RESPONSIBILITY – COMPETITIVE EDGE FOR LOTTERIES?

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

The background of lotteries is in almost all cases from states and quite often it is also linked to the organizations that care for charity issues like social welfare and sports. Consequently, lotteries have been regarded as different from normal commercial gambling enterprises.

Lotteries try to collect money for good causes but haven’t always been able to use all possible tools to achieve that end. There is also the perception that lotteries are more responsible operators than those from the commercial gambling sector.

But during the last few years the lottery environment has changed a lot and lotteries are no longer the homogenous group they were. As a result, it’s not obvious that lotteries are acting any more responsibly than their commercial gambling counterparts. But should that be the case?

I would say that we could section lotteries to three separate groups. The first group is lotteries which are owned by states and which are acting like state offices. The next group is lotteries which are running their business in a similar way to other gambling companies. The third group falls somewhere between those two first groups. They are trying to run business but are not willing or allowed to use all possible commercial tools to achieve that.

What kind of business could those ‘state office’ style companies have and how could they succeed against commercial competition? The owners of those companies are in all cases the states which try to control gambling business as much as they can. But it has become more difficult due to digitalization where customers have lots of other opportunities available.

There are just two possibilities for those kinds of lotteries. One is to prevent all other gambling activities which, for me, is the ‘North Korean’ way to act. The second option is to change the business strategy of the company.

I’m not sure if we should call those business-oriented lotteries as lotteries at all. While they are still ostensibly running lottery businesses, they also have lots of other businesses. They have other gambling verticals like sports betting and in many cases also casino games in their product portfolio. They could also have business operations in other areas and in many countries.

There are some lotteries which are privately owned and even listed on the stock exchange. It is easy to understand what the difference is between totally state controlled companies and publicly listed companies. I would say that the only reason why those companies are still considered a part of the ‘family’ of lotteries is that they operate monopoly-based lottery products (Lotto).

The most challenging and, at the same time, interesting group are those lotteries which exist between those two first groups. This ‘middle group’ of lotteries is trying to achieve commercial business goals, but without the same tools that their business-oriented counterparts are using.

Those lotteries could have some other gambling products like sports betting in their offering and they are in most cases serving their customers in retail and digital channels. Channeling is a good word to describe the ideology behind those kinds of lotteries. It means that they are trying to offer their customers legal alternatives to those games offered by private gambling companies.

However, they are restricted to using lower payout percentages and are not allowed to offer bonuses etc. I’m not sure if that kind of operation would succeed in the long term without tight restrictions for other gambling companies. The ‘middle group’ will sooner or later face similar challenges and problems to those experienced by ‘state office’ lotteries if they don’t change their strategies.

For a company to succeed, it should understand what its customers are willing to have and what other options those customers have available to them. It sounds simple – know your customers and your competitors. The next step is to understand what your own strengths are. If you are not better than your competitors in any area, you will have big difficulties ahead!

A successful company doesn’t have to be the best one in all areas – nowadays it is probably impossible. You should have a few (or at least one) areas where you are better than your competitors and you shouldn’t be worse than average in any areas. That’s incredibly good basics for a successful business!

So where should lotteries be looking to identify their competitive edge? Are those ‘middle group’ lotteries better than other gambling operators in any areas? The most common success factors for companies are strategy, people, finance, operations, and marketing. I don’t believe that lotteries could be stronger than other companies in management or leadership areas and the same problem is also with personnel/staff.

The salary level in lotteries is so far away from top-class business companies that it’s impossible to attract the best people to lotteries. But I trust that it would be possible to get good enough directors and experts and avoid the risk to be worse than an average in those two areas.

How about finance? Could lotteries find their strength from that area? In principle it could be possible but not in practice. States have money but there are so many areas which need more resources that it’s unlikely that they would invest lots more resources in their lotteries. I would say that state-owned companies are not investing as much as the best companies are doing and states are in many cases careful owners – they are risk-averse. So, no competitive edge from that area.

