Gaming Law 2019

Last Updated November 25, 2019

Germany

Law and Practice

Authors



MELCHERS is a law firm with offices in Heidelberg, Frankfurt am Main and Berlin that has been advising companies in the gaming and betting industry for over 30 years. The gaming & betting law practice group consists of specialised regulatory and commercial lawyers, and, being a full-service law firm, the advice in gambling-related matters also includes all corresponding areas of law, such as competition, company and administrative law. The firm advises national and international clients, has developed an excellent global network and pays attention to elaborate communication with regulators, which in many cases may be helpful in avoiding litigation. Melchers also has considerable experience in lobbying.

German gambling regulation, particularly its online gambling regulation, has become known for being a constant “work in progress” in desperate need of reform. It has faced criticism for years, particularly with regard to its questionable compatibility with EU law and some discussions are yet to be completed. The most recent development, which is intended to take effect as of 1 January 2020, is the entry into force of an amendment to the main legal framework (the Interstate Treaty of Gambling), which seeks to introduce and initiate a new sports betting licensing process. The amendment is most commonly referred to as the “Third Treaty Amending the Interstate Treaty on Gambling”, or, in short, the “Third Amendment Treaty”.

Its main feature is that it seeks to address the failures of the 2012 sports betting licensing process. In this process, only 20 licences were made available but ultimately none of these licences could be issued due to the process having been unlawfully conducted. The Third Amendment Treaty abolishes the 20 licence cap. Yet, many other aspects, including questions of what bet types may be offered under a future licence and what the future of online casino operations will be, remain unclear. The Third Amendment Treaty stuck to the total ban that affects all games of chance offered online that are not licensable. It is also clear, however, that the Third Amendment Treaty is designed to act as a transitional legislation. For the time being, it shall only be valid until 30 June 2021 and the 16 German states, who are the relevant legislators in gambling matters, are debating Germany’s future gambling regulation at the time of writing.

The opinions expressed by the German states in the ongoing debate are controversial, particularly regarding online casino regulation. But states who used to be strictly opposed to an introduction of an online casino licensing system slowly seem to be warming to the idea of doing so in order to prevent a falling-out between the states. Pro-reform states had indicated in the past that they would be prepared to end the Interstate Treaty co-operation and introduce their own state legislation on gambling if the anti-reform states continued to persist on maintaining the total ban.

The most relevant recent changes have not taken effect yet. The Third Amendment Treaty is yet to be ratified in all 16 state parliaments. This should be completed by the end of 2019. Otherwise, the Third Amendment Treaty cannot take effect and becomes obsolete. So far, the ratifications are going to plan. It is therefore highly likely that the German states will succeed in ratifying the Third Amendment Treaty in time.

Other than the states agreeing on the Third Amendment Treaty, there have been no fundamental changes. The only noteworthy change in the law was the introduction of a transitional arrangement for online casinos in the state of Schleswig-Holstein, which (back in 2012-13) used to have its own state online casino licensing system before joining the Interstate Treaty. The transitional arrangement, however, only has relevance for former Schleswig-Holstein licensees. It effectively revalidates those licences and lets Schleswig-Holstein operators continue operations under the Schleswig-Holstein licence until 30 June 2021. In total, 23 Schleswig-Holstein online casino licences were issued in 2012-13; not all of them are actively used.

Betting

Under the Interstate Treaty, only online sports and horse race betting are considered to be licensable. All other forms of online betting are considered to be games of chance that are not licensable. If offered online, such betting offerings will be affected by the Interstate Treaty’s total ban on online games of chance.

Bingo

Bingo is considered to be a lottery product. There is a state monopoly on lotteries.

Casinos

Online casino gaming is totally prohibited according to the written law and consequently no online casino licences are available. The state of Schleswig-Holstein marks an exception. During 2012-13, this state pursued its own state gambling regulation. Unlike the Interstate Treaty, this state gambling regulation allowed online casino licensing. In 2013, however, the state of Schleswig-Holstein joined the other 15 states in the Interstate Treaty. Due to a transitional arrangement that was introduced in May 2019, formerly granted Schleswig-Holstein online casino licences still allow Schleswig-Holstein licensees to offer licensed online casino products in the state of Schleswig-Holstein. The transitional arrangement shall remain valid until 30 June 2021.

