The role of the state in the gambling industry

I have written this text for http://www.ice365.com and they have partly edited it.

In this column, I will look at the activities of states in the field of gambling, though I’m well aware that each nation has its own approach and desires for legal gambling.

For example, the EU has granted member states significant control over gambling. Because of this, or thanks to it, gambling activities in EU countries differ markedly from one to the next, more so than almost all other areas of business. 

When we assess the activities of states in the gambling business, it is worth recalling that gambling is, in principle, a potentially dangerous activity that can cause significant problems for some consumers. 

For this reason, gambling is regulated all over the world, and there is no desire to make the sector free from regulatory scrutiny. The methods and degrees of regulation, on the other hand, vary greatly from country to country.

At one end of the spectrum are countries where gambling is prohibited entirely, such as in several Middle Eastern countries, or those with Islam as the prevalent religion. 

The starting point for many other countries is that gambling is prohibited, but special permits can be issued for it.

A number of markets have permitted gambling through a monopoly model, from which it has gradually transitioned to allowing different activities from a wider range of licensed operators.

When considering the different gambling systems, it is important to acknowledge these historical developments, because this helps to explain countries’ differing approaches.

States have several different roles and interests in the gambling business. It is the entity that enacts and organizes the regulation of laws in the country, and because gambling has been a restricted activity, many states have been responsible for operating gambling under the monopoly model. 

The gambling monopolies have thus been under the direct control of the state, in which case the country has been the main beneficiary – and the profits from gambling are enormous, of course.

Hence, states have a very high financial interest in controlling and managing the revenue from gambling, which they can then redistribute to their chosen causes. Minimizing the disadvantages of gambling is also a key goal, as the state often has to cover the cost of treatment for those who suffer gambling harm. 

But with differing goals and expectations, there are often conflicts between different stakeholders. In general, there will be a variety ministries dealing with different products and verticals – there are only a few countries in which all gambling is centralized under a single ministry. 

That is why, for example, increasing financial profits and reducing the number of gambling problems is viewed as a contradiction in many countries, leading to conflicting and unclear regulatory policy for the industry.

Gambling is often divided into three overarching verticals: lottery, betting, and casino, each of which is subject to significantly different regulations. 

Lottery operations are generally still based on a monopoly system in which one company takes care of all operations. In most countries, this monopoly is still overseen by a state-owned entity. 

Betting can be split into sub-divisions: horse and sports betting. In many countries, there has been a de-facto monopoly for horse betting, where racetracks and betting operators have worked in tandem. 

This differs from sports betting, where there have traditionally been several operators competing, which has also been true of the casino business. Thus, monopoly systems have traditionally been more common in lottery operations than in sports betting and casino operations.

When analyzing European gambling regulatory frameworks, it is easy to see that the lottery business tends to have remained close to the monopoly model, rather than opening up to private operators. State-owned companies run the activities, or the state has direct ownership while awarding operating rights to one provider through a tender process. 

In contrast, monopoly systems for betting and casino operations are few and far between. Of the European countries, only Finland and Norway continue to operate all gambling activities based on a monopoly system.

As I said before, the EU has given its member states a great deal of decision-making power when it comes to gambling policy. The precondition is that the legislation must comply with the general principles of the EU and that restrictions on doing business must be justified. 

The premise is that gambling activities can be regulated and restricted to prevent gambling problems. That is an understandable and acceptable principle, but is it being put into practice?

In general, a monopoly model is an inefficient way of running the business activity and is therefore a worse system than the free competition, or in the case of gambling, a license-based model. However, a monopoly can be defended, if it can be proven to be more effective in preventing gambling problems than the license-based model. 

However, this is not backed up by studies, which show little evidence of fewer gambling problems in countries with gambling monopolies. 

But the effectiveness of preventing gambling harm cannot be the only deciding factor in the value of a regulatory model. But in an increasingly digital industry, the jury is also out on the licensing model – traditional borders no longer have the same significance as they did ten years ago. This online shift has posed regulators with challenging questions they have not yet properly answered. 

When the rationale for a gambling monopoly in an EU member state should be to prevent harm, one may rightly ask why that model is only prevalent for lotteries. After all, studies show that traditional lottery games cause little or no gambling harm. 

In contrast, online casino, particularly slot machines, is often said to be the most harmful gambling product. Yet online casinos are regulated through the licensing model almost everywhere. 

This discrepancy is explained in part by historical reasons but certainly also through states’ financial interests – the lottery has been a goldmine for many nations. Revenue from lottery games can account for around 60% of a country’s gambling spending, compared to 5% to 10% for sports betting and casino. 

The private gambling operators’ lobbying efforts, which have sought to and succeeded in breaking the digital betting and casino monopoly, have undoubtedly also had an impact. Lottery games have not been part of the product range of these private companies, so legal battles have therefore not centered on lottery operations.

What will happen in the future? I’m not even trying to answer that, but I’m sure the change will continue. 

The weight of responsibility in gambling is growing strongly, which is why states’ legislative and regulatory roles will be maintained and even strengthened. But it is important to note that states are fundamentally unsuited to owning commercially significant activities. 

It would be best for all stakeholders that states will give up direct ownership of gambling companies. If operations still need to be tightly controlled, a limited number of licenses is a better solution than a state-owned monopoly.

Vastuullisuuden pitää olla aitoa ja tarkoituksenmukaista

Olen aiemminkin kirjoittanut vastuullisuuden merkityksestä lottery toiminnassa. Uskon, että peliyhtiön on mahdollisuus kääntää vastuullisuus kilpailueduksi muihin yhtiöihin verrattuna, mutta tämän asian toteutuksessa tulee olla todella huolellinen. Nyt näyttää olevan merkkejä siitä, että vastuullisuusvaatimukset menevät niin pitkälle, että ongelmatonta pelaamistakin rajoitetaan niin paljon, että lottereiden taloudelliset tulokset romahtavat. Miten tällainen tilanne voitaisiin ehkäistä?

Kuten olen moneen kertaan todennut, niin rahapelaaminen on lähtökohtaisesti vaarallista toimintaa, joka voi aiheuttaa kuluttajille suuria ongelmia. Tämän vuoksi valtiot ovat päätyneet rajoittamaan rahapelitoimintaa merkittävästi, eikä tämä teollisuuden ala ole oikeastaan missään täysin vapaan liiketoiminnan piirissä. Toimintaa varten tarvitaan lisenssi, joillain alueilla on käytössä monopoli, tai toiminta on kielletty kokonaan. Kaikkien näiden järjestelyiden perustarkoituksena on suojella kuluttajia rahapelaamisen ongelmilta. Vasta toissijaisena tavoitteena on kerätä toiminnan avulla tuloja valtioiden kassaan.

Kuluttajien suojelu on tärkeää, mutta kuinka pitkällä siinä pitää mennä? Tarkoituksenani ei ole vähätellä rahapelaamisesta aiheutuvia ongelmia, mutta totean silti, että pelaaminen ei ainakaan nykyisellä tasolla aiheuta ongelmia noin 90–95 prosentille ihmisistä. Onko yhteiskunnan siis rajoitettava myös vähintään kohtuullisen terveellä pohjalla olevaa toimintaa? Jos on, niin riittääkö, että toimintaa rajoitetaan vain suoran regulaation piirissä olevissa yhtiöissä. Lotteryt kuuluvat aina näiden yhtiöiden joukkoon, ja joissakin maissa, kuten Suomessa ja Norjassa, ne ovat ainoita rajoituksen piirissä olevia yhtiöitä.