We have two potential areas left. How about operations? Would it be possible to have better processes and/or way of working than other companies have, and would it really matter for lottery/gambling business? Of course it could be possible, but I don’t believe that operations would be the area where any companies could gain competitive edge for gambling operations.

Some lotteries seem to think that their perceived trustworthiness in relation to commercial gambling enterprises remains their strength, but I don’t believe in that. This could be area where a company could lose the game, not win it.

So, we have just one area remaining – marketing. I think that “marketing” is a limited way of describing that area. It involves among other things communication, brand, sales, and customer relationship. But there seems to be two areas which could offer a potential competitive edge for lotteries.

All lotteries have strong retail sale channels and most lotteries nowadays have digital sale channels too. Those lotteries which have two strong sales channels or even one omni-channel solution could achieve a competitive advantage on commercial gambling operators which are serving their customers solely online.

Unfortunately too many lotteries still face challenges with their own online sale channels. That’s why I don’t believe that omni-channel is currently the solution to winning the competition against private gambling companies. Maybe it could be possible in the coming years?

Lotteries have enjoyed strong brand recognition and good reputations, at least in Western Europe where lottery operations have operated for tens of years and given millions or even billions to good causes. That ‘money for good causes’ could be seen as a potential strength for lotteries.

But nowadays in many countries lottery profits are going to the state and not directly to beneficiaries. As a result, customers are no longer certain as to where those profits are actually going, to the point where it looks just like another form of taxation.

My solution would be a combination of brand, communication, and customer relationship. Lotteries should communicate that they are acting in a more responsible way than the most of their commercial gambling counterparts.

They should explain that they are subject to stricter limits on the gambling products they offer which is why they are different from those offered by commercial gambling firms. Lotteries should tell consumers that they take responsible gaming seriously and that they are operating frameworks where gambling is as responsible as possible.

The purpose of those restrictions is to take care of customers and to prevent problems. I believe that lotteries could use responsibility as a way of gaining a competitive edge in gambling business. They should be saying: “We are offering the safest and most trustable environment for gaming!” But it won’t work if lotteries just say it, they must also run their businesses in a way that demonstrates that.

ARE LOTTERIES DIFFERENT THAN OTHER GAMBLING COMPANIES?

What is the definition of lottery? Wikipedia tells that lottery is a form of gambling that involves the drawing of numbers at random for a prize. Lotteries are outlawed by some governments, while others endorse it to the extent of organizing a national or state lottery. Is there anything which makes lottery totally different compared to other gambling and gambling operators. Lotteries think that yes of course but I’m not sure about that at all.

When I joined in Veikkaus, the Finnish national lottery operator, over 25 years ago the lottery and gambling world was quite different than it is now. Gambling was among those words which we weren’t allowed to use when we were talking about our own business. Gambling was something bad and lottery was good. Some lotteries had pool-based sports games like Football Pools and the word we used for whole business was gaming. Nowadays gaming means rather casual and social games not lottery or other gambling verticals. Lotteries weren’t willing to be part of gambling business and believed that their reputation and operation were much better than for example casino companies had. I know that some lotteries are still thinking that way.

Many lotteries are established by the states and have been owned by those states too. In practice all of them have had monopoly situation in lottery business in their own jurisdictions. All lotteries have had lotto games and most of them have also sold scratch cards and some have had those pool-based sports games. Lotteries have had strong position in retail business and important role in the societies thanks to profit/money they have given to the state and/or to their direct beneficiaries.

The gambling world began to change when internet appeared in 1990’s. At the same time some forerunner lotteries decided to introduce fixed odds sports betting. It was huge change when we jumped from traditional retail lottery business to digital sports betting business in mid-1990’s. Internet, and later mobile, has changed our business totally but it has influenced on the legal situation too. There is still monopoly in basic lottery business in all countries but in practice that is not the case anymore. There are nowadays secondary lottery products and sports betting about lottery results which customers could play instead of the original lotteries.

