iGaming Regulation Changes in Germany: Trick or Treat for Operators?

Following regulation changes last year that lifted the prohibition of online casinos across Germany, some commentators announced future exponential growth for the iGaming market. But, as with many new changes in federal policy, the devil is probably in the details. We will take a closer look at what this entails for operators.

Why is Germany significant?

Germany has the largest consumer market in the European Union and has the potential to be the largest single market in the region for iGaming. Revenue for online gambling hit €2.2 billion in 2019, and forecasts suggested this would grow to €3.3 billion by 2024. Although land-based venues indicated a drop in earnings during 2021, the online sector, including sports betting, picked up the slack, with the industry as a whole growing. Some forecasts report the market could be worth as much as €18.2 billion by 2024.

The regulation (ISTG 2021) came into force on the 1st of July 2021, providing new licensing opportunities, together with new rules on advertising, licensing conditions, and tax rates. This was a major departure from the old system, which previously only allowed restricted elements of online gambling to a single state, Schleswig-Holstein. However, the rules and regulations have been and continue to be far from straightforward.

ISTG 2021 in focus

There are separate policies for online gambling (which includes sports betting) and online casino games. For online gambling, a policy is set at a national level and although the regulatory framework is less restrictive than before, there are still stringent controls designed to protect players and prevent addiction. This includes limits on spin-stakes, ingame sports betting, and slot machines with the amount limited to €1000.00 per player per month across all platforms. The player must make a monthly deposit for this amount, and measures are in place to monitor operators. Online platforms that breach these rules may find themselves facing license withdrawal and other sanctions.

To obtain an operator's license, applicants must have a registered office in an EU member state, which, if not based in Germany, must appoint an authorized domestic representative who meets certain requirements. All ownership relationships and participation relationships must be disclosed, with sufficient “own funds” to ensure sustained business activity and proper conduct. Licensees are required to provide a security deposit of €5 million in the form of an unlimited, directly enforceable bank guarantee from a credit institution resident in the EU/EEA, plus they need to obtain all necessary insurance for the protection of players. They are also obligated to submit annual reports to the competent authority pertaining to ongoing measures taken to detect gambling addiction. Finally, operators must It's highly submit an annual report from a qualified, independent external professional regarding compliance.

There are also heavy restrictions on advertising. Adverts are not allowed between 06:00 and 21:00 and cannot target minors or some categories of “vulnerable” people. Furthermore, no crossadvertising on platforms, for example, promoting an online casino while the user is engaging with their sports betting platform. There are additional rules on advertising relating to sports gambling, i.e. bet advertising on a live broadcast sports event immediately before or during that event on a single channel is not permitted. Jersey sponsorship and other general sponsorship of sports teams are allowed, but with limits relating to the use of athletes promoting betting companies. Misleading advertising as well as the promotion of gambling as a means of resolving financial issues is banned, as is direct and targeted advertising via SMS and phone calls.

The new national gambling regulator based in the German state of Saxony-Anhalt is the body responsible for issuing organizers licenses. Companies who are issued licenses will be able to operate across the whole country and be permitted to offer sports betting, virtual slot machines, online poker, or other “games of chance.” Licenses granted under the new system are valid all across the country for a period of five years initially and then seven years on renewal.

Online casino games, however, will be determined differently by law within the individual federal states. License specifications will likely be modeled on the laws relating to the operation of more traditional, land-based casinos, but exactly how this will pan out is unclear at this time.

With taxation, taxes will generally have to be paid by all German and foreign gambling operators. Sports bets are taxed at the rate of 5% of the stake, and lotteries are taxed at 20% of the stake. Virtual slots and online poker games are subject to a uniform tax rate of 5.3%. The time at which the tax was incurred is the point when the stake was made.

Technical Solutions

It is highly probable that as a result of the new legislation, separate provinces within Germany will have different license requirements or inconsistencies, especially with online casinos. This could pose serious difficulties for operators to comply with. Technical solutions using localized data centers for example could ensure data is secured on a province-by-province basis. And of course, in this case, it is advisable to use a recognized, fully serviced, and reliable partner with broad experience in these matters.

Conclusion

The German market cannot be called straightforward and due to high taxes and strict regulations, it is often not considered the promised land for iGaming right now. However, despite all the challenges, the potential is there, and the market could still become the largest iGaming market in Europe.

Perhaps the key point is, that there are many obstacles to remaining compliant and navigating the complex legislation, so any operator in this market should ensure they have the right technical partner by their side.