Osallistuin 1990-luvun puolivälin paikkeilla ensimmäisen kerran rahapeliongelmia käsittelevään tilaisuuteen. Puhujien joukossa oli ruotsalainen alan tutkija Thomas Nilsson, joka muistaakseni totesi, että peliyhtiöt eivät voi juuri mitään sairaanloisista peliongelmista kärsiville ihmisille. Nämä ongelmapelaajat löytävät aina jostain pelattavaa, vaikka viralliset peliyhtiöt tekisivät mitä tahansa. Sen sijaan peliyhtiöiden velvollisuutena on pyrkiä ehkäisemään riskiryhmässä olevien kuluttajien luisuminen vakavista ongelmista kärsivien joukkoon. Pidän edelleen tätä ajatusta oikeana toimintalinjana, vaikka en tiedä, onko Nilsson enää itse tätä mieltä. Jotenkin tuo ajatus sopii minun omaan ”maalaisjärkeeni”.

Käytännön ongelmaksi on nyt muodostumassa rajoitukset, jotka koskevat kaikkea säätelyn piirissä olevaa rahapelaamista. Useissa maissa on otettu käyttöön pelaamista koskevia päivä- ja kuukausirajoja, jotka ovat kaikki asiakkaille samansuuruisia. Ihmisten varallisuustasot ja sen kautta pelaamiseen käytettävät rahat ovat kuitenkin vaihdelleet todella paljon. Toiselle ihmiselle 100 euron tappio on jo liikaa, kun samaan aikaan toiselle ihmiselle 1000 euroa ei merkitse mitään. Yhteisten tappiorajojen vuoksi osa ongelmattomasta pelaamisestakin siirtyy regulaation ulottumattomissa oleville yhtiöille. Tämän lisäksi näyttää siltä, että vakavista peliongelmista kärsivät asiakkaat pelaavat myös mustan markkinan peliyhtiöille.

Jotta yhteiskunta voisi saavuttaa perustavoitteensa eli peliongelmien tehokkaan ehkäisyn ja jopa vähentämisen, tulisi niin suuri osuus pelaamisesta kuin mahdollista saada regulaation piiriin. Tämän vuoksi rahapelijärjestelmän toimivuuden tärkein mittari on järjestelmän kanavointiaste. Tutkimuslaitos H2GC on julkaissut mielenkiintoisia tietoja eri maiden järjestelmien kanavointiasteista. Maa, jossa virallisen valvonnan piirissä on 20 prosenttia koko rahapelaamisesta, on väistämättä epäonnistunut totaalisesti rahapelijärjestelmänsä rakentamisessa. Mielestäni vain ne maat, joissa kanavointiaste on minimissään 80 prosentin luokkaa, voivat olla edes jollain tavalla tyytyväisiä järjestelmäänsä. Korkea kanavointiaste ei automaattisesti auta rahapeliongelmien ehkäisemisessä, mutta se on perusedellytys sille, että ongelmiin edes voidaan päästä käsiksi.

Vaikuttaa siltä, että monissa maissa valtio pyrkii nyt estämään rahapelaamista, jotta peliongelmia voidaan vähentää. Tämä voisi periaatteessa olla toimiva tapa, jos rahapelaamisesta kertyvistä tuotoista ei tarvitse välittää. Käytännössä tällainen estämisstrategia voisi toimia kunnolla vain siinä tapauksessa, että pyrkimyksenä on lopettaa rahapelaaminen kokonaan. Rahapelaamisen tiukka kriminalisointi ja lain aktiivinen valvonta voisi johtaa edes kohtuullisiin tuloksiin. Tällöin loppuisi kuitenkin myös viihdyttävä ja ongelmaton pelaaminen. Itse asiassa vaaraton pelaaminen saataisiin todennäköisesti loppumaan lähes kokonaan, mutta ongelmia aiheuttava pelaaminen tulisi erittäin todennäköisesti jatkumaan, koska olemassa olevaa massiivisen suurta globaalia mustaa markkinaa ei saataisi kuitenkaan suljettua.

Tilanne näyttää ainakin joissakin maissa valtiollisten lottery-yhtiöiden kannalta huolestuttavalta. Regulaattorin tiukentuneet vastuullisuusvaatimukset kohdistuvat ennen kaikkea lottery-yhtiöiden toimintaan, joka lähtökohtaisesti on jo vastuullisempaan kuin muiden rahapeliyhtiöiden toiminta. Perinteiset lottery-pelit aiheuttavat vähemmän peliongelmia kuin muut rahapelaamisen alueet. Näin siis vaarallisin pelaamisen alue jää vähemmälle regulaatiolle kuin vaarattomampi toiminta. Tiukentuneet pelirajat vähentävät lottereiden tuottoa, joten pahimmassa tapauksessa peliongelmat eivät vähene yhtään ja valtioiden saama tuotto pienenee ja osa siitä siirtyy yksityisten reguloinnin ulottumattomissa oleville peliyhtiöille.

Viestinnällisesti on tärkeää, että asiakkaat ymmärtävät rahapelaamisen luonteen ja siihen liittyvien rajoitusten syyt ja seuraukset. Kun näin on, niin asiakkaiden on paljon helpompi hyväksyä toimintaan liittyvät erityispiirteet. Tällöin toiminnan vastuullisuuden merkitys voi oikeasti vaikuttaa kuluttajien käyttäytymiseen. Tällaisessa tilanteessa lotteryt voivat saavuttaa toiminnan aidolla vastuullisuudella merkittävää kilpailuetua niihin peliyhtiöihin nähden, jotka eivät välitä vastuullisuudesta tai tekevät toimenpiteitä korkeintaan näennäisesti. Ilman asiakkaiden hyväksyntää tapahtuvilla pakotetuilla vastuullisuusvaatimuksilla, jotka usein kohdistuvat vain rajoitettuun peliyhtiöjoukkoon, ei voida saavuttaa hyviä tuloksia.

Can a lottery be an international operator?

I have written this text for http://www.lotterydaily.com and it is partly edited by Conor Porter.

Lottery companies have traditionally been directly state-owned or at least controlled by the states. The companies have operated in one country and mainly sell lottery games on an exclusive basis. However, the situation has changed in many ways in the 21st century. The digitalization of business has reduced the importance of traditional land borders and made it possible to start new types of business. As a result, competition in the gambling market has intensified, which has also affected lottery companies operating on a monopoly basis.

Economies of scale work very well in the gambling business. Expanding market areas will do little to increase costs for selling games on digital channels. Adding new gambling verticals to the product range increases costs one-time, but these additional costs are also marginal compared to the volume of the total operations. In economic terms, the gambling business could eventually end up in a so-called natural monopoly, with the largest company dominating the entire gambling market in the world. Therefore, there would be a very considerable economic and competitive benefit from economies of scale.

The gambling industry also seems to be of interest to companies traditionally operating in other sectors. To my knowledge, media companies, in particular, have analyzed the possibilities of expanding their operations into the gambling industry. There have even been rumors that the “Big 5” companies, or at least some of them, are considering joining the gambling business. However, there is already an internal consolidation in our industry, where technology suppliers have sought the operator’s role and a few operators have started a B2B business.

The lottery world may still be reasonably at ease, but there are already many signs of a change in traditional activity in our area as well. Most lotteries have started selling their games on digital channels, several companies have expanded their product range beyond lottery games, technology vendors operate games in several markets, ownership of lottery has been shifted to private investors, and Lottoland-type companies have mixed up the monopoly on traditional lottery games.

How should lotteries react to a changed situation? Traditionally, the lottery world has sought to resolve issues through legislation, which has been primarily a defensive struggle in which states have sought to secure the status of their “dairy cows” through laws and regulations. This kind of thinking is still prevalent in many countries, but luckily, lotteries have also been able to change. Keeping up with developments requires a critical review of your own operations and the ability to make the necessary changes. Many times an attack is the best defense. So could lotteries take over from other markets?