European Union has also caused lots of changes here in Finland and probably in many other EU-member countries too. Monopolies are against the basic principle of EU where we believe on free movement of products and services. The European Court of Justice has accepted the monopoly in lottery business if it is necessary to prevent gambling related problems. Those problems could be gambling problems or crime which is linked to gambling business. I would like to hear how much gambling problems are coming from lottery products and how much crime is linked to those products… There is no monopoly in casino business where gambling problems and criminal actions are much more common than they are in lottery products.

There are still many lotteries where state is the owner of the company, but there are more and more lotteries which are public companies with private owners and in some cases state could be among those owners. If I analyze the World Lottery Association (WLA) and its’ members I would say that it is not homogenous group at all. If I think about how lotteries are trying to target their business goals, I could notice extremely big difference between the most active and the most passive ones. There are lotteries which are acting like real business companies and there are also lotteries which are like state offices – which they actually are. Then there are lots of lotteries between those two groups.

Some lotteries have divided their businesses to two or even more separate companies where the other company is operating in the monopoly environment and the other one is in serious competition (license market). Danske Spil and Svenska Spel are good examples of that kind of structure. There are also companies like IGT, SISAL, FDJ, SAZKA etc. among WLA members and they are like normal publicly listed business companies.

Few other important features where attitude and action among lotteries vary a lot are responsible gaming and profit of the company. Lotteries have taken responsible gaming issues seriously and they still are, but are they really doing things better than the private gambling operators? Some lotteries are but not all of them. There are also some private gambling operators who are doing excellent work in that responsible gaming area. The profit from lotteries is going to the state or/and to good causes. That’s still the case in monopoly part of the business, but in licensed based business that’s not the case.

I don’t believe that it will be possible to keep monopoly and act like normal business company although lots of lotteries are moving towards that kind of action. I think that there are two totally different options available. The first one is to act like monopoly company should do – concentrate mainly on prevention of gambling problems and not be too active with marketing, sale, and development. Then it’s up to the state how well it could protect that monopoly from the competition. The roles of state and lottery company should be separate and clear enough. There are tools for that protection like internet and payment blockings. The other option is to concentrate on real business and offer as good and wide gambling products to customers as possible and trust on own strengths. Thanks to their backgrounds and history, lotteries have some competitive edges compared to private companies and they should try to utilize them and make good business. In that world monopoly won’t be possible, but it doesn’t matter if lotteries would develop their businesses.

In many countries lotteries can’t make that kind of decision by themselves. The final decision maker is the state, but lotteries could influence on that decision. I think that it would be possible to further develop business also in monopoly situation but there the tools are totally different compared to real business world. In both worlds keywords are customer satisfaction, good products and services and digitalization. If lotteries are willing to move towards real competition, they should digitalize their business, introduce customer-oriented systems, and add more gambling verticals to their portfolio. In the monopoly world responsible gaming is the most important issue and it should be clear that it has important role also in business world but not so big than in monopoly.

COVID-19 – A WAKE-UP CALL

I wrote a blog “Digitalization of Lottery Business” two months ago. I will now continue with the same theme and this blog will partly be the same than that previous one. I believe on principle “Repetition is the mother of learning”. I got the impulse for this one from the virtual SBC Digital Summit event where I participated in panel discussion last week. I discussed with Steen Madsen (A Game Above), Stuart Godfree (Mkodo) and Chris Armes (GiG) about mobile and digital opportunities for lotteries. I have thought that issues a lot during last few days and believe that we could help operators, lotteries and the other ones, who would like to develop their offering and service in that area.

It is already now obvious that Covid-19 has changed our lives. It has been amazing how fast that changed has happened. Unfortunately, it has not been good changes, but I would say that it hasn’t been totally bad either. Of course, I’m not talking about the number of dead or sick people, but how we have changed our habits to buy things and spend our free time. That “damn virus” has also showed to companies that there should be agile ways to change business strategies and plans very quickly. Those companies who have managed to do that, have better possibilities to stay alive during that crisis and after that.

