First sports betting licences issued by Schleswig-Holstein - potential implications in light of upcoming elections

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Betfair, Jaxx and Oddset receive licences in Schleswig-Holstein

The Government of Schleswig Holstein, Germany's northernmost state, announced this Thursday that it has issued the first three licences for online sports betting operators under the new regional Gambling Act. Betfair (via Polco Limited), Jaxx (via Personal Exchange International) and Schleswig-Holstein-owned Nordwestlotto/Oddset are the first operators which are now officially licensed to provide online sports betting services to customers in Schleswig-Holstein. An additional 37 applications have been submitted to the competent Ministry of the Interior (23 for sports betting, 14 for online casino games) who announced that further licences will be issued in the next couple of weeks.

The Schleswig-Holstein situation

As reported in previous updates (click here), Schleswig-Holstein is the only German state which did not join the other 15 German Länder in adopting a new Interstate Treaty on Gambling. Instead, Schleswig-Holstein passed its own regional Gambling Act in October 2011 and has received a number of applications for licences since the Act came into force on 1 January 2012. This relates to both online sports betting and online gaming providers. The three licensees may now provide online sports betting services until May 2018. Although a so-called "Monitoring Ordinance" relating to the required level of performance and technical requirements has not yet been released, the official press release of Schleswig-Holstein's Ministry of the Interior states that the licensees may commence business as of today.

Upcoming elections

The timing of the issue of the first licences is significant. The Government, a coalition of Christian Democrats (CDU) and Liberal Democrats (FDP) has issued these licences just before Schleswig-Holstein will go to the polls next Sunday. According to most recent surveys, it is quite likely that the opposition will prevail against the current Government. The opposing Social Democrats (SPD) have strongly criticised the state's Gambling Act ever since its introduction, and only last month another of their attempts to nullify the Act failed to pass the Parliament.

Potential implications of a revoked licence

Irrespective of the outcome of the elections on Sunday, the current Gambling Act and the various ordinances issued under it will continue to be in force unless and until the Parliament resolves on a bill to abolish the Act. It could easily take months for an SPD-led Government to present a new bill and to get it through a newly formed Parliament. While a new Prime Minister could unofficially try to use his influence on the authorities dealing with the licence applications to slow down the process and to not grant further licences, the legal basis for the licence regime would remain in place until officially abolished.

In addition, the fact that there are now licences in place might well have an impact on a new Government's decision whether to abolish the Gambling Act or not. In order to render existing licences null and void, a new Government could either adopt a bill stating that all previously granted licences are no longer valid, abolish the existing Act or give the authorities a legal basis to formally revoke these licences. The two latter options would, however, likely only work under German administrative law if the respective operator has by then not made any use of its licence.

In all three cases there is a very strong risk of Schleswig-Holstein becoming liable for compensation towards the licensees based on the principle of protection of trust. While the recipient of a decree such as a sports betting licence cannot claim that the legal landscape must remain unchanged forever, a licence validly granted under existing law for a period until 2018 cannot simply be ignored. Hence, an operator would have good arguments to claim compensation from the Government for any investments made in reliance on the issue of a valid licence. Such compensation claim could, for example, cover costs for establishing a branch in Schleswig-Holstein and managing the application process - it would, however, be unlikely to extend to future lost profits.

Another, more balanced option for a new Government could be a reduction of the existing licences from six to fewer years - which might potentially mitigate the risk of being liable for compensation payments.

Interestingly enough, other than the majority of his party comrades, the SPD's candidate for Prime Ministry, Torsten Albig (currently the mayor of the capital Kiel), publicly supported betting and gambling providers coming to the region. This could make it even harder for him as the potential new Prime Minister to change horses and to join the Interstate Treaty of the other 15 Länder.