As I have said in my previous columns, defining a lottery is pretty challenging these days. The product ranges, operating principles, and ownership bases of the companies in the lottery organizations (EL, WLA) are very different. At the extreme are directly state-owned companies that sell lotto games and scratch cards only through retail channels in their own countries. On the other side are privately-owned companies that operate all gambling products in all channels and many different countries. Therefore, the operation of lotteries cannot be generalized in any way. I will now focus on that other extreme, the members of the lottery world who have entered the international competition.

Among the member companies of the European Lotteries organization, there are at least three different types of models to implement internationalization. The ownership base of lottery companies has changed, and private investors have joined. An example of such a change is the public listing of the French lottery operator FDJ on the stock exchange, in which state ownership of the company fell to a 20-25% level. Another even fresher and more interesting example is the acquisition of SISAL, an Italian company in which Flutter Entertainment, one of the giants of the gambling world, became the owner of the lottery company. Another change occurred years ago when another traditional Italian lottery operator, Lottomatica, and technology supplier IGT (GTech) merged. The FDJ, SISAL, and IGT have in common doing the gambling business in different roles and different countries.

FDJ and IGT are also examples of another way for lotteries to go international. These companies sell gambling-related technology to other gambling companies. For IGT, this has been the company’s core business, but for the FDJ, it is a significant change in which the traditional lottery has expanded into another industry. Years ago, the FDJ made acquisitions to acquire technological know-how aimed at developing better tools for its operations. As FDJ developed a larger entity from its technical solutions, the company established a new subsidiary, FDJ Gaming Solutions, to sell these technologies primarily to other lotteries. An example of a similar type of business is Camelot, which operates the UK lottery on an exclusive basis but at the same time sells technology and consulting services to other lotteries through its subsidiary Camelot Lottery Solutions. The newest entrant to such activities is my former employer Veikkaus, which has a monopoly on all gambling in Finland. Fennica Gaming, which is 100% owned by Veikkaus, started operations a month ago, and the company’s goal is to sell self-developed games and technology to other gambling companies.

A third exciting model for implementing the internationalization of gambling is to expand B2C operations to other countries. The best example of this in the European lottery world is the Czech lottery company SAZKA, which currently operates internationally under the name Allwyn. The company has bought holdings in several European lotteries. In addition to the Czech Republic, Allwyn operates in Austria, Cyprus, Greece, and Italy. In addition to these, the company is competing for the UK lottery license with Camelot and SISAL. At least Allwyn is not yet in a position to take full advantage of economies of scale in its lottery operations, as the laws of the countries in which it operates do not allow this. However, the situation could change significantly if the lottery business moves from a monopoly to a license-based system.

It is already clear that a company operating a lottery in a country on a monopoly basis may also operate internationally. That, of course, requires a group structure in which international operations are handled through another company. Therefore, expansion of the business is possible, but it involves, e.g., significant competition law challenges, at least as long as the lottery operates under a monopoly. It is interesting to note that the most active expanders have been the forerunner and most advanced lotteries. Does this mean that others will follow them in this area as well?

Mitä valtiot hakevat rahapelitoiminnasta?

Yleistän tässä kirjoituksessa valtioiden toimintaa rahapelitoiminnan alueella, vaikka tiedän hyvin, että valtioiden toiminnan välillä on todella suuria eroja. Esimerkiksi EU on jättänyt jäsenmailleen suuren päätäntävallan rahapelaamiseen liittyvissä asioissa. Tämän vuoksi, tai ansiosta, EU-valtioiden rahapelitoiminnoissa on paljon enemmän eroja kuin on millään muulla liiketoiminnan alueella. Alkoholipolitiikka saattaa olla toinen vastaavan kaltainen toiminnan alue, jolla on jäsenmaiden kesken suuria eroja.

Kun arvioimme valtioiden toimintaa rahapeliliiketoiminnassa, niin on syytä muistuttaa, että rahapelaaminen on lähtökohtaisesti vaarallista toimintaa, joka voi aiheuttaa osalle kuluttajista suuria ongelmia. Tämän vuoksi rahapelaamista säädellään kaikkialla maailmassa, eikä sitä ole haluttu vapauttaa täysin vapaaksi liiketoiminnaksi. Säätelytavat ja -asteet sen sijaan vaihtelevat maittain hyvin paljon.

Säätelyn ääripäänä ovat maat, joissa kaikki rahapelaaminen on kiellettyä. Tällaisia maita ovat mm. useat arabimaat sekä yleisesti vahvan islamin uskon maat. Monen muunkin maan lähtökohtana on, tai on ainakin ollut, että rahapelaaminen on kiellettyä, mutta sitä varten voidaan antaa erityislupia. Useissa maissa rahapelaaminen on aloitettu monopolijärjestelmän pohjalta, josta se on pikkuhiljaa siirtynyt lisenssipohjaiseen toimintaan. Valtioiden erilaisia rahapelijärjestelmiä pohdittaessa on hyvä tunnistaa historian kehitys, koska se selittää eroavaisuuksia hyvin.

Valtioilla on useita rahapeleihin liittyviä erilaisia rooleja ja intressejä. Valtio säätää maassa noudatettavat lait ja järjestää niiden valvonnan. Koska rahapelaaminen on ollut rajoitettua toimintaa, niin useissa maissa pelaaminen on aloitettu valtion itsensä toimeenpanemana. Rahapelaamisen monopolit ovat siis olleet suoraan valtion kontrollissa, jolloin valtio on saanut toiminnasta kertyvät tulot itselleen. Kuten tiedämme, niin rahapelaamisen tuotot ovat globaalisti ajatellen valtavat, joten valtioilla on erittäin suuri taloudellinen intressi kontrolloida ja hallita pelaamisesta kertyviä tuottoja, joita se voi sitten jakaa edelleen haluamiinsa kohteisiin. Rahapelaamisesta aiheutuvien haittojen minimointi on myös valtioiden tavoitteena, koska ongelmien hoidosta aiheutuvat kustannukset tulevat monissa maissa valtioiden hoidettaviksi.

Koska valtioilla on useita erilaisia rahapelaamiseen liittyviä intressejä, niin on aivan luonnollista, että noiden hyvin erilaisten tavoitteiden välille on syntynyt usein ristiriitoja. Yleensä eri osa-alueita hoitavat eri ministeriöt, ja vain harvoissa maissa koko rahapelaamiseen liittyvä toiminta on keskitetty yhden ministeriön alaisuuteen. Tämän vuoksi esimerkiksi taloudellisen tuoton lisääminen ja peliongelmien määrän vähentäminen on monissa maissa esiintyvä ristiriita, joka aiheuttaa tempoilevaa ja epämääräistä rahapelipolitiikkaa.

Rahapelitoiminta jaetaan usein kolmeen isompaan kokonaisuuteen, jotka ovat lottopelit, vedonlyönti ja kasinopelit. Näiden pelitoiminnan alueiden säätelyissä on useimmissa maissa suuria eroja. Lottopelitoiminta perustuu edelleen globaalisti monopolijärjestelmään, jossa yksi yhtiö huolehtii koko toiminnasta. Suurimmassa osassa maita tämän monopolitoiminnan pyörittäjänä on edelleen valtion omistama yhtiö. Vedonlyönti voidaan jakaa kahteen osaan; hevospelaaminen ja urheiluvedonlyönti. Hevospelaamisen alueella on ollut käytännössä monopolitilanne, jossa raviradat ja erityiset peliyhtiöt ovat pyörittäneet hevospelitoimintaa omalla alueellaan. Sen sijaan urheiluvedonlyönnissä on perinteisesti ollut useita yhtiöitä, aivan kuten on ollut tilanne myös kasinobisneksessä. Vedonlyönnissä ja kasinotoiminnassa monopolijärjestelmät ovat siis perinteisesti olleet selvästi harvinaisempia kuin lottopelitoiminnassa.