Lotteries

There is a state monopoly on lotteries. Private operators may only obtain licences to allow them to sell lottery tickets on behalf of the state lottery companies online.

Fantasy Sports

There are no specific rules under gambling law with respect to fantasy sports and it will need to be assessed on a case-by-case basis whether a fantasy sports offering qualifies as a game of chance or falls outside of the scope of German gambling regulation.

Social Gaming

It will need to be assessed on a case-by-case basis whether a social gaming offering qualifies as a game of chance or falls outside of the scope of German gambling regulation.

Poker

Despite there having been a discussion and some jurisprudence suggesting that certain forms of poker can and should be classified as a game of skill rather than chance, poker is generally considered to be a game of chance. If offered online, it is therefore affected by the Interstate Treaty’s total ban.

Betting

Land-based sports betting is permitted in various points of sale operated by the state lottery companies as well as in betting shops operated by licensed private operators. However, due to the 2012 sports betting licensing process having been unlawfully conducted, operators remain without licences and many restrictions on betting shops arguably do not fully apply until licences are lawfully issued. This particularly concerns certain limitations included in state gambling laws that affect the number of permissible betting shops in a certain area or make a decision of the authority regarding who stays and who goes (between conflicting betting shops) necessary. It can be expected that operators will try to legally challenge any undue restrictions.

Poker

Poker is generally considered to be a game of chance and as such will be defined as a licensable product in most state casino acts and ordinances. Essentially, only those casino acts that do not expressly list the licensable products will not include a specific reference to poker. This, however, does not mean that poker will not be licensable in those states. It forms an integral part of land-based casino offerings. In very exceptional circumstances and only when adhering to very strict requirements, cash poker tournaments may be offered outside of licensed casinos.

Bingo

Because bingo is classified as lottery, the regulations on lotteries apply.

Casinos

The total ban on online casinos does not apply for land-based casinos. Bricks-and-mortar casinos are permitted and governed by state law. It will depend on the state in question whether licences are only available for state-owned companies or private operators as well.

Gaming Machines

Gaming 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 gaming machines that may be set up in restaurants and bars but also those set up in gaming halls. The relevant laws, eg, define limits, the maximum number of machines that may be set up in any one gaming hall (one machine per 12 m², a maximum of 12 machines per gaming hall) and minimum distance requirements that need to be maintained between gaming halls.

Lotteries

There is a state monopoly on lotteries.

The Interstate Treaty that is, since 2013, effective in all 16 German states, forms – in addition with each state’s gaming/transposition acts – the main legal framework for online and land-based gambling in Germany.

Besides the Interstate Treaty and the respective state laws, the casino acts and casino ordinances of each German state constitute the main gambling legislation. These, however, only affect bricks-and-mortar casinos.

At federal level, machine gambling is codified by 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 1922 (Rennwelt- und Lotteriegesetz), which is also relevant from a tax perspective as it defines a special lottery tax and sports betting tax. Other federal laws that impact on gambling as they include special provisions relating to gambling are the German Criminal Code and the Anti Money-Laundering Act but there are, of course, others that may also become of relevance; eg, the Act Against Unfair Competition, youth protection laws, regulations on advertising including sweepstakes and procedural laws.

Schleswig-Holstein online sports betting and online casino licensees will further need to be aware of the specific Schleswig-Holstein state laws that affect their licensed operations. In particular, these are the Schleswig-Holstein Gaming Act and Ordinance.

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 to subject an activity to German gambling regulations:

  • valuable consideration;
  • the valuable consideration is given in exchange for a chance to win; and
  • determination of winnings is entirely or predominantly a matter of chance.

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 classifies as a game of chance. To provide a definition nevertheless: every game of chance offered that is offered in a land-based environment 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 312b(2) of the German Civil Code. This includes games offered via mobile devices.

It will depend on the sector and the question of how this sector is regulated in considering what will constitute a key offence. In relation to licensed operations, key offences will mainly be licence violations. Operations that are affected by the Interstate Treaty’s total ban or other questionable restrictions will 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 German authorities. There are provisions in the law, however, that theoretically would allow enforcement under administrative offence law or criminal law.

Penalties 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 EUR10,000.00–50,000.00 per infringement, depending on the relevant state law. Penalties under administrative offence law would be higher (up to EUR500,000.00/proceeds of 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.

