I have written this text for http://www.lotterydaily.com, and Charlie Horner has edited it.
Besides Norway, my home country, Finland, is the only country in western Europe where the entire gambling business is still based on a monopoly system. Some years ago, Norway seriously considered changing the system, but in the end, the country ended up with the opposite solution and only started strengthening the monopoly system. Finland reached the same solution, as a result of which the previous three gambling companies were merged into one monopoly company. That new company, Veikkaus, has been operating for almost six years, and the results have been anything but what was hoped for.
What is wrong with the monopoly system, and what are the reasons for failure in Finland? First, a few basics need to be explained.
It is a general fact that monopoly reduces business because the market economy does not get to work in the best possible way. Monopoly causes inefficiency, which has been considered a good thing in controlling the gambling business. According to the legislation of many countries, gambling is a business that has been prohibited in principle and which the state has then given an exemption to a company to operate. The basic idea has been to limit the activity significantly and thus protect people from the harmful effects of gambling. This kind of activity worked well in a situation where business was only done in the retail channel, but the situation changed radically with the internet.
It is generally thought that doing a gambling business and responsible operation are mutually exclusive things. This is fundamentally a wrong way of thinking. There is no direct correlation between gambling sales and the number of gambling problems, and increased gambling sales do not automatically increase the number of gambling problems. Responsibility measures to prevent gambling are not the best possible way to prevent gambling problems. We must definitely try to reduce the problems, but there must be more effective tools than making it more difficult to play.
The basic idea that monopoly itself prevents gambling problems is completely wrong. If that assumption were valid, Norway and Finland should have the fewest gambling problems in Europe. However, this is not the case; the situation is even the opposite.
Generally, wrong assumptions cause incorrect operating models and unrealistic goals. The functionality of a good gambling system does not depend on whether the system is monopoly or license-based. I believe that a monopoly can be a good model, but it requires excellent regulation to work, which correctly understands business fundamentals. Simply restricting the operation robs the system of its legitimacy in customers’ eyes. In such a situation, the official restrictions no longer work. Similarly, a license-based system can cause unnecessary problems if the regulation is not up to date.
What has gone wrong in Finland? In Finland, the state tried to protect the gambling system based on monopoly when it decided to merge the previous three companies (Fintoto, RAY and Veikkaus) into one company. The goal was to enable more efficient business operations when there was no longer a need to prevent competition between Finnish companies. The assumption was to increase gambling revenues and satisfy customers who receive international-level products and services from their own company. The single company model was also believed to help prevent gambling problems, as customers’ total gambling and potential problems can be monitored from one system.
The Lottery Act, which entered into force at the beginning of 2017, strongly emphasized responsible gaming. The legal text stated that Veikkaus’ task is to prevent gambling problems. In fact, this was the sole function of the gambling company by law. Not a word was mentioned in the law about the two other big goals mentioned in connection with the change, a competitive offer and a moderate increase in the level of profits.
New Veikkaus has had difficulties getting permits for new products and services from the beginning. At the same time, international gambling companies have continued their product and service development, the results of which have been easily available to Finnish customers via the internet and mobile channels. Although offshore companies have not been allowed to do marketing in Finland, information about the companies has spread widely, and an increasing number of Finns play money games for companies other than Veikkaus. Veikkaus, which used to take good care of its channeling task, has fallen from the top ranks of the development of the gambling world. Because of this, active Finnish gambling customers have moved to other companies.
The situation has escalated little by little. Veikkaus’ sales and GGR have decreased every year of the company’s operation. Veikkaus’ GGR was around €1.8bn when the company started operations. According to this year’s forecast, the GGR is about €1.0–€1.1bn. The drop has been in six years by about 40% Veikkaus’ market share of all gambling in Finland was at the 90% level, but now it is only about 2/3. Veikkaus has only 50% of gambling in digital channels, compared to 73% six years ago. The worst situation is in particularly competitive areas, in fixed-odds betting and online casino games, where Veikkaus’ market share is only about a third. That has happened in a situation where Finland further tightened gambling legislation from the beginning of 2022 and made it more difficult for offshore companies to operate.
The poor business results could even be justified in some way if the primary goal of reducing gambling problems had been realized. The previous nationwide gambling problem research was conducted in 2019. At that time, it was found that there had been no significant change in the overall level of gambling problems. On the other hand, the number of players suffering from serious problems had increased somewhat. After 2019, Veikkaus’ sales and GGR collapsed. Unfortunately, we will have to wait at least a year before we know how this has affected the number of gambling problems. The following nationwide research will be made next year, and the results will probably be known in early 2024. According to Veikkaus’ small-scale survey, gambling problems have decreased somewhat, but it does not seem that a tremendous change has occurred.
Veikkaus is not allowed to develop its business, and at the same time, the number of gambling problems does not seem to be developing as expected. Gambling has become more difficult for Veikkaus due to stricter responsibility requirements, e.g., mandatory identification and strict loss limits. As a result, customers have increasingly transferred their gambling to other operators. Finns’ overall gambling seems to be slightly increased after the Covid-19 pandemic, but at the same time, Veikkaus’ GGR continues to fall sharply. The new stricter monopoly legislation seems to be driving customers to offshore companies. The money flows outside of Finland, the customers are no longer under the supervision of the Finnish authorities, and the number of gambling problems does not decrease.
The situation cannot continue like this, and now it is better for everyone that the gambling system in Finland would change. That opinion was said by the CEO of Veikkaus in August when the company reported its H1/2022 result. Veikkaus, therefore, announced that it no longer considers it reasonable to continue as a monopoly company, at least in competitive gambling areas. A similar announcement by a monopoly company led to a rapid change in the gambling system in Denmark and Sweden. Judging from the comments of the political parties, the same will also happen after the parliamentary elections held in Finland in April next year.
No one yet knows what Finland’s new gambling system will be like and when it will come into force. I’ll try to help political decision-makers design the best possible model for Finland, where legislation and regulation are based on a comprehensive understanding of the gambling business. I believe that new, much better legislation will come into force in Finland within 2–4 years.