Covid-19 has shown one big weakness from gambling business which is mainly problem for casinos and lotteries. That weakness is to big role of retail business and the lack of digital online business. It’s not good solution if you have “all your eggs in the same basket”. We have the best/worst examples of that in Las Vegas where casinos have been closed now some weeks and most of them have just minor online business going on or in many cases not at all online business. That has meant 95 – 100 % lost of sales and profits have changed to losses. Too many lotteries have faced similar problem. When places where you are used to sell your lottery tickets are not allowed to be open, you don’t have any places where you could get sales if you don’t have online/digital channel. There are examples where big lotteries have been forced to stop whole operations when they haven’t had online sales at all, or the share of that business has been too small.

The other example of “all eggs in the same basket” problem is sports betting. Those operators who have had just sports betting business without any other gambling verticals have faced extremely big problems. If you have offered only sports betting and there are no sports events going on, what else you could do than stop your operations? Those sports betting operators who have had for example virtual sports and/or online casino games in their product portfolio have had possibility to continue their businesses.

I said in panel discussion last week that hopefully Covid-19 is the wake-up for lotteries. Actually it should be wake-up call also for some other gambling operators too! It is not useful to say that lotteries should understand the need of change already many years ago. It is better to concentrate on the future and how they could make things better. As a skeptic guy, I‘m not sure how many of them are willing to change and how fast they are ready to do it. The time for action is NOW not sometimes in the future!

There are many things what gambling operators should have learnt from the crisis we have faces during last 2 -3 month. Companies should have adaptive strategy which means capability to react on big changes fast. They should also have capability to move changes in strategy to business plans and further to operational level as quickly as possible but in the way which their organization and customers will understand. The main problems in that area are slow processes, the fear of change and the lack of communication with employees and customers.

There are at least four areas where the most of lotteries should make improvements. Those area are digitalization, customer centric operations, products & services, and technology. All those areas would be worth of own blog, but I try to explain the main changes now shortly.

Although retail is really important part of lottery business, lotteries should have digital business too. Lotteries should understand that online sale is not against retail business but rather will support that. The next step for more developed lotteries will be omni-channel solution where retail and online will establish “one package” and work as a one sale channel. We have noticed that it is easier to offer services for customers in digital channels than in traditional retail network. But it would be possible to offer those supporting services and new kind of products also in retail network if companies could utilize digitalization in all channels, not only in online channel. Lotteries should start digitalization immediately if they haven’t done that yet.

Lotteries should have capability to serve their customers whenever and wherever they are willing to buy products. It is old fashioned way to think that good product would be enough to get customers and sales. Companies should understand and admit that customers are kings and queens and they will decide what, when and where they are going to buy. We should understand more about our customers and data is one important part of that. Lotteries should put more resources on data utilization and automatization. I’m sure that it would bring them more satisfied customers and better business.

I already wrote about “all eggs in the same basket” dilemma. Gambling companies should have wider product portfolio than the most of them have at the moment. That is big problem for lotteries mainly. There are still plenty of lotteries who are offering just basic lottery products like Lotto and scratch cards. There might be legal reasons for that, but I would say that in many cases those legal and regulative problems are just too easy explanations. I don’t believe that it would be impossible to add for example horse and sport betting to product portfolio. From business risk management point of view it is better to have wider product portfolio than limited one.

I have always seen technology as a tool for business. I must admit that it is extremely important tool which allows you to develop your business. Gambling operators should have as modern and agile technology solutions as possible. Companies should have as fast time to market time as possible and technology is the most important element there. I think that one big challenge in that area for lotteries is unwillingness to make changes to technology which they are used to use. The most of lotteries are used to buy everything from same technology supplier and that would block the possibility for change and opportunity to use the best solutions in different areas.