The Third Amendment Treaty, an amendment to the existing Interstate Treaty of 2012, is expected to enter into force on 1 January 2020. The German states are further in the midst of discussions about what Germany’s gambling regulation could be like after 30 June 2021. Their intention is to reach a final decision by the end of 2019; discussions could, however, take longer, which would mean that final decisions could be postponed into Q1/Q2 2020.

Since the states are primarily entrusted with regulating gambling, the majority of licensing, supervisory and enforcement powers are attributed to 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.

Additionally, 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 is competent for implementing payment-blocking measures and issuing/supervising nationwide lottery brokering licences. For issuing TV and online advertisement permits for licensed sports betting, horse race betting and lottery offerings, the regional government of Düsseldorf (state of North Rhine-Westphalia) is responsible. The states of Hamburg, Rhineland-Palatinate and Baden-Württemberg 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 and/or transitional arrangements.

On paper, the regulatory approach in Germany is prescriptive and aims to prevent gaming addiction, ensure protection of minors and players as well as fairness, and 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, (theoretical) licensing opportunities in selected areas and a total ban on games of chance offered online that are not licensable. However, the written law and current regulation have been questioned for years as they arguably violate EU law, particularly in an online gaming context. In 2010, the CJEU decided that the state monopoly on sports betting and lotteries (as it was included in the 2008 version of the Interstate Treaty) infringes EU law. This was confirmed in the landmark case Carmen Media (C-46/08), which led to the current 2012 version of the Interstate Treaty being introduced. The 2012 Interstate Treaty allowed for a part-opening of the sports betting market during an experimental phase, which was supposed to end on 30 June 2019. The licensing process that was introduced, however, failed and on 4 February 2016 the CJEU confirmed in the Ince case (C-336/14) that the unlawful monopoly de facto persists in relation to sports betting. Not a single licence was issued. The CJEU further clarified that operators, who can rely on the European fundamental freedoms, cannot be blamed for not operating under a German sports betting licence in the current situation. The Third Amendment Treaty, which is expected to enter into force on 1 January 2020, has also been criticised already. During the notification process, which was initiated in May 2019, Malta questioned the amendments in a Detailed Opinion and the European Commission also expressed concerns regarding the compatibility of the restrictions with EU law. Reform discussions, particularly with regard to what German gambling regulation should look like as of 1 July 2021, are ongoing.

In the land-based sector, the situation is more settled, although many land-based casinos remain state-owned and only a few states allow for private companies to obtain casino licences. The gaming hall sector has also seen rather turbulent times in recent years. The sector became subject to gaming regulation only in 2012 and certain restrictions imposed led to a wave of regulation. Reforms, nevertheless, are unlikely to affect the land-based sector much as the focus in the discussions currently is on online gaming.

Licences are only available for certain products and some licences may not be issued to private operators. Unless a licence is issued by a centrally responsible regulator, 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:

  • land-based casino gaming, including poker (but only in certain states);
  • online/land-based sports betting (but no operating licences have been issued so far; the intention is to issue licences under the Third Amendment Treaty sports betting licensing process, which will be initiated in January 2020);
  • land-based and online horse race betting bookmaker licences/licences pursuant to Section 27(2) of the Interstate Treaty;
  • land-based slot machine gaming in gaming halls or restaurants and bars;
  • land-based and online brokerage of state lottery products; and
  • small-scale/charitable lotteries (traditional lotteries are subject to a state monopoly).

The state of Schleswig-Holstein further has online gaming licensees; however, online casino licences are no longer available. Operators may apply for a so-called sports betting transitional arrangement. This transitional arrangement, however, is designed to only apply until another licence with relevance in Schleswig-Holstein is issued. The licences that are intended to be issued under the Third Amendment Treaty would constitute such a licence.

The duration of available licences varies depending on the product in question and the applicable conditions, which often are determined by state laws.

In the land-based casino sector the average licence term is ten years. Often there will be an option to extend licences for another five years. The Interstate Treaty further stipulates that the duration of gaming hall licences needs to be limited. The exact licence term then depends on the relevant state laws and specific circumstances of the case.

