Roundtable: German Interstate TreatyBy Lewis - 9 November 2020
A revised Gambling Interstate Treaty will come into force in Germany in July 2021, making online gambling legal and regulated across the country’s 16 states for the first time. G3 gathered the thoughts of suppliers about their expectations for the market.
Operators have awaited new regulation in Germany for some time. Do you anticipate a rush to market, and will it live up to expectations?
Tamas Kusztos, Head of Sales and Account Management at Kalamba Games: It will be a very strong market. The way to monetise the market will just be a little bit different there. There won’t be VIP players so the big shift, certainly for some operators, will be adjusting to a volume model.
Player values will be much lower, but because gaming, particularly slots, will become socially and legally acceptable, player numbers will increase so things will balance themselves out over time. What will become crucial is the entertainment factor as the gaming industry will be competing against other forms of media, such as Netflix, for consumer attention.
Robert Lee, Commercial Director at Realistic Games: Given that Germany has plenty of potential, a rush to the market is highly likely. Licences will be in high demand among those who have had success there in the past and are keen to continue to operate once the online market is fully regulated. That of course means they need to meet the new requirements by both the October and December deadlines. It will be interesting to see who emerges as the market frontrunners once the regulatory dust has settled.
Mark Halstead, Compliance Manager at iSoftBet: As Europe’s largest economy there has always been high expectations among the iGaming industry regarding a future regulated German market. Historically, the lack of clarity when it comes to gambling rules has been a challenge, but new legislation will now define the difference between what is viewed as legal and illegal.
Companies have had more time to deal with the changes compared to the recent Swedish regulation, so there is an expectation that some learnings can be applied. There will likely be a rush in terms of complying with the new rules, but this will not necessarily translate into strong market engagement from players who have been used to playing on largely dot.com websites.
Fintan Costello, Managing Director at BonusFinder.com: Germany is an attractive market for a lot of reasons. It has a big population and operators have already been successful in the country while operating from Schleswig Holstein and in the grey market so are very aware of the potential of a fully regulated market.
Unfortunately, I do not think the new market conditions will be enough to live up the expectations as there are still a lot of uncertainties and restrictions on the horizon. There are still no clear technical requirements communicated which makes it difficult for operators to prepare ahead of the market opening next year.
Vsevolod Lapin, Head of Product at Playson: There’s no doubt that we’ll see a rush to the market when Germany eventually opens its new licensing regime. Despite all the regulatory discussions around the tougher restrictions that are likely to be imposed, Germany will still be an incredibly attractive marketplace for operators and suppliers. The territory already enjoys strong customer engagement levels and revenues, and that’s likely to continue in the years ahead.
Alexia Smilovic, Chief Regulatory Officer Relax Gaming: Regulation of Germany’s online market has been long-awaited. The industry was hoping for a more functional regulation, but in the absence of economic needs and with a drastic player protection agenda, the current framework is not necessarily compatible with what the industry expected of this highly anticipated opportunity. That said, there will be a fair number of operators looking to continue their existing operations in Germany and grow their business.
Many have been actively targeting players in Germany for years and view the new regulation as an opportunity to establish themselves further. Despite the current state of the framework today, the industry has finally been given a legitimate seat at the table with the German authorities and it can only be welcomed. Hopefully, over time and through collaboration with the stakeholders committed to the regulation, better conditions can be achieved.
What makes the German market so attractive for online casino suppliers?
Tamas: Germany’s large population and relatively high average earnings in the country make the potential value of players high compared to other markets. It is also pretty well-established what German players like, which makes it fairly straightforward for an online casino supplier to cater for the local clientele. Thirdly, mobile usage is also a lot higher than your average market because of the good infrastructure, so it’s naturally compatible with where the gaming industry is right now.
Robert: Whilst online regulation is new in Germany, the market is in fact mature and has been for several years. This makes it very attractive to online suppliers, and I’m sure there are plenty waiting in the wings to enter with licensed operators. There are obviously preparations to be made and developers will have to tinker with their portfolio’s plumbing to meet the regulatory requirements, but I doubt that will be a deterrent to many.
Mark: The slot and table games category has grown tremendously in the last 10 years in Germany and with data highlighting that slots make up most of the gaming revenue there, there is a great deal of optimism for the market. Tied in with the nation having a high GDP and historically an enjoyment of gambling, it has all the ingredients to be one of the most exciting markets in Europe, with recent reports stating the online casino market alone could be worth €5bn by 2024.
Fintan: With a large land-based casino footprint, it’s obvious that there is a strong gaming culture in Germany which, tied with a population of over 80 million, makes it a core market for any online operator. Many European countries have now introduced a licensing system and Germany is the main market still left to regulate so many people are keeping a close eye on the developments there.