Euroopan rahapelijärjestelmiä analysoitaessa on helppo huomata, että lottopelitoiminta hoidetaan edelleen monopolin pohjalta. Valtionyhtiöt pyörittävät toimintaa tai sitten valtio on myöntänyt suoraan tai kilpailutuksen kautta toiminnan yhden yrityksen hoidettavaksi. Sen sijaan vedonlyönnissä ja kasinotoiminnassa monopolijärjestelmä on käytössä enää harvoissa maissa. Euroopan maista vain Suomi ja Norja hoitavat edelleen kaiken rahapelitoiminnan monopolijärjestelmän pohjalta.

Kuten jo edellä totesin, niin EU on antanut jäsenmailleen suuren päätösvallan rahapelipolitiikan alueella. Edellytyksenä on, että lainsäädäntöjen tulee noudattaa EU:n yleisiä periaatteita ja liiketoiminnan rajoitusten tulee olla perusteltuja. Lähtökohtana on, että rahapelitoimintaa voidaan säädellä ja rajoittaa, kun tarkoituksena on ehkäistä pelaamisesta aiheutuvia ongelmia. Tämä on ymmärrettävä ja hyväksyttävä periaate, mutta toteutuuko se käytännössä?

Yleisesti ottaen taloudellisen toiminnan pyörittämisessä monopoli aiheuttaa aina tehottomuutta ja on sen vuoksi huonompi järjestelmä kuin vapaa kilpailu, tai rahapelien tapauksessa lisenssimalli. Monopolia voidaan kuitenkin puolustaa, jos sen avulla voidaan lisenssimallia paremmin ehkäistä pelaamisesta aiheutuvia ongelmia. Tutkimustulosten perusteella ei kuitenkaan voida osoittaa, että monopolijärjestelmän maissa olisi vähemmän peliongelmia kuin lisenssimaissa. Tästä ei voida päätellä järjestelmien hyvyyttä, koska avainasemassa on toiminnan käytännön tason regulaatio eli valvonta ja ohjaus. Itse järjestelmämalli ei sinällään vielä tuota mitään tuloksia. Kaiken lisäksi liiketoiminnan digitalisoituminen on aiheuttanut sen, että perinteisillä valtioiden rajoilla ei ole enää samanlaista merkitystä kuin niillä oli vielä kymmenen vuotta sitten. Tämä on aiheuttanut toiminnan regulaatioille haasteita, joihin ne eivät ole osanneet tai pystyneet vastaamaan.

Kun EU:n jäsenvaltion monopoliin perustuvan rahapelijärjestelmän perusteluna tulisi olla peliongelmien ehkäiseminen, niin voidaan aiheellisesti kysyä, miksi monopoli on nykyään yleinen vain lottopeleissä? Tutkimusten mukaan perinteiset lottopelit eivät aiheuta peliongelmia juuri lainkaan. Sen sijaan eniten peliongelmia aiheuttavat online kasino- ja raha-automaattipelit kuuluvat lähes kaikkialla lisenssijärjestelmään. Tätä ristiriitaa selittää historialliset syyt, mutta varmasti myös valtioiden taloudelliset intressit. Lottopelitoiminta on ollut useille valtioille kultakaivos. Lottopeleistä saatava pelikate on ollut jopa 60 % luokkaa, kun vastaava taso vedonlyönnissä ja kasinopeleissä on 2-10 %. Vaikutusta on varmasti ollut myös yksityisten peliyhtiöiden lobbauksella, joka on pyrkinyt ja onnistunut murtamaan monopolit digitaalisen kanavan vedonlyönnissä ja kasinopeleissä. Lottopelit eivät ole kuuluneet yksityisten peliyhtiöiden tuotevalikoimaan, minkä vuoksi lainsäädännöllisiä taisteluita ei ole nähty lottopelitoiminnassa.

Mitä tulevaisuus tuo tullessaan? En edes yritä antaa vastausta siihen, mutta olen varma, että muutos tulee jatkumaan. Vastuullisuuden painoarvo rahapelaamisessa on vahvassa kasvussa, minkä vuoksi valtioiden lainsäädännöllinen ja regulatiivinen rooli tulee säilymään ja jopa vahvistumaan. Sen sijaan valtiot ovat lähtökohtaisesti huonoja omistamaan liiketaloudellisesti merkittävää toimintaa. Tämän vuoksi olisi kaikille parasta, että valtiot luopuisivat suorista rahapeliyhtiöiden omistuksista. Jos toimintaa pitää edelleen tiukasti kontrolloida, niin rajoitettu lisenssimäärä on parempi ratkaisu kuin valtionyhtiön hoitama monopoli.

Keeping it in the family: Changing relationships in the lottery sector

I have written this text for www.ice365.com, and it is partly edited by Robin Harrison-Millan.

The lottery sector was once made up of state-owned monopolies, all with similar interests – and usually an aversion to the private sector. But as businesses evolve through spin-offs, acquisitions, and public listings, is there such thing as the ‘lottery family’ in 2021?

I remember how surprised I was when I moved from a horse betting company to a lottery in the mid-1990s. I hadn’t expected the lottery not to maximize business results. This commercially-minded young man was somewhat shocked to have to press the brakes so that sales would not have grown too much after the economic depression.

Another equally significant surprise was the attitude prevailing in the lottery business. There was a perception among the company’s management and employees that “we are better than any other gambling company”. The lottery saw itself as on a different moral plane to horse betting and casino operators. Pretty quickly, that attitude fixed itself in my mind too.

When I was involved in international cooperation between lotteries, I noticed this attitude was global, and not just a Finnish specialty. The lotteries organized, and continue to hold, an annual congress that brought together several hundred lottery leaders.

In retrospect, those congresses were like a religious ceremony to emphasize the right and superiority of one’s own cause over other gambling operators. Lotteries think that, in particular, the casino business has been bad, almost sinful, but lottery games have been harmless and good for customers.

Until recently, ‘gambling’ was a ‘forbidden word’ at lottery events. So, according to lottery people, lottery games have not been gambling but gaming.

The development of technology and business has changed the way lotteries operate, and the situation in many countries is different from what it was just over 25 years ago. My own company, Veikkaus, was one of the first companies to jump into the digital business when we launched an internet gaming offering as early as the end of 1996. Before that, we have already added sports betting to our product range. All Nordic lotteries followed the same development path.

Business development and customer-oriented thinking spread to many other lottery companies. Many companies’ directors and experts understood that lottery games are part of a larger business entity. It is not just about gambling but also about spending on entertainment and leisure.

Although that was understood in many lotteries, the word ‘competition’ also found itself on the list of ‘forbidden words’ for a long time. Almost all lotteries have the exclusive right to operate lottery games in their own jurisdictions.

Therefore, the thinking was the lottery cannot compete with other companies because it is not possible for a monopoly company. Such thinking created a dilemma where lotteries sought to increase market share at the operational level, but at the same time talked like a monopoly.

Today, the operations of lotteries are more divergent. Unfortunately, some companies still cling to that 90s mindset. The business has been developed, but only in the field of lottery games.

I have often compared the activities of these companies to a state office, where the most important task of officials is to avoid mistakes. It has been impossible for such lotteries to succeed in an increasingly fierce competition. At the very other extreme are those lotteries that operate purely commercially.

These companies follow precisely the same business principles as any large private gambling operator. The state office-type lotteries and public-listed companies have little in common, although they still belong to the ‘lottery family’.

Almost all companies inside the lottery organizations, such as the European Lotteries, have exclusive rights to lottery games. In fact, these companies have nothing else in common anymore.

Lotteries are used to planning things together, although business cooperation is generally limited to a few joint lottery products. The best-known examples of collaboration in Europe are the EuroMillions and EuroJackpot lottery games.

