German regulation: is light at the end of the tunnel actually a train?

It has been predicted that the German online casino market is likely to generate €3.3bn by 2024, increasing from the estimated €2bn in 2019. It is no wonder then that for much of 2020 the gaming world has been consumed by goings on in Germany.

For 15 years, the German online gambling market has remained in a constant state of flux and uncertainty because many of the German Länder fervently opposed the proposal of other Lander to formally regulate online gambling within the country. This deadlock has lasted for over a decade with the consequence that no action has been taken to bring about certainty to the industry locally. The inaction of the German regulators did not only harm the gambling industry but also left German consumers exposed to the risks associated with playing on sites run by unlicensed operators who were able to candidly promote their sites to German players. It wasn’t until recently that German regulators forced payment service providers such as VISA to police this area and block German online gambling transactions under the spectre of a channelisation rate estimated to be as low as 1.8%.

There is now light at the end of this long tunnel as regulators have approved gambling regulations to legalise online poker and casino from 1 July 2021. During the interim, operators will be able to offer a number of verticals under the transitional toleration regime which came into force on 15 October 2020 as operators scrambled to implement a number of technical changes to ensure compliance with the new regulatory framework.

New rules

During this toleration regime, online table games such as blackjack and roulette will not permitted while slots will no longer be allowed to employ slam stops, turbo spins or auto play buttons. Furthermore, jackpots are prohibited. Originally, slots were required to enforce a €1 stake limit and implement a minimum spin time of five seconds however, the deadline for the introduction of these two requirements was postponed until 15 December at the eleventh hour, creating confusion and uncertainty among operators. The new rules have also introduced limitations on in-play wagering, strict spending limits for customers and loss limits.

Traditionally, the core aim of regulation is to ensure consumer protection (including the prevention of problem gambling and the protection of minors); prevention of fraud and channelisation.

While operators are happy to see regulation introduced because this will introduce the certainty they have craved for so long, many have pointed out that the rules may be too restrictive and could end up being counter-productive in nature.

They argue that new rules risk rendering websites licensed in Germany less attractive than those which are not subject to the same stringent requirements. In order to achieve an effective regulation which helps achieve the desired goals, policymakers need to take a customer-centric approach and understand better customers’ needs.

Lessons need to be learnt from the Swedish market which has seen channelisation rates plummet to around 70%, according to multiple reports. This low level of channelisation highlights why it is important for regulators to find the right balance.

Another issue which threatens the success of the German regime is the piecemeal approach towards regulation of online gambling. This could risk creating a fractured German market with varying requirements across the different Länder which is likely to lead to different channelisation across the 16 states.

The effectiveness of the German regulations remains to be seen and the proof of the pudding will certainly be in the eating.  In the meantime, operators can at least breathe a sigh of relief that the certainty they have sought for so long is now within sight.

Paul Caruana Turner is the current legal and compliance manager at Nolimit City. Before joining Nolimit City, he helped lead the regulatory advisory team at Grant Thornton where he advised and assisted international and local clients with licensing, regulatory compliance as well as corporate and commercial matters with a focus on regulated markets.