Gambling and Online casino is a politically and ethically contentious topic in Germany. This is particularly true in the case of internet gambling. Until recently, the competent federal states have virtually prohibited private providers from participating, thereby sealing off a lucrative market for overseas providers. This prohibition, however, will be lifted on July 1, 2021, when the new State Treaty on Gambling will take effect. Internet slot machines, online casinos, and online poker will all be available in Germany due to it. However, the regulations are complicated. This sector has a unique hurdle in that it must build its technology to comply with the legislation before seeking permission. It must also work closely with the regulatory authorities. Despite the limits, those that integrate technology and legislation from the start have a good opportunity of capturing a coveted market – even from overseas.
The industry is expanding
Whatever the reader’s moral feelings on online gambling, one thing is certain: the business is expanding globally. According to Statista.com, internet casinos will generate more than USD 266 billion globally by 2021. According to Statista.com, gross gaming revenues – that is, the stakes put by players retained by the providers – will be over USD 40 billion. Legal offers in Europe are thought to account for almost half of this. The yearly turnover of large suppliers is in the billions of dollars. According to the industry website Casinoonline.de, the European online gambling business rose by 28% in 2020, with the COVID epidemic undoubtedly playing a role.
Due to the prior de facto prohibition on internet gambling in Germany, data on the German market is ambiguous. According to German state gambling authorities, Germany’s legal, regulated industry (which includes state lotteries) generated 11 billion euros in 2018. It’s impossible to know how much money has changed hands on the underground market. Nobody knows how many Germans gamble illegally or engage in internet gambling in the United States or Asia.
The one certain thing is that Germany is still a developing nation regarding Online slots, which means that the legal business has a lot of room to grow.
So far, the regulations have been
The legal position created difficulties for both local and international suppliers in the German market: the former “State Treaty on Gaming” (GlüStV), which was in effect until June 30, 2021, was an almost impossible barrier for the gambling business. The GlüStV’s section 4 (4) effectively outlaws the formation and brokering of public games of chance via the Internet. Only a so-called experimentation provision permitted certain federal states to authorize the brokerage of lotteries and the organizing of sports betting over the Internet under specified circumstances. Real internet gambling, such as online slot machine games, online casinos, or online poker, which is especially popular in the United States, remained illegal.
Gambling is a contentious political subject in Germany. In addition to the industry’s moral disgrace, the objective of reducing addiction is also promoted. Those who gamble their money online might soon lose everything if they are not under the authority of state actors or licensed services. Gamblers might grow hooked on the excitement of winning while simultaneously risking all they own. But what if there were technological ways to mitigate the risk of addiction? What if, on the other hand, residents were allowed to bet, at least within certain restrictions, and to follow the natural human drive to take risks, which includes a gambling instinct? It became more evident that the more technological and regulatory measures may be used to combat the dangers of addiction, the more constitutionally protected freedoms of prospective private suppliers and participants rise to the forefront of concerns. Finally, it was suggested that since people gamble, the black market should continue to thrive rather than a controlled legal market.
On the other hand, politicians were under increasing pressure to liberalize the market while adhering to tight regulations and technological advancements. Furthermore, German case law exerted pressure: the Administrative Court of Kassel declared sections of the present State Gambling Treaty unlawful (judgment of October 16, 2015, ref. 8 B 1028/15). Certain criminal law provisions have been declared illegal under European Union law by the European Court of Justice (ECJ, ruling dated February 4, 2016 – C-336/14 (Ince v. Germany)). The importance of European law, in particular, could not be overstated.
As a result, the prevailing legal status was obsolete for political, technical, and legal reasons.
At a glance, the new regulations
After the German states’ federal parliaments have accepted the new Treaty, it will take effect on July 1, 2021. It now opens the market to local and international suppliers, allowing them to make offers on the German market. Section 1 of the Interstate Treaty continues to devote itself to avoiding addiction, which remains critical for all German federal states’ efforts. It will therefore continue to concentrate on the Treaty’s interpretation and implementation. A state-regulated and monitored gambling sector, on the other hand, is meant to give the general public restricted possibilities to fulfill their gambling impulses while also combating the black market.
What exactly is gambling? The future will bring new challenges in terms of delineation
In Section 3 (1) of the Treaty, “gambling” is defined. A game of chance is defined as one in which a price is paid to get a chance to win in the course of a game, and the winner is determined totally or mostly by luck. According to the definition, this involves betting since money is staked on unknown future outcomes, particularly sports betting. Similarly, games of chance provide virtual slot machines, online casino games, and online poker events, according to Section 2 (1a) of the Treaty.