Lotteries should be more ready to take more risks, controlled ones of course. I’m extremely keen on helping lotteries, and other gambling operators, if they would like to start to change their business now. The game is not over, but Covid-19 has showed that time for change is now!

MY NEW BUSINESS LIFE

This blog will be quite personal and commercial one. I’m going to tell something about my business future and would like to hear what you think about my/our plans.

As you might have read, I resigned from Veikkaus two months ago and now I’m officially out from there and it’s time to do something else. I have started today new consulting company together with my friend Reijo Anttila and would like to give some information about our plans. Our timing is not at all perfect “thanks” to Covid-19, but we believe on our ideas and expertise and trust that there will be request for our service soon or later anyhow.

We have established consulting and development company called The Finnish Gambling Consultants which will concentrate on gambling related operations globally. We are targeting international gambling operators and suppliers. Me and Reijo (also from Veikkaus) own that company together. Both of us have worked 20+ years in the Finnish gambling operators in many different high positions and have got lots of knowledge about successful gambling business.

We have managed to make non-exclusive partnerships with five excellent professionals who will give us more resources and expertise if needed. I guess that you have heard names Philippe Vlaemminck, David Sargeant, Christian Kalb, Robin Bowler and Mark Knighton before. We have also informal network of esports experts which we could utilize if there would be need for esports consulting. It’s possible that there will be few more partnerships quite soon.

We have recognized our focus areas. There could be even more of them, but we have decided to concentrate on these six areas mainly.

Digitalization of gambling business. We have both over 20 years’ experience about that. I was responsible for online business when Veikkaus introduced that as the first lottery in late 1996. Reijo led the project when horse betting company Fintoto did the same some years later. We believe that we could help companies as well in strategic planning’s as at the executive level. During that special Covid-19 pandemic time it has been easy to notice that some companies, mainly lotteries, should be much more active in digital business.

New gambling verticals. We could help gambling companies, including lotteries, if they want to introduce new gaming vertical to their product portfolio or establish gambling business for the first time. We could help customers to find the most tempting products for their customer segments. We have recent experience from that when we were involved in the merger process of three gambling companies here in Finland. Nowadays all gambling verticals (lottery, casino, sports betting) are in the same company.

Improvement of existing business. We can help companies to make analysis of existing situation and give proposal of potential improvement areas. We could also help them in the decision-making process and further execution of that plan. We are used to make lots of analysis in our works and managed to get good results from that work.

Horse and sports betting. Our deepest experience is from horse and sports betting sector and we could offer new business and products ideas for that business sector. I’m sure that give lots of help for example to the lotteries who would like to introduce sports betting to their product portfolio. The other special knowledge we have from that area is pool-based games which are popular ones here in Nordic countries.

Utilization of data. We have worked many years with customer and product data and are able to help companies to create customer-oriented business models. We know gambling specific features about data and measurements. We believe that same models with local tunings work well around the globe and that’s why we would be able to help all kind of gambling companies globally in that area.

Strategy work. We could help companies to plan the strategy work of the company or the specific business division. We have done that many times in Veikkaus and Fintoto and could utilize that knowledge for sure. We could also provide content for that work if needed. Especially in that area we have excellent partnership network!

We are not going to concentrate only on consulting business although it will be big part of our business. The remarkably interesting area will be our own development & innovation. I would describe that as the seventh area.

New business models. We are doing the development of new business models for gambling operators by ourselves and are ready to make revenue shared business contracts about those models with operators. I’m excited about that area! I’m sure that we have and shall have excellent new business ideas and hopefully we’ll find out companies who would like to utilize those ideas.

You could find out more information about the company and us from our internet site: www.finnishgc.fi . You could send me your comments about our business plan/focus areas to my new email address jari.vahanen@finnishgc.fi . You could use the same email if you would start cooperation discussion with us too.

