German Federal Administrative Court rules on admissibility of online casino games

The BVerwG’s decision was delivered in two remarkable judgments on 26 October 2017 (8 C 18.16 and 8 C 14.16), the written grounds of which have now been made available to the public. Both judgments can still be appealed by the providers of these online gambling services before the German Federal Constitutional Court. It has been said that the claimant, 888 Holdings, intends to file appeals against these judgments before the German Constitutional Court (Bundesverfassungsgericht – “BVerfG”) alleging an infringement of its specific constitutional rights, in particular its freedom of profession. The challenges were first filed in January 2010 and they do not look set to stop anytime soon.

The challenged prohibitions

Both challenged prohibition orders had been issued by authorities in the state of Baden-Wuerttemberg because the prohibited online gambling websites were accessible to potential customers there. The BVerwG first had to deal with a rather technical issue concerning the wording of the actual prohibition orders. 888 Holdings claimed that the prohibition orders were not clear enough since, for example, one of them contained a mere reference to the German terms of online lottery scratch tickets (“Online-Rubellose”) and online casino games (“Online-Casinospiele”). The BVerwG held that authorities do not need to specify in detail the prohibited gambling alternatives and that the references to “Online-Rubellose” and “Online-Casinospiele” were sufficiently clear to determine the scope of the prohibition.

Is there a need for a coherent pre-defined policy?

The court of first instance, the Higher Regional Administrative Court of Baden-Wuerttemberg, essentially ruled that the prohibition orders were unlawful because the issuing authority had not based its decisions on a prior systematic and coherent approach to fighting illegal online gambling. Rather, a clearly defined policy was generally necessary to avoid a violation of the equality rights enshrined in the German constitution and in order to ensure that all cases were treated equally. The Higher Regional Court also held that such approach was necessary if the discretionary margin of the authorities was reduced to “zero” (“Ermessensreduktion auf Null”). This was an exceptional ruling as it implied that the authority would be obliged to act against illegal activities, rather than having a discretionary margin as stipulated by law.

However, the BVerwG rejected the Higher Regional Administrative Court’s line of argument, holding that if an authority is obliged to act due to lack of discretion, it does not need a prior policy to determine, for example, the timely order of actions. When operating under its discretion, the authority is permitted to issue a prohibition order against a specific provider without the need to go against one or several other providers at the same time or subsequently following a pre-defined plan of measures to be taken. Unless the choice is made arbitrarily, it is not deemed discriminatory or a violation of equality rights. The BVerwG found that the authority’s choice in the case at hand was not arbitrary.

Admissibility of the prohibition of online casino games

The BVerwG also held that the grounds of the prior instance judgment were not suited to uphold the challenged prohibitions. According to German procedural administrative law, the BVerwG then examined whether the prohibition order could be “rescued” by means of other reasoning not contained in the prior instance judgment. This was not the case according to the BVerwG:

1. The BVerwG pointed out that the general prohibition of online gambling laid down in sections 4(4) and (5) of the German Interstate Treaty on Gambling (“Interstate Treaty”) had already been deemed compliant with German constitutional law in previous decisions by the BVerfG and the CJEU. Changes implemented in the Interstate Treaty in 2012 did not change this assessment in the view of the BVerwG. The main change introduced by the amended Interstate Treaty was the possibility of online sports betting providers obtaining gambling licenses. However, apart from online betting on sports and horseracing, the general prohibition of online gambling has been upheld in the amended Interstate Treaty. This differentiation has been viewed critically in Germany, but not by the BVerwG.

2. Such limited online gambling prohibition is (still) seen as proportionate to achieve legitimate aims in the view of the BVerwG. When it comes to justifying the differentiation between online sports (including betting on horseracing) and other online gambling such as online casino games, the BVerwG remained, however, quite “nebulous”. It merely reiterated the reasoning of the German legislator that, for example, online casino games have an immensely addictive potential, and a high risk of both manipulation and abuse for money laundering purposes. The assessment of the German legislator is not “evidently wrong” in view of the BVerwG and still lies within the prerogative of the legislator.

3. Moreover, the BVerwG held that prohibition of online gambling laid down in the Interstate Treaty does not violate EU law, in particular the freedom to provide services. The BVerwG acknowledged that the prohibition would limit the freedom of providers located abroad to render their online gambling services to customers based in Germany. However, in the view of the BVerwG, such limitation is justified. The legitimate aims pursued by such online gambling prohibition are achieved in a proportionate way, in particular in a consistent and coherent manner as required by the CJEU.

The BVerwG pointed out that the legislator has a certain margin of free assessment. With regards to coherency, the BVerwG ruled again that such margin had not been exceeded. The differentiation between online betting on sports and horseracing on the one hand, and other online gambling services on the other hand would not cause any inconsistencies or a lack of coherence in the German legal gambling framework. As already stated above, the BVerwG followed the reasoning put forward by the German legislator that casino games carry a risk of addictive behavior and money laundering activity.

Admissibility of an online sports betting prohibition in the case at hand

Interestingly, the BVerwG had the opportunity to rule on sports betting regulations in the second judgment which was virtually identical to the first. Here, the prohibition order included sports betting websites operated by 888 Holdings. The BVerwG did not have to dig too deep into the legal jungle of procurement obstacles to such online sports betting licences. Since the defendant has never applied for such licence, it was not eligible to challenge the legal shortcomings of the procurement process of such licences, such as the lack of a transparent and non-discriminatory procurement process.

What’s next?

The picture created by these judgments is most likely only a preliminary one. As initially mentioned, 888 Holdings will most likely file a constitutional appeal against these decisions (or, has even done so already) so the outcome is rather difficult to foresee. We will closely monitor these developments and provide an update on this issue in due course.

As a general note, one should bear in mind that the proceedings at hand started in 2010. Since then, there have been a number of amendments to German gambling law as a result of (amongst other things) several court decisions challenging the regulatory gambling framework. Responsibility for setting the benchmarks of an admissible gambling regulation should not fall to the courts, but rather to the German legislator. It remains to be seen if the new coalition government can agree on a consistent gambling law framework in Germany which successfully avoids the pitfalls of German and EU law that are seen in the grant of sports betting licences.