Vsevolod: Germany has a strong audience already and there’s certainly an appetite from a wide range of players for experiencing entertaining slot games online. Most of the operators which are present there will strive to get the strongest position of market share in the coming months. Casino suppliers will also be eager to showcase their best-performing and most innovative slot creations to capture the interest of existing players.
Alexia: From a supplier’s perspective, the German market is a real challenge. The restrictions applied to online casino really water down the entertainment and excitement factors that suppliers have strived to improve for years. Yet, as long as Germany remains a key market for operators, suppliers will naturally follow.
There are several opportunities to support local casino growth despite the drastic change of conditions, and it will be an interesting challenge to maintain and even create player engagement in compliance with the restrictions. The acute tailoring of the casino offering to local players is a trend that can only develop further, so being able to successfully cater to Germany is a good warm-up for the increased competition on the horizon, especially in Europe.
The new legislation includes restrictive measures such as stake limits and a jackpot ban. How will this affect the attractiveness of the region?
Tamas: Gambling will become more of a social thing because the maximum limit is so low. It’s not exactly going to be the thrill of winning big – it will be the social aspect and making sure that retention factors, gamification, side missions and meta layers are really top-notch. Similarly, game production values will have to be high and match those of other entertainment media.
Robert: No one will know the effects of the new legislation until it is imposed. Moving from unlimited stakes to capped stakes and the removal of all games other than slots will naturally have an impact on revenues, but there are plenty of other opportunities to be taken advantage of by suppliers and operators. The market size is predicted to still be among the biggest in Europe despite the restrictions, with an existing player base that has room to grow. The trick will be creating games that comply with the legislation whilst maintaining a high-level of entertainment.
Mark: Every regulated market has its own distinct framework that needs to be set to protect players and ensure they play on regulated brands. We are committed to responsible gaming and comply with the most stringent global regulatory bodies. We are licensed in the UK, Malta and Romania and approved to distribute content in 18 regulated markets including Italy, Spain, Portugal, Hungary, and Romania, to name just a few, with Germany set to be our nineteenth.
In our view, the region will not be less attractive than any other regulated market for companies that have a strong compliance focus, as Germany clearly is set to be. Some measures, such as stake limits and increased spin times, are being adopted in various forms across Europe, designed for the long-term benefit of players and most gaming studios will support these.
However, there is the possibility these types of restrictions can deter some and, as we have seen in markets such as Sweden, push larger volumes of players towards unregulated brands. When measures are introduced to protect players, we strongly believe they should not impact the fundamentals of the gaming experience, and instead bring added value to the category. Bringing balanced legislation into force is something that challenges every jurisdiction, so it will be interesting to see how Germany manages market expectations and player protection.
Fintan: It is very simple. It will encourage German players to go to offshore operators for their gameplay as they will be able to get a much better experience with just a couple of clicks. We have seen this happening in other markets that have introduced similar restrictions, such as Sweden. Our own research there clearly showed that players are now searching online for operators that offer bonuses and jackpots that licensees are no longer allowed to offer.
Vsevolod: Stake limits are becoming more apparent within regulated markets across Europe, including the UK and Italy, and so most operators and software providers looking to enter Germany will be aware of how to overcome such restrictions. In fact, the latest data shows that markets that already hold such limitations are still growing in size.
It will of course place a greater emphasis on the effectiveness of marketing campaigns within the first few months of the market reopening. Operators with sharper campaigns will win a greater share of the German market and make a return on their investment much faster.
Alexia: Although creating effective player protection measures is said to be the main concern of regulators, the framework seems to heavily edulcorate online casino activity. Games as we know them today will not be allowed in Germany once the transition regime kicks in, with some forbidden and others drastically modified. As the largest economy in Europe, however, Germany is worth fighting for.
European markets are no longer about new conquest, but about consolidation. Germany will have a pivotal role in strengthening the predominance of pan-European operators while consolidating the legitimacy and ambitions of local operators. The attractiveness over time is also dependent on whether enforcement of sanctions against unauthorised operators is effective.
There’s a fringe of the industry not located in Europe and less exposed to sanctions that will continue to target German players outside the regulation, leading to possible unfair competitive conditions. It remains to be seen if authorities are willing to assess the success and failures after a period of time and adapt the regulation to the player’s needs afterwards, but in doing so they’d likely have to consider re-introducing a level of flexibility and deviate from their initial strict objectives.
Is there a typical German player? What types of games are preferred in the country? Where do you see the key opportunities for the industry?
Tamas: Germany has a very strong land-based history so classic games with popular themes like ancient Egypt and book games work very well with local players. Taking inspiration from what works in the land-based sector is therefore often a safe card to play.
