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Why the situation in Germany is unlikely to change in the near future.

 

For those in the gambling industry who only want to work in regulated markets, Germany has been a frustrating country. There have been several regulatory false dawns and I shudder to think how much lawyers and consultants have made out of the shenanigans around the various on/off licensing sagas. Meanwhile operators like Star Games and Bwin have been making a fortune from German customers.

On the legal front it only gets messier. While it looked like the 16 Länder had finally agreed a workable interstate treaty on sports betting, which would have come into force on 1 January 2018, Schleswig-Holstein blocked it on the basis it does not incorporate legislation for casino and poker. They instead said they would prefer to reintroduce the legislation that saw them licence 23 online casino and 25 sportsbooks in 2012.

Meanwhile, the German tax authorities have written to all the big operators, reminding them to make sure they are paying VAT at 19% on their gross gaming revenues since 1 January 2015. According to my market sources, almost everyone has complied, which means that the vast majority of the German online gambling market is now effectively paying tax on their not entirely legal revenues. When the tax authorities of Frankfurt am Main III (online sports betting) and Berlin Neukölln (online casino) bank those payments, is that a tacit admission that the federal government is effectively giving permission for European operators to take money from German customers?

At the same time financial markets’ appetites for light grey revenues seems to be growing, with revenues from countries like Germany and Sweden only moderately discounted to fully regulated markets and even profits from places like Japan and Norway attracting decent multiples.

Speaking to chief executives of some big operators and software companies who have until now stayed out of Germany, it appears that their patience may finally be cracking. Earlier this month (Oct 3) Scientific Games took Germany off its banned list, although that perhaps was more a reflection of the fact that once they acquire NYX OpenBet it will have some fairly substantial revenues from what must now be Europe’s second largest online market. I am expecting several other big companies to open up Germany as an acceptable market over the next 12 months.

What are the consequences of this? For Germany’s tax authorities it should mean a decent payday. Likewise for their media companies, who also seem to be a lot happier about the risks of taking advertising from gambling companies.

But what will the politicians and legal authorities make of it? It feels like the gaming operators are hoping that Germany goes the same way as Sweden where, slowly but surely, a very light grey market becomes taxed and regulated. But this is by no means a certainty. A large number of the states are extremely conservative in their outlook and are particularly opposed to any increase in access to slots and table games. Sports is less of a problem, not least because thanks to the likes of Tipico, there are betting shops on most high streets and footballers, like Oliver Kahn, advertise sports betting on national television. Casino and poker are definitely not certainties to make it through the licensing process.

For the next couple of years, it doesn’t look likely there will be huge changes from the current situation. But as more operators enter the market, the push for a fully taxed and regulated market – by both operators who want to fully legitimise their revenues and by politicians who don’t like companies operating outside the law – can only become greater.

 

Written by Joe Saumarez-Smith, Chairman Bede Gaming, for EGR Intel. The original can be found on their site at http://egr.global/intel/opinion/playing-the-long-game-in-germany/.

This article is printed with permission from EGR.