Although there are hardly any other joint projects, lotteries have been willing to work together, despite differences in how businesses are run. The state office-type lottery, under strict state control, is ready to discuss cooperation with a listed lottery business. But at the same time, a private gambling operator with a background in sports betting will still be considered a ‘bad’ company.

We heard some exciting news just before Christmas. One of the gambling giants, Flutter Entertainment, announced that it would buy the Italian company Sisal. Flutter counts the likes of Paddy Power, Betfair, Sky Bet, PokerStars and FanDuel among its brands.

To lotteries these are all seen as dangerous ‘gambling’ – rather than ‘gaming’ – brands. On the other hand, Sisal is part of the ‘lottery family, although its activities and ownership have always deviated from the mainstream of lotteries.

Sisal participates in the EuroJackpot game together with the Nordic, German, and many other European lotteries. Now, suddenly, Flutter is involved in that collaboration. How well can such an operator mentality fit into this lottery group? Will Flutter become a member of the ‘lottery family’ after the Sisal acquisition, or will that group begin to disintegrate?

Another interesting example of a change in the Lottery family is the tender process for the next UK National Lottery license. Camelot, Sazka, and Sisal, the largest European lottery companies, competing for the contract.

In principle, the cooperating companies have become each other’s worst potential competitors, although they do not yet compete with each other in business terms. It hasn’t been long since the directors of these three companies sat on the board of the European Lottery Association, where they were planning measures against private operators.

There is stiff competition for billion-pound businesses against partners that sit in the same organization. All three of these lotteries are owned by private investors, further increasing the weight of the business in strategic choices. Can such companies again be satisfied members of the lottery family after the UK competition as before? I doubt it, but perhaps that’s not a bad thing.

The time for traditional ‘lottery family’ thinking is over. Instead, I think new, slightly smaller groups may form among the existing lotteries, which will still be able to work together among themselves.

Cooperation should be developed between companies in a similar fashion. There is a much better basis for cooperation if the companies’ goals and values are identical. Lotteries that are state-owned and only allowed to operate lottery games have very little in common with the private companies that offer all gambling verticals across all channels.

As I said earlier, the values of a state lottery and a public-listed company are not likely to be a “match made in heaven”.

I believe that the cooperation between the lotteries will continue, but the nature of that cooperation is likely to change. Not all lotteries can and do not even want to, enter into open competition in the gambling market. It is important that companies operate based on their values and strategies and find suitable partners for that.

Vähentääkö Suomen uusi arpajaislaki peliongelmia?

Kirjoitin tämän kolumnin rahapelialan digitaaliseen www.lotterydaily.com julkaisuun ja teksti julkaistiin englanniksi 4.1.2022. Koska asia koskee lähinnä Suomea, niin kirjoitin nyt saman tekstin suomeksi.

Aloitan vuoden 2022 kirjoittamalla oman kotimaani Suomen rahapelijärjestelmän tilanteesta. Kirjoitin noin vuosi sitten ehdotetusta uudesta arpajaislaista, joka oli silloin lähdössä EU:n notifikaatioprosessiin. Suomen eduskunta hyväksyi tuon uuden lain juuri ennen joulua ja laki tuli voimaan 1.1.2022. Laissa on muutamia kohtia, joille on annettu siirtymäaika, minkä vuoksi osa uudistuksista toteutetaan vasta viimeistään vuoden 2023 aikana.

Hallitus on kertonut, että uuden arpajaislain tarkoituksena on auttaa Suomen säilyttämään rahapelien yksinoikeusjärjestelmä ja samalla mahdollistaa rahapeleistä aiheutuvien haittojen vähentäminen. Aiemmin faktisena tavoitteena on ollut myös rahapeleistä valtiolle ja edunsaajille kerättävien tuottojen optimointi, mutta nyt näyttää siltä, että tästä tavoitteesta on luovuttu. Vastuullinen pelaaminen on siis Suomen rahapelijärjestelmän selkeä uusi virallinen päätavoite. En kuitenkaan ole varma, että uusi laki auttaa saavuttamaan tämän tavoitteen.

Ennen kuin perustelen näkemystäni siitä, että uusi laki ei ole hyvä ratkaisu, käyn läpi lain myötä Suomessa muuttuvia asioita. Uuden lain myötä offshore-rahapeliyhtiöiden (ulkomaiset yhtiöt & PAF) toiminta tulee olemaan Suomessa entistä hankalampaa. Suomalaiset asiakkaat saavat edelleen pelata ulkomaisille peliyhtiöille, mutta yhtiöt eivät saa markkinoida ja suunnata myyntitoimenpiteitä Suomeen. Markkinointirajoitukset koskevat nyt myös yksittäisiä henkilöitä. Tällä muutoksella pyritään estämään erityisesti sosiaalisessa mediassa tapahtuvaa lähinnä julkisuuden henkilöiden harjoittamaa toimintaa. Markkinointikiellon osalta on haasteena se, että laissa ei ole riittävän tarkasti määritelty sitä, mikä katsotaan markkinoinniksi ja myynninedistämiseksi.

Rahapelitoiminnan valvoja, Poliisihallitus, ylläpitää mustaa listaa yhtiöistä, joiden se katsoo rikkoneen markkinointikieltoa. Mikäli peliyhtiö ei muuta toimintaa, jonka regulaattori on katsonut laittomaksi, joutuu yhtiö mustalle listalle. Suomen on tarkoitus ottaa vuoden 2023 alusta alkaen käyttöön rahansiirtojen estot, jolla estetään suomalaisten asiakkaiden rahansiirrot offshore-yhtiöille. Pankkien ja maksuvälitysyritysten tulee estää rahansiirrot niille yhtiöille, jotka ovat joutuneet Suomen mustalle listalle. Tavoitteena oli myös estää rahansiirrot toiseen suuntaan eli peliyhtiöiltä asiakkaille. Tätä estoa ei kuitenkaan voitu toteuttaa, koska perustuslain tulkinnan mukaan asiakkailla on oikeus saada voitot laillisesti pelatuista peleistään. Koska pelaaminen ulkomaisille yhtiöille on edelleen laillista, niin voittojen maksua ei voida estää.

Äkkiä ajatellen saattaa näyttää siltä, että uusi arpajaislaki pyrkii suojelemaan monopoliyhtiö Veikkauksen toimintaa. Näin ei kuitenkaan käytännössä tapahdu. Veikkauksen toiminnalle tulee lisää rajoituksia. Yhtiön markkinointia rajoitetaan, pelaamisen määrälle tulee rajoituksia, vuoden 2023 loppuun mennessä kaikki rahapelaaminen on mahdollista vain tunnistautuneille asiakkaille, raha-automaattien määrää supistetaan paljon jne. Kaikkien näiden toimenpiteiden tavoitteena on vähentää Suomen rahapeliongelmien määrää.

Edellä mainitut toimenpiteet ovat jo aiheuttaneet merkittävän laskun Veikkauksen tuotossa. Suomen valtio ja edunsaajat saivat vielä muutama vuosi sitten rahapeleistä vuosittain noin 1,2 miljardin euron rahasumman. Nyt tuo summa on laskenut jo noin 700 miljoonan euron tasolle, eikä uusi laki tuo tähän tilanteeseen parannusta. Suomalaiset ovat kyselytutkimusten mukaan tukeneet rahapelien monopolijärjestelmää poikkeuksellisen vahvasti. Laaja edunsaajaverkosto on saanut monopoliyhtiön tuottoja vuosittain noin miljardi euroa, ja tuo verkosto on ollut suurin syy monopolijärjestelmän puolustamiseen. Nyt nuo syyt puolustaa järjestelmää ovat ainakin vähentyneet merkittävästi.

