European Commission criticises German State Treaty

27 August 2019

The European Commission has once again criticised the latest incarnation of Germany’s State Treaty on Gambling, warning that the short term legislation offered little incentive for operators to secure licences.

After the proposed legislation was submitted to the Commission in May this year, general director Lowri Evans has submitted a response which casts doubt on the effectiveness of the planned framework in a ‘blue letter’, seen by iGamingBusiness.com.

A ‘blue letter’ is a formal notice that acts as a precursor to the launch of infringement proceedings against a member state, in which the Commission can ask for further clarification on elements of proposed legislation.

Evans in particular criticised the short-term nature of the third amended State Treaty on Gambling. He questioned the logic of implementing the Treaty for such a short period, from 1 January 2020 - provided all 16 federal states ratify the legislation by 31 December 2019 - to 30 June, 2021.

The fact that the legislation is a placeholder to be enforced while lawmakers develop a new model that will replace both the Treaty and Schleswig-Holstein’s liberal regulations has already prompted some operators to suggest it may not be properly enforced.

In order to secure a licence, operators will be required to shut down any online casino offerings and offer sports betting without in-play wagering. Players will be restricted to spending €1,000 per month, with a 5% turnover tax levied on licensees. These restrictions and fees are expected to slash operators’ revenue should they be fully enforced.

With these controls to be implemented, albeit for a short period, Evans noted that this could make the market particularly unattractive for operators. With the processing of licence applications to begin from 2 January, the first working day of 2020, licences could be valid for less than 18 months.

While he acknowledged that the Treaty does contain provisions for licences to be extend by three years, to 30 June 2024, Evans added that he did not feel this would make securing a licence any more attractive for operators.

Evans also cast doubt on whether goals of the Treaty, such as increasing player protection and driving unlicensed operators from the market, could be achieved in an 18-month period. He also queried when the effectiveness of the Treaty would be assessed, something pledged when it was first introduced in 2012.

“The Commission emphasises the need for a continuous evaluation of the implementation and application of the State Treaty, in particular (but not limited to) sports betting,” Evans continued. “The German authorities have already committed in 2012 […] to an evaluation of the appropriateness and effectiveness of the provisions relating to sports betting.

“Unfortunately, in view of the previous non-award of sports betting licenses, no such evaluation has yet been carried out,” he said. “Therefore, the German authorities are invited to [explain] how and when an evaluation of the appropriateness and effectiveness of the sports betting provisions will take place.”

The EC’s response to the State Treaty is just the latest in a long line of instances in which it has criticised German gambling legislation. The 2012 incarnation of the Treaty was viewed as introducing unjustifiable restrictions on companies’ freedom to provide services in the European Union as result of a 20-licence limit.

After the original plans were derailed by legal challenges from operators, the second amended Treaty, without the licence cap, also came in for criticism, with the EC arguing that it continued to prohibit online casino and poker - something it doubted could be enforced. However, that edition also failed to come into effect, after not all of Germany’s 16 member states ratified the Treaty, despite it being signed by each state’s Minister-President.

While the third amended State Treaty includes the prohibitions contained in the previous two drafts, it will operate in tandem with Schleswig-Holstein’s regulatory model. This enforces no restrictions on product, and sets a 20% gross revenue tax for licensees. The legislation was renewed until 2021 in May this year, which many have seen as a compromise that suggests lawmakers will support more liberal federal regulations from 2021.