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Germany inches forwards in relaxing egaming restrictions

Germany’s recent ruling could mark a step towards breaking European state monopolies on egaming, but the future remains uncertain.  Jake Pollard investigates.

Online gaming operators on the whole responded positively to the verdict reached in early April by Germany’s Federal Constitutional Court on current German betting law.
      John O’Reilly, head of egaming and telephone betting at Ladbrokes, said: “We hope the German government applies the principles of free and fair competition and introduces a regulated and competitive environment for betting by the end of 2007.”

      Petter Nylander, chief executive of Unibet, added: “The court made clear that the current monopoly is not aiming to address undesirable side effects of gaming, but is merely fiscally driven.  This is a strategic milesto0ne fro the European Union (EU).
      “We also hope other states such as Sweden, Italy, Holland and France finally realize prohibition is not the answer, but proper regulation creating a level playing field for both state-run and private operators, addressing compulsive gaming aspects, is the way forward.  This ruling is as important as the Gambelli ruling of November 2003.  It will have a positive impact on our own court case against the Swedish state.”

Tentative optimism

Declaring the law “unconstitutional”, the highest judicial authority in Germany gave state operator  Oddest until 31 December 2007 to justify its argument that it should enjoy a mobilesports-betting monopoly on the grounds that only Oddest can manage the public’s “urge” to gamble and minimize the risk of problem gambling.

      Despite perpetuating the current situation for at least another 18 months, such a deadline still represents a positive development in the lengthy process of breaking down European state-owned gambling monopolies.
      As in other countries such as Holland and Sweden, the state operators’ argument for keeping market monopolies alive has always been that they are necessary because they prevent the vulnerable from developing gambling addictions.
      It is a claim that is rejected by private operators, which in turn accuse the state operators of first and foremost wanting to protect their betting revenues by not opening the market up to competition.
      The wording of the ruling stresses that Oddset’s current objective is financial gain rather trying to minimize the risk of problem gambling.  It reads: “What is decisive in the present context is that it (the advertising of the state provider) is not designed to channel an already existing urge to gamble toward the state-run betting offers, but instead it provides incentives for and encourages betting.”

     

Although there is nothing ground-breaking about this latest verdict 0 and it falls into the line with the Gambelli judgment by the European Court of Justice – the German Federal Constitutional Court joins its Dutch and Italian counterparts in finding “that the state demonstrates an excessive fiscal interest in betting”.
      It would have been overly optimistic to expect the German monopoly to be broken up by the court.  Bu the news “That the state sports-betting provider in its current condition may not justify the retention of the state monopoly and is unconstitutional” has to be viewed positively.


      Furthermore, the only way for Odd set to retain its control over the provision of sports-betting services will be if it can prove its monopoly is based on the aims of preventing and fighting problem gambling and betting addiction.
      When new legislation is introduced at the end of 2007, it will be left to the German legislative body to decide whether to retain the betting monopoly.  Its decision will be based “on the aims of combating betting addiction and limiting the fervor of betting”.
      On the face of it, this would appear a tall order for Oddest, as it would mean it would have to curb most of its advertising and marketing activities, with the court stating “only advertising, which serves informative and explanatory purposes will be permissible”.


      This will undoubtedly be problematic for the German state operator, as it would be for any betting operator that could not advertise and promote itself in a way that brings in enough punters to make its business profitable.
      According to the Federal Constitutional Court.  Oddest will have to “suspend its sponsorship of the FIFA World Cup 2006 without delay, and all further aggressive advertising measures”.  Among other marketing strategies, the sponsorship contracts with 15 of football clubs in the first division of the German football Bun-desliga will have to be terminated for Odd set to fall into line with the judgment.


      How much restriction Oddest will bring to its marketing activities, however, is open to question.  Only naïve observers would expect them to cut down significantly on their customer acquisition drive.
      “Clearly Oddest won’t stop advertising.” Said Wulf Hambach, partner at the Munich-based law firm hambacj & Hambach.  “But technically they have to because they have to follow the directive of the court’s ruling.”
      Hambach explains that at the moment Oddest is effectively breaking constitutional law by advertising its products across various communication channels in Germany and “is acting unfairly according to the German Competition Act”.

      While Oddest has been keeping an eye on private operators, those operators are fighting back through the courts and pointing out the irregularities of Oddset’s own activities.
      With further restriction on the offer of its products through the internet and legal issues surrounding the provision of its betting services through mobile phones and text messages, it seems unlikely that Oddest would be commercially viable under a framework that “suspends all further aggressive advertising measure.”
      All of which leaves observers wondering whether Oddest will simply play for time as it waits for the legal review at the end of December 2007, and continue doing what it is doing with little risk of censure.
      “That won’t happen, and Oddest has already reduced some of its marketing activities.”  Hambach pointed out.  “For example, for its sponsorship of Bayern Munich, it has changed its name from Oddest to that of its mother company Lotto.  Which is amusing to say the least.”

Uncertain outcomes

It is open to question how effective the controls will be on the state operator.  According to Hambach, “Oddest will not stop all advertising.  So the documentation and reporting of the ‘unconstitutional’ activities will continue and our lobbying partners will carry on pushing the case for private operators.  The point is ruling and judgments are issued so that the companies concerned follow and abide by them.”
      In addition to the legal environment and requirements surrounding the operations of Oddest, Hambach and others have repeatedly pointed to the financial and social success of a well-regulated gambling industry, like that of the UK.
      “We believe the UK Gambling Bill is a good example of regulation by experienced law makers using their knowledge to produce good legislation that benefits business and society.  The German authorities could learn a lot from them,” he said.
      In the end the German legislative body and individual states hold the keys in deciding how the sports-betting market in  Germany develops.  In common with most European states, their natural inclination would be to keep the existing monopoly going.  However, the strict enforcement and interpretation of the Federal Constitutional Court’s ruling would lead to a considerable drop in revenues for Oddest, and as a result for German states’ individual coffers.  The question the states would then have to consider is how much of a reduction in their betting-related revenues they would be willing to accept as a consequence of the court’s ruling.

      As the Munich-based Media and Entertainment Consulting Network (MECN) said in a note published in the wake of the ruling: “It is not at all certain that all federal states will continue to oppose liberalization once they have thoroughly analyzed the fiscal consequences of a restricted monopoly.”
      For MECN, the German Federal Constitutional Court has provided Oddest and the individual states with clear moral support even if “they continue to be confronted again and again with decisions issued by the European Couert of Justice and EU Commission regarding the harmonization of the European and gambling markets”.
      No one can accurately predict what decision the German legislative body will take at the end of next year.  Although all the signs point to a relaxation of the current stand-off between the German state and private operators, national authorities have a habit of going against the grain without clear and reasonable explanations for their actions.

Offshore benefits

In the meantime, the unlikely beneficiaries of the court’s ruling will be the operators that are beyond the authorities’ radars and legal reach.
      As MECN explained in its note published on the day of the verdict’s release: “The ones benefiting from this are above all the offshore providers in the Caribbean.  They cannot be regulated by the German Court or by the (US) Securities and Exchange Commission.”

 

 

 

 

 

 

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