Tipp24 Facing Uncertain German Future

After a challenging 2008 calendar year, Tipp24 A.G., the online lottery broker, has warned that new restrictions on Internet sales channels in Germany, set to take effect from January 2009, could necessitate as many as 170 job cuts at its Hamburg office.

Germany's Interstate Gambling Treaty -- under which the online sales prohibition will be enforced -- was enacted on Jan. 1, 2008, and saw restrictions introduced on gambling-related advertising while mandating distributors like Tipp24 perform tighter identity checks on prospective customers.

The company, which brokers sale of tickets on behalf of Germany's state-licensed lottery operators, said on its first-quarter results in May that, as a result of the treaty, it discontinued advertising for Oddset, a sports betting product, and Keno. Those products, it said, accounted for around 5 percent of domestic billings -- or, the proceeds it derives from selling tickets.

On its interim results in August, the company said that tighter identity verification checks were weakening the rate of, and increasing expenses related to, customer acquisition.

"The requirements of the new State Treaty on Gaming introduced at the beginning of the year led both to increased expenses for legal advice and to considerable cost increases," Jens Schumann, board chairman, said on August's results statement.

"The more complex registration process also had a significant impact on the number of new customer registrations, which grew by just 60 thousand in the period under review," he said. "The number of new customers in Germany was only a third of those added in the same period last year."

Although the company had challenged the treaty in Germany's Federal Constitutional Court -- specifically, the treaty's ban on Internet-based lottery sales -- the court, in October, upheld the treaty's validity under the German Constitution.

Prior to the Constitutional Court setback, however, Tipp24 won the right to continue advertising and selling tickets online in the state of Berlin after January 2009.

"The [Berlin administrative] court’s verdict also identifies a sensible compromise solution, which should now be adopted by the other federal states and quickly implemented: products which can also be sold at a lottery agent’s shop without any special restrictions, such as an identification card, should also continue to be available via the Internet," Mr. Schumann said on the company's Berlin win in September.

Tipp24 said in a press statement yesterday that it will continue to "take legal steps" against the advertising ban but, in 2009, will scale back nearly all of its advertising except with partners in Berlin.

For the 2008 fiscal year, Tipp24 is projecting that billings, revenue and earnings before interest and tax to be commensurate with last year's numbers. In 2007, the company reported 346.8 million euros in billings, revenue of 45 million euros and earnings before interest and tax of 8.9 million euros.