Germany’s licence winners remain cautious as legal challenges loom

Some of the recipients of Germany's federal sports betting licences have sounded a note of caution about the market, citing the prospect of legal challenges that could yet derail the process.

The Ministry of Interior and Sport for the state of Hesse (HMDIS), the body responsible for the licensing process, yesterday announced that 20 companies had successfully met the conditions to secure a licence.

The 20 companies have been awarded provisional licences which will be confirmed after a 15-day waiting period, and will then be officially published on the HMDIS website.

A number of operators, including companies that had initially been invited to proceed to an advanced stage of the licensing process in March last year, before HMDIS revised its opinion to claim that all operators had failed to meet the licensing requirements, were unsuccessful in their applications.

These include Tipico and bet365, both of which had established strong positions in the German online gaming market, and had continued to operate there throughout the process.

Tipico, which is headquartered in the country and the official betting partner of four Bundesliga clubs, described HMDIS’ decision to deny them a licence as “highly questionable.”

“[However] we do not attach much importance to it,” Tipico chief executive Jan Bolz commented. “As of yet, this decision has no impact on our operational business, since we will now take the predetermined course of legal action, through which we are very confident of succeeding.”

Bolz added that the decision to limit the number of licences constituted a violation of European law.

“Tipico will lodge an appeal against the granting of the license in due time and form,” the operator said. “Licences will not be effective until the final or legally binding decision has been taken.”

This may ultimately delay the opening of the regulated market, set for September 18th, with a number of other unsuccessful applicants also likely to lodge appeals.

Gibraltar-based BetVictor is expected to be involved in legal challenges, having originally appealed the decision to reject its application at an early stage in the process, although it was unwilling to comment today.

A number of other companies have already brought legal challenges, including four operators seeking a court order to allow them into the second stage of the process, with nine applying to bring proceedings against HMDIS.

Legal sources have suggested that the opening of the market may be scrapped altogether if it is delayed beyond two years and six months from the coming into force in July 2012 of the State Treaty on Gambling. The State Treaty has a five-year term, after which it will have to be renegotiated by Germany's federal states.

HMDIS has also revealed that there is scope to expand the number of licences that can be awarded, if 13 of the 16 Minister-Presidents of Germany’s federal states vote in favour of an amendment to the State Treaty on Gambling.

This uncertainty has been reflected in the share prices of licence applicants, with few registering any singnificant movement following yesterday's announcement.

bwin.party appeared to be one of the major benefactors of the licensing process. The operator has not only secured licence approval, but has also been paying the 20 per cent turnover tax in the country since the start of the State Treaty in 2012. As such, it will not see an immediate hike in costs and will be able to resume marketing in Germany, which accounted for 26 per cent of its earnings in the first half of 2014. Furthermore, two key competitors in the form of bet365 and Tipico have been unsuccessful in securing approval.

Commenting on the impending legal challenges, Ivor Jones of Numis Securities commented that while clarity on the eventual state of the market was “some way off,” this uncertainty plays in bwin.party's favour.

“It has a licence and some of its principal competitors do not; something it is bound to want to exploit in discussions with regulators about enforcement, and with media companies about advertising,” Jones noted. “It would seem a little premature to start upgrading forecasts on the back of this news but it is certainly encouraging to see payback on a long-held strategy.”

Shares in bwin.party Digital Entertainment (Co.Data) (LSE:BPTY) reflected this uncertainty, climbing just 1.04 per cent in London Wednesday morning to 91.95 pence per share.

The company's chief executive Norbert Teufelberger said last week that he was pessimistic about the situation.

Speaking following the publication of the company's H1 results, he said that whether or not an operator received a licence, the resulting period would be "quite tumultuous."

"That means the people who will not get a license will not only sue the issuing body but will sue all the ones who got a license," he explained. "So we believe that this will actually stay in courts for quite a while.

"It’s very hard to predict, but maybe one to two years. So unfortunately whilst we would prefer a clear solution for Germany, most likely we will have a status quo in Germany for considerably more time," he added.

Other approved operators have also failed to record a boost in share price. Shares in Betfair plc (Co.Data) (LSE:BET) closed at 1,095.00 pence per share in London yesterday, but have since dropped 0.36 per cent to 1,091.00 pence per share as of 09:46 BST this morning. Ladbrokes plc (Co.Data) (LSE:LAD) saw its shares climb 0.89 per cent to 136.70 pence per share, while shares in mybet Holding SE (Co.Data) (FRANKFURT:XMY) are up 3.13 per cent at €1.42 per share in Frankfurt.

Both mybet and Ladbrokes have sounded a note of caution, mindful of the legal challenges.

A spokesman for the latter commented that the operator was pleased to have secured a licence, but noted that it would await the next steps in the regulatory process before revealing its plans for the market, which it described as an “interesting opportunity.”

“Over the long term it has the potential to complement our licensed and regulated operations in Australia, Spain and Belgium as we seek to build our international presence,” the spokesman explained.

mybet chief executive Sven Ivo Brinck said yesterday that while the operator was delighted to secure a licence, he feared that the process was far from complete.

“We must take into account that the candidates who have been refused a licence may proceed against the decision of the Hessian Ministry of the Interior, with the lifting of the injunction against legal challenges,” he said.

“Thus, it is uncertain whether the licenses are issued in two weeks or after the completion of the corresponding process,” Brinck continued. “It is also unclear whether and under what conditions the competitors whose application has been rejected may operate their sports betting offer in Germany during pending court proceedings.”