Veikkaus saa uuden lain myötä joitakin pieniä helpotuksia toimintaansa, mutta niiden tuottoja lisäävä vaikutus on kuitenkin korkeintaan muutamia kymmeniä miljoonia euroja. Tämän lisäksi Veikkaus saa nyt oikeuden perustaa B2B liiketoimintaan keskittyvän tytäryhtiön, josta odotetaan pitkällä tähtäimellä kymmenien miljoonien eurojen vuosituottoja. Uusi yhtiö keskittynee myymään rahapelituotteita ja niitä tukevia teknologisia ratkaisuita toisille peliyhtiöille. En voi tätä asiaa kommentoida neutraalisti, koska erimielisyys toiminnan sisällöstä oli suurin syy Veikkauksesta irtisanoutumiseeni. Joka tapauksessa toivotan onnea uuden yhtiön pyrkimyksille!

Uudesta laista aiheutuu siis harmia offshore-yhtiöille, monopoliyhtiö Veikkaukselle ja sen nykyisille edunsaajille. Tavallisten asiakkaiden näkökulmastakin laki aiheuttaa ainakin jonkin verran harmia, eikä siinä olen keskimääräisen asiakkaan kannalta mitään erityisen hyvää. Uusi arpajaislaki voi kuitenkin olla hyvä ratkaisu, jos se auttaa saavuttamaan valtion suurimman tavoitteen eli peliongelmien määrän laskun. Suomi on nyt selkeästi valinnut linjan, jossa rahapeleistä saatavilla tuotoilla ei ole enää samanlaista merkitystä kuin aiemmin. Vielä muutama vuosi sitten Veikkaus joutui tasapainoilemaan omistajansa ristiriitaisten tavoitteiden välillä, kun valtio odotti samaan aikaan lisää tuottoja ja vähemmän peliongelmia.

Avainkysymys on siis, tuleeko peliongelmat vähenemään Suomessa uuden lain myötä. Toivottavasti näin käy, mutta en ole siitä lainkaan varma. Virallisten tutkimusten mukaan noin kolme prosenttia suomalaisista kärsii peliongelmista, ja vajaat prosentti vakavista ongelmista. Tämä peliongelmien taso on pysynyt suunnilleen samana lähes koko 2000-luvun ajan. Veikkaus tekee omaa epävirallista rahapeliongelmien määrän seurantaa. Yhtiön tutkimusten mukaan peliongelmien määrä on vähentynyt koronaviruksen aikana hieman alle kahden prosentin tasolle. Suomen peliongelmista suurin osa on aiheutunut raha-automaattitoiminnasta. Nyt automaattien määrän vähentäminen, niiden pelaamisen salliminen vain rekisteröityneille asiakkaille sekä kyseisten laitteiden väliaikainen sulkeminen koronan takia ovat todennäköisesti parantaneet peliongelmien tilannetta. Uuden lain mukaan Veikkaus voi edelleen pitää raha-automaatteja kaikkialla Suomessa niin kutsutuissa avoimissa tiloissa kuten supermarkettien aulatiloissa, kahviloissa ja huoltoasemilla.

Nykyisessä monopolijärjestelmässä viranomaisen mahdollisuus valvoa toimintaa kohdistuu käytännössä vain monopoliyhtiöön. Uuden lain myötä regulaattori saa jonkin verran välineitä ja resursseja puuttua myös offshore-yhtiöiden toimintaan. Suomen rahapelaamisesta suuntautuu jo noin 1/3 muille yhtiöille kuin Veikkaukselle. Digitaalisissa kanavissa ulkomaisten yhtiöiden, mukaan lukien ahvenanmaalainen PAF, markkinaosuus on jo noin puolet. Joissakin tuoteryhmissä, kuten kiinteäkertoimisessa vedonlyönnissä, Veikkauksen markkinaosuus on enää korkeintaan neljännes. Pelaamista koskevat pelirajat eivät siis ulotu offshore-yhtiöihin, jolloin kenelläkään ei ole käsitystä yksittäisten ihmisten pelaamisen volyymeistä. Tässä tilanteessa mahdollisten peliongelmien ennalta ehkäiseminen on erittäin vaikeaa.

Suomessa järjestetään eduskuntavaalit huhtikuussa 2023. Sitä ennen emme saa virallisia tietoja uuden arpajaislain vaikutuksista peliongelmiin, mutta joku käsitys asiasta toivottavasti kuitenkin on. Edunsaajien saamat rahat eivät todennäköisesti enää tule suoraan Veikkauksen tuotosta vuoden 2024 alusta alkaen. Jos siis käy niin, että peliongelmat eivät vähene, edunsaajat eivät enää puolusta voimakkaasti Veikkauksen monopolia ja offshore-yhtiöiden markkinaosuus jatkaa kasvuaan, niin todennäköisyys siitä, että uusi eduskunta tekee päätöksen lisenssijärjestelmään siirtymisestä, on erittäin suuri. Ennustan, että Suomi seuraa Ruotsin tietä noin viiden vuoden sisällä.

Will Finland’s new Lottery Act reduce gambling problems?

I have written this text for http://www.lotterydaily.com, and Charlie Horner has partly edited it.

I start 2022 by writing about the situation of my home country’s Finnish gambling system. Less than a year ago, I wrote about the proposed new Lottery Act, which was after that in the EU‘s notification process until August. The Finnish Parliament passed that new law just before Christmas, and the law came into force on January 1st, 2022. A few points in the law have been given a transitional period, which is why some of the reforms will be implemented later, at the latest, during 2023.

The government has stated that the purpose of the new Lottery Act is to help Finland maintain its monopoly system of gambling and at the same time enable the reduction of harm caused by gambling. In the past, the de facto goal has also been to optimize the revenue collected from gambling for the state and its beneficiaries, but now it seems that this goal has been abandoned. Responsible gaming is thus a clear new main goal of the Finnish gambling system. However, I am not sure that the new law will help achieve that goal.

Before I justify my view that the new law is not a good solution, I will go through the things that change with the law in Finland. With the new law, the operations of offshore gambling companies in Finland will be even more difficult. Finnish customers are still allowed to play to foreign gambling companies, but the companies are not permitted to market and have sales operations in Finland. Marketing restrictions now also apply to individuals, and that change is intended to prevent social media activity, mainly from celebrities. Concerning the marketing ban, the challenge is that the law does not define what is considered marketing and promotion in sufficient detail.

The gambling regulator, the National Police Board, maintains a blacklist of companies that it thinks have violated the marketing ban. If the gambling operator does not change the activity that the regulator has deemed illegal, the company will be blacklisted. Finland plans to introduce payment blocking from the beginning of 2023, which will prevent Finnish customers from transferring money to offshore gambling operators. Banks and payment service providers must prevent money transfers to those companies that have been blacklisted in Finland. The aim was also to prevent money transfers in the other direction, i.e., from gambling companies to customers. However, this blockade could not be enforced because, according to the interpretation of the Constitution Law, customers are entitled to winnings from their legally played games. As gambling for offshore companies is still legal, the payment of wins cannot be blocked.

It may appear that the new Lottery Act seeks to protect the operations of the monopoly operator Veikkaus. However, that is not the case in practice. There will be more restrictions on Veikkaus‘ operations. The company’s marketing will be restricted, there are maximum limits for gambling, by the end of 2023, all gambling will only be possible for registered customers only, the number of slot machines will be reduced a lot, etc. All these measures aim to reduce gambling problems. 

The above measures have already caused a significant decrease in Veikkaus’ revenue. A few years ago, the Finnish state and beneficiaries received about 1.2bn euros a year from gambling. Now that amount has already fallen to around EUR 700m, the new law will not improve the situation. Finns have been highly supportive of the gambling monopoly system. An extensive network of beneficiaries has received a monopoly revenue of around EUR 1bn a year, and that network has been the main reason for defending the monopoly system. Now the reasons to support the system have at least diminished significantly.