While the definitions should be obvious at first, in reality, difficult demarcation problems may occur in the future. Many mobile phone games depend on the “Pay2Win” premise and include chance aspects. While this will frequently lack the “acquisition of a chance to win,” the ability to convert what is gained in the virtual game into money, this may change as the games evolve. Online gamers, for example, are already paying big amounts for specific virtual products. When does it become OK to gamble? At this time, the legal situation is uncertain.
Online gambling offerings need permission, as do the criteria for the permit
Public games of chance, including those on the Internet, may only be organized or brokered with the approval of the competent authorities of the relevant nation, according to Section 4 (1) of the new Treaty. This is a conditional restriction; gambling is illegal unless the state has permission. This is a new rule that allows suppliers to enter the market.
Participating in payments for illicit gambling is likewise forbidden under this regulation. It may result in significant legal penalties for payment service providers (such as the authorities’ withdrawal of permits or other measures). As a result, payment service providers must ensure that online gaming operators have the necessary authorization from the authorities.
Permission is given only if certain conditions are satisfied. Section 4 (2) of the new Interstate Treaty states that authorization will not be given if the gaming provider violates the Interstate Treaty’s goals. This is a broad guideline that will only be subject to practical interpretation and implementation in the future. Providers whose actions raise concerns that they are encouraging gambling addiction among their customers, for example, may lose their licenses.
A smidgeon of resentment towards online gambling operators: The federal states can continue to run them under a state monopoly or grant a maximum number of licenses equal to the number of casinos in the state. Due to political circumstances, this rule has been enacted. It is unwelcome from a legal standpoint: it generates various structures in Germany’s sphere of online casinos. There isn’t an actual market opening here.
Internet gambling has its own set of rules
Gambling over the Internet is subject to unusual circumstances. Anyone seeking permission must first demonstrate that the license will only be used for self-distribution and brokerage of marijuana.
Lotteries, sports betting and horse betting organization, brokerage, and self-distribution, or online casino games, virtual slot machine games, and online poker organization and self-distribution
Furthermore, the organizing and brokering of various types of public games of chance are illegal on the Internet. As a result, state legislators have not allowed all types of online gambling to enter the German market. The offer must fit within one of the scenarios listed above.
In addition, the supplier must show good compliance with the following requirements, among others:
Minors are denied access to the offer through suitable technological safeguards (identification and authentication, or “KYC”).
Credit prohibition: no credits for gamers and no third-party credit advertising on the site;
There will be no quick repeat of the game: The game must be created so that the game rounds are not repeated too often. This is because the federal states believe it would otherwise create special incentives for addiction.
Different types of gambling may only be provided on the same Internet domain if each kind of gambling has its own autonomous and visually distinct section (exception: sports and horse betting).
Organizers of online games of chance must design a unique social idea to safeguard children and participants. The social ideas must detail the steps taken to avoid gambling’s socially detrimental impacts and how they will be addressed. To some readers, requiring a service provider to guarantee that users do not misuse it may seem to be an odd move on the part of the government. This seems to be at odds with the notion of a market economy at first look. Nonetheless, such responsibilities are often in place to safeguard customers. For years, cigarettes, for example, have had the well-known dire warning about the dangers of smoking.
Sports betting, internet poker, and virtual slot machine games need special permissions.
Special rules apply to sports betting, internet poker, and virtual slot machine games. Only a brief outline of the complicated rules may be provided here. For instance, consider the licensing procedure:
Disclosure of the applicant’s ownership and shareholding links;
Proof of knowledge and dependability: The supplier and those he appoints as responsible individuals (such as managing directors) must be able to demonstrate that they are capable of upholding legal responsibilities (reliability) and understanding the contract’s legal and technical requirements (expertise). This issue will need extensive inspections and proof in administrative processes, which may be especially difficult for overseas suppliers.
Disclosure of the source of the money used to run the offer, including verification of their legality;
Statement and, if necessary, evidence that the organizers, contractual personnel, and affiliates have not previously conducted or are now running illicit gaming;
Evidence of financial and technological capability to run online gambling following the law;
Transparency requirements: The supervisory authority must operate transparently for government monitoring to be possible; this includes selecting a receiving and representative agent in Germany for providers not based in Germany.
Separate accounting for payments made in Germany, including a European Union account;
Establishment of interfaces allowing the supervisory authority to conduct real-time audits of all gaming transactions;
If the licensing authority requests it, proof of a security deposit in the form of an unrestricted, immediately enforceable bank guarantee of at least EUR 5 million or higher.
Even when authorization has been granted, there are often duties to notify the supervisory authority regularly (see the agreement’s section 4c). Before and after authorization is given, this rule will be a consulting-intensive set of tasks for providers and their staff. After all, legal infractions of contract rules and other laws – such as data protection, tax law, or social security legislation – may result in a loss of trust. There will be processes to revoke the given permission in such an event. As a result, it’s essential to be properly prepared for German regulations and to guarantee that they’re followed in “day-to-day business.”