We have to work very closely with our partners and work out the best way to make the player experience as good as possible and this will lead us to success in a new environment. Those that focus on promotional tools and social gaming elements, such as those that are coming in our own Kalamba Bullseye platform, will likely do well.
Robert: From our perspective, there are many similarities between players in Germany and those in the UK. Our revenues certainly reflect that. The three-reel slots in our portfolio perform very well in both countries but there is also an appetite for five-reel games. In that sense, players lean towards the more traditional style of slots that have transitioned from the casino floors.
At the same time, however, as the online sector evolves under the regulatory regime, the popularity of newer and more innovative concepts will no doubt increase. Having a balanced portfolio that caters to a variety of preferences will therefore be crucial.
Fintan: The German online market is still underdeveloped compared to Scandinavia or the UK for example. German players just want a good solid game play experience, as you can see from the popularity of the “Book of Ra” type slot games. Over time this will develop and expectations of German players will normalise with other countries.
Vsevolod: The land-based casino experience has a big influence on the types of games they enjoy in the online space at present. German players appreciate slots that have the potential of big rewards and feature classic mechanics and themes. However, as the market grows and matures, we expect to see more variety in the games on offer.
The market is influenced by global trends just as much as any other, and we expect more players to embrace innovative concepts. Above all, it’s important that operators offer high quality and mobile-first games in order to attract new players and drive retention rates.
Alexia: The new regulation might help refine the understanding of player preferences in Germany beyond the usual European trends. Table games like roulette, blackjack, baccarat and the like have been market favourites traditionally, but these will no longer be accessible to players online after October 15 until one of the eligible operators secures the required licence.
The cliché is to expect that Germans will be very compliant with the restrictions and not seek what’s no longer permitted in the market, but it will have to be observed and quantified over time. Beyond the structural changes to the player experience, there are opportunities to understand further what local players like and want. Operators complying with the regulation will be able to market to players directly (after they consented), giving them an avenue the that won’t be available to unregulated competition.
How will these measures change the way suppliers develop content once the market opens?
Tamas: The main thing that will change is that retention will have even more focus. It has, of course, been a hot topic in the slots market for quite some time, but providers will now try even harder to retain more players for longer. We have seen a trend of online gaming in general, especially in the regulated markets, moving in that direction anyway.
We would naturally like more customers to return over and over again. We want players to come back every week and spend within their budget and have a great time in the casino or on a particular game. That’s how the online business will thrive and grow in the long term.
Robert: Once the market has settled down and we are able to assess the impact of the changes, the restrictions may prove to have influence on suppliers’ attitudes towards the type of games they design. We could see a return to the low top prize/high hit rate scenario that was initially prevalent in other markets, particularly where there is a stake cap. Those erring on the side of caution will likely stick to the lower 250x, 500x and 1000x models instead of taking a risk on the 100,000x multipliers that are common in the region. Time will tell.
Mark: Game studios must take all compliance requirements seriously and establish internal processes to ensure these are prioritised. At iSoftBet, compliance is at the core of our development process to enable our partners to reach regulated markets in a swift and agile manner.
We continue to develop a portfolio to fulfil German market requirements and can adapt our features and functionalities in a configurable way to support any regulatory changes. Naturally, at any time there is a period where suppliers look to perfect their content so they can hit the ground running when the markets open, but if any changes are made, it will be to make compliance an even more vital part of the game development process.
Vsevolod: For slot developers who easily embrace regulation and flexibility, such as Playson, nothing changes. Established providers are already accustomed to developing content for multiple markets and will be in a position to tweak their processes accordingly to ensure the games are appealing for German players. The focus will always be on creating great games that are sure to resonate with players.
Alexia: In our case, agility and speed of response to market changes have always been a priority. Most of the new regulations are managed through API configuration solutions, meaning that no drastic product changes are required while the restrictions are effective for German players. This means we’re able to adapt quickly and remain ahead of changes – to the benefit of our customers and partners.
This is the starting point to address the short notice obligations, but a bigger change in the design and production of games may be required for long term success and we’ve been focused on local-market content provision for some time anyway. Since we’re only at the beginning of this learning curve, there are still several avenues to explore.
The product itself has to stand out even more given the constraints, but it is a natural consideration that taking a more holistic approach towards distributing the same game with variants or options in different markets is a must.
In any case, the objective of the new regime seems to be ensuring that all the stakeholders abide by a certain vision of online gambling and the rule-breakers are sifted-out immediately. The industry hope is still to achieve a more flexible regulation through collaboration in the medium-to-long term with the important common goal of player protection remaining at the forefront.