The Bundesliga scandal of 1965 grew out of the failure of the German Football Association (Deutsche Fussball Bund or German Football Association) to fully embrace the notion of paid professionalism, an aversion rooted in the broader history of sport in the country. Many clubs deliberately circumvented the strict economic limits then in place in German football and it became common practise for teams to make payments to players, their agents, or their clubs in excess of the limits enforced by the DFB in an attempt to gain a competitive edge. In addition, some clubs paid players from competing sides to underperform in key matches.
The scandal came to light in February 1965 when the DFB's auditor found discrepancies in the accounts of Hertha Berlin that were quickly traced back to illegal player payments. Hertha's position in the economic rough and tumble of German football was weakened by the city's dangerous political situation as an isolated enclave in the middle of the Soviet-occupied eastern half of the country during the heating up of the Cold War. Many players did not wish to play in Berlin in those circumstances and the club was forced into paying premiums beyond even what other teams were already illegally paying. Despite evidence of widespread problems, only Hertha was sanctioned, and the club was demoted to the second division Regionaliga Berlin.
For political reasons, the DFB wished to maintain Berlin's representation within the Bundesliga. In the promotion round to the top flight held earlier, Tennis Borussia Berlin had finished at the bottom of their group behind Bayern Munich, 1. FC Saarbrücken, and Alemannia Aachen and so could not be considered for promotion before the latter two clubs. The DFB turned to Spandauer SV, which had finished second in the Regionalliga Berlin, with an offer of advancement that the club refused. Tasmania 1900 Berlin, third place finisher and the previous season's champion, was approached next and accepted promotion.
This led to objections from Karlsruher SC and FC Schalke 04 which had been relegated and but felt that they still had a better claim to the spot opened by the sending down of Hertha than any of the Berlin-based sides out of the Regionalliga. In order to mollify these clubs the Bundesliga was expanded from 16 to 18 clubs the following season and the two sides maintained their places in first division competition.
For the overmatched Tasmania side their single season in the top flight proved to be an ill-conceived adventure as they delivered the worst-ever season in Bundesliga history, setting records for futility that still stand.
In response to the underlying economic issues the DFB made only a token response, raising the previous limits on transfer fees and player salaries, but not sufficiently to make the Bundesliga a truly professional league in the broader European context. This laid the groundwork for a second similar scandal some six years later.