Tottenham Report: Bottom line and further anticipation — An eventful year in the German gambling markets By Michelle Chelsea Hembury December 15, 2021 at 10:00 pm The entry into force of the new Interstate Treaty on Gambling 2021 (‘IST2021’) on 1 July 2021 in Germany was anticipated by the industry with great expectations. For the first time, licences for the organisation of virtual slot machines, online poker, and online casino games were to be granted, in addition to sports betting. But the closer the deadline in July came, the more impenetrable the web of responsibilities, transitional regulations, and new regulatory efforts became. While the regulatory system remained the same, in that the goals and structure of the previous IST2012 had been adopted, a new authority in Saxony-Anhalt appeared on the scene. The Halle Federal State Administration Office in Saxony-Anhalt was to be responsible not only for issuing licences for virtual slot machines and online poker, but also for nationwide gambling supervision — at least on a transitional basis until the actually intended Joint Gambling Supervisory Authority (also based in Halle) is established and ready for operation. This is to be the case at the beginning of 2023 and then the Darmstadt Regional Council in Hesse, which has so far been responsible for sports betting, will also be relieved of its tasks and duties. A centralisation of procedures and responsibilities in Halle, however, still appears to be a distant daydream at the moment. Licences for the organisation of sports betting that had been granted before 1 July and under the old law were carried over into the new legal system, taking into account a few additional requirements, while sports betting permit procedures that had not yet been decided as of 1 July are still in the pipeline and have been enriched by a list of additional legal and technical requirements. For virtual slot machines and online poker, a transitional regime is currently in effect, the legal nature of which is perceived as toleration, until the operators who are still unlicensed, but active on the market, have applied for a licence in Saxony-Anhalt and received a positive decision. The slot procedures, in particular, have led to an increased workload on the part of the operators in recent weeks, as 30 November deadlines put pressure on both the operators and their service providers, such as the payment providers. While these operators were somewhat tolerated to offer slot and poker games, they continued to be a thorn in the flesh of the authorities, despite the legal classification of these transitional arrangements. Consequently, the deadline at the end of November and the vaguely formulated threats of consequences hovered over the industry like a black veil. It can therefore be assumed that on the due day set by the authority at the end of November, quite a few boxes stuffed with application documents arrived at the regulator’s mail room. Correlating with this, it should therefore also not be assumed that the processing periods of a maximum of three months announced by the regulator will be adhered to. The fact that the interim authority in Halle currently seems to be overburdened becomes clear when one takes a closer look at the technical requirements of the new IST2021. This includes the legally required connections to various server systems that are supposed to monitor different facets of player protection. While the data server for recording player exclusions (OASIS) is basically active and a connection is therefore also possible for licensed operators, the limit and activity file (LUGAS) is still “under development”. This in itself may seem questionable, since the Interstate Treaty on Gambling places player protection at the top of the list of priorities. However, it becomes macabre when applicants realise that proof of connection to the LUGAS test environment must nevertheless be submitted. Irrespective of the technical and organisational hurdles of the licensing procedure, the number of applicants who have already submitted comprehensive applications show that the overall regulatory concept is making the German online market rather unattractive. So far, about 45-50 applications have been received by the authority for the granting of the newly permitted forms of gambling, of which less than 10 applications concern the online poker segment. Too many individual requirements imposed by the IST2021 limit the economic attractiveness and financial viability of the process. These include advertising restrictions, time limits, high technical requirements for the monitoring of payment flows, which affect operators from a money laundering, gambling, and administrative law perspective, reporting obligations, and high costs. To make matters worse, the operators are confronted with an authority that had to take on the regulatory tasks only as a stop-gap measure and which lacks the flexibility that would make such complex and lengthy procedures more efficient and comprehensible for all parties involved. Another massive burden hit the industry on 1 July 2021. Since that date, a new tax rate of 5.3% on stakes (net: 5.01%) applies. Due to reduced competitiveness, a considerable share of sales is considered lost to the black market. Estimates range from 80% to 90%. While the preparations of the operators for the granting of permission to broker virtual slot machine games are in full swing, nothing is happening with regard to casino games, i.e., the traditional bank-held games. The IST2021 provides that it is at the discretion of the regulator whether these can be offered by private operators on the internet at all or whether they should be integrated into the market as part of a state monopoly, in line with the restrictive cut of the law. Which of the two options the German regulator tends toward probably does not require much guesswork (unfortunately for the private market). So far, it is known that North Rhine-Westphalia and Schleswig-Holstein want to issue licences for commercial online casinos to private operators. Saxony, Brandenburg, Bavaria, and Thuringia have already decided in favour of the monopoly option. Despite all of this, we look forward with excitement to the new year, when it will be interesting to see old procedures concluded, changes of competencies prepared, and new forms of gambling entering the legal market. Michelle Hembury, originally from Frankfurt a.M., Germany, recently completed her legal training at the University of Heidelberg and joined MELCHERS Rechtsanwälte Partnerschaftsgesellschaft mbB as an attorney in Heidelberg at the beginning of 2021. As part of her legal practice, Ms. Hembury advises clients in the areas of administrative and gambling law.