German 'Las Vegas' Lures Online Gambling

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September 20, 2011, 5:26 AM EDT By David Altaner

Sept. 20 (Bloomberg) -- The German state of Schleswig- Holstein, likened by opposition groups to the “Las Vegas of the North” after passing online gambling rules last week, may lure companies seeking to tap betters throughout the country.

Last week’s 46-to-45 vote is a break from Germany’s other 15 states, which had sought a nationwide framework for betting after the European Union’s top court ruled last year that the country’s betting monopoly didn’t comply with European laws.

The more restrictive rules proposed by the other states have been dismissed as unworkable by Internet gambling companies Betfair Group Plc and Bwin.party digital entertainment Plc. At stake is as much as a quarter of Bwin sales, and more than 40 percent of its profit, according to Goodbody Stockbrokers. Both companies have said they would consider using Schleswig-Holstein as a base for their German operations, a tactic one German company is already pursing.

“We want to make the same business as we do now, just we do it in Germany, instead of in Malta,” Stefan Zenker, a spokesman for Jaxx SE, an Internet betting company based in Schleswig-Holstein. The company plans to offer Web-based sports betting, poker and casino games to all Germany from the country’s northernmost state starting March 1, Zenker said.

Schleswig-Holstein’s rules allow for an unlimited number of web-gambling licenses, plus a less onerous tax regime than that proposed by the other states. The rules proposed by the 15 states would limit licenses to seven and place a 16.7 percent tax on betting stakes, while the Schleswig-Holstein rules are for a 20 percent tax on gross profit.

‘Las Vegas’

On the day of the vote, Robert Habeck and Detlef Matthiessen, members of the opposition Green Party, stood in front of a Vegas neon-style sign that said, “Welcome to the betting-paradise, Schleswig-Holstein” to warn that the state was in danger of becoming the “Las Vegas of the North,”

Ari Last, a spokesman for London-based Betfair, said it was “certainly a possibility” companies would offer bets to Germans from Schleswig-Holstein. In April, Bwin.party Co-Chief Executive Officer Norbert Teufelberger told analysts such a move was “one of the possibilities we are looking at.”

Betfair may generate about 5 percent of its sales in Germany, with gambling software maker Playtech Ltd., 10 percent, and Sportingbet Plc, 4 percent, according to Collins Stewart.

Schleswig-Holstein’s legislation is ambiguous enough to allow Jaxx, Betfair or Bwin.party to begin pitching customers all over Germany using that state’s license, according to an attorney specializing in European gambling legislation.

“It’s not permission, it’s not prohibition,” said Joerg Hofmann, who works for Melchers law firm in Heidelberg. ‘If I were an operator, I would say, the legislation offers the opportunity, I would say, just do it.”

German Law

Currently, publicly traded companies offer online gambling in Germany through a grey area -- it’s “technically illegal, but unenforceable,” according to a report by a Collins Stewart analyst, Simon Davies.

The other 15 states’ proposals, if unchanged, would force Betfair and Bwin.party to pull out, because they couldn’t make a profit, said Michael Haile, an analyst at Isle of Man-based Global Betting and Gaming Consultants. They couldn’t keep offering bets to Germans from outside Germany, because investors wouldn’t tolerate a clear breach of German law, he said.

Internet gambling companies will probably be able to take advantage of the “‘chaos” as any German court objection to the Schleswig-Holstein move could take years to resolve, according to Hofmann.

A fully unrestricted German licensing regime could vault Germany to first place in European online gambling gross win, from fourth, at 773 million euros ($1.05 billion) last year, said Joel Keeble, head of mobile, poker and special projects at H2 Gambling Capital, a Manchester, England-based consultant.

--With assistance from Patrick Donahue in Berlin. Editors: Peter Branton, Tim Farrand

To contact the reporter on this story: David Altaner in London at daltaner@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net

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