DIGITALIZATION OF LOTTERY BUSINESS

Lottery business has been based on monopoly all over the world as long as I could remember. Lottery games have been run by national lotteries mainly. Those companies have been owned by states, but that’s not the case anymore. There are already many countries where lottery games are operated by private companies which are trying to make as good business as possible. That has changed the lottery world a lot and has caused big differences between different lotteries. Lottery companies used be like state offices in old days and they still are in some countries. At the same time there are modern business companies running those games too. It would be interesting to see what will happen in lottery business if for example Virgin Group will win the UK lottery license…

Because the ownership and business strategies of lotteries are so different, it’s natural that the state of digitalization of those companies varies a lot. We have lottery companies where the share of digital business is something like 50 % of total business and companies which haven’t even started the digitalization of their business. Someone could guess that state-owned companies are in the latter group and private companies are in the first group, but that’s not the case. For example, my former company Veikkaus is 100 % owned by the Finnish State and almost 50 % of lottery business is coming from digital channels. Another similar example is Norsk Tipping.

I have said many times before that gambling, or lottery, business is not specific and separate business area. Our consumers are used to use digital channels to get other services and products. People are using internet and their mobile phones almost for everything and it’s strange if they can’t get their lottery products from there too. Actually, lottery products are more suitable for digital channels than many other products, because there is no need for distribution. Lotteries should be part of normal life and be available in digital channels if customers would like to get them there.

Veikkaus introduced lottery games in internet already in 1996/1997 as the first lottery in the world – sorry my Icelandic friends! I was in charge of that digital business first years and due to that I was visiting many lotteries and events and told about our solutions and experiences. Those days the most of lotteries were afraid of reactions from retail network and weren’t ready to introduce digital solutions. It took surprisingly many years until lottery companies outside the Nordic countries started digitalization of their business. Veikkaus and other Nordic lotteries (Danske Spil, Norsk Tipping and Svenska Spel) have further developed their digital businesses. Someone might say that we are using digital tools even too much and trying to sell more than enough. Digitalization and utilization of customer data enable us to make more effective marketing and product development and that will improve the business results. Lotteries should find out the balance of business and responsible gaming together with regulator, but that is partly another story.

I believe that digitalization will give lottery companies and regulators more tools for responsible gaming too. We get lots of data from digital channels and that make it possible to analyze customer behavior more than it’s possible in retail channels where gambling has been anonymous. Digitalization makes it possible to give better service for customers. We could also offer more entertaining games and services. Of course, it’s important that lotteries understand how far they could go and control their actions. Otherwise there is a risk that gambling problems would increase.

The market situation has also changed. There are nowadays companies like Lottoland operating in lottery sector and traditional lotteries should compete against those modern companies. It’s impossible “fight” if we are not using the similar tools. I think that it’s better way to compete by developing our own business than try to beat those newcomers in courtrooms. I would almost like to thank Lottoland about “wake up-call” for lotteries…

It’s important to understand that digitalization of lottery business doesn’t mean just new digital channels internet and mobile. There are also lots of new opportunities for traditional retail channel. It’s possible and necessary to utilize new technology in retail business too. We have already lots of example of multi-channel products. We have brought digital services to retail network and that has utilized both sales channels. FDJ in France and Danske Spil in Denmark have managed to get excellent business results when they have launched new digital services for their retail network. I have admitted that I believe in omni-channel solutions. I’m sure that lotteries will introduce games where customer could play same game in retail network and continue that game in digital channel or vice versa. I’m also sure that customers will use their mobile phones for gambling when they are physically in retail shops – we have already seen some small examples of that. It might be impossible to say in the future which part of lottery business is digital and which retail business and it doesn’t matter at all. Lotteries should understand that retail business is the asset which the most of other gambling operators don’t have and that’s why it’s important part of the business to further develop!

