Gambling Compliance: German Courts ‘Stich’ To Their Guns Over Gambling Treaty Enforcement

Published at GamblingCompliance Ltd. by James Kilsby

Challengers to Germany’s Interstate Gambling Treaty are running out of options in the country’s domestic court system, legal observers warn, as state gaming authorities continue to take steps to lock out foreign online gaming firms ahead of crucial European Court of Justice (ECJ) cases due to be heard next year.

The abrogation of French-owned gambling operator Bet-At-Home’s sponsorship of a major tennis tournament in Hamburg last month underscored German courts’ hard-line stance on enforcing the Interstate Treaty, local legal observers believe.

In early July, the Administrative Court of Hamburg resolved that the use of the Bet-At-Home brand in connection with the tennis event organized by Germany’s former Wimbledon champion Michael Stich would violate the terms of the controversial German law, which bans advertising in the country by private sports betting operators.

“The court said that just the branding would be enough,” notes Claus Hambach, founding partner of Munich-based gambling law specialists Hambach & Hambach. “The decision applied a very extensive interpretation of the term ‘advertising’; you should really have to invite someone to gamble for it to be advertising and [Bet-At-Home’s sponsorship] did not even include the company’s web address.”

The ruling in Hamburg left the tournament nursing a shortfall worth several hundreds of thousands of Euros and Stich, himself, defeated across court in one of the most high-profile examples of German gambling enforcement since the Interstate Treaty took effect in January 2008.

But the case is also indicative of a strengthening legal tide that now appears to be running firmly against would-be challengers to the draconian law that strengthened German states’ monopolies over lottery games and sports betting by imposing a blanket ban on all online gaming and gambling advertising in the country.

Local lawyers are now pessimistic that private operators might score a legal breakthrough in Germany in the current environment – at least until the ECJ has a chance to decide over the first of eight gambling-related cases referred to it from German courts.

“There are very few courts left in Germany that are upholding the basic freedoms [established by the European Treaty],” says Martin Arendts, a gaming law expert with the firm Arendts Anwalte. “Most courts are now against private bookmakers, but it is still a confusing situation.”

Earlier this year, Tipp24 was effectively forced to jettison itself from what was once its core market as the Interstate Gambling Treaty’s ban on online sports betting, casino and poker games was extended to the lottery sphere as of January 1, 2009.

Tipp24 has sought declaratory judgments against the validity of the ban on internet lottery sales from courts in all 16 German states. To date, however, it has received just one positive verdict, from an administrative court in Berlin last year. The company also lost a significant case before the Federal Constitutional Court last October.

Tipp24 told investors this week that German authorities had even now come to question the validity of its UK-licensed MyLotto24 operation (which allows non-Germans to bet on the results of German ‘6/49’ Lotto games) by raising formal objections to the Tipp24 UK subsidiary’s activities on anti-competitive grounds.

The company said: “Even if we assume that the UK companies are acting legally on the basis of valid concessions explicitly allowing the activity performed, it cannot be ruled out that they will fail to assert their rights in German courts.”

In reference to the broader legal situation, the company added: “Contrary to our assessment of the situation, there is a risk that the restrictive legal framework [established by the Interstate Treaty] may be upheld in the medium term, or even permanently.”

Ironically, Tipp 24’s results showed the company’s half-year revenues rising 115 percent to €46.6m since its exit from the German market and pursuit of more favourable regulatory climes in the UK, Italy and Spain. At the same time revenue from Germany fell 92 percent year-on-year to just €1.4m.

Tipp24 chairman Jens Schumann said he remained convinced that “key aspects of the [Interstate Treaty] will have to be changed”.

“Over the last years, Germany’s federal states have lost over €7bn in stakes from this legislation alone,” Schumann said. “As this is money which the states cannot replace, it is now missing for important institutions in the field of sport, social affairs and culture.”

Hambach agrees that Tipp24’s success demonstrates the major knock-on effect of the German online prohibition: gaming revenues ultimately heading outside the country. “The battle from my perspective is already lost; the states are tilting at windmills. They might win several cases but in the end they will lose – money will find a way.”

Frank Hoffmann, Tipp24’s investor relations director, told GamblingCompliance that the company would continue to lobby in favour of change being instigated at the political level in Germany ahead of the treaty’s expiry in December 2011.

“The situation is very complicated in Germany right now,” he said. “We will have to wait, but everyone will be looking towards the highest European Court of Justice and the first German decision that may come during the first six months of 2010.”

Before then, UK-based betting exchange operator Betfair will become the latest of Europe’s private operators to test the validity of the Interstate Treaty before German courts when it hears the result of its appeal to a prohibition order imposed by the North-Rhine Westphalia this autumn.

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