The newly merged Bwin-Party Gaming company Bwin.party digital has seen its share price tumble 29% over the last two days following German regulation. Other online gambling companies including Rank, the parent company of Mecca Bingo, and Betfair have also been battered this week.

The announcement that the German market is to be liberalised follows years of dispute and differences with the European Commission and court decisions which have recently gone against the monopoly.

But the bad news is that the liberalisation, scheduled for 2012, comes with a slew of tough restrictions:

- Lotteries will remain state-owned, however, sports betting will be liberalised

- A turnover tax of 16.67% will be levied

- Only seven licenses will be issued for a five-year probationary period

- Online casino licenses will only be granted to existing land operators - and will continue to be strictly limited in number. This scheme will be evaluated after five years.

- Betting on an outcome will be allowed, however, in-play betting will not be permitted

- Licence-holders will be able to advertise in stadiums and place their logos on players' jerseys, but television advertising will not be permitted

Richard Taylor, an analyst at Liberum Capital, commented: "The market's reaction is understandable for those with material exposure to Germany. At these tax levels, you can be sure that the operators will now be lobbying the government and arguing that, at almost 17 percent, there will be very little tax collected as they won't be viable businesses."

The new proposals were outlined by the conference of minister-presidents in Germany on Wednesday, and Norbert Teufelberger, joint chief executive officer of bwin.party, reckons it is odds on that the new regulations will be failure. Bwin-party digital - now the world's largest listed online gambling group - says that the German decisions impact its earnings and are not in compliance with European law.

"Implementation of the principles presented by the minister-presidents yesterday is just as likely to fail as the outgoing monopoly model in Germany. A proposed tax rate of 16% on the stakes placed in sports betting would make it impossible to offer a competitive product,” Teufelberger claimed.

Germany contributed around 22-23% of bwin.party’s revenue in 2010, and, assuming that it lost its entire German income stream, broker Panmure Gordon crudely estimates that 2012 earnings (before interest, tax, depreciation and amortisation) could fall by 34% to €156.7m.

The proposed changes specifically excluded poker and casino products from the new licensing model, a decision which Teufelberger thinks could “drive consumers into the black market”.

The company has renewed its appeal to German states to implement a regulatory model “in line with the realities of the market,” which would include online poker and casino. According to H2 Capital Gambling Germany is one of the world's largest online poker markets.

"We trust that these proposals will undergo the necessary corrections so that the new regulations will govern the entire German gaming market in a coherent and consistent manner in line with EU law,” Teufelberger said.