Tag: #lottery

The Statement of The Finnish Gambling Consultants about the proposed Finnish Gambling Bill

Background

FGC would like to thank the government for the proposal, which aims to open the Finnish gambling market to competition partially. In the preliminary work section of the bill, the situation is well described to which the gambling system, according to the current monopoly model, has taken the Finnish gambling market. The channeling ability of the system in competing product groups has already sunk too low. When planning a new system, it is paramount that the channeling capacity of the system be restored to a high enough level, preferably close to the 90 % level. The responsibility measures that control gambling activities remain ineffective without a sufficiently high channelization rate because the authorities’ measures are only effective for regulated gambling.

FGC considers that there is a lot of good in the given proposal. The channeling ability of the Finnish gambling system would improve significantly if the new Gambling Act were implemented in the form presented. However, the 90 % channelization rate mentioned above would not be reached by this proposal.

Overall opinion on the proposed bill

The good side of the bill is that it aims to create a gambling system where gambling companies have the opportunity to do business, but at the same time, the number of gambling problems should not increase. The goal of expanding the channelization rate as high as possible is the only correct solution from the point of view of the realization of business and responsibility. However, FGC wonders why the essential solution for reducing gambling problems, moving all slot machines to age-restricted premises, is missing from the proposal.

According to FGC’s view, there are several contradictions between the individual sections of the bill and the overall goals. Products with a high-profit rate for the gambling company (Veikkaus) remain on the monopoly side, which is why the proposal inevitably shows that the real reasons for the presented product division are purely fiscal. Fiscal reasons, however, cannot justify a gambling monopoly according to EU law. In addition, the products, except slot machines, proposed for monopoly do not significantly cause gambling problems.

The apparent inconsistency of the bill is in marketing and operations as a whole. According to the proposal, gambling companies could not use bonuses or third parties, such as affiliates. Still, other marketing and sales promotions would be pretty accessible. This includes a significant contradiction in the pursuit of a high degree of channeling and decreasing gambling problems. FGC believes that gambling companies should be able to compete against illegal offerings specifically in digital channels. From the point of view of increasing the channeling ability, there would be no similar need for the abundant marketing of gambling in physical channels and Finnish mass media because illegal operators are not visible in these media. In the best comparison country, Sweden, gambling advertising in the mass media increased enormously some years before the actual gambling system change and has remained at a very high level after the change compared to gambling advertising in Finland. Due to abundant mass media advertising, the general opinion of citizens towards gambling in Sweden became significantly more negative than before because the media was full of gambling advertising.

Based on the proposal, the Finnish state wants to maintain a dual role, taking care of the legislation and supervision of gambling activities and, at the same time, owning the company involved in gambling activities. There is a high risk of conflict of interest in such a model. State ownership of a gambling company operating in a competitive market is at least a questionable solution. The Finnish Competition and Consumer Authority and the Chancellor of Justice have already raised this same issue in their statements.

In this statement, FGC writes its observations about the Gambling Act and proposes corrective measures and changes to the proposal.

General notes:

General note about potentially incorrect information appearing in the proposal

The material supporting the bill is comprehensive and of high quality. However, there is one very relevant piece of information in the background material that we believe is debatable, if not even incorrect. In the preliminary works, it is implied that the channelization rate of the Swedish gambling system would have remained high in recent years. The Swedish authorities’ assessments of channelization rate are used as justification for this. In Sweden, the authorities’ assessments have been strongly criticized by operators in the gambling industry. The biggest operator in the Swedish license market, ATG, the former horse betting monopoly holder, has independently investigated the system’s channelization rate with more credible methods than the authorities. ATG has analyzed and modeled the observed network traffic and mirrored it to existing accurate gambling and customer data numbers.

The total volume of the Swedish license system has remained practically constant since the end of 2020. However, according to ATG’s research, overall gambling in product groups belonging to the license-based market has increased, and all growth seems to have been directed to gambling companies outside the system. ATG does not present an exact estimate of the channelization rate of the license-based system but implies that it could move around 70 – 82 % level at the end of 2023. The channelization rate of digital casino games seems to be significantly lower than the average, and the channeling rate of betting games is correspondingly better than the average. FGC attaches to its statement a summary (Appendix 1) of ATG’s approximately 30-page research report, which FGC has received permission from ATG to distribute. FGC believes that, if needed, the full ATG research report is available for use.

