Imogen Goodman Reflects on Potential Federal Actions by Germany’s New Coalition Government Against Illegal Gambling
In their recently unveiled coalition agreement dated April 9, Germany’s incoming government emphasizes an urgent initiative: combating the pervasive illegal gambling market.
On page 92 of this coalition document, there is a succinct commitment: “Together with the federal states, we will improve the fight against illegal gambling.” Although brief, this statement holds significant implications for observers across the gambling sector.
The new administration, assuming power on May 6, faces considerable challenges. Germany’s economy is struggling amid a myriad of systemic issues, including an aging populace and bureaucratic hurdles that stifle growth.
The coalition of the conservative Christian Democratic Union (CDU) and Christian Social Union (CSU) alongside the center-left Social Democrats (SPD) must navigate these obstacles while shifting the country back on a path to recovery.
To address this, the coalition has outlined a series of ambitious proposals: a €500 billion investment fund for infrastructure, administrative reforms aimed at reducing red tape, incentives for overtime labor, and plans for corporate tax reductions starting in 2028.
The Scope of Germany’s Illegal Gambling Scene
Yield Sec, a data analysis platform monitoring global illegal gambling trends, has closely examined the German market over recent years. Their findings reveal a robust and expanding underground market. In 2023, they identified 1,620 unlicensed operators targeting German consumers, with a staggering 13.5 million individuals engaging with these illicit platforms. Projections for 2024 indicate a rise to 1,926 illegal operators, reaching out to approximately 20% of Germany’s population, totaling around 15.8 million individuals.
Last year alone, Yield Sec reported that the black market accounted for approximately 54% of overall gross gaming revenue, translating to around €4 billion. However, with the prevalence of unlicensed operators vastly increasing, CEO Ismail Vali speculates that this figure could surge to as high as 88% in the near future.
Challenges from Strict Licensing Laws
Since its legalization, the licensed gambling industry has been grappling with an uphill battle against illegal entities. The decentralized federal system grants authority over online gambling to 16 federal states, leading to inconsistencies that benefit unregistered operators.
The Interstate Treaty on Gambling, enacted in 2021 to govern betting and online gaming, has imposed stringent rules. Legal operators now face complex regulations, slow licensing processes, and significant tax burdens. Some restrictions, such as prohibiting online slot providers from using the term "casino," exemplify the compromises that were needed to placate local regulation disputes. While regions led by the CDU and CSU advocate for greater market flexibility, they encounter robust resistance from more cautious states.
According to Yield Sec, this has resulted in illegal providers offering 9.2 times the product range of their licensed counterparts, as unregulated operators capitalize on a landscape of choice and convenience, unburdened by know-your-customer (KYC) processes or consumer protection measures.
Encouraging Federal Engagement
In light of these dynamics, Wulf Hambach, a founding partner of Munich’s Hambach & Hambach law firm, expresses optimism regarding the potential influence of the federal government. The determination to address illegal gambling within the coalition’s agenda could signal a turning point in the evolution of German gaming regulations.
Hambach asserts that if the federal government recognizes the growth of the black market, it would categorize it as a failure of policy implementation. Thus, the newly formed coalition cannot afford to appear ineffective right from the outset.
Historically, attempts to reform the Interstate Treaty have been stalled by SPD-controlled states, where calls for tighter restrictions and a prohibition on advertising have persisted. Such draconian measures, Hambach argues, would only exacerbate the problem by pushing consumers towards unregulated markets beyond German borders.
Political discourse at the federal level—particularly among the more liberal CDU—tends to favor a rational approach. Hambach anticipates a renewed focus on market developments, with hopes that forthcoming reforms will seek a balanced path forward.
A Step in the Right Direction
For the German Online Casino Association (DOCV), mere acknowledgment of the illegal gambling issue in the coalition’s manifesto is a substantial leap forward. In a recent statement, DOCV President Dirk Quermann expressed appreciation for the new government’s commitment to targeting the illegal market, describing it as a long-overdue recognition.
However, the DOCV urges government officials to foster collaboration with industry representatives to turn political aspirations into actionable reforms, primarily by bolstering the position of licensed operators. Calls are being made to replace existing taxes on virtual slot stakes with a more equitable tax model based on gross gaming revenue (GGR) and to abolish restrictions that limit player engagement.
Quermann emphasizes the need for a strategy that effectively channels consumers from the hazardous black market back into licensed platforms where their safety and rights can be ensured.
This sentiment echoes in the stance of the German Sports Betting Association (DSWV), which has welcomed the new government’s commitment but highlights the need for more concrete measures. They suggest forming a national prosecution unit targeted at illegal operators and cracking down on black market advertising networks.
Imperatives for Action
The convoluted nature of Germany’s federal framework has historically slowed the establishment of a legal gambling marketplace. Involving multiple states in regulatory decision-making often results in a stagnation of progress.
However, as seen in neighboring Austria, Germany faces significant fiscal challenges—many components of the coalition’s agenda hinge on financial viability, which offers a glimmer of hope for proactive measures against illegal gambling.
Christian Heins, the director of Tipico, recently underscored this point on LinkedIn. He noted that the new government, in its quest for revenue, could tap into the illegal gambling sector, potentially unlocking around €1 billion annually, while also recovering substantial lost revenues from prior years.
Moreover, illegal operators’ visibility at high-profile sports events, including Formula One and international football, highlights the urgent call for governmental action. Heins voiced a desire for the government to take this opportunity seriously, despite any initial apprehensions about the coalition’s capacity for reform.
In conclusion, the coalition’s visible commitment to addressing illegal gambling in Germany is a promising development. Maintaining momentum and pushing towards effective regulatory reforms will be essential in transforming this acknowledgment into tangible progress. The collaboration between the government and industry will ultimately be a key factor in shaping a safer, more regulated gambling environment for German consumers.