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Oddest must suspend its sponsorship of the FIFA Football World Cup 2006 without delay

There has seldom been so much confusion in the wake of a decision of the German Federal Constitutional Court in Karlsruhe.  Shortly after the announcement of the decision, headlines appeared such as “Kick-off for Private Providers”  (Manager magazine), “Sports Betting Monopoly Unconstitutional” (Sport 1.de), and ‘In Principle, the State Monopoly on oddest- Sports Bets is still permissible” (FAZ.net), as well as many other newspapers with the headline “The Sports betting Monopoly is to be retained for the moment.”

      Now that murmurings in the press have settled, what are we left with?  The court decided that the state sports betting provider in its current state may not be used to justify the retention of the state monopoly and is unconstitutional.  It is left to the legislature to decide whether it wishes to liberalize the market or retain the monopoly.  The Karlsruhe judges held that new legislation must be introduced by the 31st of December 2007.  There are two possible scenarios of what might emerge in the next 21 months:
      The first possibility is that the legislature will retain the betting monopoly and provide for this in the legislation.  On this, the Federal constitutional Court emphasized the following:


      “If the legislature wishes to retain the betting monopoly, this retention must be based consistently on the aims of combating betting addition and limiting the fervor of be of betting.”
      If the legislature should decide on this option, things are going to become more difficult for Oddset (the German state provider of sports betting): According to the court, only advertising which serves informative and explanatory purposes will be permissible.  There must be active provision of information on the dangers of addiction, merely having this information in store is not sufficient.  Each of the individual services must seek to combat addiction and protect players.


      As such, Oddset must suspend its sponsorship of the FIFA Football World Cup 2006 without delay, i.e. immediately, and suspend all further aggressive advertising measures (e.g. the 15 sponsoring contracts with 15 of the football clubs in the 1st division of the Bundesliga).  Furthermore, online provision by Oddest is also affected by this Federal Constitutional Court decision:

     

“Based on the fact that the poker laws requires that any betting provision be directed at the combating of betting addiction and the restriction of betting fervour, the legality of allowing participation in betting via the online service of the State Lottery Administration is also questionable.  The representatives of the State Lottery Administration themselves stated that it was not possible to effectively implement youth protection measures (which are a particularly important element of the prevention of addiction ) for this method of sale.  The same applies to the use of text messages, which makes sports betting possible via mobile phone at any time and from any place.”
      The restrictions laid down by the Federal Constitutional Court are unlikely to provide a framework under which Oddset can be commercially viable.  The prohibition of advertising, other than advertising which does more than merely inform, together with the prohibition of sales channels which do not have sufficient regard for the protection of players and the youth – such as Internet, text message , TV- are all factors which would radically curtail the state providers current operation.  The expansive commercial strategy followed to date would also have to be discontinued.


      The other option for the legislature is to surrender the monopoly and to liberalize the sports betting market.  In that case, private providers would have to be permitted a ‘slice of the cake’.  Whether this cake would still be so large if the monopoly is retained is anything but certain.
      However, this is exactly what Bavaria plans.  “We must now improve things”, said the Permanent Secretary of Bavaria, George Schmid, in Karlsruhe, who is in favor of a retention of the monopoly.  The lawyer representing the complainant, a Munich bookmaker, phrased this more clearly; “The end has come for the state hypocrisy.”


      Oddset regards the decision as a positive one: “We welcome the Federal Constitutional Court’s decision in that it considers a state monopoly, in principle suitable for combating the dangers of gambling addiction.”  Said Erwin Horak, President of the State Lottery Administration of Bavaria, which conducts transaction on behalf of all 16 state companies of Oddset.  He also stated “We are going to analyze the conditions imposed by the Court and implement these as soon as possible.”  But this was without providing any further detail as to how this should be done.
      The question is whether oddest will actually be commercially viable if it follows this policy thoroughly.  Oddset will not only lose market segments in the future but will have to give up this market in its entirety and make do with activities in niche areas.

     

Others limited to such niche areas include the Online Casino Wiesbaden, which possesses a state license for provision of its services, but is very restricted by the conditions and may only operate on a regional level.  The number of players who stray  onto the site is relatively low.  Such a business model does not constitute any serious competition for big international providers.
      The most difficult point for Oddset to implement will be the restriction on advertising.  An advertisement which does not go beyond “objective information on the nature and manner of betting options” and “does not deliberately urge betting” is not really adverting.  Oddset would moreover have to cease using a slew of marketing channels (internet, mobile telephony, betting TV.etc) which in the long run could very well turn out to be the most potent sales channels.  If one then includes the obligation to actively prevent of addiction and the establishment of an independent regulatory authority, then there is no commercially acceptable model left, especially considering the competition that is already out there.
      Even though the situation might appear different at first sight, there is much in favour of a sports betting law which enables private providers to apply for licenses under a licensing procedure and thereby provide sports bets in Germany.  On the one hand, it is not possible to effectively prevent the online provision of sports bets, rather this can only be kept under control by regulation. 

On the other hand, Oddset would be far less limited in its operation if there was a liberalization of the market, which is the more likely solution.  This is because one can hardly imagine that Oddset would completely withdraw from the mobile sports betting business merely to satisfy the requirements of a new law providing for the retention of the sports betting monopoly.  In connect with this, it should note be forgotten that if Oddset were to withdraw, the holders of GDR-licenses, such as Betandwin, would immediately fill any gaps left behind and that there would be some private sports betting providers who did not have to comply with these restrictions.  The legislature must take this into account before it decided against a liberalization of the market.  There are also other unanswered questions. The court decided that a new regulation was conceivable at federal or state level.  This raises practical questions: The Federation is responsible for economic law, while the states retain the competence for police law.  In other words: Under economic law, an opening of the market comes within the competence of the federation under police law, a restrictive regulation of the monopoly would come within the competence of the federal states.  But who will decide the direction to be taken?
      According to information in the news roundup, on the Federal and State level, the first exploratory talks are already in progress.  A commission set up last year, of which several federal states are members, is proposing liberalization.  In light of recent developments there are two most likely scenarios:

  • Oddset will defend itself against liberalization, but for economic reasons will not abide by the court’s conditions.
  • The sports betting market is liberalized.  But this will lead to further disputes.
  • Pseudo-liberalization will occur, which in turn could be repealed after review.
  • A strict monopoly may be the outcome.

From an economic point of view, Oddset will not be able to survive if it really abides by the terms of the monopoly.  Therefore it is very likely that a liberalization will take place- bet it directly or with help of the Federal Constitutional Court or the ECJ.

 

 

 

 

 

 
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