Why did the German Interstate Treaty on Gambling take so long?

August 19, 2021

In March of this year, the 16 German Lande (states) finally ratified the Interstate Treaty on Gambling (Glücksspielstaatsvertrag), which came into force on 1 July. This is a fine example of a piece of legislation designed by committee; in trying to find a consensus among all of the stakeholders, the final treaty pleases no one.

Its history has been a bit like “Whac-A-Mole”.  The process has been going on for more than a decade and just when you thought all of the states had agreed, outright opposition to some part or foot dragging by some states scuppered the deal and it was back to square one. Only the threat from the state of Schleswig-Holstein to go it alone kept them all at the table.

The result was that Germany and the Netherlands (which coincidentally has a government-owned gambling monopoly) were two of the last countries in Europe to regulate online gambling. Germans have not been able to gamble with operators licensed in Germany and the states saw none of benefits of the tax revenues.

Within Germany are both privately owned and state government-controlled gambling companies. The interests of these two could and should be the same, but whereas the private operators saw the regulation of online gambling as an opportunity, the state-controlled gambling companies saw it as a threat, something to regulate out of existence.

It appears that the latter had their way. High taxes on sports betting and poker and a limitation on the number of licences for online live games, as well as territorial restrictions, turns what could have been an exciting prospect into a lacklustre opportunity.

To understand the role of the German state in gambling, we need to go back a quite a few centuries. In the Middle Ages, Germany was part of the Holy Roman Empire, a loose federation of more than 300 states and city-states. Bremen is an example of the latter. Some positively encouraged gambling. Fourteenth-century Frankfurt, for example, allowed public gaming houses to raise revenue for the city.

In the latter part of the 17th century and the early 18th century, the European aristocracy were enjoying a rise in power and wealth. The beheading of Charles I had led to no further spread of attacks on the monarchy and their hangers-on and it was before the French Revolution struck terror into their hearts. Thus, the European aristocracy were quite happy flaunting their wealth.

German spa towns were quick to latch on to the idea that wealthy aristos from around Europe could be persuaded to visit to “take the waters” and to gamble whilst there, the towns benefitting from the taxes levied on gambling. By the end of the 18th century, more than 20 were operating in German spa towns.

Emperor Napoleon I of France finally destroyed the Holy Roman Empire in 1806, but not before the German territories were reorganised. Some in the west were ceded to France and the rest were consolidated into nearly 100, all with Napoleon’s blessing. The idea was to reduce the power of his enemies, the Hapsburgs, by allowing those states controlled by princes opposed to the Hapsburgs to absorb states controlled by those that did not. After the Holy Roman Empire disappeared, the number of states was reduced further to 39.

In 1838, King Louis Philippe of France demanded that all French casinos close and nothing could have been better for the German casinos. The mobile gentry travelled to Germany to their fashionable spas, including Baden Baden, which had opened a decade earlier.

The March Revolution (1848) brought an end to the era of German casino prosperity. A groundswell of public protests that started in Vienna led to King Frederick William IV agreeing to the protesters’ demands for a constitution and parliamentary elections. During the uprising, the Frankfurt Assembly approved a law requiring casinos to close.

After the end of the revolution, casinos were allowed to reopen. However, with the creation of the German Empire in 1871 and the increasing authoritarian politics in the German states, casinos were banned for the usual reasons: Gambling encouraged immorality, had a negative impact on family life, and, strangely, promoted superstition.

It was not until the Third Reich (1933 to 1943) that casinos were legalised. It was not lost on the National Socialist Party that there was a significant illegal gambling market in operation throughout Germany and that legalising gambling would bring the benefit of tax generation. An added benefit was that Germans would not go abroad to gamble and foreigners would spend their hard currency in German casinos.

The law of 1933 restricted casinos to tourist areas that could demonstrate they had more than 70,000 visitors per year, of whom at least 15% were foreigners. Also, the area had to be close to a casino on the other side of the border. In 1938, a law was passed that unified the taxes that casinos had to pay.

After the war during the Allied occupation, the 1933 law was interpreted quite liberally, allowing for more casinos to open. German states, rather than the central government, started to approve and license casinos; Rheinland-Pfalz was the first to do so in 1948.

The Federal Republic of Germany was born in 1949 and the new constitution delegated powers to regulate gambling to the states. In 1973, the federal Parliament passed a law to allow casinos in places other than tourist areas and 10 years later, the right to tax gambling became the competence of the states too. Almost everything to do with gambling was now within the power of the states.

And then came the invention of the internet ...

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