FGC points out that if ATG’s estimates of the supposed weaker channeling ability of digital casino games are correct, there is a significant risk that the channeling rate of digital casino games in Finland will not rise in line with the goals if the final law is what the Ministry of the Interior has proposed. This would be particularly harmful from the point of view of addressing gambling problems. Based on the data obtained from Sweden, specifically problematic gambling tends to move outside the system more easily than other gambling.

General note on the proposed regulation

FGC points out that the proposal has left significant issues regarding the final implementation of the gambling system behind the regulatory powers. This applies, in particular, to items under section 31. From the point of view of ensuring the functionality of the system and its channeling ability, the appropriateness of the parameters behind the settings can decide the success of the final result. Suppose the parameters given through the settings are adjusted incorrectly. In that case, the success of the entire reform may be at stake, and the result may be the worst possible – a license-based system with weak channeling capabilities.

FGC’s improvement proposal: To maintain the gambling system’s overall objectives, overall control should be maintained when making regulatory-level decisions. The Government, not individual ministries, should issue the final regulations (settings) on gambling.

General note on the tax treatment of unlicensed gambling winnings

The proposal contained in the bill to regulate unlicensed gambling winnings as taxable requires changes. FGC considers the proposed goal of extending taxation to all digital gambling outside the system to be correct and consistent. However, it includes shortcomings and challenges to the fair treatment of citizens. According to the proposal, stakes used for lost games may not be deducted from taxation. This creates an unfair situation, especially for players with gambling problems who gamble outside the system more often than other customers. If a person with a gambling problem loses, for example, 10 000 euros in unlicensed digital casino games, he could, for example, have gambled 200 000 euros and received winnings of around 190 000 euros. About three out of four rounds may have been ones in which the player won nothing, and those stakes are not tax deductible. As a result, a problem gambler who lost 10 000 euros receives a taxable income of around 140 000 euros in this example, in addition to the losses. (Appendix 2 opens up the example case a little more). This unfair outcome significantly worsens the situation of the problem gambler.

FGC’s improvement proposal: Regulated tax penalties should apply to the net winnings generated from gambling during one calendar year. This means all taxable gambling winnings the player has achieved during the calendar year, minus all bets and losses of the corresponding period.

General note on Veikkaus’ group structure from a competition law point of view

Customer base and technology

Based on the bill, the part of Veikkaus that continues in the license-based market may have a competitive advantage due to Veikkaus’s monopoly operation. This cannot be considered an action acceptable under competition law. The draft of the proposal even admits that the chosen solution seeks synergy between the operation that will remain a monopoly and the company that will switch to the license-based side.

In FGC’s opinion, there should be a clear policy on whether Veikkaus’s current customers can be transferred to a company continuing in the license market in a way that it cannot be considered a benefit from customers obtained from the monopoly operations. The calculated value of the customer base is at least hundreds of millions of euros. FGC also points out that if the part of Veikkaus continuing into the license market were allowed to utilize all of Veikkaus’ current existing customer base, Veikkaus’ license company would be given a substantial competitive advantage compared to the operators entering the market.

A company operating in a competitive market may not use the same resources as a monopoly company from the same group in a way that distorts competition. Dividing Veikkaus into several companies includes a plan to establish a separate technology company. The plan consists of the risk that the monopoly company and the license-based company will use common technology, for which, according to the plan, compensation will be paid at the market price. Determining the amount of such compensation will be challenging and, in some cases, even impossible.

FGC’s improvement proposal: To avoid problems with competition law, it would be stipulated that the Veikkaus group companies should not use joint technical solutions related to gambling. That would be the same rule as in Sweden.

The games in physical slot machines

According to the bill, slot machines, which would continue to be thousands all over Finland, continue to be covered by Veikkaus’s monopoly. These machines would have the same casino games developed mainly by Veikkaus, which Veikkaus’s license-based company would offer in the competitive license market. Those slot machines would be a significant marketing channel for the games in question, from which Veikkaus’s license company would also gain a significant competitive advantage.

FGC’s improvement proposal: A single product or game would be offered only in the monopoly or license-based market so that the customer knows which group’s game he is playing. Veikkaus’s monopoly and license companies should not offer the same product or game.

