Does Germany’s new government have a shot at tackling illegal gambling?
In their coalition pact released on 9 April, the incoming government in Germany set itself another ambitious goal: tackling the rampant illegal gambling sector.
“Together with the federal states, we will improve the fight against illegal gambling,” the parties write on page 92. A brief statement, but in the eyes of many industry spectators, one that could prove significant.
Germany’s new government has a daunting task ahead of it when it enters office on 6 May. In recent years, the country’s economy has been buckling under the weight of numerous structural problems, from an aging population to endless red tape.
Together, the centre-right alliance of the Christian Democratic Union (CDU) and Christian Social Union (CSU) and the centre-left Social Democrats (SPD) are tasked with getting the country back on its feet.
So far, the parties have set out a range of plans to do just that: a €500 billion infrastructure fund, a bonfire of bureaucracy, incentives for employees to work overtime and cuts in corporation tax from 2028.
How big is Germany’s black market?
Yield Sec, an intelligence platform charting illegal gambling activity across the globe, has been following the German market closely for several years.
Its data paints a picture of a thriving illegal market – and one that is growing year on year. In 2023, there were 1,620 unlicensed operators targeting the German market, with 13.5 million Germans interacting with these operators throughout the year.
By 2024, 1,926 illegal operators were actively targeting Germany, interacting with 15.8 million people, or around 20% of the population. This was a year marked by back-to-back football and betting opportunities, allowing illegal operators to reel in new audiences and cross-sell other products.
Last year, Yield Sec’s figures reveal that around 54% of GGR was generated on the black market, accounting for around €4 billion in revenue. But with customers in Germany around five times more likely to encounter unlicensed operators online, Yield Sec CEO Ismail Vali believes it could be heading towards a figure as high as 88%.
Tough gambling licensing laws in Germany
Since the market opened in Germany, legal operators say they are fighting a losing battle against the illegal market. Many of their issues stem back to the federal system, which puts online gambling in the hands of the 16 federal states.
Since the Interstate Treaty on Gambling came into force in 2021, effectively regulating the betting and online gaming market, those who opted to secure a licence have been crippled by tough regulations, slow approval procedures and high taxation.
The strict measures – which forbid online slots providers from using the word “casino”, for example – represent a compromise between warring regional factions. Though CDU and CSU-led regions are keen to unshackle the market, they have been faced with fierce opposition in a number of gambling-sceptic states.
According to Yield Sec’s data, this has created a situation where illegal operators can offer 9.2x more products than those on the legal market.
“Criminal groups are basically saying, we’re offering choice and convenience to German consumers,” says Vali. “We’re offering that without KYC, without restrictions, and without the self exclusion scheme too.”
A more rational conversation within government
Against this backdrop, Wulf Hambach, founding partner at the Munich-based law firm Hambach & Hambach, believes the influence of the federal government could be a positive one.
Having set themselves the task of battling the illegal market in the coalition pact, the CDU, CSU and SPD will have to take a much more active interest in the state of the country’s gambling regulations, he explained. This could be the first step towards a wider reform of regulations.
“If they see that the black market is growing, that would be a failure,” says Hambach. “The federal government doesn’t want to have a failed policy right out of the door when it comes to tackling the illegal market.”
Until now, liberalisations of the restrictive Interstate Treaty have been largely blocked by a handful of SPD-run states. In Bremen, for example, Interior Minister Ulrich Mäurer has repeatedly called for even tougher restrictions, including a complete ban on sponsorship and advertising.
Such restrictions, Hambach says, would “only intensify the counterproductive prohibitive path that channels the consumers even beyond EU-borders”.
At the federal level – and particularly in the less gambling-sceptic CDU – the political voices tend to be more rational. “They will take a closer look at market developments, and I’m quite positive that they will find new answers to regulate with the upcoming reform of the Interstate Treaty,” the legal expert explains.
Though this is largely in the hands of regional governments, external pressure from the national government could help to break the deadlock. As Hambach points out, the states also need the support of the national government, since criminal and tax law enforcement is required to crack down on illegal operators from abroad.
“However, since you cannot just export national criminal law rules abroad, the situation is as it is,” he adds.
‘A big step forward’
For the German Online Casino Association (DOCV), the fact that the coalition even mentions illegal gambling in Germany can be seen as a “big step forward” for the industry.
“The DOCV expressly welcomes the fact that the presumably new federal government has named the fight against the illegal gambling market as a fixed goal on its agenda,” President Dirk Quermann said in a recent statement, adding that the step was “long overdue”.
Nevertheless, the trade association believes politicians should collaborate more with the industry and turn political objectives into concrete action – particularly when it comes to strengthening licensed operators.
Among other things, the DOCV is calling for Germany’s stake tax on virtual slots to be replaced with a tax on gross gambling revenue (GGR). They also want to see an end to the €1 maximum stake limit, a scrapping of the maximum five-second spin rule and the effective use of IP blocking against illegal operators.
“We need to channel players from the unprotected black market back into the legal market, as this is the only place where player protection can be guaranteed,” said Quermann. “This can only work if we strengthen legal gaming.”
A similar stance was taken by the German Sports Betting Association (DSWV). In a statement on their website, the sports betting trade association said they “welcomed” the statement from the incoming government but found it to be “vague”.
In the view of the DSWV, five key steps should be taken by the federal and state governments to tackle Germany’s illegal gambling sector, including setting up a national prosecutor’s office and cracking down on advertising platforms and affiliates that work with the black market.
However, much like the DOCV, the association said the most effective weapon is creating a “strong legal market”.
Urgent imperatives
Largely due to Germany’s federal system, it was a long and arduous journey towards opening the legal market in the first place. With the 16 states and their respective coalitions all having a say in gambling regulations, there is often a glacial pace of change.
As in neighbouring Austria, however, Germany is a country facing major holes in its finances. Many of the promises laid out in the coalition pact are “subject to financing” – and the money has to come from somewhere.
This is giving industry stakeholders some hope that the government will be motivated to tackle the illegal gambling problem in Germany.
“The fact remains that the new government needs money,” Christian Heins, Tipico’s director of iGaming, wrote in a recent post on LinkedIn. “Of course, they could continue to raise taxes, but Germany is already a high-tax country. Illegal gambling is undoubtedly an untapped resource.”
According to Heins, the new coalition could add around €1 billion per year to its coffers from the illegal gambling industry. That’s not including the multiple billions they might try to recoup from previous years.
Furthermore, illegal operators are highly visible at major sports and industry events, including Formula One and international football, Heins wrote. “I hope that despite a less-than-ideal start that doesn’t exactly inspire a sense of renewal so far, the incoming government will take this issue seriously.”