Commission finds German public capital injection in favour of WestSpiel to be incompatible State aid

This article is brought to you in association with the European Commission.

The European Commission has concluded that a German public capital injection in favour of the casino operator Westdeutsche Spielbanken GmbH & Co. KG (WestSpiel) is not in line with EU State aid rules. Germany must now recover the incompatible aid, including interest.

The Commission’s investigation

In December 2019, the Commission opened an in-depth investigation to assess whether public funding granted by Germany to WestSpiel was in line with EU State aid rules.

The Commission’s investigation covered two measures in favour of WestSpiel taken by NRW.BANK (100% owned by the Land North Rhine-Westphalia (NRW)), namely: (i) annual loss coverage in the years 2009 to 2015 amounting to approximately €63.6 million and (ii) a capital injection in 2015 amounting to €64.8 million.

WestSpiel registered losses in the years 2009 to 2015. At the end of every business year, the annual losses of WestSpiel were allocated to NRW.BANK as sole shareholder and deducted from NRW.BANK’s capital share under the rules of German company law. In 2014, WestSpiel generated profits due to the sale of two artworks. As a result, the profit skimming mechanism provided for by the law of NRW, which requires public casino operators to transfer 75 % or more of their overall annual profits to NRW, led to a payout of profits in the amount of approximately €82 million to NRW in 2014. Subsequently, NRW decided to inject capital amounting to €64.8 million into WestSpiel in 2015. In September 2021, WestSpiel was sold to the private casino operator Gauselmann Group.

The Commission’s assessment

The Commission assessed the two measures under Article 107 of the Treaty on the Functioning of the European Union (‘TFEU’).

Following the in-depth investigation, the Commission found that the annual loss coverage does not constitute State aid within the meaning of Article 107(1) TFEU. The measure does not confer an economic advantage on WestSpiel given that (i) the annual loss coverage results from a mere legal automatism under German company law and only took place within WestSpiel’s own accounts without a transfer of external funds being necessary and (ii) NRW.BANK behaved in an economically rational way when accepting further losses of WestSpiel.

As regards the second measure, the Commission concluded that the capital injection is incompatible with EU State aid rules. In particular, the measure is imputable to the State due to the structure of NRW.BANK and the State’s involvement in its decisions. Moreover, the measure confers an economic advantage on WestSpiel, as the decision to inject additional capital in a company despite its continuously negative financial situation was not one that a comparable private investor would have chosen.

On this basis, the Commission ordered Germany to recover €64.8 million, plus interest, from WestSpiel. As a matter of principle, EU State aid rules require that incompatible State aid is recovered in order to remove the distortion of competition created by the aid. There are no fines under EU State aid rules and recovery does not penalise the company in question. It simply restores equal treatment with other companies.

Background

According to Article 107(1) TFEU, a measure shall constitute State aid if the following four cumulative conditions are met: (i) the measure has to be granted by Member States through State resources; (ii) the measure has to confer a selective economic advantage to certain companies, (iii) the advantage has to distort or threaten to distort competition, and (iv) the measure has to affect trade between EU Member States.

Public interventions in favour of companies can be considered free of State aid when they are made on terms that a private operator would have accepted under market conditions. If this principle is not respected, public interventions involve State aid within the meaning of Article 107 TFEU, because they confer an economic advantage on beneficiaries that their competitors do not have. If a measure is found to constitute State aid, the Commission then proceeds to assess whether such aid can be found compatible with EU State aid rules.

The non-confidential version of the decision will be made available under the case number SA.48580 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.