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. However, instead of extending the licences, the Schleswig-Holstein Ministry of the Interior introduced transitional arrangements for both online sports betting and online casinos. The transitional arrangements are supposed to stay in place until a new regulation – possibly one at Interstate Treaty level – is enacted. They will expire on 30 June 2021 at the latest.

Sports betting licences that shall be issued under the Third Amendment Treaty as of January 2020 shall have a licence term until 30 June 2021. The German states are still in discussions about what will happen after 30 June 2021.

A general requirement that will always be an application requirement is that the applicant entity and its representatives are reliable. 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. Concepts essentially are company policies describing how the applicants intend to conduct their future business under the licence. Key policies include details on how to ensure responsible gambling AML compliance, IT security but also a business and marketing plan, and payment processing 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. No licences have been issued under this process to date and it will only be possible to issue sports betting licences under a new regime. In relation to land-based casinos, application processes tend to take between six and 18 months. The duration of the licensing process for amusement arcades generally is a matter of weeks or a few months.

Application, or rather licensing, fees vary depending on the licensing process in question, but usually will 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. These will usually be different types of administrative actions and take into account the time spent on the side of the authority to undertake the supervision.

Land-based gambling includes slot machine gaming in gaming halls, bars and restaurants, gambling in land-based casinos, horse race betting at racecourses and sports betting in local premises as well as lottery brokers.

Requirements for retail outlets for lottery brokers are regulated by local Gambling Acts.

In relation to gaming halls, certain minimum distance requirements apply, which are specified in state legislation. In some German states, gaming halls must further respect a minimum distance from schools, other children's and youth institutions, and/or addiction centres. The number of slot machines allowed in a certain 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.

There are no planned or forthcoming changes to the land-based gambling sector.

Since gaming hall regulation was made part of gambling regulation in 2012, the legal situation for operators of gaming halls has become considerably stricter. 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 must only be issued if the gaming hall meets the criteria set out in the law. In particular, it must not violate the applicable minimum distance requirements. Due to the volume of gaming halls in Germany, this posed a problem for both newcomers and existing gaming hall operators and was followed by a wave of litigation. In parts, lawsuits are still pending. Current reform discussions are focused on online gaming; reforms affecting the gaming hall sector or other land-based operations (with the exception of sports betting) therefore are not to be expected.

In a land-based sports betting context, similar problems to the ones that have occurred in the gaming hall sector can be expected to arise since multiple state laws operate with minimum distance requirements and/or limit the number of available betting shops. Litigation against undue restrictions therefore must be expected.

Certain forms of online gambling – namely online casino operations, secondary lotteries and other games of chance that are not sports betting operations – currently cannot be licensed under the Interstate Treaty as the written law stipulates a total ban on these operations. Going against the line of argument relied upon by EU-based operators – ie, that the restrictions imposed on online gambling contravene EU law – the highest German administrative court handed down a judgment in October 2017 confirming the legality of the total ban with national and EU law. This judgment has faced considerable criticism and many legal experts claim that it was based on outdated facts, did not apply CJEU jurisprudence correctly and should have been referred to the CJEU. Still, the judgment is relevant in practice, being a judgment of a highest court. In the ongoing reform discussions, the German states are considering the introduction of opportunities for online casino licensing as of 1 July 2021. Final decisions are yet to be made.

For sports betting, the current regulatory framework provided for 20 sports betting licences to be issued. Licences, once issued, should have been valid until 30 June 2019, but licences were never issued as the entire process collapsed due to having been unlawfully designed and conducted. The unlawfulness of the process was even confirmed by the CJEU in its judgment in the Ince case (C-336/14). If the Third Amendment Treaty enters into force as planned, it will establish a new sports betting licensing process with an unrestricted number of available licences. At the time of writing, the Regional Council of Darmstadt, as the authority in charge of the new licensing process, advised that operators may start to prepare their applications but that it will review applications only as of 2 January 2020. It further clarified that all information and requirements published so far must be treated as provisional information and that the intention is to publish a list of final requirements towards the end of 2019. It will nevertheless make sense for operators to familiarise themselves with the application requirements ahead of the final requirements being published.

B2B licences do not exist in Germany. Relevant B2B partners will merely need to be mentioned in the B2C operators’ applications.

There are no specific measures to regulate the use of affiliates. However, there is a far-reaching liability for operators who employ affiliates. Therefore, gambling operators will want to make sure that their affiliates respect relevant laws to avoid being held accountable for any infringements.

