Gambling Regulation in Germany - 2023

Hello viewers, Tim Pool here, editor of Gambling Insider. I'm with Jörg, a regular Gambling Insider contributor, past president of IMGL and a partner in Melcher's Law. Jörg, thanks for joining us at ICELAND in 2023. It's a great, great pleasure. Thanks for having me here. Pleasure to have you. and always excited to talk about Germany. And I think on this occasion, from the sense I'm getting from the news coming out of the country, we might be having a more positive conversation than perhaps our last two or three where there were loads of regulatory hurdles and things like that. But I'll open up with my first question. There's a new era in gambling regulation in Germany at the moment as of 1st of January. Can you walk us through why that is? That is correct. I think we are in the middle of a historical period of changing regulation in Germany. As of 1st of January this year. The GGL That stands for Gemeinsame Glücksspielbehörde der Länder, meaning joint gambling... I won't try and pronounce that, but I'll leave that to you. No, no, leave it with me. This is Joint Gambling Supervisory Authority, took over responsibility for all the sectors, all the verticals of online gaming. So it's no longer the regional council in Darmstadt, which was responsible for sports betting and licensing regime. It is now this new regulator, which I call the... the super regulator therefore. It's not a federal office, not a federal authority, but it's based on the interstate treaty signed by all 16 German prime ministers of the lenders and so far the responsibility and the power of the authority is nationwide. So if they issue licenses you're allowed as an operator to... ...operate under these licenses across the whole country in Germany, which is fine. And the good thing is they are going to find their own identity now. They started from scratch. It's a new one. It's one of these former Eastern European stage. built on a political decision to support the economy of the States. That's why the Prime Minister's made that political decision to build it up there, which in my view, well, these are good people, but in my view it's It's a bit outside of everything and building it up. There was competence. There was a routine experience in Hesse, in Schleswig-Holstein. This is all lost now. So they're going to build it up. The good thing is these are new people. It's a new generation of regulators. And I can tell you from my personal practice, they started. to conduct licensing proceedings in July 21 as the so-called state administrative office, which was sort of an interim, a transitional office. Now it's the same guys, but renamed with GGL. And what I'm really saying is positive, my experience is, these people are responsive. They are supportive, they are pro-industry because they believe in regulation and in a licensed industry. So they do anything they can, everything they can to make this a successful regulation. The hurdle is, of course, the Interstate Treaty is very restrictive. It is a bad regulation. You can simply say it's a bad regulation, but this is because it's a compromise when all the prime ministers of 16 states concluded to sign it But there were states where these politicians were against regulating. So now it's a compromise, it's very restrictive, but it's also not competitive. So we need to change a few things. But the good thing is the train has left the station. So far, these regulators, they speak to this industry. Some of these regulators were even here in London at ICE. Yesterday, there was a trade association meeting where two regulators appeared in public and they were open to answer questions. not being prepared, simply taking these questions, answering these questions, that is absolutely new for many, many years in Germany. Overall, as you say, it's a positive step. There's plenty of good. This new regulatory body and these kind of new steps being taken, how are they helping address some of the core issues in Germany? Because the last couple of G.I. Huddles we've done or articles you've written, there were issues with payments, there were issues with licenses. How are... those, I guess as you say, with increased dialogue improving? Yeah, again I can say this is a historical period of time because at the moment Germany is introducing a whitelist. You find the name of operators and brands on that whitelist only if these operators were licensed. At the moment there are still some, only very few, pending licensing procedures. So these people, these operators, they will have a license in a few days, few weeks, few months. depending for things Since they are able to submit a deposit, a bank guarantee in the amount of 5 million euros minimum. If they do so, a week later they get their license. Once this is confirmed, you get it. If you don't get it, you're still waiting, then it's an issue for payment service providers and for game suppliers, developers. Because the criteria is white listed, yes or no. If it's white, fine. If it's not white, then it's black. Black market is illegal, so you're not allowed to... be a B2B partner of these companies. But in between, I would call it a gray list, which doesn't exist, which should not exist, but that's those who are compliant in Germany and waiting for a license. The transitional regime, which has been, it's no regulation, it's been by way of discretion, a wave of enforcement, it still applies and has been applied by the GGL with effect to these companies. The critical thing is if your application is being rejected, and you'll start litigation against it probably, then it's a case-by-case assessment, which is hard to determine. But for the time being, we can say it's not only the whitelist. The PSPs and the developers need to contact their merchants and let them confirm and prove evidence we are still in the process of licensing. Then it's fine. Meaning, there is a whitelist. with some grey shades, not 50 shades of grey, but some, and that works. Yeah. So overall, as you say, some kinks, some flaws maybe, but as you say, overall it works, and that's the key thing. Looking at maybe kind of Europe more broadly, but focusing on Germany as well. Are we generally, can the industry have something to be optimistic about in the sense that we've spoken to people in Sweden and Sweden channelization is still not where it needs to be but it's improved. In the Netherlands there are some regulatory issues that might. arise this year but overall these markets that we've talked so much about are we actually seeing yeah there are some good signs across Europe well I would say we're familiar with many many jurisdictions across Europe and even worldwide the problems are always the same. And so are the reasons. It's this political perception. It's this issue with reputation of the industry. You mentioned the Netherlands. In the Netherlands, there was these, when the market opened about a year ago, there was a massive advertising everywhere. And politicians didn't like it, but the society didn't like it. So there were concerns that arisen. And before the industry could come up with, let's say, self-regulation, code of conduct issues, which, by the way, between... land-based and online industry is not very easy it was too late and now we're seeing this new I think it's coming next month we're probably the total ban on non targeted advertising meaning whenever whatever advertising means could be reached out to vulnerable blues groups it is interdicted hard to determine so is the discussion about deposit limits in the Netherlands we've got this in Germany too but in Germany