bwin and the Legal Chaos in the German Sports Betting Market

25 August 2006

a report by attorneys-at-law Dr. Wulf Hambach and Dr. Hendrik Schöttle
Hambach & Hambach

Nobody involved in the gaming industry could have missed what happened on the 10th of August 2006 in Saxony: The Saxon Ministry of the Interior sought to put an end to the business of the most powerful sports betting provider in Germany, bwin, formerly Betandwin. Stories rapidly circulated through the media. The FAZ newspaper wrote of the "administrative license revocation." According to the Spiegel newspaper, bwin had the "concession removed." The title of the Tagesspiegel newspaper article was "bwin prohibited." It is clear that the shares of the bwin AG sunk considerably following these headlines. But: the headlines were wrong--all of them.

The following is true regarding the license: bwin is one of the few firms in possession of a GDR license. The legal uncertainty that has existed since the decision of the Federal Constitutional Court (BVerfG) is set to continue, following a recent decision of the Federal Administrative Court. The court had to determine the extent of validity of the GDR-license; this issue has been contentious, particularly since the sports betting decision of the Federal Constitutional Court. It is unclear, whether the licenses are only valid in the new federal states or whether they apply throughout the reunified Germany. The Federal Administrative Court determined that the license is not valid in Bavaria. This may also be the case in other federal states. It is up to the administrative courts in the individual former GDR federal states to decide what the legal situation is in the former GDR. An issue, which remains unresolved, is whether the GDR licenses are valid in the entire territory of the former GDR, or only in the federal state in which each license was granted.

The Saxon Ministry of Interior took this "clear line" as a reason to "persistently proceed against all activities by betandwin," as was stated in the press release of Aug. 10. However, the sports betting provider's license was not revoked, as was stated in numerous reports, rather, a prohibition order was issued against the sports betting firm based in Saxony. In the order, bwin is prohibited from organizing bets, distributing bets or advertising bets--in spite of its existing license. The prohibition order was also declared to be effective immediately and any breach of this order incurs a fine. In principle, the affected party can lodge an objection or file a complaint, on receipt of such an order. This has a "suspensory effect," which means that the prohibition order does not yet have an impact, i.e., the party affected can continue to provide bets. The direction for immediate effect removes the possibility of suspending the effect of the order. Even if bwin--as recently occurred--issues legal proceedings against the order, it remains in force for the interim.

It is somewhat surprising that immediate effect was ordered in this case. Normally, such drastic measures are only taken when particularly urgent measures are concerned. A common example of this would be acute danger to life or health. The state is very unlikely to be able to provide a credible justification for the immediate effect. Ultimately, it has knowingly tolerated private competition on the market for years. It is implausible that suddenly, from one day to the next, an acute danger should exist. The Ministry of the Interior relied on the constitutional decision of March 28, 2006: This set the responsible bodies the task of "immediately carrying out measures to ensure protection against betting and gambling addiction." This is indeed correct. However, the Ministry failed to note that this instruction was addressed to the state providers. The Karlsruhe judges determined that they, and not the private providers, were to behave in a manner in compliance with the laws.

The Administrative Court of Stuttgart was not convinced by this argument either. A prohibition on advertising, issued against the football Bundesliga VfB Stuttgart by the Regional Council of Karlsruhe, was recently lifted by the court. The operation by bwin is "indeed illegal under legislation" because no nationwide license for these bets exists on account of the Saxony prohibition. However, in view of the European fundamental freedoms of establishment and services (bwin has both an Austrian and a Gibraltar license), there is considerable doubt as to the legitimacy of the prohibition order.

In urgent proceedings on Aug. 18, 2006, the Administrative Court of Cologne decided similarly. As a result, sports clubs, sports associations and other providers of sports information in the Cologne-Bonn region may continue to advertise for sports betting, provided by those private organizers, who are in possession of an EU license, on their homepages. The court sometimes allows urgent applications. These urgent applications include e.g., those made by the football first division FC Köln and the TV-station RTL and n-tv, against a general order made by the District Government of Düsseldorf. However, according to the Administrative Court of Cologne, Internet advertising for organizers who only possess a GDR commercial license, which is not valid in North-Rhine Westphalia, remains prohibited.

The dispute between the Bavaria Head Office for New Medias (BLM) and the Bavarian State Ministry for Science and Art is worthy of mention. The Ministry ordered BLM to immediately stop advertising for sports betting in Bavaria. BLM objected to this order and, in urgent proceedings, this objection has now been accepted by the Bavarian Administrative Court in Munich: Broadcasting advertisements is part of making programs. The judges decided that orders by the Ministry in this area are, on principle, not allowed.

So, what is the situation? The administrative authorities and courts continue to work towards a common legal framework for the provision of sports betting in Germany. However, everyone has his own opinion regarding the end outcome of this situation. This is even without considering the plans, which the ECJ may have for the German market, in light of the freedom of services and freedom of establishment guarantees.

Nobody can predict the outcome of the dispute concerning the GDR licenses. Anything is conceivable. In the long term, if it is possible to obtain an EU license, this is probably a better option. Regarding the Decision of the Administrative Court of Cologne and the many similar decisions, it now appears likely that the EU fundamental freedoms will be used to open up the sports betting market.