and authorised representatives are liable to prosecution for participating in the organisation of unlawful gambling. If it is solely a matter of unauthorised (gambling) advertising, this also constitutes a criminal offence, although it is not a felony but a misdemeanour, so that a prison sentence of up to one year or a fine may be imposed.
The unauthorised organisation and distribution of games of chance on the internet is prohibited. Under “market behaviour rules” in terms of Section 3a of the Unfair Competition Act – as confirmed by multiple German civil courts – competitors may attempt to file claims for cease-and-desist orders and damages with the civil law courts. In gambling-related cases, cease-and-desist orders are usually on pain of fine amounting to EUR250,000 per contravention or – where this amount cannot be enforced – imprisonment of the director(s) for up to six months or, alternatively, imprisonment of the director(s) for contempt of court for six months. If the civil court grants this order, the director(s) of the operator are held responsible for obeying the order.
German gambling regulation does not regulate social gaming, as social games are usually designed to fall outside the definition of a game of chance.
Esports is a growth sector and betting on esports is becoming increasingly popular. It is currently unclear whether esports will be recognised as a sport, making the regulatory situation complex. However, an increasing number of voices in the scientific sports and legal community see esports as a sport and it seems possible that in the coming years, regulators will be more open to recognising esports as a sport. Betting on virtual sports is prohibited.
Depending on how a fantasy sports offering is designed, it may fall outside the scope of German gambling regulation. A key criterion will be whether the payments made qualify as a stake given in exchange for a chance to win. In the case of a football manager game that spans an entire football season, the Federal Administrative Court did not assume it was a game of chance.
A game will be considered a game of skill if the likelihood of winning predominantly depends on skill rather than chance. If this can be established, the game will not fall under the definition of a game of chance and, as a result, will not be subject to gambling regulation.
Blockchain technology has so far only played a role in the cryptocurrency context with regard to gambling in Germany. As German regulators have traditionally taken a critical stance on cryptocurrencies, they are not expected to be relevant in the near future in the gambling sector.
The types of taxes imposed on gambling operators are determined by the specific gambling product and the respective state legislation.
Land-based casino operators are exempted from corporate taxation but taxed on the basis of GGR or a combination of GGR and profit tax. Tax rates between 20% and 80% apply. The applicable tax rate depends on the relevant state provisions. In some states, additional levies or progressive tax rates that depend on the economic capability of the casino operator apply.
The legislature reacted late to the coming into force of the new Interstate Treaty by amending the gambling tax law, the Race Betting and Lottery Act of 2021.
A 5.3% tax on stakes in sports and horse race betting, virtual slot games and online poker was implemented. The effective tax rate is 5.03% as the tax itself is excluded from the tax base.
Although concerns about the tax level were explicitly expressed in the legislative process, the tax rate on stakes in virtual slot games remained at 5.3% (effectively 5.03%), which will lead to a drastic reduction in RTP.
The gambling tax is self-declared each month. An operator’s products subject to the Race Betting and Lottery Act are exempt from VAT.
Online gambling operators are not excluded from corporate taxation. Therefore, further profit taxes apply.
Betting shop taxes of up to 3% on stakes may be imposed on betting shop owners at local level by municipalities.
Retail slot-machine operators must, in addition to regular corporate taxes, pay municipal amusement tax. Amusement tax rates differ from municipality to municipality, but range between 12% and 20% and will usually be based on the GGR generated from the slot machines.
Lotteries are subject to 20% lottery tax.
As mentioned above, reforms are scheduled for 2026.