Detailed considerations:

Note on mandatory limits

Based on the proposal, the customer would be forced to set limits on gambling when setting up a betting account, which would aim to prevent harmful gambling. FGC wants to point out that although ideologically, the idea sounds valid, the practical experiences of the gambling industry have been different. In practice, it has been noticed that when a problem gambling customer hits the limits, he rarely stops gambling. Instead, gambling continues either with another official operator or, in the worst case, outside the legal system. Mandatory limits are not a good way to curb problem gambling but an excellent way to weaken the channeling ability of the gambling system.

FGC points out that making gambling limits mandatory was the biggest reason that Veikkaus’s channeling rate, especially in digital casino games, started dropping rapidly at the end of 2018. In the new system, the effect of the obligation to set limits to the channelization rate would not be as dramatic because the customer could continue gambling with the service of another licensed operator. In practice, however, players would be forced to change gambling operators. In connection with such a change, the risk of the customer switching to gambling for an operator outside the system is always tangible.

FGC’s improvement proposal: Setting gambling limits should be suggested to the customer during registration, but setting them should not be mandatory. The Ministry of the Interior should consider implementing gambling limits, for example, according to the Estonian model. In Estonia, the gambling operator must give customers the opportunity to set their limits during the customer registration process, but if the customer does not want to set them, he can, by his active decision, not set the limits.

In this context, FGC would also like to point out that if a solution is decided in the future where standard mandatory gambling upper limits are set for all players, customers should be able to increase their limits if they wish if they can demonstrate that their financial situation allows this. Such a solution ensures that the system’s channeling ability is maintained so that the risk of gambling problems does not significantly rise.

Note on bonuses

In FGC’s view, the categorical ban on all bonuses in the proposal is problematic when considering the system’s channeling ability. FGC agrees with the Ministry of the Interior that bonuses that encourage gambling can increase problematic gambling and, thus, gambling problems. Still, that would be a significantly smaller disadvantage than leaving the bonuses only for operators outside the system and helping channel gambling outside the system.

The importance of bonuses, especially for the customer experience of digital casino games and the profits of gambling companies, is enormous. The more active the customer is, the more critical the customer considers bonuses and other loyalty rewards offered by the operator. In general, the most active customers are problem gamblers or players whose gambling problem is developing. Suppose operators redeeming their licenses are denied all bonuses. In that case, the system’s channeling ability will fall significantly below the target level, as customers who are used to bonuses will move to gambling companies outside the system. It will be especially problematic if the players, who the system should be able to protect, move to play for operators outside the system.

FGC would also like to highlight that at most current international gambling companies, the implementations of bonuses and loyalty systems are often so complicated that not all players even understand how bonuses work and are available. If bonuses were partially allowed in the license-based system to improve consumer protection, it would be possible to demand clarity and simplicity from them so that consumers could understand the structures of the bonuses in detail.

FGC’s improvement proposal: The Ministry of the Interior should consider allowing bonuses in legislation so that bonuses can be given to the player, but their complicated wagering conditions would be prohibited. The bonus recycling condition should only require the customer to play the bonus money he received once through games, after which he could withdraw the remaining money for himself if he wished. With the presented change, the competitive conditions of legal operators would improve against supply outside the system, and the channeling capacity of the system would improve considerably. From the point of view of gambling problems, the legal offering would cause a few more disadvantages than the current one, but keeping customers who gamble especially problematically within the scope of the gambling system would bring a significantly more significant benefit. The society remains informed about possible problem gambling and can target actions to reduce problems only when the customer plays games from a legal operator.

Note on the categorical ban on marketing by third parties

The bill proposes that gambling marketing can only be done by licensed gambling operators. FGC considers that the categorical ban on the marketing of gambling by third parties is problematic and causes significant problems when evaluating the legality of various activities. To some extent, the regulation could be improved by defining illegal marketing more precisely, but such a solution will not completely eliminate the problems.

Affiliate activity – business-like marketing

In the categorical ban on marketing by third parties, problems arise, especially with regard to various affiliate sites. These are typically international online sites that directly or indirectly advertise gambling services. It is not always clear which country’s regulation the affiliate operates under. FGC points out that the gambling legislation of many other countries allows the use of affiliate services.