Marketing of gambling (products)

I just spent long football weekend together with my former colleagues Antti, Erkko and Mika with whom we took care of marketing of sports and horse betting business in ”good old days” here in Finland. We used to have real funny time at the office and we managed to make excellent marketing campaigns. I believe that quite many middle-aged sports fans still remember our ”Maailma on erilainen vakioveikkaajan silmin”-campaign (you could find those Football Pools themed ads with Google or from YouTube…). We didn’t only toot our own horn but also tried to find out ideas for gambling marketing. It’s not easy task at all, but we had interesting discussion about that.

Gambling has always been ”dangerous” business, almost like alcohol and tobacco. Now attitudes against gambling have become even more negative due increase and awaremess of gambling problems. That has effected on marketing and communication a lot. Many countries have lots of restrictions for marketing of gambling products. Italy decided to have total marketing ban of all gambling products. There are similar rules for all gambling verticals like casino, sports betting and lottery. It seems that some countries might follow the example of Italy.

Veikkaus has still possibility to use marketing as a tool to promote its business in Finland. Gambling products have been divided to ”green” and ”red” games. Veikkaus is allowed to have marketing campaigns about ”green” games (for example lottery, football pools and scratch cards) which are not so dangerous ones. It’s not possible to have marketing campaigns of ”red” games (casino games, sports betting, horse betting etc.), but it’s allowed to give product information about those games and sometimes it’s difficult to explain the difference between marketing and product information.

It’s good that people understand better the risks of gambling and are aware of gambling problems. I think that regulator should set up guidelines for gambling operators and supervise those rules. Marketing should be one part of those guidelines (rules). I don’t believe that total ban of gambling marketing would be the best solution. The better one would be something like we have in alcohol business where companies are allowed to market ”not so dangerous” products but not at all those heavy ones.

I have said many times before that companies should know and understand their customers as well as possible. That’s the key issue also in marketing. If you know your customers’ main motivations for gambling, you could make better marketing for them. It’s totally different what kind of messages you should give for ”jackpot dreamers” than for people who is looking for entertainment. It’s another question should it be possible to market those entertaining casino games at all…

Sport is the most important reason for gambling for big group of customers. Of course some of them are dreaming to get big money from sports games and some of them are looking for entertainment by watching sports, but I would say that sport is specific reason to play money games. There are at least two quite separate groups inside sports betting customers. Sports punters are keen on gambling and they are trying to utilize their knowledge of sports to earn money. I think that there is no need to have any marketing actions for that group. The other group is much bigger one and it’s sports fans. For them sports at itself is more important than gambling, which is just ”extra feature” to get more excitement from sports.

What kind of marketing we should do for those sports fans? I don’t like ”buy now”- or ”win 1M€”-style marketing adds and especially in sports games area they are ineffective ones. If you would like to reach sports fans, you should concentrate on sports and try to offer them chance for insight. I think that me and my friends managed to do that in ”good old days” when we published for example ad which was copy of famous painting God’s Hand by Michelangelo and we added blue&white stripes and number 10 to that arm. It’s important that customer would get good feeling when he/she is watching those ads. You should also try to offer that same feeling when they are playing your games. If you manage to do that, you could have good but responsible gambling business.

We discussed also about the possibilities of social media, digital channel and retail network, but those ideas will be the theme of my next blog…

Bye-bye!

This blog will be quite different compared to my former ones. This is a personal one and if you would like to learn something about the gambling business, you should wait the next blog and skip this. If you would like to know me better, you should continue reading…

Over 28 years is a long time. Probably some of the readers haven’t even lived as long time. That’s anyhow the period which I have been honored to work with the Finnish gambling operators. I started in the Horse Betting company and spent most of my time with Lottery & Sports Betting operator and now have worked last 3 years in the new Gambling company (lottery, sports betting, horse betting & casino). I could call myself as a veteran of gambling business although I’m not ready to admit that I’m old – mentally I’m still a young guy!

