EU court strikes down German gambling monopoly (2nd Roundup)

Sep 8, 2010, 17:03 GMT

Luxembourg - A German state monopoly on most forms of gambling is 'unjustifiable' and must be ended at once because it is neither consistent nor systematically applied, the European Union's top court said in a shock judgement Wednesday.

Under German rules, only the country's 16 federal states (Laender) or companies run by them can offer most gambling services, especially lotteries. Their monopoly has, in the past, brought billions of euros into state coffers and social, cultural and sporting projects.

The ruling by the European Court of Justice (ECJ) sparked delight and dismay in equal measure as betting companies and major sports teams predicted that it would boost revenue, and state lotteries and amateur sports warned that it could put them out of business.

'It's a disaster ... If we don't get this thing fixed, our very existence is at stake,' said Rolf Mueller, president of the sports federation of Hesse state. Eighty per cent of that group's running costs are paid by the state lottery commission.

But major sporting teams, such as Bayern Munich, could stand to earn millions of euros in extra revenue, since the ban had prevented them from selling advertising space to football pools firms, said Max Stahl of Sport und Markt, a Cologne market research company.

'We assume that the lost revenue amounts to more than 300 million euros (385 million dollars) per year,' Stahl told the German Press Agency dpa.

The drama began when eight private companies which offer online betting services challenged the German rules in a number of regional courts. The regional courts asked the European Court of Justice (ECJ) to rule whether the German system was legal.

It had already been reformed once, after the German constitutional court in 2006 ruled that states were advertising their lotteries too widely.

The Luxembourg-based ECJ had been expected to throw out the challenge, as it had already ruled that gambling monopolies in a number of other EU states are legal because they are aimed at limiting the social impact of gambling.

But in a surprise move, the ECJ ruled that 'the German rules do not limit games of chance in a consistent and systematic manner,' and that therefore 'the monopoly ceases to be justifiable.'

That is because public monopoly holders carry out 'intensive advertising campaigns with a view to maximising profits from lotteries,' so that 'the preventive objective of that monopoly can no longer be pursued,' the court said.

Its judgement 'came as I surprise, I have to admit,' said Winfried Wortmann, the head of North Rhine-Westphalia state lottery WestLotto, adding that the lotteries had 'massively reduced' their advertising after the 2006 decision.

The court said that the monopoly must end at once, since 'national rules concerning that monopoly, held to be contrary to the fundamental freedoms of the union, cannot continue to apply during the time necessary to bring it into conformity with union law.'

In the short term, the ruling is a victory for the eight companies, based in states such as Britain, Gibraltar and Malta, which launched the original challenge.

German courts will still have to rule whether those companies can now carry out operations in Germany. But the authorities will not be able to cite the monopoly as a reason for blocking them.

'This is a landmark ruling which will have a decisive impact on the much-needed reform in Germany ... It signals the end of the German online gaming ban,' said Sigrid Ligne, head of the European Gaming and Betting Association, in a statement.

However, the longer-term implications remain unclear. The Laender make billions of euros a year from their monopolies, and some 3 billion euros annually flow to sport, charity and cultural events.

If the monopoly is scrapped, officials say that many organizations may cease to exist.

'We do worry that we'll be getting far less money in future,' said Guenther Lommer, president of the Bavarian state sports federation. However, the court stressed that a more consistent and systematic monopoly could be legal, if it were proven to be designed to limit the social impact of betting.

'With a view to channelling the desire to gamble and the operation of games into a controlled circuit, member states are free to establish public monopolies,' a court statement pointed out.

It now falls to the Laender to decide whether they want to redraw their monopoly rules in a way which the court would approve.

'We will leave it up to the state and federal governments to take the measures necessary for the continued existence of the German model,' said the head of Bavaria's lottery, Erwin Horak.