German Cartel Warns Lottery Companies

23 June 2006

The Bundeskartellamt, German Federal Cartel Office, has issued a warning letter to the regional lottery companies and the German Lotto and Toto Block (Deutscher Lotto- und Totoblock, DTLB) on account of several violations of German and European competition law.

The warning concerns three forms of conduct:

1. The call of the German Lotto and Toto Block on lottery companies not to accept any stakes collected through commercial lottery agents at retail outlets;

2. The lottery companies’ agreement to offer lotteries and sports betting services only in those Länder (the federal countries) in which they are authorized to do so ("principle of regionality");

3. The provision of information by the lottery companies to the Länder on stakes, processing fees collected and the proportion thereof collected through commercial lottery agents.

Already in 1999 the Federal Supreme Court prohibited the lottery companies from generally excluding commercial lottery agents from participating in the lottery market and thus confirmed a prohibition decision by the Bundeskartellamt.

The activities of commercial lottery agents are therefore in principle admissible. They do not violate the state monopoly on lottery games either because the lottery agents merely act as intermediaries between customers and lottery companies against payment of a commission and do not enter into any agreement with the customers themselves.

The commercial lottery agents first confined their activities to the acquisition of customers via the Internet, call-centers or by mail order. Now they intend to also acquire customers through retail outlets in supermarkets or petrol stations.

In the Bundeskartellamt’s view, the request not to accept any stakes collected through commercial lottery agents at retail outlets violates competition law because it considerably restricts the business activities of commercial lottery agents.

In addition, the so-called "principle of regionality", according to which lottery companies may only offer lotteries and sports betting services in those Länder in which they are authorized to do so, violates competition law. In the Bundeskartellamt’s view this constitutes an allocation of territory which is inadmissible under competition law and prevents competition between the lottery companies.

Finally, the lottery companies inform the Länder on their revenues and distribution of winnings through commercial lottery agents to enable the Länder to divide the revenues among each other under the “treaty on the regionalisation of proportions of revenue generated by companies of the DLTB” (Regionalization Treaty). The quota allotted to the individual Länder mirror the existing regional market segmentation between the lottery companies. Due to this, "regionalization" the individual stakes are allocated to the respective Land where the person participating in the lottery is a resident. This restricts the incentive for lottery companies to also enter into player agreements with customers from other Länder.

The German Lotto and Toto Bloc, all members of the European Lotteries, rejects the reproaches of the German Anti-Cartel Office.

In an interim decision on administrative proceedings that have been ongoing since the end of 2005, the Anti-Cartel Office criticized the behavior of the domestic Lottery providers on three points on the grounds that their behavior allegedly breached anti-trust law, and it required the Lotto companies to take a stand on the matter. In the view of the DLTB, none of the three points of criticism is comprehensible.

"The arguments advanced by the Anti-Cartel Office are in clear contradiction to the decision adopted on 28 March by the Federal Constitutional Court concerning sport betting. In this decision, the Karlsruhe judges expressly stressed that a domestic provider must above all aim to prevent gambling addiction", said Dr. Horst Mentrup, Business Manager of Lotto Brandenburg, the company that represents the DLTB. "The judges considered an expansion of the availability of gambling on offer-- say, by aggressive advertising or additional betting shops-- constitutionally questionable. In the light of this, it can surely not be right that the Federal Anti-Cartel Office now wants to oblige the Lotto companies to co-operate with commercial gambling providers.

"These gambling providers precisely want to open new betting shops in supermarkets or petrol stations and to boost their turnover by massive advertising", adds Mentrup.

Apart from these fundamental objections to the line of argument adopted by the Federal Anti-Cartel Office, the DLTB also considers the individual points of criticism to be incomprehensible.

For example, the Federal Anti-Cartel Office considers it an offence that the Lotto companies are supposed to have boycotted commercial gambling providers when it comes to accepting terrestrially-generated pools. But neither have the regional Lotto companies within the DLTB called for a boycott of commercial gambling providers, nor have individual Lotto companies made any arrangements to limit the competition of commercial gambling providers.

The Federal Anti-Cartel Office is apparently basing its reproaches on the fact that specific Lotto companies have terminated or not extended their contractual relations with individual commercial gambling providers. However, the Lotto companies concerned were convinced that this attitude was necessary under the regulations and that they were, in so doing, complying with the demands placed on the domestic Lottery bodies by the Federal Constitutional Court.

Moreover, the regional Lotto companies were accused, by adhering to the regionality principle, of having made a regional arrangement forbidden under anti-cartel law. This reproach is untenable.

The restriction of the right of each Lotto company to operate in its own region (Land) of the Federal Republic of Germany is embodied by law in the Federal Constitution. Every regional Lotto company is bound by this Constitution. How reproaches of having breached anti-cartel law can be derived from this adherence to legal standards is incomprehensible.

Finally, the same applies to the third reproach that the Federal Anti-Cartel Office has leveled at the Lotto companies. The Lotto companies adhere strictly to the conditions of the hitherto relevant inter-regional contract when allocating to each region (Land) supra-regional income obtained with the help of commercial gambling providers. This is irreproachable in the eyes of anti-cartel legislation.

The Lotto companies will, within the period given to them, take a stand on the reproaches of the Federal Anti-Cartel Office and are confident that they will be able to assuage its legal misgivings.

They have until the end of June 2006 to comment on the warning.

The Bundeskartellamt is an independent higher Federal authority which is under the umbrella of the Federal Ministry of Economics.

The main task of the Bundeskartellamt is to apply the Act Against Restraints of Competition (ARC), which was enacted for the protection of competition and came into force on 1 January, 1958.

Of the Bundeskartellamt's international relations, the most intensive are with the EU Commission in Brussels. The cooperation focuses on the Bundeskartellamt's participation in decisions regarding individual cases as well as in the revisions of European competition law. The new European Procedural Regulation No. 1/03 has created a new network of competition authorities in the EU which further improves the possibilities for cooperation and information exchange in competition law proceedings.

Rob van der Gaast has a background in sports journalism. He worked for over seven years as the head of sports for Dutch National Radio and has developed new concepts for the TV and the gambling industry. Now he operates from Istanbul as an independent gambling research analyst. He specializes in European gambling matters and in privatizations of gambling operators. Rob has contributed to IGN since Jul 09, 2001.