Deal Rumours Suggest Legal Uncertainties Growing In Germany

www.gamblingcompliance.com 26 June 2007

by James Kilsby

With pressure growing from both its national courts and the European Commission to determine a coherent gambling policy, politicians charged with steering Germany towards new gambling legislation are showing signs of denial.

Observers of the German gambling market have expressed surprise at the state Prime Ministers’ failure to approach the topic of gambling at the most recent prime ministerial conference in Berlin last Friday.

“At least as far as I’m aware, gambling was not discussed at the meeting,” says German gaming lawyer Martin Arendts, of the firm Arendts Anwalte. In accordance with a constitutional court ruling of March 2006, the Prime Ministers of the sixteen German Lander must unanimously adopt new legislation covering betting in Germany before January 1, 2008. The court found the existing state monopoly to be unconstitutional in its current form.

Expectation that the Prime Ministers would come round to addressing gambling at the latest meeting, after their failure to do so in March, had been raised by the European Commission’s continued interest in the current draft for new legislation, which the Commission clearly considers to be totally at odds with various aspects of European Community law. PR campaigns from private lottery companies highlighting the need for new legislation further served to raise the issue’s profile in the German media, one gaming company even taking out a full-page advertisement in a German newspaper.

The lack of news following last Friday’s meeting will therefore be of surprise to many, of disappointment to some and a relief to others. A report published in popular German weekly publication Der Spiegel on Saturday, and since circulated widely by Reuters, suggests instead that the state Prime Ministers are awaiting further guidance from the European Commission on the matter. According to Der Spiegel, representatives from the German Lander have arranged to meet with the European Commission sometime in early July.

Der Spiegel also reports that the German states have been offered a form of compromise deal by the European Commission that would allow the states to keep their lottery monopolies so long as the German sports betting market is opened to private operators. If sports betting was liberalised “the Commission would in no way challenge the existence and continuation of the states’ monopolies on lotteries and other forms of gambling,” says the report, citing an anonymous source in Brussels.

Given that it is the duty of the European Commission to monitor all European markets, such a clear-cut compromise certainly seems unlikely to be binding. Arendts agrees that any deal with the Commission could only be a temporary solution. “I cannot imagine how such a compromise would work,” he says.

According to Arendts, a compromise in which sports betting was liberalised would allow the European Commission to draw a line under the open infringement investigation into the German sports betting market, which could even be raised to the level of a Reasoned Opinion this week, as well as rendering the Commission’s investigation into the draft Interstate Lotteries Treaty obsolete as that would not be adopted. “It could only relate to the infringement proceedings that are already open,” he says.

A compromise between the Commission and Germany would not have any bearing on future cases to be decided in courts in either Germany or Luxembourg. “A deal would not have any effect on upcoming court cases within Germany – of which there are thousands. There are also two cases (related to cross-border gambling) due in the European Court of Justice and the ECJ doesn’t care about political compromises,” says Arendts.

Severe doubts surrounding the legitimacy of the states’ lottery monopolies, monopolies that would presumably go unchallenged by the Commission under the terms of the agreement over sports betting, have been raised by recent German court rulings. Last week, the Federal Supreme Court upheld rulings delivered by both the Federal Cartel Office and the Higher Regional Court in Dusseldorf that the cartel of German state lottery companies, Deutscher Lotto- und Totoblock, has contravened both German and European anti-trust law by agreeing not compete within one another across German state borders.

In the current situation, an agreement with the European Commission would by no means ease all of Lotto- und Totoblock’s woes. Moreover, according to Arendts, even if the European Commission has offered a compromise, there is no guarantee that it would prove to be an acceptable political solution to the German Lander, as the Prime Ministers of certain states remain determined to keep sports betting under state control. “It will be very hard to agree a compromise. Various German states would not agree to this,” he says.

For Arendts, the lack of discussion on the issue last week further increases the possibility that the German states will be unable to agree on legislation before the deadline set by the constitutional court. “They are really running into trouble. Not only do they have to find a solution but also they have to pass a Parliamentary Act. Most state Parliaments have ignored the problem until now.”

One option would be for the Bundestag to take the matter out of the states’ hands and pass a federal law. Arendts does not consider this a likely alternative however. “The Bundestag sports committee had a meeting and decided not to pass a Federal law and this [position] is not going to change. If the Federal government stepped in, it would change the nature of ‘checks and balances’ between the Bundestag and the German states – they even changed the German constitution last year to protect these checks and balances so it is an extremely sensitive political situation.”

As the gambling industry approaches the second half of 2007, the odds appear to be shortening on Germany passing new betting legislation before the year’s end. The Federal Government could reluctantly still step in at that point to avoid the constitutional crisis that would ensue if no agreement is reached in the next six months. The lack of a consensus at a state level suggests that it may yet have to.