Over-cooked: Is regulation in Germany the next big challenge for the online sector?

First published at https://egr.global/marketing/insight/market-watch-is-over-regulation-in-germany-the-next-big-challenge-for-the-online-sector/

There is a developing trend of gaming legislation taking place across several European gambling markets, that for all good intentions they profess to achieve, are also evidently self-harmful and will radically diminish – scratch that – debase, the sprawling industry we currently call home.

Whereas in 2019 we smirked self-righteously at the UK’s seemingly populist measures to limit FOBT stakes and increase gaming taxes, this year we are now witnessing the very real possibility that Germany will go even further than its Anglo-Saxon counterpart. Given that until very recently the entire Bundesrepublik basked in a mostly grey-glow of gambling – much to the delight of many non-regulated operators – this new (over-)regulatory stance will very likely drive markets back to where they were before the much-needed regulators stepped in.

From leaked excerpts of the gloriously-titled, spaces-are-overrated Glücksspielneuregulierungsstaatsvertrag, Germany will establish a central Gambling Agency to oversee activities in all federal states, while ensuring operators impose mandatory rules on setting up player accounts ahead of any free or paid plays (not a bad thing) and limiting deposits to less than €1,000 a month in total (potentially a very bad thing).

Casino regulations will be split between licences for online casino games and virtual slot machines, the latter imposing some very new and very restrictive limits, including (at least) five-second spins, no autoplay or slot jackpots and a total betting limit of €1. Just to estimate the impact of this figure into perspective, the UK FOBT limit of £100 forced the closure of at least 750 high street betting shops in 2019, costing the jobs of thousands of gainfully (and legally) employed workers. And that limit did not affect any online gaming.

Ripple effect

This move, largely perceived to mirror the existing land-based German regulations in pubs and arcades and effectively creating a single online/land gaming legislation, will cause a ripple-effect no less disruptive than that about to strike the UK industry, however this will have far-reaching effects beyond the territories it aims to legislate.

For starters, under the proposed draft legislation, states will have the option to offer as many online licences as there are for land-based casinos; which in most cases means only one casino licence per state, and in the best case (Hesse) just three. What would become of the (very high) demand and choice for online slots in each state that is expected from today’s online players, being restricted to only (legally) gamble on a single brand per territory?

Most online players will be driven to grey and black markets that are happy to take non-limit-restricted bets on non-spin-restricted slots. And, to a significantly worse extent than the UK, any legally gained tax revenues across all federal states would be woefully inadequate, not to mention their decreasing inability to protect consumers.

What’s worse is the suggestion that all gambling advertising – including online – will be time-restricted between 6am and 11pm. Setting aside the logistical issues to get this properly implemented, how would this measure make any practical sense? This is not television, where the demographics are wholly specific depending on the airing segment. Online consumption has radically different (non-linear) programming, and if gaming adverts are solely to be shown outside children’s bedtimes because that’s how and when minors supposedly view online content; then the authorities should probably be paying closer attention to their offsprings’ browsing history. More pertinently; how will gaming streamers (which this decade will form a significant part of online gambling advertising) be policed? Are we seriously proposing to shut down entire sections of video content in line with other very progressive-leaning states?

The real repercussions will be felt longer-term. What’s to stop other conservative-leaning European territories such as Denmark and Holland from following suit? The industry is still reeling from the Swedish self-exclusion aftermath barely imposed a year ago, and the UK’s online market has yet to undergo the real implications of FOBT and increased gaming tax over the next couple of years.

Germany’s proposed (over) legislation will incentivise similar-minded territories to implement similar measures, with a very real possibility of plunging the majority of the European online gaming industry into grey and black markets, losing precious tax revenues where it really matters and sending the entire industry back to the dark ages of the ‘00s or worse.

Not all’s lost yet, however. The proposed treaty will come into effect on 1 July next year, and the leaked document is allegedly still in draft stage, with ample time for corrections. Surely this is a unique opportunity for the industry to rise together and co-ordinate a holistic response back to the authorities that will introduce more sensible limits, and not exclude licence grants from a good number of best-practice operators (of which there are several in Germany). Otherwise, just defiantly passing bills without listening to a (highly tax lucrative) industry will drive many honest players to some very dark places. Even worse, on a woefully appropriately birthday metaphor, the remaining regulated operators will be policed in a manner not entirely dissimilar to the Ministry of Plenty. 1984 is indeed alive and well in Europe these days. And if – despite everyone’s best intentions – all goes pear shaped, the silver lining (at least from an investor’s perspective) is that VPN stocks have never looked better…