Executive Summary:
- The sale of a state asset through an open, transparent, non-discriminatory and unconditional procedure is free of state aid.
- The price paid by the highest bidder is the market price.
- The advantage embedded in the granting of a free concession may be offset by higher taxes.
Table of Contents:
- Introduction
- The alleged state aid
- Commission assessment on the existence of advantage
- Advantage for WestSpiel?
- Advantage to Gauselmann?
- Conclusion
Introduction
A well-established principle in the case law is that sale of state assets through an open, transparent, non-discriminatory and unconditional procedure is free of state aid. The market price paid by the highest bidder is the market price despite any differences with prior expert valuations. By contrast, the transfer of a state asset or the granting of a concession to an undertaking owned by the state almost always involves state aid, despite the fact that the undertaking belongs to the state. State ownership, in this context, is irrelevant.
However, recently the Commission concluded that the granting of a concession to a state-owned undertaking did not involve state aid because the advantage embedded in the right to exploit the concession was offset by the higher taxes that that undertaking had to pay.
As explained in the conclusions, this is an unusual case and the reasoning of the Commission raises a number of questions.
In 2022, the Commission received a complaint from the Fachverband Spielhallen, an association of commercial gambling halls, and from the Spielkisten GmbH, a company active in the distribution of gambling machines, alleging that state aid had been granted in the form of a concession for the operation of four casinos in the Land of North Rhine-Westphalia [NRW], Germany, to Westdeutsche Spielbanken [WestSpiel]. After extensive exchange of information with the national authorities and the complainants and after several meetings, the Commission, with decision SA.103278, concluded in the Spring of 2026 that the concession was free of state aid.[1]
WestSpiel was 100% owned by Westdeutsche Spielbanken which in turn was 100% owned by NRW.BANK, the promotional bank of the Land NRW. The land is also the sole guarantor of NRW.BANK.
In 2018, the government of NRW decided to privatise the WestSpiel by selling all of NRW.BANK’s shares in the WestSpiel. However, at that time, the operation of casinos in NRW was reserved for the Land or legal entities controlled by the Land. Therefore, the sale of NRW.BANK’s shares could proceed only after appropriate amendment to the Gambling Act of NRW to allow for a sale to a private buyer. After the amendment, a concession notice was published with the award procedure designed as a negotiated procedure with competition.
The process, described in the Commission decision, evolved as follows: “(23) On the basis of eligibility criteria published in the concession notice, the three most suitable candidates were selected, and negotiations took place during the tender phase. The three candidates were finally invited to submit a bid for the acquisition of NRW.BANK’s shares in the WestSpiel Group.”
“(24) Spielkisten GmbH & Co. KG, one of the Complainants, submitted a request to participate in the tender but was not selected as one of the three most suitable candidates and was therefore not invited to submit an offer. According to the German authorities, the Spielkisten GmbH & Co. KG was not selected as a candidate to participate in the tender because it had obtained lower weighted scores in a ranking of the eligibility criteria”.
“(25) On 20 July 2021, on the basis of the highest purchase price offered for NRW.BANK’s shares in the WestSpiel Group, which was the applicable award criterion …, NRW.BANK accepted the bid from Gauselmann Spielbanken Beteiligungs GmbH (hereinafter: ‘Gauselmann’) … [for] EUR 141.8 million.”
The alleged state aid
The complainants alleged that state aid had been granted to both WestSpiel and Gauselmann on the following grounds. First, after revision of the Gambling Act, WestSpiel was granted a concession, that was equivalent to an in-house award. WestSpeil did not have to pay a fee for the concession. The non-payment of a fee was an advantage that was estimated by the complainants to amount to hundreds of million of euros. Second, Gauselmann also derived an advantage because the price it paid for NRW.BANK’s shares was, allegedly, much smaller than the market value of the concession, regardless of the fact that the price was determined by an open, transparent, non-discriminatory and unconditional procedure and that WestSpiel was sold to the highest bidder.
Commission assessment on the existence of advantage
The Commission had to assess whether the granting of the casino concession by means of an in-house award without remuneration conferred an advantage to either WestSpiel and/or to Gauselmann.
Advantage for WestSpiel?
