HOW WELL DENMARK HAS SUCCEEDED IN GAMBLING POLICY?

I’m sorry that I made stupid mistake by accident in my previous blog! I wrote that regulated companies had ¾ of gambling marketing in Sweden. That’s not true at all. I was supposed to write that offshore companies had ¾ of that marketing! According to statistics offshore companies had 79 % of gambling marketing and that describes very well that there hasn’t been monopoly in Sweden in practical level. I also forgot to write about the reasons why the former monopoly companies ATG and Svenska Spel have managed so well. I believe that they have done good work but of course their existing brand and customer base have helped a lot. I’m keen on seeing what kind of changes there will happen later this year.

This time I’ll concentrate on Denmark. They started with new kind of gambling legislation from the beginning of 2012, so they have now 7 years’ experience about that. There is still monopoly in lottery business but nowadays the most of gambling business is based on license system. I don’t know what official goals the Danish State set for the new system, but I could guess what they were. Probably there were at least three goals? 1. To get as much gambling as possible to regulated side instead of being illegal one. 2. Maintain or even increase the gambling revenues to the Danish State. 3. Reduce or at least minimize the number of gambling problems. My analysis might be stupid one if those weren’t the goals for that big chance they made there but I’ll take that risk…

The size of offshore gambling business in Denmark increased very much before they decided to change their legislation. The regulator, Spillemyndigheten, didn’t have tools to control actions made by offshore companies and that caused problems to monopoly operator Danske Spil which started to lobby for license system. The basic idea was to get same rules and conditions to all gambling operators in Denmark and to get all companies under control of regulator. There is still illegal gambling market in Denmark but it’s relatively small compared to situation in 2011 (before the change). By the way Spillemyndigheten calls all gambling without the Danish license illegal gambling. So, I would say that Denmark has reached the first goal.

The sale of gambling products has increased over 50 % after the change in 2012. There are big differences between different gambling verticals. Some games, mainly monopoly area, have went slightly down and some areas, online casino and sports betting, have increased a lot. So, the change has been from lower payout games to high payout games. That’s why sale number don’t give the best picture if we think about the profit to the state. The total revenue to the Danish State has been surprisingly stable all the time. State gets revenue from two different sources. There is 20 % gambling tax from GGR and they also get the profit from Danske Lotteri Spil (monopoly business). We could speculate what would happen in Denmark without the big change in gambling legislation? I believe that the revenue to the Danish State would drop and that’s why in big picture Denmark has managed to reach the second goal quite well.

Sports Betting business has changed much more. There are about twenty companies operating Sports Betting in Denmark. That number has been about at the same level from 2012, just slight decrease. During that time sale of sports betting has increased by 250 % and even GGR has raised by 215 % (2018 versus 2012). There have been also big changes in payout percent and distribution channels. Seven years ago the actual payout was about 85 % and last year it was almost 90 %. Theoretical payout is of course much higher, but customers are still using longer combinations and that’s why the actual payout is lower. Sports Betting has moved to internet and mobile channels. Last year about 1/3 of sports betting (GGR) came from land-based channel and almost 50 % from mobile channel and the rest from internet. Actually here in Finland the share of retail channel is even lower than they have there in Denmark. The biggest difference is that Live betting is quite popular in Danske Spil’s retail network.

There seems to be lack of information in the third goal area. For some reason they didn’t make problem gambling survey before they changed the legislation in 2012. The previous data is from 2005 and I think that it doesn’t give the best picture of results. Because I don’t have anything else from that area I should use those old numbers… They made large problem gambling research in 2016 which showed that there has been slight increase in the number of gambling problems compared to 2005. They have dealt problem gamblers to two different groups. There are less than 0,5 % of adults who have serious problems and they call those customers as gambling addicted or problem gamblers. The size of that group has increased a little bit. The other much bigger group is called risk players who are not “sick” yet but might have big risk to get sick. Total number of those two separate group is at the level of 3 % of adults and there has been also slight increase in that amount too. So, I would say that Denmark hasn’t managed very well in that third goal but the result has been surprisingly good if I compare that to the increase of sale and GGR.