FGC points out that leaving the entire affiliate activity outside of Finland’s official gambling system poses a significant risk to the system’s channeling ability. Existing affiliate operators already have an extensive customer base of Finnish customers. In Finland, a lot of searches related to gambling are made through search engines, especially Google, which direct people to affiliate sites. People do not stop such searches, and the direction of internet traffic to affiliate sites does not stop, even if affiliate activity is prohibited in Finnish gambling operations. In this case, affiliate operators would direct customer traffic to the pages of gambling companies operating without a license, weakening the gambling system’s channelization rate.

The bill has defined strict boundary conditions for all gambling marketing. If affiliate activities were allowed in Finland, these companies would have to follow the same marketing regulations as gambling operators and media companies. Affiliate activity should become significantly cleaner compared to the current practically completely unregulated situation.

FGC’s improvement proposal: The Ministry of the Interior should look for an implementation method to bring affiliate operators into the scope of official regulation. An alternative to be considered could be, for example, the Romanian model, where affiliate operators are required to have a separate business license, which could be part of the proposed supplier license.

Note on the presented product groups in exclusive and multi-license systems

In FGC’s opinion, the arguments for leaving certain product groups under exclusive rights seem artificial. The reasons given are that there is currently no competition in the product groups in question and that transferring those products to the multi-license system would increase the marketing of these products. This, in turn, would increase the gambling problems caused by these games. However, based on the proposed law, the monopoly would mainly be in those product groups that, according to studies, cause little or no gambling problems. Only physical casino and slot machine operations are an exception in this respect. For example, the inclusion of lottery game operations in the scope of monopoly cannot be credibly justified with these arguments.

In particular, FGC considers leaving pool-based horse betting and digital eInstants within the scope of Veikkaus’s exclusive right to be an incorrect solution, and no credible justifications have been presented for the proposal.

Pool-based horse betting (Tote games)

In the case of Tote games, the existing high channelization rate and the fact that competition could increase the marketing of the products, and thus, the resulting gambling problems are presented as justifications. FGC points out that in the studies of both The Finnish Institute for Health and Welfare and the helpful line, Peluuri, Tote games have been one of the product groups that cause the least harm. Releasing them to the license-based system could increase the marketing of the products, but this could be considered mainly to direct the demand for less harmful gambling. In addition, concerning the channelization rate of Tote games, it must be understood that the high channelization rate is realized only because Veikkaus has a cooperation agreement to offer Swedish horse races with the Swedes in a common pool for Veikkaus’s customers. If the agreement were to cease to be valid for some reason, the majority of existing betting would be transferred to other operators operating without a Finnish license, and the high channelization rate of Tote games would collapse immediately.

Tote games are currently part of the license-based market in Sweden and Denmark. This is the digital sales channel situation in all European countries that have switched to a license-based gambling system. In the Netherlands, only one company can operate pool-based horse betting, but even that has gained its status through bidding. In Denmark, Tote games were initially on the side of the monopoly system. Still, that arrangement was found to be problematic and dysfunctional, as a result of which Tote games were moved to a competitive market in 2018.

FGC would also like to point out that section 26 of the draft law prohibits the organization of betting for gambling events/draws that are used in the monopoly business. In practice, the operating model would mean that operators applying for a business license in Finland would no longer be allowed to offer fixed-odds betting at those races where Tote games would be organized. This can be considered a significant regulation aimed at limiting competition because large international listed companies would apply for a Finnish license, and they compete against pool-based horse betting in Sweden with fixed odds betting products.

FGC assumes that section 26 and its justifications are written mainly from the point of view of lottery games. If Tote games were to be left as a monopoly, the proposal should be supplemented so that fixed-odds betting on the outcome of horse races would be possible. If Tote games are moved to the side of the multi-license system, this definition problem does not exist.

FGC’s improvement proposal: Pool-based horse betting/Tote games will be transferred to a multi-license system.

Digital eInstants

Regarding eInstants, FGC wants to point out that with the proposed regulation, Finland would return to the situation that led to the merger of three gambling companies at the beginning of 2017. The main reason for the merger was the weakening of the differentiation of Veikkaus’s and RAY’s products in the digital channel. The proposed regulation would do the same – not least because the proposal would allow eInstants draws to be made at the time of game purchase (RNG technology), just as in digital casino games. The visual implementation of eInstants and digital slot machines can be very identical. FGC wonders how the separation of these products can be handled reliably and how the consumer has the opportunity to identify which product group’s game he is playing.

