LOTTERIES SHOULD BE MORE RESPONSIBLE OPERATORS

I have wrote this column for www.lotterydaily.com and they have published it few days. This text is partly edited by Chris Murphy – thanks to him about that!

There seems to be a general perception among lottery companies that the lottery business is fundamentally a responsible activity and, in every way, better than any other gambling business.

If you only thought of gambling products, then slow-rhythm lottery games are certainly less problematic for players than, for example, casino games or fast sports betting (live). However, it is always dangerous to think that one is, in principle, better than the other, because then the risk is to be blind to one’s own operations. Furthermore, most lotteries today offer more than just traditional draw-based and instant games.

In practice all EU countries still have a monopoly system for lottery games. According to the European Court of Justice, Member States are free to decide on their gambling systems, as long as they respect the principles of legitimacy and are consistent in their actions.

An important justification principle is the prevention of gambling problems which can be summarized into two groups – gambling problems caused to the player and gambling-related crime. For this reason, it is important that the prevention of gambling problems and thus responsible gaming also be given great weight in lottery activities. If anyone thinks this does not apply to lottery games, it would be interesting to hear why there is monopoly in that area…

How should the prevention of gambling crime be taken into account in lottery activities? In general, gambling involves the risk of two types of crime – the manipulation of the results and money laundering. Manipulating the results is not easy in traditional draw-based and instant games, but it has managed to happen sometimes.

Manipulation of results is a particularly big problem in sports betting, which is also practiced by lotteries. The risk of money laundering is also higher in casino and sports games with high payback rates than in lottery games with lower payout percentages. But at least in theory money laundering can take place in all gambling activities and its prevention should be managed as well as possible. Lottery companies that run sports games have invested heavily in crime prevention through their involvement in the GLMS (Global Lottery Monitoring System).

Crime prevention is particularly important for the gambling business in terms of the reliability and reputation of its operations. If customers cannot trust the correctness of operations, there is not a very bright future in the industry. In this respect lotteries are very much in the same boat as private gambling operators. It is quite insane to think that the problem would not also apply to lottery companies if the general acceptability of gambling starts to fall even more than it currently does.

While the prevention of gambling-related crime is especially important, the prevention of gambling problems itself is even more important. Just one person with a gambling problem is one too many and companies need to do everything they can to keep the number of problems under control and even reduce it. It is unrealistic to think that gambling should be banned altogether, but states still have opportunities and, in fact, an obligation to regulate this fundamentally risky activity.

Gambling today is often compared to tobacco and alcohol, which also cause problems. Personally, I don’t like those comparisons, but I somehow understand the comparison to alcohol-related restrictions. I think tobacco causes more or less problems for all users, which gambling does not.

Alcohol is closer in that sense because only a small percentage of alcohol users experience significant problems. Gambling is a relatively safe activity for 90-95% of customers. On the other hand, gambling causes awfully bad problems for about 1% of players and some problems for a much larger number of customers. I think it’s the responsibility of gambling companies, including lotteries, to do their best to keep those customers who are experiencing problems from getting into bad trouble.

Studies have shown that traditional lottery games don’t cause gambling problems almost at all and this may still have the wrong effect on the attitudes of the lottery world. Companies are accustomed to a situation where they may have blamed other gambling companies, usually casino operators, for the problems.

However, in the 21st century, Lottery operations have changed with the digitization of new products and operations, so that gambling problems will certainly arise for lottery customers as well. Therefore, all companies must have tools in place to identify and prevent problems.

What should companies do? It must be possible to monitor and address customers’ gambling, either with restrictions or, in extreme cases, with bans. Gambling monitoring requires digitizing operations and making gambling possible only for identified customers.

There is no way to interfere with gambling anonymously, and there is not even enough information about it. Lottery companies must therefore build technical systems to transfer all gambling to identified gambling. This may sound like a completely impossible plan to most, but it is not. Just ask for advice from Norsk Tipping, which already did this years ago!

Mere recognized gambling alone is not enough. Recognized gambling is a prerequisite for restricting gambling activities. There must be limits to gambling that must be practically controllable. The Norsk Tipping scenario involves maximum loss limits for gambling. Personally, I am not in favor of uniform limits for all, because people’s income and wealth levels vary a lot.

In addition, some people are, in principle, at greater risk of suffering from gambling problems than others. Due to these factors, I consider the best solution to be the possibility to change the general limits set by the company on the basis of substantiated information.

If a player is able to prove his wealth and wants to raise the limits of the gambling, he/she should be given the opportunity to do so. Likewise, even low overall limits may be too high for some players. I have noticed that at least in Sweden and the UK, there has already been discussion of a player-specific affordability check model.

I am quite sure that gambling regulators in different countries will tighten their control of operations and to set the gambling companies increasingly more accountability requirements. This will certainly apply to lotteries as well. In many ways, it would be best for companies to act on their own initiative and not just under duress.

