Recent analyses by a renowned data company have raised eyebrows: apparently far fewer Germans play online than would actually be expected in a European comparison. An outlier? Or is there more to it than that?

Market analyses are important in gaming - as in any other industry - in order to understand customer behavior, exploit opportunities and ultimately manage investments in a targeted manner. There is also an increased relevance - particularly in this sensitive sector - for monitoring regulatory influences and identifying problematic developments at an early stage. In the latter context, a long-standing fear in Germany now appears to be confirmed by concrete figures.

For years, the industry has been warning that the official user figures for legal online casinos and sports betting portals may not show the whole picture. It is often said that the seemingly well-regulated surface conceals a widespread black market. We recently reported on insider estimates of illegal online gambling in Europe, which also made it clear that official user figures for unregulated offers and channeling rates should be viewed with caution. In addition, the latest crime statistics showed that illegal gambling has reached a new record level.

The fact that more and more players in Germany are switching to unlicensed providers is hardly surprising to many experts. The reason: The legal offer is simply too unattractive. This view was recently expressed prominently by Georg Stecker, the spokesman for the board of the German gaming machine industry. He said after the publication of the police statistics:

"The figures speak a clear language: if there is not a sufficient and up-to-date legal offer, people will switch to the illegal market. Politicians must not ignore this reality (...)".

The decline in tax revenue from online slots by a whopping 38 percent is also interpreted by critics in this direction. At a time when digital gambling is growing worldwide, it hardly seems plausible that Germans are suddenly losing interest. Much more likely, according to the quintessence: players are switching to foreign sites - with more attractive games, better payout ratios and fewer restrictions. Criticism of a consequent "standstill" in the German gaming market is becoming ever louder.

The latest figures from H2 Gambling Capital have now added fuel to the fire of this seemingly never-ending debate. The company, which claims to be the world leader in gambling statistics, has calculated that the German online market is, believe it or not, 76 percent below expectations! Can this really be an outlier? Or is it a clear indication that the black market has long since gained the upper hand?

Germany is said to be 76 percent behind comparable markets in online gambling and has the lowest channelization rate

H2 compared the German gambling market with other European countries and drew an almost paradoxical picture. While Germany can certainly keep up in terms of on-site gambling - i.e. in gaming halls and betting shops - it is collapsing in the digital sector. According to the analysts, the average gross revenue from terrestrial gaming in Germany is 93 euros per capita - a figure that is almost identical to the Netherlands (95 euros) or other comparable markets.

  • From this, it could actually be deduced that interest in online gaming should be similarly strong. But this is where the anomaly begins: German players spend significantly less online - just 23 euros per capita on legal offers such as sports betting and virtual slot machines. By comparison, this figure is also 95 euros in the Netherlands. According to H2, Germany therefore ranks over 76 percent below the average for comparable markets.
  • The question of the degree of channelling, i.e. the proportion of players who are actually active with regulated providers, is even more explosive. The Joint Gambling Authority of the German federal states (GGL) estimates gross gaming revenue in the legal market (excluding lotteries) of 1.6 billion euros for 2023. The black market is estimated at around 300 million euros. This results in a channeling rate of 84 percent (without going into further detail here). The channelling rate in the Netherlands is also around this level.

However, the data professionals at H2 come to a completely different conclusion: although they estimate the legal gross profit to be slightly higher, at 1.7 billion euros, they put the black market at a whopping 1.1 billion euros. This would mean that only around 61 percent of gambling expenditure ends up in the regulated sector - and according to Josh Hudgson, Chief Operation Officer at H2, Germany therefore has "the lowest channelling rate of all commercially regulated European markets".

Black market share in Germany at 80 percent by 2029?

H2 Gambling Capital also takes a look at the future market structure of the two most important segments of German online gambling: sports betting and virtual slot machines. Unfortunately, the outlook is anything but encouraging.

  • First the good news: according to current data, sports betting, with a legal market volume of 393 million euros, is still above the estimated black market value of 249 million. However, it is assumed that the regulated market will stagnate under the current framework conditions - but that the illegal sector will continue to grow. According to H2, the black market share in the online betting sector could rise from the current 38 percent to around 46 percent by 2029.
  • According to H2's data, what is emerging in sports betting has long since taken on a life of its own in virtual slot machines. Here, the black market is already far ahead of the legal offer: 891 million euros compared to 545 million euros - this corresponds to a market share of 62 percent for providers without a German license. And, if H2 is to be believed, the trend is heading rather steeply upwards. If the regulatory framework does not change fundamentally, the share of the black market could rise to almost 80% by 2029, according to the analysts.
The problem is complex - and, as H2 suggests, homemade. A central point of criticism is that players are simply too severely restricted by licensed providers. Among other things, the fixed stake amounts and reduced spin prices are the decisive factor. What was intended as player protection causes frustration in practice and leads to many users preferring to look for unregulated platforms with freer conditions.

There is also the fiscal aspect: the comparatively high tax rate for legal providers leaves them little room to create competitive offers. In plain language: the regulated market is not only allowed to do less, it also earns less - and at a higher cost.

Conclusion

The figures, analyses and warnings are mounting up - but noticeable changes are still a long way off. Although the GGL's annual review for 2024 identifies some challenges, it remains surprisingly optimistic overall. The authority is cautious in its response to the increasing criticism from experts, market analysts and politicians. Significant adjustments? So far none. Instead, the authority's call for stricter criminal law for online gambling, the implementation of which would also focus more on users of illegal offers, has recently attracted attention.

Regulation that is too strict not only misses the mark, it can also have the opposite effect. Anyone who restricts the legal market too much should not be surprised if more and more users switch to illegal platforms. Historically, this phenomenon is not new. The prohibition of alcohol in the USA at the beginning of the 20th century is a prime example. These and similar measures often did not lead to the desired containment, but rather to a flourishing black market - with all the resulting problems. A similar dynamic does indeed appear to be emerging in German gambling.

Of course, it is right that this sector must be strictly controlled. Player protection, youth protection and clear rules are essential. However, regulation should not mean that a legal market is developed in a way that ignores the needs of users. Rather, it must be designed in such a way that people actually want to play there - and not just be allowed to.

All-round effective changes take time, no question about it. But they also need courage and vision. The latest forecasts from H2 Gambling Capital suggest that those responsible will not be able to ignore this factor for much longer. If the framework conditions do not change noticeably soon, it is likely to become more difficult with each passing year to convince lost players to return to regulated offers.

Source of the image: https://pixabay.com/photos/business-businessman-chair-computer-1839191/

Central text source: https://gamesundbusiness.de/onlinemarkt-anomalie-made-in-germany

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