In the latest edition of CasinoBeats 100 Club, we decided to ask our members of the potential impact of the newly regulated German market after the end of its transitional period tolerance policy on July 1.
As Germany ended its transitional period tolerance policy on July 1, we want to know what opportunities does the newly regulated German market offer and could it become one of the biggest markets in Europe?
One of our members, Tamas Kusztos, CCO at Playson, highlighted that the strong heritage of sports betting and casinos within Germany will ensure that the country has “all the ingredients” to become a key European market for the industry.
He explained: “The barriers for its potential growth are of course the tax structure and tight restrictions that have been put in place, but the reality is that most European nations are heading in a similar direction as they introduce more robust frameworks, so the industry needs to prepare itself for such eventualities moving forward.
“Quality of content is of the utmost importance right now as the market opens up with its new regulatory framework.”Tamas Kusztos, CCO at Playson
“The minimum spin duration of five seconds caused some concern as to whether it would dampen the online slot experience, however it has actually prompted developers to think creatively about how they can make every spin as enjoyable as possible.
“For instance, we introduced a ‘Double Hit’ mechanic for Playson games in Germany, which allows players to spin across two game fields at the same time. This has helped improve the gameplay, with more action happening during the five seconds of every spin.
“Quality of content is of the utmost importance right now as the market opens up with its new regulatory framework. Players heading to the online environment will want to see familiar content that they experience on the casino floors, which is why land-based inspired titles are a key part of a site’s homepage offering at present.
“Germany is still a hugely attractive market for operators and suppliers, but understanding the best products that are suitable for this region is paramount for future success.”
Providing a different perspective, Magdalena Podhorska, CCO at Authentic Gaming, gave a view from the live casino angle, noting that operator may be lefted “disgruntled as the verticals was stripped away from the products available” to online operators as part of the new regulation of the market.
She explained: “Under the new framework in Germany, only state lotteries and land-based casinos can offer table games and live dealer games to online players. This means that depending on the state, either land based casinos or lotteries will have exclusivity on this vertical.
“For these companies, obviously the opportunity is tremendous and they have a very privileged position to excite existing lottery players with new verticals, and/or as a land based casino, to have an advantage on other online operators and try to migrate their players to online or attract new players with a more wide scale offering.
“the concern is that we will see a repetition in Germany of what has happened in other tightly regulated markets – a surge in illegal activity.”Arcangelo Lonoce, head of business development Europe at Habanero
“Table games are very popular in Germany, and such a great cross sell product from sportsbook, so the lack of these products on general online operators will force operators to step up their game in terms of engaging their players.
“This should drive operators to think outside the box and get more creative when it comes to managing their customer acquisition and retention strategies.”
Yet, another one of our members, Arcangelo Lonoce, head of business development Europe at Habanero, aired on the side of caution when it comes to Germany emphasising that whilst the territory holds “significant promise”, the approach adopted by its regulator could end up “stifling our industry”.
“Of course, it’s the on-trend territory’s taxation model that comes to mind,” Lonoce noted. “It requires operators to pay 5.3 per cent of their turnover in taxes, a significantly higher margin than most casinos are accustomed to.
“Hopes are still high that some of the rules will be alleviated in the future…”Markus Antl, head of sales and key account management at Greentube
“The margin for slots generally stands at about between four and six per cent. That’s why putting a tax on all bets – not just wins – of 5.3 per cent, is effectively asking operators to dramatically reduce RTPs to make the game viable. That tangibly affects gameplay and gives players a much lower chance of winning, which will inevitably drive them towards unlicensed actors, where the players’ favourite games will be available at the usual RTP.
“If you add to this the restriction on table games, the concern is that we will see a repetition in Germany of what has happened in other tightly regulated markets – a surge in illegal activity.”
Markus Antl, head of sales and key account management at Greentube, pinpointed that operators must find a way to provide games, mechanics and mathematics that meet the country’s stringent regulations while still being attractive for players due to the challenges presented by Germany.
Moreover, Antl stressed that suppliers must tweak its existing content or develop “new solutions” with the German rules in mind.
He commented: “The operators and suppliers that manage to find a mechanic that grabs players’ attention will be able to gain a major market share and make use of its potential.
