Mixing the past with the future: Schleswig-Holstein introduces new quasi-licensing regime for sports betting

Headlines about German gambling regulations usually relate to Germany’s core legal framework on gambling, the Interstate Treaty on Gambling (Interstate Treaty), as well as the questionable applicability of some of its key restrictions under EU law.

This article, however, will look at the de facto “parallel universe” of gambling regulation which has existed alongside the Interstate Treaty these past six years, and, in particular, a new initiative recently introduced by the Schleswig-Holstein Ministry of the Interior which provides for a transitional arrangement for sports betting open to both existing Schleswig-Holstein licensees and other interested parties.

What happened in the past?

In 2012, the state of Schleswig-Holstein decided to go it alone and introduced its own gambling regulation instead of joining the other German states in forming the Interstate Treaty. The Gaming Act of Schleswig-Holstein, contrary to the Interstate Treaty, allowed for the issuance of licences for private sports betting and online casino operators.

Schleswig-Holstein licences, however, were only issued until February 2013, since – because of a change in government – Schleswig-Holstein ultimately agreed to the Interstate Treaty. Still, the legal framework introduced in 2012 continued to apply to those operators in possession of a Schleswig-Holstein license. A total of 48 licences for the operation of sports betting and/or online casino gaming were issued while its Gaming Act was in force. These licences have a six-year term from the date they were issued and arguably should be extendible for another four years. Yet, when the first licences (i.e. sports betting licences) were due to expire last month, Schleswig-Holstein announced its decision not to extend the licences.

Instead, a “transitional arrangement for sports betting” was introduced.

What’s happening now?

The Schleswig-Holstein transitional arrangement for sports betting goes beyond a mere passive toleration of sports betting and may be best described as a quasi-licensing regime explicitly allowing sports betting operations during a transitional period until a new regulation at either national or state level  takes effect. As such, it could stay in place until June 2021, when the current Interstate Treaty expires, if no changes in regulation occur before then.

The transitional arrangement was introduced based on Section 9 of the Interstate Treaty, a provision dealing with supervision and enforcement. However, it seems as if parts of the former Schleswig-Holstein regulation will be preserved under the transitional arrangement, specifically with regards to establishing a SAFE server/monitoring environment. It also seems as if Schleswig-Holstein intends to interpret Interstate Treaty restrictions with their practical workability in mind, as reflected in their approach to loosening restrictions on in-play betting and introducing mechanisms to ensure that operators have more flexibility when implementing the monthly 1,000 EUR stake limit required by the Interstate Treaty.

Interestingly, the transitional arrangement is open to any EU/EEA-based operator, not just to former Schleswig-Holstein licensees. No official deadline has been set before which operators can apply to operate under the transitional arrangement. The Schleswig-Holstein Ministry of the Interior has, however, announced that it will initiate enforcement action against operators who do not hold a Schleswig-Holstein transitional arrangement but are operating in Schleswig-Holstein.

“But why care about Schleswig-Holstein, a state with only 2.8 million inhabitants?” some might ask themselves.

The answer: Because the transitional arrangement not only safeguards operators from enforcement action in Schleswig-Holstein but also provides an opportunity for operators who have never applied for a German licence in any shape or form or were not founded/active in the German market when there were licensing opportunities in Germany, to demonstrate that they are willing and able to fulfil German licence requirements. Participating in licensing processes, or at least showing an interest in being regulated if participation is not possible, are factors Germany’s highest administrative court, the Federal Administrative Court, stressed in a judgment of October 2017 to be of key importance when considering the legality of sports betting operations of an EU-based sports betting operator in the current regulatory environment. Interestingly, the Federal Administrative Court applied a more restrictive view than the European Court of Justice in its judgment of the Ince case in February 2016, which had considered it unlawful to take legal action against an EU-based and licensed sports betting operator based on the operator not holding a German licence while an unlawful de facto monopoly persists in Germany.

The Federal Administrative Court judgment can be criticised for many reasons, and a constitutional complaint has already been made against it. Nevertheless, its findings had an impact, not least since German authorities and lower courts must be expected to apply its findings for the time being. To account for this but, also to show support for Schleswig-Holstein’s endeavour of trying to preserve some of the things that have worked under the Schleswig-Holstein regulation to improve the current Interstate Treaty regulation and possibly shape Germany’s future gaming regulation, the transitional arrangement might be of interest for some operators. It will also be interesting to see how the transitional arrangement will be received by payment service providers and advertising partners.

 

What’s in the future?

What remains a bit of a mystery  whether Schleswig-Holstein will introduce an arrangement, similar to the transitional arrangement for sports betting, for online casinos once the Schleswig-Holstein online casino licences start to expire towards the end of this year.

The Interstate Treaty, which Schleswig-Holstein acceded to, stipulates a total ban on online casino operations. It is therefore difficult to see how this could work applying the Interstate Treaty. Much will depend on how the current reform discussions among the German states progress and if the states of Schleswig-Holstein, Hesse and North-Rhine Westphalia are able to convince the other German states to agree to a broad reform which would introduce licensing opportunities for online casino operations.

Alternatively, they could pursue their own regulations, much in the way Schleswig-Holstein did in 2012-2013, but a compromise still seems to be the main goal. So far, the discussions have been moving very slowly, but by Autumn the direction in which German gambling regulation will be heading should become clearer.