The Commission, first, noted that “(52) the granting of a licence, even if taking into account the economic value of licences, does not automatically constitute State aid and that, therefore, an assessment in the individual case is necessary” [here the Commission cited case T-475/04, Bouygues v Commission, paragraph 106]. Indeed, the case law recognises that Member States do not have to maximise revenue from licensing or concessions when they act as regulators and they award licences or concessions on the basis of objective and non-discriminatory criteria determined in advance. However, the reasoning of the Commission in this case was different.
The Commission went on to explain that the free casino concession conferred no advantage to WestSpiel because of the special casino taxation mechanism in the gambling law of NRW.
“(54) With this special casino taxation mechanism, the German State put in place an alternative regulatory system through which the State receives much higher tax revenues from casinos than from undertakings subject to the regular taxation regime. The result of that special casino taxation mechanism is, thus, that the casinos’ profitability is limited to a minimum rate of return necessary to preserve the casino’s viability (i.e., excluding the possibility for the casino to generate above market level revenues from the activities carried out under the concession) and, at the same time, requiring the casino to make payments to the State (by way of taxes) in excess of that which it would have been required to pay, had the casino been subject to the regular taxation rules (thereby generating additional revenue for the State). … the special tax regime to which the casinos are subject and … the higher taxes imposed by the special regime exclude the possibility for the concession holder (i.e., the casino operator) to benefit from an advantage within the meaning of Article 107(1) TFEU from receiving the concessions without remuneration.”
“(62) WestSpiel provided information confirming that, for WestSpiel specifically, the special casino taxation mechanism … ensures that, post-taxation, the lack of remuneration of the concession is offset by the higher taxes that WestSpiel had to pay under the special taxation for casinos.”
“(64) The Commission takes note that WestSpiel transferred a large part of its GGR [gross gaming revenue] and of its overall profits to NRW … the financial data provided by WestSpiel shows that in 2020 WestSpiel had to pay approximately 34% of its GGR in casino taxes to NRW and in 2021 approximately 36%.”
“(67) The Commission notes that the higher taxation of casino operators … ensures that any possible advantage the granting of the casino concession without remuneration could have conferred on concession holders is offset.”
“(69) The Commission considers that the system established by the German State, which seeks to impose the highest tax burden possible (and beyond that applicable under the regular tax regime), while at the same time not endangering the economic viability of casinos, can be considered as a form of a constant remuneration during the lifetime of the concession, and, potentially, better achieves the German State’s objectives than would be the case if remuneration of the concession had been structured as a one-off, up-front payment. Complexities surrounding the calculation of the amount of such one-off payment could result in such single amount either being disproportionate (if set too high), or insufficient (if set too low) to reduce the casino operator’s profits to the minimum necessary to ensure economic viability. Similarly, a combination of an up-front payment for the concession and higher taxation imposed on the concession holder, would be disproportionate and result in over-compensation for the State that could jeopardise the economic viability of the casinos’ activities and render them unattractive, thereby undermining the very objective of granting the concessions in the first place.”
Advantage to Gauselmann?
Next the Commission examined whether Gauselmann had derived any advantage.
“(73) In light of the Commission’s conclusions … that the granting of the concession without remuneration to WestSpiel did not constitute State aid to WestSpiel, the Commission concludes that Gauselmann cannot be considered to have benefitted from State aid to WestSpiel as a result of its acquisition of WestSpiel.”
“(74) Nevertheless, even if WestSpiel had benefitted from an advantage within the meaning of Article 107(1) TFEU stemming from the granting of the concession without remuneration (quod non), …, the Commission considers that Gauselmann did not benefit from any such advantage in the framework of the privatisation of the WestSpiel Group in July 2021.”
“(75) First, the Commission recalls that it can be presumed that the sale and purchase of assets, goods and services or other comparable transactions are carried out following a competitive, transparent, non-discriminatory and unconditional tender procedure in line with the principles of the TFEU on public procurement, are in line with market conditions and therefore exclude the existence of an advantage within the meaning of Article 107(1) TFEU.”
“(76) In this regard, and contrary to the Complainants’ arguments …, the Commission considers that the sale of NRW.BANK’s shares in the WestSpiel Group, which was “equipped” … with the casino concession, took place in the framework of a competitive tendering procedure in line with public procurement law which determined a market price.
