A German court has found that the country’s numerous state lottery monopolies are operating in defiance of EU law, emboldening eager private lottery companies seeking to establish a foothold in the lucrative market.

In a judgment announced late last week, the Administrative Court of Munich declared that the land-based lottery monopolies currently in operation in all of the country’s 16 states breached EU’s principles of “freedom to provide services” and the “constitutionally guaranteed freedom of choice”.

The decision has sparked fresh hope for private lottery operators, many of whom have long hoped to establish their operations in Germany, and provoked a fightback from the trade group that represents Germany’s state-run lotteries.

In March of this year, secondary lottery operator Lottoland applied for a licence to run its own lottery in a number of states, a move that was met with disdain from many of Germany’s monopolies.

Lottoland yesterday welcomed the Munich ruling. In a statement to GamblingCompliance, the operator said that the court, “confirms our position that the German lottery monopoly is conflicting with Article 56 of the Treaty on the functioning of the EU in regards of the freedom to provide services”.

“Therefore, the respective German legislation is not applicable and online operators licensed in other EU jurisdictions can rely on Article 56 TFEU and legally operate in Germany. This once again shows that the German gambling regulation is in urgent need of modernisation and a far-reaching reform.”

Frankfurt-listed lottery operator ZEAL Group said that the ruling “clearly highlights the illegality of the current monopoly system”.

“For too long, the lottery industry has been closed to competition — denying customers choice and stifling innovation,” said Sebastian Blohm, head of corporate and legal affairs at ZEAL.

“In a world where we can book a holiday with one click and buy music at the touch of a button, the lottery industry is stuck in a time-warp. It’s time the industry was opened up to competition,” he said.

Speaking for the lottery trade group European Lotteries, secretary general Arjan van’t Veer countered that the German lotteries had been forced into non-EU compliant advertising in order to keep players out of the hands of the grey market.

“Confronted with a growing illegal offer of games of chance, the legal operators must take the necessary steps to keep the consumers in the protected area where games of chance are strictly controlled,” he said. “This channeling obligation is very important under EU law.”

According to van’t Veer, the future of the state monopolies is in no way in jeopardy and that the “concerned states need to take some measures … to better define the applicable advertising standards so that the monopolies can operate further in a legal manner”.

The contentious and potentially seismic ruling is an unintended consequence of a rejected lottery licence application made in 2010 by an individual to the Government of the Upper Palatinate.

Having been deemed not a fit and proper person, the applicant took the issue before the Administrative Court of Munich in 2012. Under questioning as part of the case, a government representative defended the state’s lottery regulations by arguing that they were compliant with EU law.

The court took five years to consider this claim, eventually ruling that the advertising practices of state lotteries, while permitted by the current State Treaty on Gambling, are expressly outlawed by EU legislation. Offending examples cited by the court included ads tying gambling to financial success and happiness.

Despite damning Germany’s lottery legislation in its 30-page decision, the court’s final decision in fact went against the plaintiff — agreeing with the Bavarian government that the lack of sufficient financial backing means they cannot operate a lottery.

Owing to their limited financial resources it is considered unlikely that the applicant will appeal the decision. Additionally, as it technically won the case, the state of Bavaria is not in a position to challenge the ruling.

The binding nature of this decision in Bavaria is likely to have a dramatic effect on the future of the debate surrounding nationwide German gambling legislation, according to Wulf Hambach, partner at Hambach & Hambach law firm.

“The political dimension is bigger than the purely legal dimension in this single case,” he told GamblingCompliance.

Although a new interstate treaty that would establish minor gambling reforms has been mooted for some time, it does not update rules around land-based lotteries and so, in the Munich court’s view, would still fail to meet the standards of the European Commission.

Dissenting state Schleswig-Holstein, which wants to liberalise and license the entire gambling market, notified its own gambling regulations to the European Commission and has been told that they do meet EU standards.

Schleswig-Holstein has so far refused to sign the amended interstate treaty despite constant pressure from Germany’s other states on the grounds that it does not go far enough in reforming gambling legislation.

The Munich lottery ruling is only likely to strengthen the state Prime Minister’s hand when he meets representatives from the other 15 states at a gathering to discuss the Interstate Treaty on Gambling next February.

“Next year the prime ministers have to sit together and decide what to do,” said Hambach. “What they cannot do is ignore this decision, because if they want to regulate online gambling in Germany they really have to do it in a EU compliant way.”

Source: Gambling Compliance