The legal mechanism Hesse is using is to offer operators a temporary period of “tolerance,” in effect guaranteeing that the state government will not prosecute operators under the provisions of the Interstate Treaty.
This is a bizarre legal workaround that will give Hesse the opportunity to collect gaming taxes from sports betting. Whether there is any value in operators taking advantage of the proposal is another matter.
- The explanatory leaflet can be downloaded here.
The new Hesse permits only apply to sports betting
The permits that Hesse is now offering retain the provisions of the Interstate Treaty as their basis.
The key elements of the offer are:
- Applications open from September 15
- Applications close on November 15
- The issue of a permit does not imply that a license will be issued under any future legislation
- Applicants must deposit a security in the amount of €367,900 in the form of an unlimited absolute bank guarantee from a credit institution based in the EU
- The operators approved for the original 20 licenses need to submit less evidence of suitability
- Sundry other documentation regarding tax and good corporate governance must also be supplied
- Over and above the provisions of the State Treaty there are additional provisions regarding staffing, age verification, problem gambling and drug taking.
- The permit will be valid only for sports betting in the state of Hesse
- There is no limit to the number of permits that may be issued
EU Court of Justice rulings have made the German gambling laws illegal
The German states, known as Länder, have considerable legislative independence, not unlike the US. The federal government has the power to legislate for online gambling, but has so far left the issue to the states to resolve.
Since 2012, when the last two of the 16 states signed up, online gambling law has been governed by the German State Treaty on Gambling. This authorized online sports betting to be provided by a limited number of licensed providers.
Hesse was given the job of acting as the regulator for the Treaty, and issuing the licenses. A tortuous, and ultimately unconstitutional licensing process (paywall), failed to deliver a single online gaming license.
In September 2014 Hesse announced the award of 20 licenses under the Treaty, but an immediate legal challenge (paywall) forced the suspension of the licenses.
Subsequent court challenges both in Germany and in the European Union Court of Justice finally ruled that the Treaty was not compliant with EU law, or the German constitution.
Under EU law, the Treaty cannot be enforced, and operators who ignore it cannot be prosecuted.
Hesse proposed amendments to liberalize the Interstate Treaty
In March this year, the state presidents of all the German Länder held a meeting to discuss the future of the Treaty. Hesse presented a position paper that argued for amendments to the law that would both bring it into line with EU treaties, and increase the range of games permitted to include casino games and online poker.
The presidents roundly rejected the proposals. All they could agree upon were minor amendments including increasing the number of available licenses from 20 to 40.
At the time, Schleswig-Holstein FDP party leader Wolfgang Kubicki said:
“Once again a viable solution for gambling regulation in the country has been refused. The Länder Presidents are running repeatedly into the same wall, because they seem to have learned nothing.”
Although Schleswig-Holstein joined the Interstate Treaty in 2012, it did so as the only state with an existing legislative framework for online gambling. It issued its first licenses at the end of 2012 with recipients including PokerStars, 888, Ladbrokes, Bet365 and partypoker.
The relatively liberal Schleswig-Holstein legislation was the basis for the Hesse proposals to the state presidents meeting.
A temporary solution is the only option on the table
The EU Commission has announced that it will follow up infringement proceedings with a prosecution of Germany for failing to bring its gambling laws into compliance with EU law.
In the absence of political agreement between the German state presidents, the prospects for reform of the Interstate Treaty are remote. The five-year licenses issued by Schleswig-Holstein begin to expire at the end of 2017, and are not going to be extended.
It is highly likely that the new Hesse permits will then be the only form of licensing available for online sports betting in Germany, one of the largest sports betting markets in the world.
As the permits won’t be valid for operations in the other 15 German states, operators will have to decide whether they are worth the cost.
Hesse has a wealthy population of almost six million people, so as a market it is small, but likely to be lucrative. On the other hand, the Hesse government will be unable to prevent unlicensed operators from having equal access to licensed operators.
The potential goodwill engendered by supporting the Hesse government initiative may have more value in the long term. From that point of view the German national operators are likely to apply for the new permits, and a few of the larger offshore operators may well follow suit.
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