“We have begun developing our own content tailored to the German market; one such example is our latest release Twin Spinner: Sizzling Hot, which addresses the five-second spin duration requirement.
“Hopes are still high that some of the rules will be alleviated in the future, as regulation that is too restrictive can drive players to the black market where they can access content with more attractive conditions.
“Germany is a market that cannot be ignored, and we are excited about what the future holds.”Catalin Negoita, commercial manager at Kalamba Games
“Greentube is both an operator and a supplier in Germany and a month since the market opened up, many of our B2B partners are also finding the regulations a challenge, especially in terms of marketing.
“Despite the difficulties, the nationwide online regulation in Germany has been long-awaited and the market still offers great potential for operators and suppliers who can be agile and innovative enough to successfully adapt to the specific market conditions.”
Offering an alternative view for operators and suppliers, Catalin Negoita, commercial manager at Kalamba Games, explained that the transitional tolerance period offered a “good testing ground” and ensured studios could prepare its content for delivery before the market fully opened.
“Flexible providers have had to swiftly adapt their systems to fit the new requirements and it has been a priority and focus for many as the German market offers great potential,” said Negoita.
“Having the largest population on the continent, Germany is certainly a valuable market and one that can easily establish itself as one of the biggest in Europe, despite the current restrictions.
“We have modified our content to comply with all the rules and regulations and we will analyse the initial performance of our games and tailor it further to ensure it is optimised for the market. Regulation plays a big part in our industry and being dynamic and flexible in our response to it is crucial.
“In our opinion, Germany is a market that cannot be ignored, and we are excited about what the future holds. “
Whilst Negoita expressed his excitement for the potential of the German market, Lahcene Merzoug, CEO of Betpoint Group, expressed a more downbeat response claiming it will “most likely be quite tough to succeed” with an online casino product in the coming years.
Explaining his response, Merzoug commented: “The German regulator seems to be following some of its other European counterparts by adopting an incredibly strict regulatory framework.
“One of the new player restrictions for example, will be a €1,000 deposit cap. On top of that, the online casino focused operators will likely need to lower their RTP a lot, to compensate for the increased tax burden.
“It will likely require future reform to bring those currently sitting on the sidelines into the market.”Phil Parry, CEO of Iforium
“Therefore one of the biggest questions operators will need to ask themselves is – will they have to lower the RTP to such an extent that it will negatively affect the overall player experience?
“I believe it’s only a question of time before we see the same thing happen in Germany that has happened in other jurisdictions such as Sweden, where players start to move away from the locally regulated market (decreased channelisation).
“When the serious, locally licensed operators are unable to compete competitively with black-market operators, there won’t be many winners in my opinion. Not only will the country lose out on tax income, but locally licensed operators will lose market share because many players will undoubtedly be encouraged by more attractive offers.
“This also then has a knock-on effect for those more vulnerable players that are more susceptible to addiction issues and where responsible gaming is not a priority when marketing to the player, therefore potentially increasing the risk of addiction more so than before the regulation came into force.
“The big question will be whether or not the German, and other European regulators, will be wise enough to see this coming and, together with the industry’s input, put in place a regulation that strikes a better balance for all.”
Another member, Phil Parry, CEO of Iforium, accepted the potential of the German market, yet insisted it will need “future reform” to bring those confused into the market.
Parry stated: “Germany has long had the potential to be one of the biggest regulated markets in Europe but the new legislation presents a confused landscape for players, operators and suppliers.
“It will likely require future reform to bring those currently sitting on the sidelines into the market. If that happens then Germany can indeed become a sustainable and sizable regulated market but it looks like that may take some time.”
Finally, Helen Walton, CCO at Glück Games, explained that though restrictions will make game development more difficult in Germany, there are “always ways of still designing effective and fun products that will work within the constraints created by regulators”.
Yet, she stressed: “It’s hard to wonder whether this isn’t essentially intended to create a walled garden in which state casinos will flourish, and not private companies.
“If more sophisticated VIP players move to the black markets, margin squeeze on big companies will inhibit competition. Innovation and smaller companies will of course struggle with the raised barriers to entry. I think you can say with some certainty that this won’t result in better outcomes for players.
“In the short term, however, those who can create highly localised games at speed for the market will do well, as will the services providers helping implement the regulations.”