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Gambling Companies Start to Feel the Bite of The Upcoming German Regulations

On the 1st of July 2021, Germany’s new gambling regulations are set to come into full force.

The State Treaty on Gambling, Glücksspielneuregulierungstaatsvetrag, has been formally sanctioned by 16 states, and many of the proposed changes have already begun to reshape Germany’s gambling scene.
Many operators within Germany have welcomed the new regulations with open arms, however; the proposed tax on turnover (a hefty 5.3%) has left many wondering how small operators will be able to compete against large offshore companies.

Safety First

The new regulations will see the ban on online poker and online slot games lifted, but with that will come stringent rules pertaining to player safety. The treaty aims to protect vulnerable players and keep gambling out of view of the young and impressionable. In this regard, TV advertising is now strictly limited to the hours of 9pm to 6am. There can be no advertising that in any way targets minors, nor can any advertising insinuate that gambling is a viable, money-making solution for those in financial difficulty.
All German facing online casinos will be required to ensure that every player completes a thorough KYC (know your customer) procedure. This means that in order to sign-up for an account, a player must be willing and able to provide official documentation that verifies their name, age, and address.
Each online casino will be officially responsible for ensuring that no underage or vulnerable players have access to their site. Newest online casinos in Germany will have to abide by the law, same way established brands are expected to remodel their business in the country.

Slowing Down Slots

Although the ban on online slot games has been lifted, there are a number of rules in place that restrict gameplay. These restrictions aim to prevent players from getting carried away when spinning the reels of their favorite games. It is well known within the industry that slot games are an online casino’s bread and butter, so these new rules will certainly have an effect on potential earnings.
Slot games will be required to ensure that reels spin for at least five seconds, therefore limiting the number of spins that a player can make within a specific time frame. The new rules also state that the maximum bet for a reel spin is to be set at €1, making a large jackpot win almost impossible.
Sports fan will fare better under the new regulations. Live betting will be allowed, as well as betting on a game’s outcome. Whether there will be restrictions on how much a gambler can spend on each sports bet is yet to be seen.

In the Interim

Germany has allowed for an interim period for current operators to make the necessary changes to their operations. Online casino companies that want to continue offering their services to German players will have to apply for a German gambling license, and in order to be eligible for a license said companies will have to be based in Germany. These companies will be required to employ German speaking customer service agents, and they will be required to pay German tax on their revenue.
Similar regulatory models already exist within Europe. The UK and Sweden are prime examples of how lucrative a strictly regulated industry can be when managed correctly. However, there are many within the industry that feel that Germany’s stance on tax will end up being a heavy weight around the industry’s neck, so to speak. Rather than helping to boost the Germany economy, gambling revenue will continue to be lost to offshore gaming companies.

Losses Outweighing the Gains

LeoVegas recently reported a 55% drop in revenue from the German market in the first quarter of 2021. The opinion of Gustaf Hagman, president of LeoVegas, is that many casino operators are not playing by the rules. Up to 80% of German players have turned to offshore casinos rather than play at licensed German operators in an effort to avoid the new regulations.
Betsson have also reported losses from the German market, while at the same time reporting a high increase in revenue across all other regions. This is significant because it highlights the fact that 2020/21 has been a good year for the gambling industry, despite covid (or perhaps, because of covid).
Gamblers continued to gamble, and new gamblers entered the fold. It can, therefore, be strongly inferred that the loss of revenue from the German market is down to the new regulations. Germans are still gambling, but they are clearly taking their business elsewhere for the time being.

German Operators Remain Optimistic

German casino operator, Bet-at-Home, also suffered losses in Q1. However, Bet-at-Home are optimistic that the loss in revenue is simply a bump in the road. This company, along with many others, believe that a licensed and regulated market is the best way forward.
Looking at the bigger picture, Bet-at-Home are of the opinion that once the teething problems are out of the way, the German gambling market will be stronger, more competitive, and more profitable than ever before.
A company of the size of Bet-at-Home can afford to weather the storm and fork out the costs of implementing the new specifications, as can LeoVegas and Betsson. Smaller companies, however, may not survive. The cost of the required changes has been crippling, and the 5.3% tax on turnover makes it almost impossible for smaller gaming companies to recoup their losses. Many fear that this will lead to a few large companies taking over the German market and making it impossible for smaller start-ups to compete.
It is still too early to tell whether or not the new regulations will give Germany the well-regulated and lucrative market that they desire. Players may resent many of the changes put in place to protect them, but hopefully the positive aspects of increased safety and transparency will prove to make the strict regulations worthwhile.

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