Veikkaus will receive some slight relief for its operations with the new law, but their total revenue-increasing effect will not exceed, even in the best case, a few tens of millions of euros. In addition, Veikkaus will now have the right to establish a subsidiary focusing on the B2B business, which is expected to generate tens of millions of euros in annual revenue in the long term. The new company will likely focus on selling games and supporting technology solutions to other gambling companies, mainly lotteries. I cannot comment on this matter neutrally because the disagreement over the content of the operation was the main reason for my resignation from Veikkaus. In any case, I wish Veikkaus good luck with the new company’s operations!

Therefore, the new law will be detrimental to offshore companies, the monopoly company Veikkaus and its current beneficiaries. Even from the point of view of ordinary customers, the law causes at least some difficulties, and there is nothing particularly good about it for the customers. However, the new Lottery Act can be a good solution if it helps achieve the state’s biggest goal, reducing the number of gambling problems. Finland has now clearly chosen a line in which the income from gambling no longer has the same significance as before. Veikkaus has been balancing between conflicting goals, while the state has expected more revenue and fewer gambling problems at the same time.

The critical question is whether gambling problems will decrease in Finland with the new law. I hope so, but I’m not sure at all. According to official research, about three percent of Finns suffer from gambling problems and less than one percent from serious ones. That level of gambling problems has remained roughly the same throughout most of the 21st century. Veikkaus runs its own unofficial monitoring of gambling problems. According to the company’s study, the number of gambling problems has dropped to just a 2 percent level during the Covid-19. Most of Finland’s gambling problems are due to slot machine operations. Now, reducing the number of slot machines, allowing only registered customers to play them, and temporarily shutting down those devices because of Covid are likely to have reduced the number of problems. According to the new law, Veikkaus can still keep slot machines all over Finland in so-called open spaces, such as supermarket lobbies, cafés, and petrol stations.

In the current monopoly system, the possibility for the regulator to control is limited to the monopoly company. With the new law, the regulator will also have some tools and resources to intervene in the operations of offshore companies. About 1/3 of Finland’s gambling is already played at companies other than Veikkaus. In digital channels, the market share of offshore companies, including PAF from Åland, is already about half. Veikkaus’ market share is no more than a quarter in some product groups, such as fixed-odds sports betting. Gambling limits thus do not extend to offshore companies, so no one has an idea of the volumes of gambling by individuals and cannot control it. In that situation, it is challenging to prevent potential gambling problems.

Finland will hold parliamentary elections in April 2023. We will not receive official information on the effects of the new Lottery Act on gambling problems before that, but hopefully, we will have some idea about it. The money received by the beneficiaries will probably no longer come directly from Veikkaus’ profit from the beginning of 2024. Thus, if the gambling problems do not diminish, the beneficiaries no longer strongly protect Veikkaus’ monopoly, and the market share of offshore companies continues to grow, then the probability that the new parliament will decide to change to a license-based system is very high. I predict that Finland will follow the path of Sweden in about five years.

The changing operating environment for lotteries

I have written this text for http://www.ice365.com, and they have partly edited it.

I’ve been lucky to have been working in the gambling industry for most of my business career. For most of that time, I have worked with lottery companies. 

The past 18 months, during which I have been consulting in the gambling industry, have opened my eyes to the enormous change our entire industry is currently undergoing. I’m a little worried about how well lotteries understand that need for change and whether they will be able to react fast enough.

The lottery world has already changed a lot in recent years. In the past, lottery companies were largely state-run entities, but this is no longer true, at least not in Europe. States still own lotteries in many countries, but more and more companies are privatized. 

The operating model of an investor-owned listed company is very different from that of a state-owned company, and this has inevitably affected the operation of lotteries as well. 

I’m confident that lotteries, which operate similar to private businesses, will thrive in this evolving environment. The likes of Camelot, La Française des Jeux, Sazka Group and Sisal examples have shown this is possible, as have Nordic lotteries such as Danske Spil and Svenska Spel.

Not so different

The interesting question is how lotteries under the strict control of the state will cope with the challenges of the future, or even the hurdles they face today. Lotteries often see themselves as distinct from what is traditionally considered a gambling business. This is not the case. I would argue that when it comes to customers’ decision-making, they consider lotteries as part of the overall gambling industry or even the entertainment and leisure market. 

Lotteries, therefore, need to understand that they are competing, despite their nominal monopoly position, against other gambling offerings. If this is not acknowledged, the state-run businesses will have little chance of success in the years to come.

Accepting and adapting to a competitive situation does not mean that lotteries should change their entire operations. Having said that, it is important to understand the most critical choices for customers when considering where to spend their money. 

Lotteries need to know their customers better and understand the motives for gambling, or as many insist on calling it, gaming. In this way, lotteries can find the right strategic solutions that will help them continue to succeed in their markets. 

Changing channels

It is clear that lotteries need to invest heavily in digital channels. The traditional retail model is no longer enough. Of course, there are still significant regional differences here. In any case, products must be available where customers spend their time anyway. 

Another key area for change relates to the scope of the product range. Private gambling operators are one-stop shops today, offering all gambling verticals under a single brand. For consumers, it is much easier to bet, play slots, and have a game of bingo via one provider than it is to jump between offerings. 

Therefore offering lotto games and scratchcards is no longer enough; customers expert more. Equally, it is essential to understand that digitizing operations and expanding the product range should not mean abandoning responsibility requirements.

State of play

Perhaps the biggest challenge lies in the changing relationship between the lottery and the state. From my experience, I know that the directors at several lotteries have spotted what is required to future proof their businesses – but the state has not given permission to make the necessary changes.

There are two distinct roles that the state plays when it comes to lotteries. One is as the “parent company”, with the power to guide decision making, and the other is as a regulator of gambling activities. Through this second role, the state can play a decisive part in whether the lotteries under their control are able to remain relevant in a changing industry. 

Strict regulation, for example, can prevent the lottery from digitizing its operations and expanding the product range as required. In many cases, a lottery’s apparent refusal to change with the times is seen as laziness – or even stupidity – on its part. The real reason for these entities being slow-moving is often down to the state. 

The changes set out above require a change in mindset among the key decision-makers in the lottery world. Lottery chief executives and their management teams must first understand the need for change. Then they must work with their boards to enable the necessary changes to the business and set out what can be considered a success in competing against the private sector. 

After that, they have to get support and acceptance from the state for their planned changes – they must “sell” the proposal at the highest level. This requires a significant shift in the ways many think of lotteries and their purpose. That new mindset must also be applied internally, so staff can change how they present and promote products to customers.

Fortunately, this is hardly rocket science. Even within the lottery world, several successful case studies are available in which a lottery has succeeded in modernizing its business. Benchmarking and best practices are a reasonable basis for change, but there can always be an even better way to do things. When making decisions, efforts must be made to find the best possible solution to the current market situation.

All of the above will also help lotteries prepare for possible changes in the legislative environment. I do not think that the future lottery business will be based on a monopoly system. If a company is competitive, it will thrive regardless of the gambling system. In the following columns, I will elaborate on my views on the possibilities of modernizing lottery activities.

Horse betting in the lotteries product portfolio

I have written this text for http://www.lotterydaily.com, and Conor Porter has partly edited it.

Traditionally, horse betting and lotteries have not belonged together. The gambling business is almost everywhere based on a model in which gambling is divided into three or four different areas of activity. Casino operators have run casinos and in recent years, also online casinos. Betting companies have operated sports betting, including in many cases, horse betting. 

On the other hand, there have also been separate horse betting companies in the market that have taken care of on-track betting and later also online horse betting. In addition to these, there have been lottery companies whose product range has included lotto games and scratch cards. The product range of lotteries has expanded to sports games in many countries, and in some cases, to casino games and horse betting.