the deposit limits for sports bidding be concluded two tiers it's 10,000 standard limit is 1,000 but you can exempt to 10,000 and the second tier is 30,000 provided the industry is prepared to do some extended some sophisticated monitoring algorithms in including individual checks of the affordability of a player whatever needs to be done to protect the player that works but the question is always Do we need this or can we change things? Regulation always works with restrictions and interdictions. Sometimes it's fine, but basically, if you look at the deposit limits, I think it's the wrong way. We should focus on the monitoring of the player behavior. You might have a VIP player, a high roller, who is used to deposit 100,000 a month or a million if he can afford it and it's fun for him and he's not... part of the one or two percent of addicted or well probably addicted players Why shouldn't you do so if he wants to he can only play in the black market So I would think the operator should be allowed to check these players make sure everything is well At the other side and then regulation works Because finally a whole regulation may be in Germany may be anywhere. Yeah, it's about protecting players It's about fighting gaming addiction. That's what counts. And that means it's about channelization. If I channelize the market, meaning the players will be playing in a regulated licensed environment, which is supervised, where I do have my responsible gaming concepts ready. Buy them, that's fine, then I can protect players. If players, like in Germany, seek their offers in black market activities because they can't find it in a regulated world, that makes no sense. And this is where we are. I can tell you when the transitional regime started, back in October 2020, operators were invited to comply, meaning to adjust their offerings to these guidelines of the regulators, five minimum. So five seconds minimum spin duration, stake limits, no table games, roulette and these things. And then to apply for a license as soon as possible, meaning in July 21. That worked out well, but not for the regulators, not for the operators, because they lost around 70% plus minus of their stakes, of their turnover. Those who never complied, 10 times more. They collected all these players. And that is something that really goes wrong. It's not on the radar of regulators and it's not... even on the radar of policy and lawmakers and that has to be changed so if we're to put the focus back on germany specifically a final topic given everything we've said all the broader issues you just mentioned but more specifically as well the regulator and the white list a question i've asked you before and what's i guess what's uh at least certainly exciting probably for your job in in gaming law is that, if I ask you the same question every few months, in Germany it's very different every time. What's next? What's next on the agenda in terms of the laws, the policies, the regulations in Germany? Well, now we've opened up licensing regimes. Licenses are available. You can see the... providers, more and more listings in there. So regulation is clear. Next thing in Germany is, it's nothing changing anything or introducing anything apart from the technical side. We've got this server system which is called Lugas. There's three different types of servers. One is the activity files, which prevent parallel playing of a player. The other one is the limit database, which is a cross operator. server system where the deposit deposits will be checked and if my deposit limit maybe it's ten thousand euros and i played with battery six five and that's five five thousand and go to bwin another five thousand that's that's it i cannot spend more money this is one thing but the other one is the safe server which is monitoring every everything around my gambling behavior including my deposits and so on that is something which is not ready to be applied we're waiting for technical guidelines which are still being in the process of being drafted so probably within a couple of months they will be published when the industry needs I would say between six and eight nine months to program the software because it's not just a simple safe it's pretty much detailed and customized to the German requirements on the technical side that is new that's a challenge but the regulator understands we need some time if it's three months six months nine months that needs to be answered. On the other side, the most demanding changes are the assessing, the evaluation of the success of the interstate treaty. Usually it should be done somewhere in 2023. I think it should be done right now because regulators will see we are losing a lot of players, a lot of turnovers, cannot protect them. The market is not really competitive. Look at the taxes. We've got a tax rate of, an effective tax rate is 5.03. Nominative tax 5.3. That's a deduction. You need, as an operator of virtual slot machine games, you need to reduce the... RTP to be competitive otherwise you're losing money but if you go down with the RTP the player looks at the alternative offers and certainly have an advantage playing with the black market. The whole table games. roulette which is very popular if you want to play your roulette you can do so but not in a license environment only in the black market roulette is subject to a specific lender license the lenders they can agree on granting this license to a land owned state owned operator could be the lottery companies or works and motor casinos based on a specific law so far the majority of german states decided to do this and the alternative you can also grant this to private market operators, but then the amount of licenses is limited by the amount of existing bricks and mortar casinos in that particular state. So one in Berlin, three in Hesse, as an example, and based on the law. And that is something which is absolutely illegal, because it's a monopoly, and it's a private market. At the same time, you can only justify a monopoly if you can prove that only the state is able to reach the goal of regulation. What If the law says it could be the state and only, or it could also be the private market, that doesn't work. That goes back to history where there was a discussion to attach the online gaming license to bricks and mortar industry, Spielbanken, the casinos in Germany. But this was before 2018. Then we had this decision of the European Court of Justice, the Sporting OZ1 in Hungary in 2018, saying it can't be a requirement that you are in possession of a land-based license. In order to apply for an online gaming license, illegal. It was fun because in Belgium that is the case. In Belgium it was a EU member state. But in Belgium the incumbents or the industry, they worked on a B2B basis very well together. So nobody complained, no litigation started. So it's still the same because it's peaceful. In Switzerland, same thing, but that is not part of the European Union. They can do what they want, whether it's good or not. That is things that we need to monitor. Well Jörg, thanks very much for your time. You're more than welcome. Good luck with what sounds like it's going to be a busy few months ahead and plenty to keep tabs on. Final wording to close this discussion. The train has left the station. We are regulated. It's an opportunity. It's a wonderful country, a wonderful market. We're going to improve. And I think, that is my feeling, the regulator is going to support us. Things will change and it will make sense to be in that market as a licensed and compliant operator. Thank you very much.