Limit file and player accounts for online gambling
For each participant, organizers and brokers of public games of chance on the Internet must create a provider-related player account. It is not permissible to allow users to engage in the game without having a gaming account. Each participant may only have one game account with the same organizer or mediator. To establish a gaming account, a player must provide the organizer or middleman with the following information: first name, last name, maiden name, date of birth, birthplace, and domicile. The correctness of the information must be verified by the organizers and intermediaries with whom the registration is made. The verification will be carried out using appropriate and dependable processes. Individual methods that are reasonable and dependable may be stated in the permission. As a result, secure KYC methods are required.
This player’s account is very important. The account is connected to several additional duties of the providers for monitoring and information. Above all, German players are subject to a monthly restriction. This corresponds to a limit of 1,000.00 euros per month, according to Section 6c (1). They are not permitted to deposit anymore. And now for something different: the supervisory authority will create a limit file to which all providers will be required to report and join. Its goal is to guarantee that gamers don’t go over the limit, regardless of platform. Many data protection challenges are anticipated to arise in the future due to the data’s creation, operation, and transfer. It has already elicited a lot of backlash from the business because those who gamble at state-run casinos may wager larger amounts. Why should millionaires not be allowed to spend more than 1,000 euros each month? It’s safe to assume that this rule will continue to be a source of legal contention.
Operating responsibilities
But, even beyond that, providers have unique responsibilities in their day-to-day operations, which cannot be covered comprehensively here. These are some of them:
Random number generators used in online games of chance must be examined for correct operation before being used for the first time, and at least once a year afterward, at the provider’s cost, by an expert body independent of the provider and determined by the appropriate licensing authority. The findings must be reported to the appropriate licensing body as soon as possible.
A thorough IT security strategy must be developed
It is forbidden for a gamer to play simultaneously with several Internet providers. A technological indication that a player is “active” to compare data with other providers must be transmitted to the supervisory authority.
Organizers and brokers of online casino games, online poker, and virtual slot machine games, as well as organizers and brokers of online sports betting, must implement at their own expense an automated system based on scientific findings and using algorithms for the early detection of players at risk of gambling addiction.
Sports betting has its own set of rules
Section 21 of the Treaty contains additional specific rules for sports betting. There is no way to convey all of them decisively here. The restriction against betting on an athlete’s unusual conduct, such as a red card in a soccer match, is significant here. From the legislator’s perspective, such a rule would open the door to manipulation. Live bets are allowed, provided they are related to the outcome. However, only in sports like soccer or ice hockey, when few goals are scored, may bet be put on the next goal. Because it excludes sports like handball, this is an odd and often criticized law. This creates constitutional concerns as well.
Virtual slot machine games have their own set of rules
In Section 22a of the Treaty, virtual slot machine games are subject to particular rules. Virtual slot machine games similar to actual casino table games with bankers, such as roulette, blackjack, or baccarat, are not authorized. The legislation has a political underpinning and raises constitutional issues about unjustified discrimination.
The possibilities of winning must be random, and each participant must be given equal chances. The winning schedule and game regulations must be available and stated so that the player can comprehend them. The gambler must be shown the likelihood of winning the top reward and the average payment rate per one euro staked.
The interesting part is that virtual machines cannot start “automatically.” This implies that the player must confirm each new round.
At least five seconds must pass before the game is over
Finally, the industry has questioned the restriction of the highest gaming stake, which is merely 1.00 Euro. A higher bet is not allowed. The lawmaker hopes to prevent addiction and bankruptcy as a result of this. The industry is opposed to it; as a result, German players would be barred from significant earnings from the start. And, then again, why should rich folks be restricted to such a little stake?
Online poker has its own set of regulations
Special restrictions apply to online poker (Article 22b of the Treaty). Only human players, for example, are allowed to compete against each other; CPU players are not allowed. A player will be randomly assigned to one of many virtual tables with an identical game offer. It is not authorized for the player to choose the table.
Supervisory power at the national level
In addition to the new gaming agreement, Saxony-Anhalt will create a central monitoring body, which will gradually begin operations. It will also offer advice to providers on how to meet the new State Gambling Treaty’s technological obligations.
Conclusions and suggestions
Thanks to the new State Treaty on Gaming, a German gaming license is now available. In Germany, it will re-regulate and control internet gaming. Digital gaming companies who wish to advertise with a Made in Germany gambling license must meet the strictest security and seriousness criteria. Meeting the license criteria, however, is just half the battle. Providers must use effective self-regulation to guarantee that the standards are satisfied.