FGC’s improvement proposal: eInstants would be included in the category of digital casino games and would, therefore, be moved to the side of the license-based system. Alternatively, eInstants could be arranged to be implemented technically so that their technical and visual implementation would differ significantly from the implementation of digital casino games.

Note on the possibility of the supervisory authority to regulate the activities outside the system

FGC considers it good that the bill aims to give the supervisory authority the means to intervene in the offering and marketing of unlicensed gambling in Finland. However, according to the FGC’s view, it seems that the vast majority of the proposed measures would affect the operations of license companies in particular. However, blocking payment and online traffic (IP) can be a reasonably effective way to reduce gambling outside the system.

FGC does not identify measures in the bill and its explanatory text that the supervisory authority could use to monitor gambling outside the Finnish system. According to FGC’s understanding, gambling outside Veikkaus is significantly more significant than the authorities estimate. It is practically impossible for the authorities to intervene in illegal supply if that supply is not even recognized. Technical systems and services would be available for monitoring and intervening in gambling, which could be used to significantly improve the system’s channeling capacity and increase the state’s tax revenues.

In the bill, great attention is paid to preventing betting-related incidents. At worst, match manipulation and other abuses are a problem for sports comparable to doping, or even worse. The bill says that Veikkaus’s own measures, FINCIS’s (Finnish Center for Integrity in Sports) operations, and ULIS’s (United Lotteries for Integrity in Sports) cooperation are excellent and sufficient measures to prevent abuses. In FGC’s opinion, this is unfortunately not the case. Finnish sports are likely also currently being used to organize illegal activities. Monitoring and preventing match manipulations should not remain the responsibility of the betting companies. Still, the authorities should take a more significant role in the matter than at present.

FGC has requested a description of the benefits of a modern monitoring system from Sportradar, which focuses on monitoring international gambling activities and preventing sports manipulation. That description is included in the appendices to our statement (Appendix 3).

FGC’s improvement proposal: The authority supervising gambling activities would be obliged to acquire technological systems that monitor and supervise gambling activities outside the license system. In addition, the regulator or other separately defined authority should join an international network that could be used to monitor global betting activities and identify possible abuses related to Finnish sports.

Minor notes

The proposed ban on using a credit card for money transfers does not protect those with gambling problems, even though that has been the explanation. In practice, that means the customer first transfers the money from the credit card to his bank account and then to his betting account. In practice, the regulation intended to protect those with gambling problems mainly results in a small additional cost for them. The ban on the use of credit cards, and especially debit cards, causes problems, especially for transactions at retail channels. In addition to the customer, the affected parties are especially retail outlets and Veikkaus, which offers gambling products in the retail channel.

The proposed procedure for lifting the indefinite gambling ban is problematic. When a customer wants to start gambling again after a break of at least a year, he is given the option of waiting three more months or moving to gamble outside the system. FGC considers that a person who hasn’t gambled for more than a year should have the opportunity to lift an indefinite ban immediately. There must be a separate consideration period to cancel short and fixed-term bans. However, if bans are valid indefinitely and have continued for over a year, that three-month consideration period will not accomplish anything other than the player moving to play outside the system.

Sincerely yours,

Jari Vähänen

Partner

The Finnish Gambling Consultants Oy

Happy New Year!

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

In the last three years, the world has suffered from significant problems. First, Covid-19 messed up the world, and when we were getting over it, Russia started a war in Ukraine. The war continues and causes great harm in Ukraine and other parts of the world. The world economy is threatened by a particularly embarrassing problem, stagflation, against which no effective “medicine” has been developed. In any case, inflation is at an exceptionally high level, and on top of that, there is a risk that the economy will plunge into recession.

Along with others, the gambling industry has also suffered from these global problems. The Covid-19 pandemic caused the biggest problems for gambling companies operating in the retail channel and for operators focused on sports betting. The retail channel still makes up a substantial share of the lotteries’ business, so lotteries were in big trouble in 2020 and 2021. Due to competition law reasons, the lotteries’ financial data for 2021 will be published now, and we have to wait for the data for 2022 until the end of 2023. So, unfortunately, accurate information about the lottery business’s current state is unavailable.