Pleasure to have you. and always excited to talk about Germany. And I think on this occasion, from the sense I'm getting from the news coming out of the country, we might be having a more positive conversation than perhaps our last two or three where there were loads of regulatory hurdles and things like that.

But I'll open up with my first question. There's a new era in gambling regulation in Germany at the moment as of 1st of January. Can you walk us through why that is? That is correct. I think we are in the middle of a historical period of changing regulation in Germany.

As of 1st of January this year. The GGL That stands for Gemeinsame Glücksspielbehörde der Länder, meaning joint gambling... I won't try and pronounce that, but I'll leave that to you. No, no, leave it with me. This is Joint Gambling Supervisory Authority, took over responsibility for all the sectors, all the verticals of online gaming.

So it's no longer the regional council in Darmstadt, which was responsible for sports betting and licensing regime. It is now this new regulator, which I call the... the super regulator therefore.

It's not a federal office, not a federal authority, but it's based on the interstate treaty signed by all 16 German prime ministers of the lenders and so far the responsibility and the power of the authority is nationwide. So if they issue licenses you're allowed as an operator to... ...operate under these licenses across the whole country in Germany, which is fine. And the good thing is they are going to find their own identity now.

They started from scratch. It's a new one. It's one of these former Eastern European stage. built on a political decision to support the economy of the States.

That's why the Prime Minister's made that political decision to build it up there, which in my view, well, these are good people, but in my view it's It's a bit outside of everything and building it up. There was competence. There was a routine experience in Hesse, in Schleswig-Holstein. This is all lost now. So they're going to build it up.

The good thing is these are new people. It's a new generation of regulators. And I can tell you from my personal practice, they started.

to conduct licensing proceedings in July 21 as the so-called state administrative office, which was sort of an interim, a transitional office. Now it's the same guys, but renamed with GGL. And what I'm really saying is positive, my experience is, these people are responsive. They are supportive, they are pro-industry because they believe in regulation and in a licensed industry. So they do anything they can, everything they can to make this a successful regulation.

The hurdle is, of course, the Interstate Treaty is very restrictive. It is a bad regulation. You can simply say it's a bad regulation, but this is because it's a compromise when all the prime ministers of 16 states concluded to sign it But there were states where these politicians were against regulating. So now it's a compromise, it's very restrictive, but it's also not competitive.