German gambling laws do not include specific provisions on white labels. The entity entering into contracts with players will usually be considered to be the operator.

The most recent development certainly is the planned enactment of the Third Amendment Treaty, which is currently being ratified by each of the state parliaments. It is expected to enter into force on 1 January 2020. In light of the criticism of German online gambling regulation, a broad reform of the existing gambling regulation arguably is long overdue. This was recognised by some German states a long time ago. Others have so far remained hesitant to open up to the idea of abolishing the Interstate Treaty’s total ban. However, since September 2019, it appears as if the German states might manage to reach an agreement with regard to what Germany’s future gambling regulation should look like after 30 June 2021. The Prime Ministers of the 16 German states intend to reach a final agreement by the end of 2019.

Although IP blocking was suggested in the discussions leading up to the 2012 Interstate Treaty and a first draft as a technical measure to protect consumers from unlicensed operators, the final wording of the law did not include provisions on IP blocking. Instead, the Ministry of the Interior of Lower Saxony was given enforcement powers to act against financial institutions and payment service providers (PSPs) that process payments for gambling operators that act unlawfully. As per the explanatory notes of the Interstate Treaty, payment blocking shall only be a secondary enforcement if the primary enforcement action – ie, the enforcement action brought against an operator – fails. For this reason, but also because the legality of payment blocking as well as the applicability of certain Interstate Treaty restrictions is questionable, the responsible authority has not made significant use of its enforcement powers. To date, only one event of an order having been issued against a PSP has been reported. Nevertheless, it cannot be excluded that others will follow and certain politicians might claim additional technical measures, including IP blocking, to be implemented as part of a reform.

Operators, whether they operate land-based or online, will be required to pay particular attention to ensuring responsible gambling. First and foremost, this means blocking access to the offering for minors and players who have opted to exclude themselves from gambling. These must also not be targeted when advertising. In addition, operators will need to train their staff to be able to detect early signs of problematic gambling behaviour and apply the correct and appropriate responsible gaming measures. Such measures can, for example, include speaking to the customer, suggesting breaks and, if necessary, offering advice on where to find help. In an online context, it will further be necessary to offer the possibility for the player to set limits, define timeouts or exclusion periods and to offer information on the risk of addiction. Often operators will create a designated responsible gambling site. Such a site should include general information on the addiction risk associated with the offering, an overview of the available responsible gaming measures, a self-test to provide the player with a way to review his own gambling behaviour, as well as contact details for problem gambling institutions.

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 stake limit per player and sets out that players shall be given the opportunity to define daily, weekly and monthly deposit or loss limits at registration. It must 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 shall 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 entries of excluded players before allowing a player to register or log in.

The most relevant AML legislation in Germany is the AML Act, which implemented the Fourth Anti-Money Laundering Directive and entered into force on 26 June 2017. It follows a risk-based approach and requires gambling operators who 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. These are: operators of gaming machines including gaming halls, race clubs that carry on the business of a totalisator, land-based lotteries and charitable lotteries.

Implementation Guidelines relating specifically to the gambling sector were issued in February 2019.

Germany intends to have implemented the Fifth Anti-Money Laundering Directive by 10 January 2020. The German government proposed a draft law in May 2019 that was approved by the German cabinet on 31 July 2019 and will enter into force on 1 January 2020 if it is passed by the German Bundestag and Federal Council (Bundesrat).

In order to prevent money laundering and terrorist financing, obliged entities must have an efficient risk management system in place. This system 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.

Measures include the implementation of compliant customer due diligence (KYC) procedures, the appointment of an AML officer and deputy AML officer, vetting and training of staff, monitoring, record-keeping and reporting, internal revision and audits, compliance with the special provisions for internet gambling (namely regarding player accounts and payments) and, of course, drafting an AML Concept that describes in detail how the internal safeguards are implemented in practice and why the implemented measures are adequate. 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 regularly be 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) shall be appointed as the responsible person for the overall risk management system. The risk analysis and internal safeguards shall be subject to that member’s approval.

The regional government of Düsseldorf is competent for issuing TV and online advertising permits to licensed sports betting, horse race betting and lottery operators. Advertising permits have, however, had little relevance for private operators so far as there are only a few horse race betting licensees and sports betting licences are yet to be issued. An argument can be made that sports betting operators who can rely on the European fundamental freedoms are not required to apply for advertising permits prior to being issued a sports betting licence.

