11 July 2007

Germany Set For EU Showdown As Schleswig-Holstein Backs Controversial Interstate Treaty

by James Kilsby, www.gamingcompliance.com

In a move that will stun observers, the state government of Schleswig-Holstein has declared its intention to ratify the draft Interstate Lotteries Treaty, shelved since December 2006. According to one gaming lawyer, the move could lead to a “war” with the European Commission.

The Schleswig-Holstein cabinet yesterday authorised Prime Minister Peter Harry Cartensen to add his signature to the draft Interstate Lotteries Treaty. Cartensen had been the one state PM to refuse to sign the Treaty when it was debated in December 2006 by all sixteen state Prime Ministers, stating that Germany should instead wait for further guidance from Brussels before adopting new legislation on betting, as a Constitutional Court verdict from March 2006 requires it to by January 1, 2008.

The Treaty, in its current form, prohibits the use of the internet for all forms of gambling in Germany, with the exception of horserace betting, as well as extending the monopoly on lotteries and sports betting services to the state lottery companies cartelised into Deutscher Lotto- und Totoblock for a further four years, until 2012. The Treaty also obliges German financial institutions to block attempted online payments for gambling services.

What makes yesterday’s news all the more surprising, given Schleswig-Holstein’s reasoning at the end of last year, is that the European Commission has made abundantly clear that it considers the Treaty to be a blatant violation of EC law. The Commission has already sent Germany two letters in the form of Detailed Opinions. In the first letter in March, the Commission stated that it does not consider the proposed ban on the use of the internet to be “proportionate” to achieve stated aims of combating gambling addiction, nor consistent given the ban specifically excludes gambling on horseracing.

The Commission went further in its objections to the Treaty in the second Detailed Opinion sent to Germany in May. According to the Commission, not only is the Treaty non-compliant with European competition laws and against the principle of freedom of establishment enshrined in the Treaty of Rome, but it also violates laws protecting the free movement of capital with the Union and does not form part of coherent policy given that restrictions on advertising apply only to betting and not to slot machines.

The January 1, 2008 deadline set by the Constitutional Court means that the German gambling industry would enter a period of legal uncertainty were the Lander unable to reach a consensus and that uncertainty could affect the state’s ability to secure revenue from state lotteries and betting services to fund sports and other social programs. These concerns, combined with the entrenched position of other states in favour of a blanket extension of the state gambling monopolies, go some way to explaining the surprise decision taken by the Schleswig-Holstein cabinet yesterday. “There are at present no viable alternatives to securing revenue from gambling,” said Prime Minister Cartensen, explaining the decision.

“At the last conference of the German state Prime Ministers, Schleswig-Holstein suggested that, if it was the last state standing against the Treaty, it would be forced to sign it,” notes Martin Arendts, a leading German gaming lawyer with the firm Arendts Anwalte. “There have been doubts expressed by other state governments regarding the Treaty, by Baden-Wurttemberg in particular, but what Schleswig-Holstein had to do [to create an alternative solution] was to convince two or three other states to firmly oppose the Treaty – and it has definitely failed to do so.”


Presuming none of the other fifteen Lander have an even more dramatic change of heart on the gambling issue, and the draft Treaty is duly signed later this year, Germany can expect to find itself at loggerheads with the European Commission. “There were reports in the German magazine ‘Der Spiegel’ that the Commission was looking to reach some sort of compromise with Germany over betting but this is not a compromise; it’s a clash of opinions,” says Arendts. “It looks like there is going to be some sort of war between Germany and the European Commission - the European Commission has already said in its previous letters that there will definitely be another infringement proceeding if the draft Treaty is adopted.”

Although yesterday’s news can be considered progress towards the adoption of new legislation, the future of the industry has arguably never been less clear given the inevitability of legal challenges in both European and German courts. “Even the German civil servants responsible for drafting the Treaty concede there are problems with it given that casinos and slot machines will not be subject to same level of protection as betting and lotteries,” says Arendts. “If you look at the most recent EFTA Court decision on the case between Ladbrokes and the Norwegian government, the need for states to show consistency in their gaming policy as a whole is important – and there is definitely not a coherent policy in Germany.”


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