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Germany’s illegal gambling problem

| By iGB Editorial Team | Reading Time: 4 minutes
Germany’s licensed gambling operators are under greater pressure from black market competition than ever before, attendees of Behörden Spiegel’s Bundeskonferenz zum Glücksspielwesen warned last week.
gambling in Germany

“The best antidote to the illegal market is a competitive regulated market,” the Betting and Gaming Council’s (BGC) Wes Himes told delegates at the conference last week.

Critics lined up to attack slow progress on regulatory reform in Great Britain, the BGC’s home market after a three-year review and six different gambling ministers. But in Germany, the Gambling Act white paper is held up as a successful, collaborative and proportionate model for fine-tuning gambling regulation.

In a market with blanket online slot stake limits of €1 and where monthly deposits are capped at €1,000 Great Britain’s emphasis on moderating rather than prohibiting activity appeals to many. Many attacked affordability checks as intrusive and excessive, but it provides a personalised compromise that Germany lacks, attendees and panellists suggested.

The strict measures only serve to shore up illegal competition, across the land-based, street and online sectors.

New State Treaty, the same old problems

Chief executive of local licensee Rootz Sam Brown laid bare the impact of re-regulation during a session organised by gambling law specialists Hambach & Hambach. There is a clear parallel between re-regulation and a rise in illegal online play, he explained.

Before the toleration period where businesses adhering to the 2021 State Treaty’s conditions were allowed to operate without a licence, Rootz players deposited €350 on average, Brown explained, and gross revenue per player averaged €141.

By August 2023, however, average customer deposits fell 80% to €150, with GGR per play halved to €73. Around 10% of Rootz’ pre-regulatory business channelled to the regulated market Brown added. “And they haven’t stopped gambling and found another hobby.”

Strict measures such as deposit and staking limits play a big role in the black market boom, he says. Harm prevention should be the ultimate responsibility of the operators Brown added, echoing a point from Himes about GB operators recognising their leading role in player protection.

The operators, not the authorities, not the legislators, hold all the data. Addicted customers are bad for business Brown said, but a personalised approach based on individual players will be more effective than Germany’s blanket restrictions.

This is especially significant if it shifts consumers to illegal sites without safeguards. Brown believes around 80% of online slot play is happening illegally, a far cry from new federal regulator Gemeinsame Glücksspielbehörde der Länder’s (GGL) claims of high channelisation.

Black and white markets powered by the same providers

Hambach & Hambach salary partner Yannick Skulsky pointed out slot sites – somewhat counter-intuitively – cannot be marketed as casino. Furthermore, regulations make it incredibly difficult for legal operators to roll out new titles, and very easy (and lucrative) for black market counterparts to do the same.

For the legal market, individual games must be certified. An operator needs a licence to offer slots, then specific permission for each game. The GGL, which carries out its testing internally, has scope to hire around 150 staff. It currently employs around half that number, a mixture of part- and full-time employees. There is inevitably a backlog for slot certification.

However there is no B2B licensing. A game could be certified and launched by one licensee, while another still awaits permission. Or a slot studio could have its legal roll-out delayed with one licensed client while the revenue flows in through an unlicensed brand.

Player claims and Malta’s Bill 55

It seems attempts by players to recoup gambling losses from unlicensed brands isn’t much of a deterrent, either.

Courts and customers in Germany continue to pursue operators for losses incurred during Germany’s long delays in implementing its State Treaty. Austrian lawyers are even trying to file claims against individual executives and directors.

Hambach & Hambach founding partner Claus Hambach believes this situation – one he admits feels quite surreal – is beginning to rationalise. While state high courts rule in favour of the players, a Supreme Court ruling possibly changes the outlook.

It threw out a claim to recoup losses from a payment provider, predominantly on the basis that the player was gambling. They knew money was at risk. Further, it noted the contact between the player and the operator could not be voided as both parties, by placing and accepting the bets, were effectively breaking the law formally.

Hambach sees a legal article published by German civil law expert Professor H Köhler as the way forward. There are only three factors that should prompt an operator to return losses to a player, Professor Köhler argues.

Any losses incurred by minors should be refunded, and players able to prove they were misled by a brand pretending to be licensed would be eligible. Those suffering from gambling addiction would also be able to claim back losses, if they are able to provide medical proof of their condition.

Malta’s attempt to protect its licensees from these cases, Bill 55, is viewed as bigger than a gambling matter by conference delegates. But not only will the European Commission look into Malta`s legislative approach but the European Court of Justice will also evaluate Germany’s disputed Interstate Treaty on Gambling, which is the basis for the claims in the first place (Case C-440/23).

Germany’s omnichannel black market

However illegal play is prevalent across all channels. The illegal gaming machine market is growing, and unlicensed Kaffe Kasinos are on the rise, warned Burkhard Blienert of the Federal Council on Addiction and Drug Issues.

Law enforcement experts pointed out illegal gambling is relatively low risk for criminal groups and remains highly profitable and a popular method of money laundering. It is also easy to manipulate legal devices or build approximations of traditional gambling devices – several primitive slots and even a variant of roulette seized by the police were on display.

However from government level there remains a desire to tackle illegal gambling in tandem with strict controls on the regulated market. For example Blienert argued sports betting advertising was as much a threat as illegal gambling and loot boxes, amid debate on whether TV ads, football sponsorship and other branding should be limited or banned similar to Great Britain.

However Gauselmann Group director Manfred Stoffers took a contrasting view. Player protection is raised by regulation, he argued. If an activity happens in the open, it can be monitored and controlled.

But two years on from the GGL taking charge of igaming regulation, operators and associations argue Germany’s strict regulatory measures are only benefitting the black market.

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