Companies should prepare models in collaboration with or at least by listening to gambling problem researchers and possibly also in consultation / cooperation with the authorities. Implementing the changes will require a lot of resources, but hopefully it will save the gambling industry’s reputation!

WHAT CAN WE LEARN FROM NORWAY’S GAMBLING MONOPOLY?

I have written this blog for LotteryDaily.com and they published it last week. This text is partly modified by Chris Murphy.

The Nordic countries of Denmark, Finland, Norway, and Sweden have quite similar systems and legislation in many areas. That has been the case also in gambling business until the beginning of 2010’s when Denmark decided to move from a monopoly to a license-based system in 2011.

Sweden decided to follow that from the beginning of 2019. Finland and Norway still have gambling monopolies in all gambling areas, and they are by the way the only European countries that still have that kind of legislative situation.

It begs the question; why are those well-developed, innovative countries still trying to keep a monopoly-based system? Furthermore, is there anything we could learn from them?

For the purposes of this particular column I’ll concentrate solely on Norway and return to covering developments in my home country after some months. As you know, in practice all European countries have a monopoly-based system in lottery games but not in sports betting. And most countries have never even had a monopoly in the casino business. But Norway has a monopoly in all gambling areas and physical casinos are totally forbidden.

The question is, has that kind of model worked well? The size of gambling business in Norway is big. There are about 5.4 million inhabitants in the country and the total GGR of gambling business in 2019 was M€1.244. Almost half of GGR came from digital channels.

Gambling acceptable among Norwegians

Although there is a monopoly, the share of offshore operators is big – according to H2GC it is 27%. Gambling is common and acceptable among Norwegians. According to surveys almost 2/3 of adults used to play some gambling products at least once a year.

The previous government was keen on liberalization and it seriously investigated a number of other possible legislative models for the Norwegian gambling business. In 2015 it opened up the lottery business by a fraction by issuing supplementary lottery licenses for five small operators. Those licenses are still valid, but the operational possibilities are extremely limited.

It seemed that Norway would move to a license-based system at the same time as Sweden, but in summer 2017 the government decided to continue the monopoly system. The system is not as the monopoly we have in Finland because there are two operators, Norsk Tipping and Rikstoto, and small lotteries plus bingo halls, but in principle it is still a monopoly.

Norway has run and controlled monopoly-based gambling seriously. The prevention of gambling problems has been the main purpose, relegating profit to just a secondary element. The country has enough money anyhow and there has been no need to maximize gambling revenues at all.

There are lots of restrictions for gambling in Norway. Mandatory identification in order to gamble has been in existence for many years and there are tight gambling/loss limits in the gambling business run by the state-owned Norsk Tipping. Norway had also tried to restrict gambling offshore with blocks in place for 10 years.

Gambling offshore is still legal in Norway, but operators don’t have licenses to offer their services in the country and are prevented from marketing their products. To compound matters, it has become difficult to move money to those companies and get winnings back from them.

However, preventing Norwegian players from gambling offshore has been difficult to achieve because they have become accustomed to playing with those operators. According to customer surveys many Norwegians are unaware that companies like Unibet and Betsson don’t have licenses to operate in Norway. That might explain why 27 % of gambling is still going abroad despite the official monopoly system.

I think, though, that Norway is the best example of how a country should organize its gambling business should it be monopoly-based. Its system is not an ideal one, because there is no reason to have those minor lotteries and probably they should consider merging Norsk Tipping and horse betting operator Rikstoto.

But there are lots of good things. The state has allowed Norsk Tipping to develop its own business, enabling the state-owned lottery company to offer good products and service to its customers. It is important, however, to have the right channels in place, otherwise the legitimacy of the monopoly system will disappear.

Norway has now introduced even lower loss limits for gambling. That has and will continue to affect the profitability of Norsk Tipping for sure. The same kind of limits are expected to be applied to horse betting too from the beginning of 2022 and that will greatly impact the GGR of Rikstoto.

More laws proposed

Consequently, if Norway can’t better control offshore gambling there will be an inevitable migration of players in that direction. The current government knows that and has proposed more laws, for example a restriction of gambling ads on satellite channels which will limit the business of offshore companies. At the moment it seems that tighter payment blocks have managed to reduce offshore gambling a little, but according to estimates it is just a temporary remedy.

To reiterate, the main purpose of the monopoly system is to prevent gambling problems. Norway has tried to do that for a long time. Among other measures, they prohibited the huge slot machines business that was operating 15 to 20 years ago, because most gambling problems were caused by those machines.

It is strange that although Norway has put lots of effort into the reduction of problem gambling, the results are not so good. The University of Bergen has undertaken significant new research on Norway’s gambling problems. It found that the incidence of problem gambling has increased compared to the situation in 2015. There are 3.1 % of people suffering from gambling problems (2.3 % in 2015) and 1.4% are experiencing serious problems (0.9 % in 2015).