So we need to change a few things. But the good thing is the train has left the station. So far, these regulators, they speak to this industry.

Some of these regulators were even here in London at ICE. Yesterday, there was a trade association meeting where two regulators appeared in public and they were open to answer questions. not being prepared, simply taking these questions, answering these questions, that is absolutely new for many, many years in Germany.

Overall, as you say, it's a positive step. There's plenty of good. This new regulatory body and these kind of new steps being taken, how are they helping address some of the core issues in Germany? Because the last couple of G.I. Huddles we've done or articles you've written, there were issues with payments, there were issues with licenses.

How are... those, I guess as you say, with increased dialogue improving? Yeah, again I can say this is a historical period of time because at the moment Germany is introducing a whitelist.

You find the name of operators and brands on that whitelist only if these operators were licensed. At the moment there are still some, only very few, pending licensing procedures. So these people, these operators, they will have a license in a few days, few weeks, few months. depending for things Since they are able to submit a deposit, a bank guarantee in the amount of 5 million euros minimum.

If they do so, a week later they get their license. Once this is confirmed, you get it. If you don't get it, you're still waiting, then it's an issue for payment service providers and for game suppliers, developers.

Because the criteria is white listed, yes or no. If it's white, fine. If it's not white, then it's black. Black market is illegal, so you're not allowed to...

be a B2B partner of these companies. But in between, I would call it a gray list, which doesn't exist, which should not exist, but that's those who are compliant in Germany and waiting for a license. The transitional regime, which has been, it's no regulation, it's been by way of discretion, a wave of enforcement, it still applies and has been applied by the GGL with effect to these companies.

The critical thing is if your application is being rejected, and you'll start litigation against it probably, then it's a case-by-case assessment, which is hard to determine. But for the time being, we can say it's not only the whitelist. The PSPs and the developers need to contact their merchants and let them confirm and prove evidence we are still in the process of licensing. Then it's fine. Meaning, there is a whitelist.

with some grey shades, not 50 shades of grey, but some, and that works. Yeah. So overall, as you say, some kinks, some flaws maybe, but as you say, overall it works, and that's the key thing. Looking at maybe kind of Europe more broadly, but focusing on Germany as well.

Are we generally, can the industry have something to be optimistic about in the sense that we've spoken to people in Sweden and Sweden channelization is still not where it needs to be but it's improved. In the Netherlands there are some regulatory issues that might. arise this year but overall these markets that we've talked so much about are we actually seeing yeah there are some good signs across Europe well I would say we're familiar with many many jurisdictions across Europe and even worldwide the problems are always the same.

And so are the reasons. It's this political perception. It's this issue with reputation of the industry. You mentioned the Netherlands.

In the Netherlands, there was these, when the market opened about a year ago, there was a massive advertising everywhere. And politicians didn't like it, but the society didn't like it. So there were concerns that arisen.

And before the industry could come up with, let's say, self-regulation, code of conduct issues, which, by the way, between... land-based and online industry is not very easy it was too late and now we're seeing this new I think it's coming next month we're probably the total ban on non targeted advertising meaning whenever whatever advertising means could be reached out to vulnerable blues groups it is interdicted hard to determine so is the discussion about deposit limits in the Netherlands we've got this in Germany too but in Germany the deposit limits for sports bidding be concluded two tiers it's 10,000 standard limit is 1,000 but you can exempt to 10,000 and the second tier is 30,000 provided the industry is prepared to do some extended some sophisticated monitoring algorithms in including individual checks of the affordability of a player whatever needs to be done to protect the player that works but the question is always Do we need this or can we change things? Regulation always works with restrictions and interdictions. Sometimes it's fine, but basically, if you look at the deposit limits, I think it's the wrong way. We should focus on the monitoring of the player behavior.

You might have a VIP player, a high roller, who is used to deposit 100,000 a month or a million if he can afford it and it's fun for him and he's not... part of the one or two percent of addicted or well probably addicted players Why shouldn't you do so if he wants to he can only play in the black market So I would think the operator should be allowed to check these players make sure everything is well At the other side and then regulation works Because finally a whole regulation may be in Germany may be anywhere. Yeah, it's about protecting players It's about fighting gaming addiction.

That's what counts. And that means it's about channelization. If I channelize the market, meaning the players will be playing in a regulated licensed environment, which is supervised, where I do have my responsible gaming concepts ready.

Buy them, that's fine, then I can protect players. If players, like in Germany, seek their offers in black market activities because they can't find it in a regulated world, that makes no sense. And this is where we are.