German law applies a very broad interpretation of what constitutes advertising. Article 2 lit a of Directive 2006/114/EC provides for 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.

In the context of advertising, an abundance of laws and regulations need to be taken into account. These, for example, include provisions of the Interstate Treaty, the Advertising Guidelines published by the Gaming Committee, the Act Against Unfair Competition, the Law for the Protection of Children and the Young, the Interstate Treaty on the Protection of Children and Minors in the Media, and the Interstate Treaty on Broadcasting. Other laws and guidance may apply depending on the product in question, as may certain specifications included in the respective licence conditions.

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 and lottery advertising. Such advertising is prohibited unless permitted by the regional government of Düsseldorf by means of an advertising permit. Advertising permits have, however, had little relevance for private operators so far as there are only a few horse race betting licensees and sports betting licences are yet to be issued. An argument can be made that sports betting operators who can rely on the European fundamental freedoms are not required to apply for advertising permits prior to being issued a sports betting licence.

Sanctions and penalties for infringing advertising regulations will 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 and it seems more likely that competitors, especially the state-owned lottery companies, may seek to challenge certain advertising by filing for cease-and-desist orders with German civil law courts.

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 may sometimes be included in the relevant licences and some requirements can be derived from corporate law.

Provisions on corporate control triggers usually are 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 may enforce under 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 competence 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.

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 by the regulator by means of a hearing letter in a first step to give them the chance to comment on the allegations. If the allegations 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 this will be after the court proceedings, which an operator will usually initiate to challenge the interdiction, have ended, if the operator lost.

Effective enforcement of fines has partly proven to be difficult for German authorities, if operators are based outside Germany, due to the lack of mutual assistance agreements in administrative matters, but operators will still have an interest in avoiding debts with German authorities as these could become an obstacle in future licensing proceedings.

German gambling regulation does not regulate social gaming as social games will usually be designed to fall outside of the definition of a game of chance.

eSports is a growth sector and betting on eSports is becoming increasingly popular. So far, however, eSports has not been recognised as a sport, making the regulatory situation complex.

Depending on how a fantasy sports offering is designed, it will fall outside of the scope of German gambling regulation. A key criterion will be whether the payments made qualify as valuable consideration given in exchange for a chance to win. Courts have denied this to be the case in relation to a game spun over the course of an entire football season where players were considered to pay to be able to participate but not in the hope of winning the prize at the end of the season.

A game will be considered a skill game 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 predominantly only played a role in a cryptocurrency context with regard to gambling in Germany.

There are no envisaged reforms of the existing framework regarding social gaming, eSports, skill gaming or blockchain concepts.

The type 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 gross gaming revenue or a combination of gross gaming revenue and profit tax. Tax rates of 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.

Online casino operations are subject to VAT at a tax rate of 19%. In 2017, the Federal Ministry of Finance clarified that gross gaming revenue (and not stakes) forms the tax base for VAT on online casino revenues.

A 5% federal tax on stakes applies to any operator offering licensed or unlicensed sports or horse race betting throughout Germany. Betting shop taxes of up to 3% on stakes may be imposed on betting shop owners at local level by municipalities. Sports betting is VAT exempt due to this special sports betting tax.

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 gross gaming revenue generated from the slot machines.

Lotteries are subject to a 16.66% lottery tax.

MELCHERS Rechtsanwaelte Partnerschaftsgesellschaft mbB

Im Breitspiel 21
69126 Heidelberg
Germany

+49 0 6221 1850 141

+49 0 6221 1850 100

gaming@melchers-law.com www.melchers-law.com
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Law and Practice

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MELCHERS is a law firm with offices in Heidelberg, Frankfurt am Main and Berlin that has been advising companies in the gaming and betting industry for over 30 years. The gaming & betting law practice group consists of specialised regulatory and commercial lawyers, and, being a full-service law firm, the advice in gambling-related matters also includes all corresponding areas of law, such as competition, company and administrative law. The firm advises national and international clients, has developed an excellent global network and pays attention to elaborate communication with regulators, which in many cases may be helpful in avoiding litigation. Melchers also has considerable experience in lobbying.

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