“(79) In this context, the Commission considers that, …, the purchase price was established following a competitive, transparent, non-discriminatory and unconditional tender procedure and that, as such, it can therefore be presumed that the sale of WestSpiel to Gauselmann occurred in line with market conditions:
- First, three applicants, including Gauselmann, were selected in the competitive bidding stage to participate in the tender process, as they fulfilled the published and objective eligibility criteria …;
- Second, in the bidding phase, negotiations with all three applicants were initiated, after which they were invited to submit a specific offer;
- Third, on the basis of the award criterion, the highest purchase price offered for the shares of NRW.BANK in the WestSpiel Group, Gauselmann was identified as the preferred bidder and signed a sale purchase agreement reflecting the terms of its winning bid on 20 July 2021”.
“(83) In any event, and in the interests of completeness, even if the Commission were wrong in its conclusion that the casino concession did not constitute State aid in favour of WestSpiel (quod non), such error would not affect the Commission’s conclusion that Gauselmann has not benefitted from State aid as a result of its acquisition of NRW.BANK’s shares in WestSpiel.”
“(84) In the first place, the Union Courts have consistently held that, where an undertaking that has benefited from unlawful State aid is bought at the market price, that is to say at the highest price which a private investor acting under normal competitive conditions was ready to pay for that company in the situation it was in, in particular after having enjoyed State aid, the aid element was assessed at the market price and included in the purchase price. In such circumstances, the buyer cannot be regarded as having benefited from an advantage in relation to other market operators. In a situation where the undertaking to which unlawful State aid was granted retains its legal personality and continues to carry out, for its own account, the activities subsidised by the State aid, it is normally that undertaking that retains the competitive advantage connected with that aid and it is therefore that undertaking that must be required to repay an amount equal to that aid. The buyer cannot therefore be asked to repay such aid. In view of the fact that: (i) … Gauselmann paid a market price for the shares in WestSpiel; and (ii) WestSpiel has retained its legal personality and continues to carry out, for its own account, the activities under the casino concession, it follows from the case-law that any benefit within the meaning of Article 107(1) TFEU stemming from the casino concession remains with WestSpiel and Gauselmann cannot be considered a beneficiary of that aid.”
“(85) In the second place, in its assessment presented above …, the Commission does not argue – contrary to the premise on which the Complainants’ position is based – that the mere sale to the highest bidder would neutralise an eventual advantage received by WestSpiel. Rather, …, the Commission’s position is that the payment of a purchase price in the form of the market price determined in the framework of a competitive tendering procedure in line with public procurement law … rules out the existence of an eventual advantage.”
“(86) In the third place, as the Court states in the Hytasa judgment [joined cases C-278/92, C-279/92 and C-280/92, Spain v Commission, paragraph 28] the sale to the highest bidder excludes the presence of State aid to the buyer, where “the sale took place in an unconditional open bid”. As explained above, the tendering procedure followed the rules in [the relevant German law], according to which the grantor publicly invites an unlimited number of undertakings to submit requests to participate in a competition. Hence, every potential buyer was invited to submit an offer and the sale to Gauselmann, therefore, took place following an unconditional open bid.”
Conclusion
Since the Commission found that no advantage had been granted either to WestSpiel or Gauselmann, it concluded that the sale of shares and the concomitant acquisition of the casino concession were free of state aid.
However, there are elements in this decision that raise questions. First, it is not clear whether the German authorities are presumed to be acting as a private vendor or a regulator. If they are acting as a private vendor why would they consider the higher tax revenue and why would they be concerned about the viability of WestSpiel? On the other hand, if they acted as a regulator, it is true that they did not have to maximise revenue from the granting of the concession, but that does not mean that they did not confer an advantage to WestSpiel. After all, they aimed to ensure the “economic viability” of WestSpiel. Protecting an undertaking from the vagaries of the market does confer an advantage. Furthermore, I wonder whether it is within the objectives of tax systems to ensure the economic viability of tax payers. Objectives which are extraneous to the logic of taxation, can confer an advantage that is also selective. Lastly, if unlawful state aid was granted to WestSpiel, then a rational operator would have taken that into account and would have reduced its offer for the shares of WestSpiel, given the risk of such aid being found to be incompatible with the internal market.
[1] The full text of the Commission decision can be accessed at:
https://ec.europa.eu/competition/state_aid/cases1/202622/SA_103278_106.pdf