The number of gambling problems is now at the same level as it was before the ban on the slot machine business. The structure of gambling problems has also changed. Now almost half of the problems are coming from digital casino games. Nowadays younger customers are suffering from gambling problems than before. There are different measurement methods of gambling problems in different countries, but despite that it is obvious that the number of gambling problems is at a higher level than it is in Denmark and Sweden where they no longer have a monopoly.

Norway has strongly and consistently tried to control the social and economic disadvantages of gambling with a monopoly. It is even prepared to decrease profit levels if that would help to reduce the number of problem gamblers. I would like to award them “10 points” for that.

Unfortunately, results show that it has still not succeeded very well. There will be more restrictions for offshore operations, but it is unclear if they will work or not. I believe that state control and regulation will always be behind business development and that’s why there is no way to totally prevent offshore gambling anymore.

Might it be possible that the monopoly system is no longer the best tool to prevent gambling problems in the current digitalized world?

Given that a monopoly has not succeeded in combating Norway’s gambling problems, it is unlikely these measures will work in any other European country. In Norway and also here in Finland we will have a discussion sooner or later about gambling monopolies. The states must find the best balance to prevent gambling problems and offer customers the best products possible. That leaves one final question; does the monopoly system still offer the best way to achieve that?

MORE GAMES PLEASE!

I wrote this column for http://www.lotterydaily.com and they published it few days ago. This text is partly modified by Chris Murphy.

The world is changing, and cycles of change are constantly accelerating in all areas of living. This is also the case in gambling business and the change will continue. The digitalization of gambling has been talked about to the point of fatigue, but despite this, for example, many lotteries do not seem to be able to move around in a large scale. Somehow it seems that traditional state-owned lottery companies prefer to focus on the fight against change rather than seeing it as an opportunity. But change can’t be stopped and coping with change requires the ability to adapt to it.

Instead of the relentless talk of digitalization, I would like to bring another topic to the debate where I’d expect a much more active approach from the lotteries. Fighting against change has meant that lotteries’ own game portfolios haven’t been developed as much as they should be.

A typical portfolio has been just a few draw-based games and some scratch cards. Product renewal has meant a new lotto game or instant ticket. No more radical changes have traditionally been seen from the lotteries.

The gambling market has been constantly evolving and new business areas have followed each other. People use a wide range of gambling products and have started to become customers for several different gambling companies.

A modern and agile gambling company focused on the digital business often builds its strategy for a goal that aims to get customers to use products from as many different product groups as possible. The idea is based on the fact that a customer playing several different products in the same company is more likely to remain the company’s customer than those who play only one or two products.

Gambling companies will get another benefit if they manage to expand customer product usage. Customers, who increase the number of games they play, will also increase their total consumption on average. Of course, the growth is not as big as the money invested in a new game, because most of the money spent on the new game is out of some other games they used to play before.

However, the actual jackpot for the company is available. If the money that customer uses for playing your new game is at the expense of the games of another gambling company, then the entire profit of this new game is new money for your company. If lottery expands its offering to completely new game types, it is possible that its loyal customer will discover games which he used to play with another company. In this situation, there is a chance that the customer will transfer all his gambling to the lottery and even in the case where his total gambling does not increase, the lottery’s profits can and will increase.

How does the traditional lottery product development with a “new lottery game” fit into that pattern, which is hoped to produce customers who are going to use just lottery’s own products? Not so good. With a new lottery game or scratch card it is extremely difficult to get any customer to transfer his gambling from another company to your lottery.

A successful launch of the lottery game can certainly bring new money from old customers, but the turnover that has been accumulated mainly for the new product is a shift from your other products. You won’t earn a lot when you just move money from your right pocket to the left one.

Of course, I’m aware that in many countries lottery owners have curbed product development and instead been satisfied with the profits from the traditional lottery business. The most important thing has been to secure the established monopoly position and try to prevent that from being jeopardized. Business growth may not even be a key consideration. But what will the future look like if the static offering starts to lose interest against other gambling offerings? Not good at all.

The monopoly status of the lotteries is beginning to be more and more nominal. Lottery betting has come to rob the same market and other gambling verticals have otherwise stuck right next to customers on their skin. Modern gambling is often fast and entertaining compared to lottery products.

Nowadays it is much more difficult to get younger customers to become regular customers for lottery products. Should lotteries expand their offering to other gambling verticals? They definitely should if it is legally possible. And if it is not, at least a reasonable effort should be made to change the legislation to a form in which other gambling verticals could also be offered to the lottery customers.

Why has this not been done to a significant extent? The owner’s will and legislation are, of course, valid reasons but they can be influenced if necessary. The big ideological problem seems to be that many lottery operators are cautious about using smaller prize games to compete internally against traditionally higher payout lottery products.