In any case, it seems that lotteries have recovered from the effects of Covid-19 and gotten their business back on track for growth. The difficulties in the retail business have accelerated the transition to digital sales, which will certainly increase the companies’ competitiveness. In this case, adversity has ultimately been beneficial.

In these lottery columns, I have tried to highlight areas of development where lotteries should invest more than they currently do. Recently, it has been great to notice that lotteries have been ready to change their operations and invest in finding new innovative solutions. The basis of the operation is still lottery games and highly responsible operations, but these things have been managed to be implemented even better by utilizing modern technologies.

However, there are new challenges ahead. The difficulties of the world economy cause problems for everyone. In addition, lotteries have found themselves in a situation where people’s attitudes towards gambling have turned in a more negative direction. As a result, politicians and regulators limit the visibility and marketing of gambling more than before. The risk might even be a total marketing ban on gambling, as has already happened in Italy. In any case, gambling companies, including lotteries, must find new ways to maintain and increase customer interest in gambling without the support of mass media marketing.

Lotteries face more and more competition not only from other gambling operators but also from other gaming companies. Because of this, lotteries must keep up with development and utilize the possibilities of technology better than at present. We have to be present in the devices that customers use anyway. Although the transition from the retail channel to digital sales has started at a good pace, it is no longer enough because digital development is moving forward rapidly and brings new ways of playing and entertainment to the market, which lotteries must also respond to.

The key to future success is understanding the competitive situation through the eyes of the customer. So what options are available, i.e., who are the lotteries competing against for the popularity of their customers? Companies must know the most significant consumer trends for this understanding to emerge. So it’s no longer enough to know where the development is at the moment; we also have to know how to look ahead. This still requires a significant change in the lotteries’ way of thinking, which was based on their “own bubble” and defending their own position for a long time. A successful company must constantly be able to develop its products and services to maintain customer interest.

Lotteries still have the challenge of arousing the interest of young consumers in lottery games, and why not also in other gambling products. The social importance of lotteries is probably no longer as familiar to young people as it is to us, who are a little older and hardly faced any other gambling companies besides lotteries in our youth. In addition to emphasizing the social role, supporting beneficiaries, and running responsible activities, lotteries must also be present in young people’s everyday lives. Therefore, monitoring and utilizing consumption trends is critical from a business perspective.

Being at the forefront of technological development usually costs a lot. Because of this, it probably makes economic sense for lotteries not to try to develop new solutions first. Instead, a good course of action is to monitor developments actively and acquire technology partners who can react quickly enough when a new technology begins to reach a level considered to be something of general use. The utilization of machine learning and AI is already starting to be at this level, so they should already be at least on the active planning table of lotteries. Virtual reality and metaverse are emerging technology trends we must prepare for soon. However, it must be remembered that simply offering technology is not enough; the content must also be relevant and exciting to customers.

In my own “crystal ball”, 2023 seems to be full of possibilities from lotteries’ perspective. The companies have sufficient resources and know-how to succeed in the ever-increasing competition for customers’ money and interest. Now you need to increase your understanding and courage to join the competition. It is excellent to note that, for example, European Lotteries actively organizes development-oriented seminars for its member companies, with well-known speakers from other business sectors as well. This kind of information sharing certainly promotes the development and improvement of member lotteries’ business.

Good luck and success in the upcoming challenges to all my lottery friends!

Lotteries don’t have to do everything by themselves

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

Almost all lottery companies have started their operations with a monopoly position. Because of this, the cost-effective operation has traditionally not been at the top of the companies’ priority list. Lotteries are usually owned by states, and the operating culture has been similar to state agencies. Instead of actively developing operations, the main focus has been securing operational operations continuity.

Over the years, the situation has changed for the better, but the background described above still affects the operation of lotteries. An inefficient corporate culture focused on protecting one’s position is not the best strategy to succeed in a competitive market, where you are faced with companies operating on purely commercial principles. I believe that lotteries have understood the need for change, but the risk is that they focus on fixing individual issues and not on changing the entire corporate culture and mindset.

