In the middle of summer 2021, the new Interstate Treaty on Gambling appeared on the scene of German regulations.

The objectives of the regulations can be read right at the beginning under Sec. 1 of the Treaty: “In addition to the protection of players and minors, as well as the prevention of gambling addiction, it was a particular concern of the German states to move the black market towards a legalised market. Not least for this reason, the spectrum of gambling types that can be permitted was expanded. Whereas up to now only sports betting was of economic relevance for the larger operators, it is now also possible to apply for licences to organise virtual slot machines or poker games. In addition, lotteries, horserace betting and casino games may also be offered on the internet, but these specific forms of gambling remain almost exclusively reserved for the state, either because of an explicit legal order or because of the de facto implementation of the authorities.”

Recent events, however, lead all market participants to doubt whether the regulatory authorities are even aware of the objectives of the Interstate Treaty.

The transition from the previous Interstate Treaty on Gambling (2020 version) to the new 2021 Interstate Treaty took place smoothly in many aspects and, despite complex legal issues, allowed the operating market to continue practically as before. Afterwards, however, there was an unexpected wave of official notices at the end of February 2022.

The approach of the Darmstadt Regional Council, the competent licensing authority for sports betting until the end of 2022, was to send the licensed operators notices of amendment, by which a new ancillary provision was to be inserted into the already existing licences with immediate effect. This subsidiary provision provided for the immediate applicability of the new sports-betting catalogue, which had been published simultaneously on the website of the Regional Council.

Not only does this “official bomb” put the market participants interested in legalisation in an enormous (financial) predicament, but it also forces a change between completely different regulatory approaches: While previously, the “type and cut” of the individual sports bets were to be regulated in the operator’s licence, each individual sports bet is now subject to its own licence. This means that any form of sports betting is prohibited unless it has been expressly permitted by the authorities upon application.

Apart from the debatable manner in which this system change is to be brought about and the legal errors inherent in the amendment notices, it is also completely counterproductive. Should it actually come about that operators have to implement the short list of permissible sports bets and have to renounce all other forms of sports betting, this would mean a shrinking of the legal sports-betting offer by up to 75%.

Consequently, sports-betting quotas would have to be reduced, meaning that the legal offer would become increasingly unattractive and players would migrate back to the black market. A lack of youth- and player-protection measures, few or no money-laundering precautions, and manipulation-prone gaming procedures would once again be part of everyday life on the sports-betting market.

Observers now fear that the Interstate Treaty will also mutate into another prime example of misguided regulatory ambitions, the practical implementation of which will lead to a de facto undermining of the original regulatory aims.

Consequently, the transition from February to March was marked by crisis meetings at all levels. While the industry initially gained some breathing space with administrative-law applications for suspension of immediate enforcement, the official players have also had their heads in the clouds: The uniformity with which the industry proceeded must have signalled to authorities the far-reaching potential for damage that this approach carried.

Although it has not yet been possible to negotiate a satisfactory solution, at least they have twice refrained from an immediate compulsory enforcement of this sports betting catalogue. The notices of amendment don’t actually become binding for the time being, provided that some of the affected operators have already filed a legal challenge against them in court. Principles of proportionality and the question of the mildest means have become obsolete and those affected see themselves exposed to arbitrariness. However, the string-puller acting in the background, the Gambling Committee, will exist in its function only until the end of 2022 — thus, with the co-decision-making competence that has often been questionable from a constitutional point of view so far. This is a ray of hope for all those who may directly or indirectly come into the firing line of the Committee through market-influencing measures.

Starting on 1 January 2023, the Committee will be replaced by a newly established Administrative Board. This body will set the guidelines for the Joint Gambling Authority of the Federal States, which at the same time will take over the gambling supervision for all sectors in Germany. This body is more politically staffed. It remains to be seen and hoped whether the regulator will then be able to make its decisions as autonomously as necessary. Many signs point in this direction. This would be an important step towards improving regulatory practice from 1 January 2023.

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.