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High Stakes, Maximum Damage

September 30, 2009 2009

published by By Ileana Grabitz, at 7 September 2009

Germany has excluded private operators from the gambling market – the industry is hoping for an EU judgement via Portugal

Berlin – Christian Kipper is usually a calm, level-headed man. However, when he has been talking about his business in the last few days, his voice has revealed an undertone of deep anger. The silver-haired man has been the head of the ARD television lottery, “Ein Platz an der Sonne”, for years. Almost half of its revenues go towards charitable projects. More than 1.3 billion Euros have been raised by Germany’s oldest lottery for women’s refuges, hospices and similar institutions since it was founded 53 years ago. But for some months now, the business has not been running as smoothly: Kipper complains that fewer and fewer tickets are being sold. The money, which he distributes amongst social projects, could therefore fall, in the medium term, by up to 30 percent.

What has really caused Kipper’s mood to darken is the so-called Interstate Treaty on Gambling which has protected the state monopoly on operating games of chance since the beginning of 2008. The German Federal Constitutional Court declared the monopoly to be fundamentally acceptable in 2006 – however, this was on the condition that the state operators effectively combat the gambling addiction present amongst German citizens. The Treaty has been the subject of considerable controversy for some time, especially amongst private gambling operators for whom the basis of their business was swept away by the Treaty virtually from one day to the next.

Since then, opposition voices have grown louder, also amongst many state gambling operators who are supposed to be benefitting from the monopoly. The reason for their resentment is primarily the strict advertising and marketing regulations which the legislator has issued in order to extend the battle against gambling addiction. “The regulations make it extremely difficult for us to reach the public”, complains ARD lottery chief, Kipper. It is allegedly the good causes which suffer most. The fewer tickets are sold, the more funds are lost which would otherwise have been allocated to charitable projects.

Kipper’s words apparently apply to large parts of the industry. Taking the information provided by the German Lottery Association (Deutscher Lottoverband), the situation after 20 months of the Interstate Treaty on Gambling looks more than bleak. The latest figures, available to the WELT, show sharp falls in revenue across the gambling market. According to the Lottery Association, earnings are 30 percent down on 2005 levels. This means that the respective taxes and earmarked funds which the gambling operators pay to the Laender have also dramatically declined. In 2005, the German Laender collected nearly five billion Euro from the gambling sector; in the current year, estimates put this figure at a maximum of 3.5 billion Euro. Even if revenue levels stabilise, the Laender stand to lose in excess of six billion Euro by 2011.

FDP Member of the Bundestag, Detlef Parr, comes to the point, “The Laender are harming themselves with the disproportionate regulations stipulated in the Interstate Treaty on Gambling.” The drop in revenues in the gambling market ultimately leads to the Laender having fewer means available for public needs such as cultural or sports projects. The Laender have traditionally been amongst the greatest beneficiaries of gambling: up to 40 percent of lottery revenues flow into their coffers in the form of taxes or earmarked funds. In the case of casinos, the contributions vary from Land to Land by as much as 40 to 80 percent. It therefore comes as no surprise that now criticism of the Interstate Treaty on Gambling is growing and from within ever larger political circles.

However, the political wheels turn slowly. We currently find ourselves in the midst of an election campaign – thus critics of the Treaty are today pinning their hopes on salvation ultimately coming from Brussels. The EU Commission had already instigated contractual infringement proceedings against Germany shortly after the Treaty came into effect at the beginning of 2008 because they considered the new Gambling regulations to be incompatible with EU law. However, it has gone quiet on this front.

A European Court of Justice decision, expected tomorrow, could at least shed some light on the matter. The case is about Portugal. The opponents of the current Gambling regulations hope that a clear ruling from the Luxemburg judges may also serve as a precedent case for Germany. In the present case, the Portuguese authorities imposed high fines on the private sports betting operators Bwin and the Portuguese Football League because they had offered online betting and advertised such offers. There exists a statutory monopoly in internet betting in Portugal. The ECJ now has to decide whether the monopoly can be reconciled with community law. If the court comes to the opinion that the Portuguese approach does not conform with EU law, the current private operators of internet lotto and internet sports betting can hope that the Luxemburg court will later also decide in their favour.

Certainly, a rethink of the current situation would be welcome. Expert opinion is that a state monopoly has a further, tragic consequence for society as a whole: drastically reduced gambling revenues and the related tax deficits, which are hard for federal government and for the Laender to bear, are only one result, says Friedrich Schneider, Professor at the Johannes Kepler University in Linz. More importantly, the state gambling monopoly costs many jobs and thus fuels a massive rise in the black economy. One example: only last week, the North German Class Lottery (Norddeutsche Klassenlotterie, NKL) announced that it has been forced to cut one fifth of its workforce in order to cope with the losses in revenue of the previous years.

Wulf Hambach

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