It has been proven in economics that a monopoly always causes operational inefficiency. Unfortunately, lottery executives have typically refused to believe this. They have shown high productivity numbers to prove to stakeholders that lotteries are far more efficient than cash-minded private gambling companies. In this argumentation, it has been ‘forgotten’ to say that the numbers of a lotto operation with a 40-50% payout cannot be compared to the numbers of a casino operation with a 95% payout – at least not if it is a question of comparing the efficiency of the operation.

State ownership and state office-like operations have increased the bureaucracy of lotteries. This can be seen from the slowness of decision-making which, in turn, prevents timely and quick reactions to the changing situation. The slow rate of change in lotteries practically did not hinder productive operations as long as customers did not have other gambling options available. Today, customers are quick to vote with their feet if a company is unable to offer new products that other companies have. Lotteries’ luck is still the practical monopoly of lotto games, but on the other hand, this same reason slows down companies’ willingness to change – this can cause significant problems for lotteries in the long run.

Updating the strategy every five to ten years, and acting according to long-term plans, annual action plans, budgets, fixed organizations and job descriptions, etc., are no longer enough in today’s fast-paced business. Nevertheless, such an operating model is still prevalent in many lotteries. It may even sound funny when the explanation is that something cannot be done now because it is not in this year’s action plan, and no money has been allocated for it. However, the speed of reaction to changing situations should be completely different, but the bureaucratic operating model often prevents it.

On top of all that, due to their monopoly position, lotteries have had no reason to think about the impact of other companies’ activities on their own. Lotteries have not needed to try to stay at the forefront of development; often, such an operating model has even been perceived as irresponsible. So, the goal has not been to bring things to the market first, not to innovate new products and services, not to offer customers excellent service, or anything else to be at the forefront of development. Lotteries have mainly compared their operations to the operations and results of other lottery companies, although they have not represented the world’s most developed gambling companies.

Avoiding mistakes has been the general guideline for official behavior. Civil servants are rarely rewarded for successes, but instead, failures cause problems. This kind of corporate culture means it’s not worth investing in developing something new because you don’t get praise for it, only barking when you fail. Because of this, lotteries have often introduced new products and services only after they have been proven to work elsewhere. This operating model helps the companies to keep up with the development, but by no means to gain a competitive advantage compared to others.

Lotteries are used to doing everything themselves, and outsourcing operations have rarely been used, especially in Europe. In addition, lotteries are used to buy the technology they use for themselves. US lotteries have deviated from this significantly because almost all of them have outsourced their technology functions to large suppliers, and the contracts have been based on a revenue share model. In recent years, European lotteries have had to change their operating models because it has become more difficult to buy technology, as suppliers have no longer agreed to enter into agreements other than those based on revenue sharing.

As I have often stated before, lotteries today are a very heterogeneous group of companies whose operating methods and strategic choices differ from each other. Fortunately, an increasing number of lotteries have developed their operations, and the business operations of these companies already resemble real business enterprises. As operations develop, lotteries can succeed in competitive markets without the protection of a monopoly.

Modern companies know how to use external resources well, which helps avoid unnecessary increases in fixed costs. Such an operating model makes sense in sizeable one-off development projects. Typically, companies also use external help in big change situations, such as when legislation changes (transition from a monopoly to a license-based model) and business expansion (new product verticals alongside lottery games).

Based on my almost three years of consulting experience, it has been noticeable that lotteries use us, gambling industry consultants, much less than other gambling companies and technology suppliers. I think lotteries are not yet familiar enough with the services we can provide them. An exciting and valuable model for lotteries could be the consulting networks developed for the gambling industry, which can provide cost-effective and professional services for large development projects. An example of such a network is Way2Go, whose consultants focus on helping the lottery world. Using external help in significant change situations would undoubtedly improve the competitiveness of lotteries. Not all know-how should be acquired within the company.

The end of the monopoly

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.

How can lotteries succeed against digital gambling competition?

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

The summer vacation season is coming to an end here in Northern Europe, so here comes my new column after a two-month break. As you have noticed from my previous writings, I consider it important that the offer of lottery companies is competitive compared to other gambling operators. That is especially critical in digital sales channels, where a massive number of other companies offering gambling products are available to customers.

