A German state monopoly on most forms of gambling is "unjustifiable" and must be ended at once because it is neither consistent nor systematically applied, the European Union`s top court said in a shock judgement Wednesday.
Under German rules, only the country's 16 federal states (Laender) or companies run by them can offer most gambling services, especially lotteries. Their monopoly has in the past brought billions of euros into state coffers and social, cultural and sporting projects.
A number of private betting firms challenged the German rule, arguing that it was inconsistent because the Laender kept a monopoly on most forms of gambling - but did not hold a monopoly on other forms, such as slot machines and casinos.
The Luxembourg-based European Court of Justice (ECJ) had been expected to throw out the challenge, as it has already ruled that gambling monopolies in a number of other EU states are legal because they are aimed at limiting the social impact of gambling.
But in a surprise move, the ECJ ruled that "the German rules do not limit games of chance in a consistent and systematic manner," and that therefore "the monopoly ceases to be justifiable."
The ruling confirms a similar judgement made by Germany's constitutional court in 2006.
Germany will have to end the monopoly immediately, since "national rules concerning that monopoly, held to be contrary to the fundamental freedoms of the Union, cannot continue to apply during the time necessary to bring it into conformity with Union law."
In the short term, the ruling is a victory for a number of internet-based betting companies registered in states such as Britain, Gibraltar and Malta which had challenged operating bans in German Laender imposed because of the monopoly rule.
German courts will still have to rule whether they can now carry out operations in Germany, but the authorities will not be able to cite the monopoly as a reason for blocking them.
"This is a landmark ruling which will have a decisive impact on the much-needed reform in Germany ... It signals the end of the German online gaming ban and will bring legal security to EU online gaming operators and German consumers alike," said Sigrid Ligne, head of the European Gaming and Betting Association, in a statement.
However, the longer-term implications remain unclear. The Laender make billions of euros a year from their monopolies, and an estimated 3 billion euros (3.9 billion dollars) annually are transferred to sporting, charity and cultural events.
If the monopoly is scrapped and not replaced in a modified form, state officials say that that funding could be greatly reduced.
However, the court's ruling stressed that a more consistent and systematic monopoly could be legal, if it were proven to be designed to limit the social impact of betting.
"With a view to channelling the desire to gamble and the operation of games into a controlled circuit, member states are free to establish public monopolies," a court statement pointed out.
Moreover, "the fact that some games of chance are subject to a public monopoly whilst others are subject to a system of authorisations ... cannot, in itself, call into question the consistency of the German system, as those games have different characteristics," the statement said.
Germany fell foul of the court's judges because public monopoly holders carry out "intensive advertising campaigns with a view to maximising profits from lotteries" and private casino operators are allowed to "encourage participation in those games.
"In such circumstances, the preventive objective of that monopoly can no longer be pursued," the court ruled.
It therefore falls to the Laender to decide whether they want to redraw their monopoly rules in a way which would fit the court's description.
"We will leave it up to the state and federal governments to take the measures necessary for the continued existence of the German model," said the head of Bavaria's lottery, Erwin Horak.
The ECJ ruling leaves it to member states to decide whether to license commercial betting or keep it in their own hands, he said.