As we know, the consolidation of the gambling industry is happening at a rapid pace. New operators from outside the gambling industry have entered or are entering the industry. In addition to this, the division within the industry is breaking down. More and more operators today offer almost all different product groups for gambling. The digitalization of operations and online sales have made this more accessible than it was in the old retail channel model. For example, many traditional sports betting operators now make most of their revenue from casino games. Several lotteries have also realized that they have the potential to succeed in the competition if they expand their business to other gambling verticals.

Customers’ demands on businesses have grown tremendously. Companies can no longer succeed with old-fashioned operating models. Products should be available where customers are anyway. That has placed great demands on the digitization of operations. It is already impossible to do an effective gambling business in many countries without an online sales channel. For example, about half of all gambling sales take place on digital channels in Nordic countries. Customers also seem to prefer companies from which they can buy all products from one place. This implementation requires expanding the product range to cover all major product groups. The competitive advantage of lotteries is so far quite strong, as private operators have not found a sensible way to offer lottery jackpots. However, lotteries should also be active and expand their product range to other gambling verticals.

As I said earlier, lotteries don’t easily come to mind when you think about horse betting. When you look at it a little more closely, the image turns out to be at least partially wrong. One member company of the World Lottery Association (WLA) is the Hong Kong Jockey Club (HKJC), one of the world’s largest horse betting companies. In addition to HKJC, WLA’s member companies include dozens of lotteries that also offer horse games. In Europe, companies like SISAL, IGT Lottery, Veikkaus, Loterie Romande, Svenska Spel, and Danske Spil have horse betting in their product portfolio. According to the experience of European companies, customers who actively play horse betting also play other games offered by lotteries and are therefore very profitable customers.

The WLA recently added an interesting new member company in Europe’s biggest horse betting company, the French PMU. PMU has been working closely with lotteries, mainly in French-speaking countries, for a long time. Several of the lotteries in the French-speaking countries of Africa sell PMU horse betting, which accounts for a large proportion of the total revenue from those lotteries. PMU also cooperates with European lotteries at two levels, commingling and technology.

The strength of lotteries compared to other gambling operators is the large number of customers and the tradition of cooperation. As we know, the big lottery products in North America and Europe are the result of collaboration. Individual lotteries could not have produced products like Euro Millions and Powerball. In such pool-based products, collaboration allows for huge jackpots. The same model could work in the area of horse betting. Lotteries have an extensive customer base and sales network in their own countries. When combined with an exciting product, there is a “winning combination” in size. Of the WLA members, both HKJC and PMU already have betting products that would seem to appeal to customers of other lotteries.

Last week, WLA organized a horse betting webinar, where lottery companies were introduced to the World Pool horse betting that is already up and running. Lotteries from countries where horse racing is a popular sport should consider joining that World Pool game. The easiest way to expand your product range to the field of horse betting could be to work with PMU. I believe that other member companies in the lottery world that already run horse betting are also ready to help other lotteries join.

The development where lotteries are getting involved in the horse betting business is exciting to me personally. My gambling business career started with a horse betting company, where I had time to be the CEO for a while before joining the lottery company. I’m still an active horse bettor and involved in Board-level horse racing activities here in Finland. That’s why I think I’m qualified to help lotteries who want to understand the potential of horse betting. So, I’m ready to help if contacting the giants of the lottery world is not the most interesting option of all.

Lottery license bidding

I have written this text for http://www.lotterydaily.com, and Conor Porter has partly edited it.

Lottery gaming is still based on a monopoly system in almost all countries. At the same time, however, the activities of other gambling verticals are based in more and more countries on a licensing system with dozens or even hundreds of gambling companies. Is the traditional monopoly system based on law already too old-fashioned to conduct lottery activities?

Gambling operations cause significant problems for some customers. It is therefore up to society to restrict this activity. The situation is the same as in alcohol and tobacco businesses. In the area of gambling, states have decided not only to regulate operations but also to own the companies that run the lottery business by themselves. From this background, state lotteries have emerged, in which the state acts as the owner of the companies. In some cases, state lotteries are part of the state administration and do not operate like regular business ventures. In such a situation, there is certainly no attempt to maximize business results.

The interesting question is, why have states ended up controlling lottery businesses in particular? From society’s point of view, the starting point would seem to be the precise regulation of hazardous activities. In gambling, however, the situation appears to be just the opposite. The most problematic activity for players, casino games, has always been in private business in most countries. The next most dangerous area, betting, has also moved into the normal course of business almost everywhere. Of course, states continue to control these gambling areas through legislation and regulation, but there is no longer any state’s direct ownership of these activities – if at all. In contrast, the situation is different for the least problematic gambling vertical, lottery games, the situation is different – why?

The European Court of Justice has outlined the justification of the gambling monopoly system for EU countries. According to court rulings, Member States are free to decide on their gambling legislation as long as the rationale for the schemes is credible. A monopoly system can be a legitimate model for carrying out gambling activities if the primary purpose is to prevent problems related to gambling activities – problem gambling and criminal activities (including money laundering). According to the ECJ, fiscal targets, gambling revenues are not legitimate for a monopoly system. Against this line, it is fascinating to consider how and why rather dangerous casino activities are much less under the control of Member States than reasonably harmless lottery activities.

I’m not even trying to be a lawyer, so I’ll stop legal reflection on this. However, it is interesting to think about how states should organize lottery activities to meet legal requirements while still generating significant revenues for states. I do not favor full liberalization / licensing of lottery activities, although, in principle, I favor a free-market economy. There are usually so many gambling companies in a free competition that the business is decentralized to several operators. In lottery games, this would not necessarily be in the interest of customers because, in lottery games, the big jackpot is the primary motive for playing. In a competitive situation, the size of the jackpots would collapse compared to the current monopoly situation, and I do not consider that to be a good thing for customers.

In my current role as a gambling consultant, I have had the opportunity, for a small part, to be involved in the lottery exclusive license bidding process in a couple of countries. That is, in my view, the best way to combine the monopoly system and the market economy to preserve the legal legitimacy of the system and optimize the revenue on the operation. The bidding process would also avoid the strange situations in which countries have given privately-owned companies the exclusive right to run lottery activities. I have wondered why no one has questioned such cases, which are numerous in Europe, for example.

Bidding for a lottery license is undeniably a very laborious process. The UK is probably the most famous country that uses the lottery license. There, the license is in principle granted for ten years at a time. If I have understood correctly, Camelot UK, which has had the license since the beginning of the system, starts preparing for the bidding about a couple of years before the expiry of the current license. Dozens, unless the hundreds, employees will be involved in preparing tender documents, and costs are indeed very high. I have heard that the tender documents have contained more than 1,000 pages of text per participating company. It is also a tremendous job to evaluate the offers and decide who will win the license.

However, the bidding model seems very good otherwise. The competition will help to preserve the best aspects of lottery activities while at the same time dismantling the dual role of states. The state acts as a self-regulator in a traditional monopoly system, which is not the best possible situation. It is certainly challenging, if not impossible, for states to forget the importance of lottery revenues when making regulatory decisions. In a competitive-based model, this can be expected to be more accessible.

I know that there has also been criticism of lottery licensing in the UK. I think that the participating companies present their estimates of revenue development during the licensing period, which has a reasonably significant weight in selecting the licensee. However, I assume that that return estimate is not a promise of any kind. If the winning company does not produce the amount presented to the state, it will face no financial consequences. Admittedly, there may be some inconvenience in getting the following license.

No system is perfect, but I still see lottery monopoly licensing as a model that other countries should seriously consider. It would be interesting to consider a similar model, based on a limited number of licenses, for other gambling verticals too.