## Betting Firms Celebrate Victory
Matthias Spitz, a partner at the legal firm Melchers, discusses the most recent turn of events in the ongoing saga of German sports wagering.
On February 4, 2016, the European Court of Justice (CJEU) delivered a significant judgment in the matter of Ince (C-336/14), adding a fresh layer to the extensive chronicle of gaming regulation within Germany. The verdict benefits wagering enterprises possessing EU authorizations.
The CJEU elucidated that EU member states are prohibited from employing coercive actions, particularly penal measures, against sports betting ventures if an unlawful de facto monopoly persists and licenses are practically unobtainable. This bolsters the legal standing of all EU firms functioning without authorization in Germany. The judgment further underscores the shortcomings of German states in substituting the state’s control over sports betting with a clear and impartial licensing framework, as mandated by EU legislation. Despite the licensing process being central to the Interstate Treaty on Gambling (“Interstate Treaty”), no permits have been granted thus far.
This legal battle originated in 2013 when a Bavarian local court referred the Ince case to the CJEU, seeking clarification on the legality of imposing criminal penalties for the unauthorized conduct of gambling operations. The case centered around Sebat Ince, who faced criminal accusations from the state prosecutor for managing her neighborhood betting establishment without the necessary license.
Before 2012, online sports wagering was forbidden in Germany. This prohibition stemmed from the 2008 Interstate Gambling Treaty, which essentially established a monopoly for state-controlled providers. However, an updated version of the treaty, enacted in July 2012, set the stage for a national licensing system for sports betting.
This period of change, though, proved difficult. While a new licensing structure was being developed, the previous limitations remained active. This resulted in legal disputes, with the European Court of Justice (ECJ) ultimately condemning Germany’s strategy.
A primary concern emphasized by the ECJ was the implementation of “preemptive prohibitions.” In essence, German authorities were issuing these bans to stop operators from providing online gambling, despite the fact that the new licensing system was not yet fully functional. The ECJ contended that this was paradoxical – the outdated system was being utilized to obstruct operators even though it was recognized as defective and undergoing replacement.
The ECJ also objected to the notion of “interim licenses” offered during this transitional stage. These licenses were intended to permit operators to function legally while the complete licensing system was being finalized. However, the ECJ maintained that these temporary licenses were essentially insignificant because the criteria to acquire one were so rigorous that they mirrored the requirements of the full license, which was still being formulated. This, the ECJ asserted, created an “artificial licensing process” that did little to genuinely liberalize the market.
This entire scenario, arising from the case of Ince versus Germany, illuminated the intricacies and contradictions in Germany’s efforts to regulate internet gambling. The ECJ’s judgments acted as a stark caution that transitioning from a monopolistic system to a more unrestricted market necessitates a transparent and coherent legal structure.
German authorities never officially granted these permits initially. This “legal fabrication,” as Advocate General Szpunar aptly termed it in his 2015 opinion on the Ince matter, was essentially a method to uphold a semblance of legitimacy while postponing the unavoidable.
The European Union’s highest court saw through this tactic. They contended that employing transitional phases to rationalize national control, particularly when regulatory adjustments were lagging, contradicted the essence of EU legislation. Essentially, if a nation’s gaming regulations were antiquated and pending modernization, businesses shouldn’t face consequences for continuing operations without authorization during this period.
Further intensifying the situation, the Court highlighted that prolonging the online gambling prohibition without formally informing the European Commission was a serious breach. This action violated the EU’s directive on technical standards (Directive 98/34), which mandates member states to alert the Commission about new regulations impacting the single market. This openness is vital so companies, including gaming entities, can adjust to evolving legal frameworks.
Bavarian representatives, recognized for their autonomous approach (some might say obstinance), appeared to prioritize their own objectives over EU regulations. This disregard for protocol, the Court asserted, could render the prohibition unenforceable in legal proceedings, especially within criminal cases.
The German system for granting sports betting permits: A tale of perpetual postponements
Picture the process of obtaining a sports betting license in Germany as a work of fiction. Its title would undoubtedly be “The Saga That Never Ends.” The initial aim was to distribute a maximum of 20 sports betting permits via a nationwide bidding procedure. This stemmed from a stipulation within the Interstate Treaty, a document regulating gambling in Germany, known as a “trial clause.” The German states contended that this clause was intended to dip their toes in the water, to observe the ramifications of opening up the German sports betting market.
However, this hastily unveiled tender, initiated back in August 2012, instantly raised eyebrows and ignited anxieties regarding its openness. The issue was, according to established jurisprudence of the European Court of Justice (for instance, the Engelmann case, C-64/08), determinations regarding license recipients must be grounded in pre-established, impartial, and non-biased standards. The German licensing procedure, regrettably, failed to meet these prerequisites and was brought to a halt by German courts, which deemed it lacking in transparency.
In a pivotal judgment, an appeals court went so far as to pronounce the Gaming Board – the decision-making entity of Germany’s primary gambling regulator – unconstitutional. This was a significant matter because the court essentially asserted that this board constituted an unlawful “third tier” positioned between the states and the federal government, an arrangement not stipulated in the German constitution (Hessian Higher Administrative Court, ruling of October 16, 2015, case number: 8 B 1028/15). Consequently, no licenses have been granted to date, leaving the applicant operators in a state of uncertainty, blameless for the procedural quagmire.
The European Union’s highest court, in a pivotal judgment referred to as the “Ince Case,” determined that Germany’s effort to oversee sports wagering through a complex framework of trial permits violated EU regulations. This verdict arose from the reality that the German structure essentially preserved an unlawful state-controlled monopoly, making it infeasible for authorities to effectively tackle unsanctioned gaming operations.
Despite the unambiguous message from the EU court, rumors circulate that German officials, particularly within the gaming commission, are delaying and haven’t comprehended the critical requirement for change. This lack of action is worrisome because, within the existing unregulated (or inadequately regulated) German sports betting sector, this recent judgment offers a solid legal foundation for businesses to contest the present situation.
Matthias Spitz, a legal professional at Melchers Law Firm in Germany and a noted authority in global gaming law as a participant in IMGL, can confirm the importance of this event.