Lottery Limbo

Liberalizing the Lotto

  • Why it matters

    Why it matters

    German states have a monopoly on gambling in the country. But they could open the market to foreign operators.

  • Facts

    Facts

    • Private lottery operators are currently prohibited in Germany.
    • Some foreign operators get round the rules by taking bets on state lottery draws, using EU licenses, issued in tax havens like Gibraltar.
    • The German lottery market is worth 4 billion ($4.48 billion) a year.
  • Audio

    Audio

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Lucky numbers: German lotteries are a billion-euro market. Source: DPA

Germany’s 16 states sell about €4 billion, or $4.48 billion, worth of lottery tickets every year. And they are protected by German laws that prohibit private lottery operators from entering the market to boot. Yet some private firms have successfully managed to circumvent the state monopoly on draw-based gambling by operating so-called secondary lotteries from abroad, often from tax havens such as Gibraltar or Malta.

And now, with the liberal Free Democratic Party, or FDP, entering state of Schleswig-Holstein’s government, access to the lottery market in Germany might finally be in reach.

Secondary lottery companies such as the Gibraltar-based Lottoland don’t sell tickets to the state lottery, but offer bets on their draws instead. The association of Germany’s state lottery operators, DLTB, claims such private firms are illegal since they don’t have a German license.

“We can’t get a license because lottery monopolists exclude us from the market. That’s not EU-compliant and will change.”

Nigel Birrell, CEO, Lottoland

Lottoland, one of many secondary lottery operators trying to break into the German market, counters that it holds an EU license issued by Gibraltar. “The German lottery monopoly does not comply with EU law,” Wilhelm Huber, the firm’s head of German operations, said. “That’s why Lottoland falls under the EU’s freedom of services, and why the EU license is valid in Germany.”

Whether or not gambling businesses based on EU licenses are legitimate in Germany is still a legal grey area in Germany.

German gambling supervision authorities have brought more than 2,000 cases against illicit gambling operators between 2012 and 2015. So far, most courts have sided with the authorities. But court proceedings take time, and fines have been small.

To remedy that, the German states agreed to clearly rule foreign lottery operators illegal, and give authorities more power to keep German money from going into tax havens.

But then, last month, the state of Schleswig-Holstein elected a new parliament. The new coalition government – comprising Chancellor Angela Merkel’s center-right CDU, the Greens and the liberal party reportedly plans to liberalize gambling policies and wants to pull out of the agreement. Alternatively, Schleswig-Holstein could even team up with other states with FDP ministers in government to renegotiate a more liberal agreement.

Torsten Meinberg, head of the DLTB lottery association, says the state can’t renege on the agreement until 2021. He also insists a more liberal gambling policy would allow private operators like Lottoland to exploit addiction to make money.

“They offer jackpots of a size not allowed in Germany,” he said. “And try finding a disclaimer on gambling addiction at Lottoland. We even have to print our disclaimers on our promotional gifts,” Mr. Meinberg said.

A pack of gummy bears Mr. Meinberg handed out as a giveaway did indeed sport a warning label. The DLTB also criticized that private lottery operators don’t pay taxes in Germany and, unlike state-run lotteries, don’t give any of their proceeds to charity.

Lottoland Chief Executive Nigel Birrell said his company regularly wires money to a foundation based Hamburg. He refused to disclose how much, or who the foundation’s beneficiaries were.

Founded in 2013, Lottoland’s sales have since tripled to around €300 million, or $335.8 million. The Financial Times newspaper ranked the firm 128th on its list of the fastest growing startups. It’s active in Australia, Britain and Ireland, where Lottoland holds the respective gambling licenses, and across the rest of the EU, based on its Gibraltar license. Mr. Birrell declined to name the firm’s owners, or disclose if it turns a profit.

He did say Lottoland pays sales tax on at least some of its games in Germany, and that he would be happy to pay taxes on all its offers if he could get a German license. “But we can’t [get one] because lottery monopolists exclude us from the market. That’s not EU-compliant and will change,” Mr. Birrell said.

Things might indeed change soon, but not necessarily the way Mr. Birrell hopes. With Britain’s exit from the EU underway, the gambling license issued by Gibraltar, a British overseas territory, might soon be void within the EU anyway.

 

A version of this article first appeared in WirtschaftsWoche. To contact the author: andreas.macho@wiwo.de

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