As far as I know there are some changes planned in the Danish gambling market. They have already moved some former monopoly game areas, for example horse betting and bingo, to license part. Now there is going on quite heavy discussion about marketing limitations which seems to be the trend in many other countries too. I believe that there would be quite soon more limitations to the marketing of gambling products. One rumor is that it won’t be allowed to have sports betting marketing related to live sports events. There has been also discussions about the ownership of Danske Licens Spil which is still owned mainly by the Danish State but which is competing against other license holders.

I’m keen on seeing which system, the Danish or the Swedish, will finally get better results from all those three goal areas.

WHAT IS GOING ON IN SWEDEN?

Finland has always been some kind of “little brother or sister” of Sweden. We have so called “hate & love” relationship towards Swedish. We try to do things better than they do but unfortunately often we finally decide to copy what they have done. That’s why I’m keen on seeing what results Sweden will get from their new gambling legislation. EU-states could decide about their own gambling legislation as long as they follow EU’s main principles. Countries are observing what is happening in other countries and Finland is used to follow Sweden very closely. So, the Swedish experiences will somehow have impact on the Finnish gambling environment for sure.

Sweden has had monopoly-based gambling system until the end of last year. That was the case in principle level, but real situation has been totally different. Monopoly companies Svenska Spel (lottery, sports betting, casino) and ATG (horse betting) have been the biggest companies, but offshore operators have gained bigger and bigger market share in Sweden. The Swedish gambling regulator, Lotteriinspektionen, hadn’t enough tools and maybe brave to react against those operators. EU Court of Justice was following the Swedish legislation very closely and probably regulator wasn’t sure what they can do. That development caused challenges to ATG and Svenska Spel when they weren’t allowed to compete against offshore operators with same tools. ATG started to talk against monopoly and threatened to move to Malta. Finally also Svenska Spel decided that it would be better to have license-based legislation. Then it was quite easy solution for politicians to decide about new gambling law.

I give some numbers from 2017 which describe the market situation before the new system. The net gaming revenue of whole Swedish gambling business was 22,6 billion SEK (2,2 B€) from which regulated companies had 17,1 B and offshore companies 5,5 B. That meant that offshore companies had 25 % market share and they didn’t have license to operate in Sweden. Svenska Spel had 40 %, ATG 18 % and other regulated companies 17 % market shares. Those offshore companies didn’t have any retail business in Sweden, so all competition was in internet and mobile channels and over 50 % of total gambling happened there. In that online channel regulated companies didn’t manage very well. They had together just 45 % market share which means that offshore operators had already 55 % of that market. In practice there hadn’t been any monopoly in the Swedish gambling market in long time! Gambling companies spent 7,4 B SEK for marketing in Sweden in 2019 and regulated companies had over ¾ of that.

Sweden decided to move to license system in all gambling sectors except in lottery (Lotto, Keno and Instant tickets). There are now about 70 gambling companies which have official license to operate games in Sweden. There are quite many tight rules about what operators can do in Sweden. The former offshore operators are used to use for example bonuses much more than it’s possible to do in Sweden now. The Swedish State has set a goal to raise regulated gambling to 90 % level of total gambling. That sounds to be high level when the Swedish new regulator, Spelinspektionen, is not using blocking tools. I understand when some companies have already announced that it would be better to make business without license. I still believe that regulator will tighten their control to prevent that grey/black market. The Swedish tax level, 18 % of GGR, is lower than they have for example in Denmark and that level should be ok from operators’ point of view although they are complaining about that – they will do that whatever the tax level would be…