I can tell you when the transitional regime started, back in October 2020, operators were invited to comply, meaning to adjust their offerings to these guidelines of the regulators, five minimum. So five seconds minimum spin duration, stake limits, no table games, roulette and these things. And then to apply for a license as soon as possible, meaning in July 21. That worked out well, but not for the regulators, not for the operators, because they lost around 70% plus minus of their stakes, of their turnover.

Those who never complied, 10 times more. They collected all these players. And that is something that really goes wrong.

It's not on the radar of regulators and it's not... even on the radar of policy and lawmakers and that has to be changed so if we're to put the focus back on germany specifically a final topic given everything we've said all the broader issues you just mentioned but more specifically as well the regulator and the white list a question i've asked you before and what's i guess what's uh at least certainly exciting probably for your job in in gaming law is that, if I ask you the same question every few months, in Germany it's very different every time. What's next?

What's next on the agenda in terms of the laws, the policies, the regulations in Germany? Well, now we've opened up licensing regimes. Licenses are available. You can see the... providers, more and more listings in there.

So regulation is clear. Next thing in Germany is, it's nothing changing anything or introducing anything apart from the technical side. We've got this server system which is called Lugas. There's three different types of servers. One is the activity files, which prevent parallel playing of a player.

The other one is the limit database, which is a cross operator. server system where the deposit deposits will be checked and if my deposit limit maybe it's ten thousand euros and i played with battery six five and that's five five thousand and go to bwin another five thousand that's that's it i cannot spend more money this is one thing but the other one is the safe server which is monitoring every everything around my gambling behavior including my deposits and so on that is something which is not ready to be applied we're waiting for technical guidelines which are still being in the process of being drafted so probably within a couple of months they will be published when the industry needs I would say between six and eight nine months to program the software because it's not just a simple safe it's pretty much detailed and customized to the German requirements on the technical side that is new that's a challenge but the regulator understands we need some time if it's three months six months nine months that needs to be answered. On the other side, the most demanding changes are the assessing, the evaluation of the success of the interstate treaty.

Usually it should be done somewhere in 2023. I think it should be done right now because regulators will see we are losing a lot of players, a lot of turnovers, cannot protect them. The market is not really competitive. Look at the taxes.

We've got a tax rate of, an effective tax rate is 5.03. Nominative tax 5.3. That's a deduction.

You need, as an operator of virtual slot machine games, you need to reduce the... RTP to be competitive otherwise you're losing money but if you go down with the RTP the player looks at the alternative offers and certainly have an advantage playing with the black market. The whole table games. roulette which is very popular if you want to play your roulette you can do so but not in a license environment only in the black market roulette is subject to a specific lender license the lenders they can agree on granting this license to a land owned state owned operator could be the lottery companies or works and motor casinos based on a specific law so far the majority of german states decided to do this and the alternative you can also grant this to private market operators, but then the amount of licenses is limited by the amount of existing bricks and mortar casinos in that particular state. So one in Berlin, three in Hesse, as an example, and based on the law.

And that is something which is absolutely illegal, because it's a monopoly, and it's a private market. At the same time, you can only justify a monopoly if you can prove that only the state is able to reach the goal of regulation. What If the law says it could be the state and only, or it could also be the private market, that doesn't work.

That goes back to history where there was a discussion to attach the online gaming license to bricks and mortar industry, Spielbanken, the casinos in Germany. But this was before 2018. Then we had this decision of the European Court of Justice, the Sporting OZ1 in Hungary in 2018, saying it can't be a requirement that you are in possession of a land-based license. In order to apply for an online gaming license, illegal.

It was fun because in Belgium that is the case. In Belgium it was a EU member state. But in Belgium the incumbents or the industry, they worked on a B2B basis very well together. So nobody complained, no litigation started. So it's still the same because it's peaceful.

In Switzerland, same thing, but that is not part of the European Union. They can do what they want, whether it's good or not. That is things that we need to monitor. Well Jörg, thanks very much for your time. You're more than welcome.

Good luck with what sounds like it's going to be a busy few months ahead and plenty to keep tabs on. Final wording to close this discussion. The train has left the station. We are regulated. It's an opportunity.

It's a wonderful country, a wonderful market. We're going to improve. And I think, that is my feeling, the regulator is going to support us. Things will change and it will make sense to be in that market as a licensed and compliant operator. Thank you very much.

Transcript for:Gambling Regulation in Germany - 2023

Transcript for:
Gambling Regulation in Germany - 2023