If only the same bet moves to a lower payout product, the revenue will of course be lower. You shouldn’t worry about that at all. In modern gambling products, the rhythm of gaming and the circulation of money enable the same kind of profits thanks to increased turnover.

The crucial factor for the overall development of revenue is whether the customer is ready to increase the total amount of money he used to play or not. It is difficult to see that adding a new product group to the company’s portfolio would reduce the total amount of money spent on gambling in any significant customer segments.

In today’s gambling world where responsibility is the key word, the offering of lottery has traditionally been the product vertical that causes the least gambling problems. Will lotteries risk their reputation if they start offering more harmful gambling products?

This is a scenario that needs to be taken into account. An extremely aggressive offering of casino games could lead to such a thing. To offer much softer sports and horse betting is hardly not. And casino games can also be offered to customers in a responsible way. The market situation and the potential of the different new product verticals should determine which product groups give the best balance between possible risks and profits. But responsibility shouldn’t be a barrier to expanding the range of gambling verticals for lotteries.

As we go further in the 2020s, it is clear that the competition in gambling businesses will become even harder. Even in countries where traditional betting shops have managed to maintain a strong position in the face of internet competition, the situation is not everlasting.

Even in those cases, lotteries can’t fail to try to maintain their position as the sole gambling operator of large customer groups in their own country. However, this won’t be possible in the future unless lotteries are starting to expand their offerings to other gambling verticals. In the future a modern, successful, and competitive gambling company will offer a wide range of different gambling products from different gambling verticals. I would like to see lotteries to be among those modern gambling companies!

LOTTERY INNOVATIONS – CASE LOTTOLAND

I participate in World Gaming Executive Summit event in July in Barcelona. I had opportunity to be one of the members in panel where we discussed about lottery innovations. One of the fellow panelists was Nigel Birrell, CEO of Lottoland. I was surprised how much we agreed on current situation and also about the further development in lottery business. My company Veikkaus, the national monopoly operator, and Lottoland, the market “hooligan”, look lottery/gambling business from very different perspectives but finally we are trying to reach about same goals. I’ll now tell what I personally think about companies like Lottoland and also what are main changes needed in lottery business.

I was asked to give my “confession” about Lottoland in ICE Vox seminar in February 2018. Although as a protest I’m not used to give any confessions, I made presentation about that and here are 7 points I made 1½ years ago. I think that they are still valid.

Lottery business has no competition
1. Lotteries have believed that competition is in casino and sports betting business but in lottery business.
1. Due to previous point lottery innovations haven’t been significant at all.
1. Lotteries have been and unfortunately still are in protection mode – we have believed in lobbying & EU Law.
The business idea of Lottoland is great
1. Betting on lottery results and the Lottoland business model is something like “Uber” of the lottery business.
1. What Lottoland has done would be possible for lotteries. Why lotteries haven’t done that by themselves?
1. There are excellent business solutions from Lottoland.
Scared & angry
1. I felt scared & angry when I noticed what Lottoland was doing -> protection mode again
1. I think that it was steal of our brands!
1. There wouldn’t be Lottoland without lotteries because they business was based on our products.
Wakeup call- thank you!
1. We should develop our own business.
1. The key issue is to understand motivations of our customers – huge jackpots is not the only reason to play lottery.
New surprise(s)
1. Lottoland moved to B-to-B business and that was new surprise.
1. What will be next surprise – maybe “Super Lottoland”?
Speed of development increases uncertainty
1. How much and quick gaming and gambling businesses will merge?
1. Blockchain or something else – there will be new technologies all the time.
We are going to fight!
1. Lotteries or at least some of us are ready for fair competition!

Lottoland is just one company and I use it only as an example to describe what would happen if companies don’t develop their businesses and don’t put effort on innovation. Then there will be someone else who is doing that and will win the battle. It’s extremely important that you understand and serve your customers as well as possible. In old days it was possible that company decided what they were selling but nowadays customer is decision maker and he/she has lots of alternatives where to select – also in lottery business despite of monopolies.

I realized at the latest in that panel in Barcelona that there are still lots of lotteries who are not trying to innovate anything. I knew that it was the case some years ago, but I was a little bit shocked that it still is. Due to that fact there is lots of empty space in lottery/gambling business where newcomers, companies like Lottoland, have excellent business opportunities. If lotteries believe that they will win the battle in courtrooms, they are totally wrong!

I know that it is not easy to keep monopoly and at the same time innovate new business solutions, but we should try to do that anyhow. I’m happy and proud that my company Veikkaus is going to host EL’s (European Lotteries) Innovation seminar here in Helsinki in November. We try to increase the level of knowhow, understanding and spirit of innovations among lotteries. I hope that after few years the reputation of lotteries is not anymore old-fashioned, and we could still run profitable and responsible business!