There seem to be lots of discussion about enormously increased gambling marketing. Companies are trying to raise their brand and get new customers. They are used to give bonuses to new customers but now they are not allowed to do that and a little bit old fashioned mass media marketing has replaced bonuses. Heavy marketing has already affected negatively on the reputation of gambling business and something must be done soon to prevent that development. It’s too early to analyze financial results and I should do that later – maybe after the H1/2019 results have been published. Anyhow I could analyze the change based on the numbers after two first months. Although there are about 70 license holders the big companies have managed even better than I expected. The net sales in January and February was totally about 3,3 B SEK (320 M€) and ten biggest companies had 85 % market share from that. The winners have been former monopoly companies Svenska Spel and ATG and that should be big disappointment for former offshore operators. Svenska Spel has still monopoly in lottery business and now their three companies have totally 44 % of total gambling business. The monopoly part was in the first two months a little bit over 900 M SEK and that was 28 % of total market. If I drop that monopoly part away and just analyze license market Svenska Spel still has 22 % market share of that area and that is surprisingly high. ATG has lost its’ monopoly in principle but in practice it still has it in horse betting (over 95 % market share?). ATG has managed very well – it has 20 % market share of total gambling business and 28 % share of license market. So totally those two former monopoly companies have almost 2/3 of whole gambling business and from license market they have 42 %. The Swedish based Kindred Group has been the best one among former offshore operators.

It would be important to make analyze from the state point of view, but I don’t have enough information to do it yet. There should be financial results (taxes and profit from monopoly business) but also information from responsible gaming side. The analyze how well the new system is working should be based on those two sides. If financial results have improved but there are more gambling problems then there are still something wrong in that system and probably vice versa too.

Monopoly?

To be honest I have always been against monopolies but I have worked last 27 years in monopoly companies. How that could be possible and what I really think about monopoly in gambling business?

I was quite active in politics during college and university times. My ideology is politically from the “right side” and I believe on business rules but also the “Nordic welfare state model” where the State has big role in the society. I have studied economics at the University where my professor Matti Virén taught us among other things how the optimal economy should work and that’s quite far away from monopoly model… Monopoly is only good for the company which has managed to get that kind of position!

But nowadays I understand that there might be reason to have monopoly in some business areas which shouldn’t act based on free business rules. Those exceptions should be possible in businesses which might cause serious problems to customers and where the State would like to have tight control of business. Gambling is good example of that kind of business. It’s a fact that gambling might cause problems to some customers and that’s why the State should control that business. The State could do that in many different ways but gambling shouldn’t be organized without any control of the society as a free trade!

My home country Finland is the member state of European Union and we should follow the laws set by EU. It might be surprise to some of you that there is no common legislation about gambling issues in EU? There have been many court cases in the European Court of Justice (ECJ) where they have decided gambling related issues. Based on those cases EU has required some member states to change their gambling legislation and rules. Finland has been in that kind of process too but some years ago EU decided that the Finnish gambling system is acceptable from their point of view. EU also accepted the new model where we now have all possible gambling business in one monopoly company. EU has let the member state to decide who they are organizing gambling businesses in their own country.

The models are varying very much from country to country. The important thing is that legislation should follow the main principles of free movement of goods, services, capital and persons inside EU. You might think that monopoly is preventing free movement of services and it’s doing that but it’s ok according to ECJ if there reasons to limit that kind of business. ECJ has decided to member states could limit gambling business if the purpose is to prevent problem gambling or other social problems or prevent criminal actions like money laundering or match fixing. ECJ has also decided that also monopoly companies should have opportunity to further develop their products and services and channel the demand of gambling products to their offering. The profit from gambling business to the State can’t be the reason to have monopoly but that profit is not negative feature and there seem to discussion in EU should it be even more.

So it’s possible to organize gambling business with monopoly model as Finland has decided to do. In most of EU countries the lottery business is in model monopoly and other gambling businesses have moved to license model. I’ll tell you more about those other models in next blogs.

I believe that monopoly model as such will prevent problem gambling compared to model where we would have several licenses. There should be correlation between the size of gambling business and the number of problem gamblers – the more customers are playing the more problems there will be. The size of business will increase when business will move from monopoly to free competition in all possible businesses. If monopoly company has possibility and capability to develop its’ products and services and it won’t do too much marketing action it’s the best and most secure gambling system from the customer point of view! Whatever model we have it should work properly otherwise we should make changes to that.