Many lotteries have thought the competition does not concern them because the company has a monopoly on lottery games. That kind of thinking has not been very harmful in a situation where the sale of lottery games has taken place in the retail channel because the customers have faced only a few other gambling offerings. However, the digitalization of business and the change in customers’ consumption behavior have changed the situation dramatically. Fortunately, most lotteries have already understood this change, and a reaction to the matter has begun.

It is easy to see from the statistics of World Lottery Association and European Lotteries that there are considerable differences in the digital business shares of the world’s lottery companies. At its peak, the percentage of digital business is more than half of the entire company’s operations. However, dozens of lottery companies worldwide have not even started selling their games on digital channels. In all cases, the reason for this is not in the company itself but the legislation of the country in question, but it does not eliminate the existence of the problem.

Some lotteries have deliberately delayed the start of the gambling business in digital sales channels. The reasons for such a decision have been, e.g., fear of the reactions of the retail channel, considering digital sales as an irresponsible activity, the “competition doesn’t concern us” idea, etc. According to experiences from several countries, the agents’ reactions to starting digital sales have been very moderate in the end, and no significant problems have followed. Lottery digital sales have not increased gambling problems. In fact, running a responsible gaming operation in the digital channel is easier to implement than in the retail channel because, in the digital channel, all customers play with identification. The “competition does not concern us” thinking is ridiculous and dangerous. Lottery activity is not a separate “business bubble” but part of the customers’ regular choice.

What do lotteries have to do in order to stay involved in the development and remain attractive in the eyes of their customers? Short-term solutions depend on the company’s current starting point. Suppose a large part of the lottery’s business already comes from digital channels. In that case, the tools for operational development are entirely different from those of a company just starting the digital business. I will return to these concrete solutions a little later.

My university professor taught us that a company could improve its weaknesses by doing the same as others but doing so does not gain a competitive advantage. A successful company always needs at least one competitive edge over other companies participating in the competition. Lotteries have had at least two traditional competitive advantages. Lottery’s retail sales channel is the most expansive gambling sales network in several countries. Lotteries have also offered the highest jackpots in the gambling market, which have interested customers. In addition, the lottery profits to the beneficiaries and the responsible brand of the companies have brought a competitive advantage. Lottery’s strengths are still there, but they are not enough because there have become too many weaknesses in the operation.

People are used to doing their affairs more and more on digital channels. Entertainment and leisure consumption, in particular, has moved quickly to the digital age. Gambling products are a product group that is very easy to sell in digital channels because games are not about the physical product. Because of this, the supply of gambling games on the internet and mobile channels has exploded during the 21st century. Customers are offered an enormous number of games that are more entertaining to play than traditional lottery games. The availability of games is easy, so customers can decide where and when to play. If lotteries do not offer games on the same principle, they will develop a competitive disadvantage. By starting digital sales, lotteries, therefore, do not gain an advantage over other gambling operators, but in this way, they prevent the occurrence of a business disadvantage.

Lottery, which is planning to start selling its games on digital channels, has a lot of help available. Benchmarking and best practices information is available from other lotteries. The traditional technology suppliers of the lottery world also offer technology solutions for digital channels. In addition, several technology providers specializing in digital channels have entered the market. In addition to the technology solutions needed for sales and running games, there are also, e.g., technologies and services related to data and customer relationships. In the end, starting operations is quite simple, as long as the legal issues have been solved.

The most advanced lotteries in the digital gambling business are hardly satisfied just being in the business. Their aim is certainly to be better than other gambling operators in at least some aspects. Working with traditional technology suppliers of the lottery world has been a challenge. Because of this, many developed lotteries have ended up in a multi-supplier situation, where companies try to use the best providers on the market in different areas and no longer acquire all technology from one supplier. The best data and customer solutions are not necessarily found in the same place as the best game technology. The same situation applies to games and related services.

New game studios have entered the gambling business, developing entertaining games those interest customers. For one reason or another, there have been far fewer new game producers in the lottery game area than in other game verticals. I know that lottery games can be developed to interest customers significantly more than they do now, also in digital channels. So far, just a few companies have realized that. I follow with great interest what, for example, my former employer Veikkaus’ new subsidiary Fennica Gaming accomplishes in this area. I believe that by developing new responsible and entertaining lottery games, lottery companies can gain a competitive advantage and succeed in the digital gambling competition.

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.

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?

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.

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.