Development of Finnish gambling situation – August 2021

I have written this short analysis of the Finnihs gambling situation together with my business partner Reijo Anttila.

Market situation H1/2021

• The Covid-19 has continued to have a negative impact on gambling activities in Veikkaus’ physical channels. Gaming arcades and slot machines have had to be partly closed.
• Compulsory identification-based gaming of physical slot machines came into force in the decentralized slot machines in January 2021. That will significantly reduced Veikkaus’ gross gaming revenue.
• Mandatory identification of slot machines in Veikkaus’ own gaming arcades came into force in July 2021. The foreign slot machines used by Veikkaus did not have an identification feature ready. As a result, these slot machines had to be closed in Veikkaus’ gaming arcades. Slot machines will be reopened when it is possible that customers can identify themselves in those machines. According to unofficial information, the customer’s obligation to identify himself has collapsed the gaming margin accumulated in Veikkaus’ gaming arcades.
• Veikkaus started collective bargaining in August 2021. According to the company’s announcement, its purpose is to reduce approximately 200 jobs from the point-of-sale organization. In addition, the company is working to make organizational changes for hundreds of its other employees.
• In September 2021, the gambling limits for digital, fast-paced gambling will be extended to include slot machine gaming at the physical point of sales. That will further reduce Veikkaus’ revenues. Until now, physical slot machines have been allowed to be played as much as customers want, but in the future, the player will have to set a limit on both daily and monthly consumption. According to the experience of the digital channel, the limits will be set tight. It is estimated that there are tens of thousands of problematic slot machine players, and playing of that group will go down a lot. It is quite possible that some of the declining gambling is likely to move to the digital gambling services of offshore operators.
• According to information obtained from various sources, the gaming revenue of offshore companies in Finland has been growing strongly during the Covid-19 period.

Gambling in Veikkaus’ physical channel, in particular, is undergoing a considerable change. According to Veikkaus’ H1 / 2021 interim report, only 45 % of gambling took place in the physical channels, and 55 % came from digital sales. In 2019, the physical sales channel accounted for almost 60 % of total sales. At present, about 65 % of all Finnish gambling takes place on digital channels. Within a couple of years, that share will exceed 70 %.

Drafted Lottery Act 2021

• The project to reform the Lottery Act in accordance with the Government Program was launched in January 2020, when a preparatory working group was appointed.
• The working group completed the proposal in late 2020. Opinions on the proposal were given in early 2021.
• The critical points of the drafted law are:
  • The law provides for payment blocking to limit the availability of offshore gambling. Blockings are targeted at gambling companies that market in violation of the Lottery Act. The law does not define what is considered illegal marketing. The regulator (the National Police Board) makes an interpretation. The regulator maintains a “blacklist” of illegally marketing gambling operators. Banks and payment service providers are required to block payment transactions to “blacklisted” gambling companies.
  • Provisions on mandatory player identification are added to the law. In the beginning, of course, this only applies to Veikkaus’ operations, but it can be considered a policy that will be valid later also in a possible licensing market situation.
  • A provision is added to the law to extend the decision prohibiting the marketing of gambling that violates the Lottery Act to natural persons. In addition, there will be the possibility of imposing an administrative penalty fee for marketing in breach of the Lottery Act.
  • According to the bill, Veikkaus will be allowed to market horse and sports betting, even though they are considered to be gambling products that can cause significant gambling problems.
  • The law specifies the provisions concerning Veikkaus’ marketing and supervision of the implementation of gambling. In addition, conditions on the placement and self-monitoring of slot machines will be added to the law.
  • The Act adds provision on the possibility for Veikkaus to establish a subsidiary engaged in business between companies (B2B) for non-gambling activities and on the conditions and restrictions concerning the subsidiary’s operation to be installed.
• The drafted law was sent at the end of April 2021 to the EU notification process. The start of the EU process was so urgent that the opinion of the Legislative Evaluation Council was not available before the process started. A subsequent opinion of the Evaluation Council noted several shortcomings in the preparation of the law. Particular attention will be paid to the fact that the preparation work has not explored other possible options (e.g., legislation based on a licensing system). The explanatory memorandum to the Lottery Act also lacks financial calculations and impact assessments of the law to the operations of the Åland-based PAF company.
• In July 2021, Malta issued a “detailed opinion” on the law in the context of the EU notification process. The “detailed opinion” challenges the Finnish state to justify the necessity and proportionality of the decisions. Finland has three months to give its answer and make any necessary changes. Although the measures in the law appear to be significant in order to achieve the stated goals, the result is probably that the bill will be essentially the same for consideration by parliament. According to unofficial information, Finland has already answered and apparently made only minor changes to the bill. The law is expected to be submitted to the Finnish Parliament in the coming weeks – in September 2021.
• The probabilities of whether a proposal will go through at all, whether it will go through as it is presented, or whether it will go through modified will vary all the time. The collapse of Veikkaus’ financial result favors rolling the change in the law on a tight schedule. The outcome of the changes in the law will not significantly change the situation. So, a serious debate on the transition to a licensing system is ahead in any case.
• According to the information, it seems certain that the current model, in which the beneficiaries’ revenue is directly linked to Veikkaus’ income, will be dismantled. A working group has been appointed to prepare for the change, which is expected to present a proposal by the end of 2021. The goal is for the change to take effect from the beginning of 2024. Breaking the direct link between the beneficiaries and Veikkaus’ income also requires an amendment to the Lotteries Act. As a result, the law will have to be reopened in either 2022 or 2023. In this context, it is theoretically possible that other significant changes could be made to the law.

Political situation

• Political turbulence is severe. The governmental program binds government parties, but the situation is difficult due to Veikkaus’ revenues collapse. Politicians would like to support Veikkaus’ market position, but there are no ways to do so. According to current information, the Lottery Act is going to be accepted in parliament. However, there has been debate about the rationale for monopolistic gambling legislation, and MPs, also from governmental parties, have expressed differing views.
• The connection between Veikkaus and its beneficiaries will be severed by 2024 at the latest. Before that, the state subsidy received by Veikkaus’ beneficiaries will already decrease considerably. Veikkaus’ revenues will be transferred to the state budget, from which the beneficiaries’ grants will be paid in accordance with the budget decisions made by the respective government.
• A political debate has begun on changing the entire gambling system. Veikkaus’ market share of all Finns’ gambling will fall below 70 % in the coming years. In digital channels, Veikkaus’ market share is close to 60 %, and in the competitive gambling product areas (casino games and fixed-odds betting), it is estimated to be only about 35 %. Based on these developments, it is no longer sensible and possible to continue with a monopoly system. The question is mainly at what stage the system will be converted to license-based and what kind of multi-license system will be created.
• It is unlikely that the next Finnish government will decide to continue with the gambling monopoly system. The next population survey on gambling problems will be conducted in 2023. It is assumed that the number of gambling problems will not decrease significantly in that survey. Reduced slot machine gambling lowers the gambling problems experienced to some extent. It is doubtful that this effect will be seen in the population survey, as the share of digital gambling has exploded in both gambling and the number of gambling problems.
• The share of digital gaming in Finland’s total gambling will soon reach 70 %. Veikkaus’ market share of that gambling has fallen rapidly to 60 %. In certain competitive product areas, Veikkaus’ share of gambling is already at a very low level; for example, in fixed-odds sports betting, it is estimated at only about 25 %. In such a market situation, the monopoly system can no longer continue.