As you could guess from the title of this blog, it’s time to say goodbye for Veikkaus. I have mixed feelings about that. At the same time, I’m excited but also sad. I called old Veikkaus as my own company and that was my honest feeling. It might sound strange when someone is calling state-owned monopoly company as his own company, but that was the feeling I had. The marriage with the new Veikkaus hasn’t gone so well and I have had big difficulties to get that same feeling. To be honest, it hasn’t been even close to that. I have tried, but nothing has helped, and I haven’t been able to give my best.

If I use comparison from my sport, football, I would say that I’m still one of the best players who could play ~~in almost~~ whatever position. But as you know, it’s not only about the personal skills of players but also about the team’s tactic. Sometimes it happens that skillful player doesn’t manage very well when the way of playing is not suitable for him/her. I think that this is the case now with me and the new Veikkaus. They don’t need my style of a player anymore. I have been used to have an important role in the team and lately I have been mainly on the bench. That’s why I have now asked for a transfer to somewhere else.

I’m not 100 % sure what will happen next. Officially I’ll be Veikkaus employee still two months and after that there will be some restrictions where I could work. My “SBC Events friends” Rasmus and Andrew have offered me opportunity to act as their advisor until I could start real working again. It’s good to continue in the gambling business also during my “personal break”.

Of course I have already plans for the future. I’ll probably establish own gambling consulting company together with my partner. I’ll tell you more about that when it’s sure that we’ll do it. Anyhow I’m excited about possibilities to work with other gambling operators and suppliers and other companies related to our business. Although my operational level experiences are almost only from Finland, I’m sure that we could give profitable advices to all gambling companies globally. Let me know if you are keen on having cooperation with me/us. You could contact me via LinkedIn or send me email to: jarivahanen65@gmail.com !

CONSOLIDATION OF GAMBLING BUSINESS

I’m used to say that I’m working in lottery business and/or in sports betting business. After our big merger I have used gambling business which includes also casino business. I have noticed that quite many lottery experts use word “gaming” instead of “gambling” but to me gaming is mainly casual and social games – not real money games which we are offering. I know that the reputation of word “gaming” is much softer than “gambling” but that’s not the core issue.

In which business we are working? That’s still relevant question! But the reason for that is not those words gaming and gambling. It’s important question because we have to know what our core business is, and we should know who our competitors are. We are used to think that other gambling companies are those competitors and they still are, but nowadays there are many other companies too. I would say that we are part of the entertainment business! That has been obvious for physical casinos already long time, but I’m not sure about lotteries and sports & horse betting companies.

I have said this many time before but I say it again: the most important feature for success is to understand your customers and their needs! You could serve them much better if you know their real motivations for buying your games. That motivation is not always the same and could vary from time to time. I believe that the main motivations for gambling are dreaming, spending free time and following sports.

We have already noticed that some quite big companies which are used to operate in other businesses have entered to gambling business. The first change happened when gambling technology suppliers moved to operation side. Those companies were used to operate games on behalf of lottery operators for example in US market. Probably technology suppliers noticed that there were bigger profit opportunities available if they have gambling licenses by themselves. Anyhow they have managed to get gambling licenses from some countries, but at the same time they are still taking care of their core business and selling tech for gambling companies. So, those companies have moved to gambling business but haven’t left their original business. That has caused slightly difficult situation for gambling companies when their technology partner is their potential competitors.

As I already said, we are competing in the entertainment market and traditional entertainment companies have realized that too. I know that big media companies are considering how they should react on gambling business. Especially the opening of sports betting in US has put more speed on that kind of analyzes. I wonder if there is any media company which have TV-rights for sports which is not planning their strategy for sports betting? I’m not saying that those TV-companies should move to gambling operations, but they should understand how they could utilize their rights in sports betting business. The entrance of big media companies will affect on gambling business a lot because those companies have lots of customers and they understand their needs. It’s always easier from customer point of view if you could get all services from one place.

Third and the most important and interesting “newcomer” would be GAFA companies (Google, Amazon, Facebook & Apple). Those giant companies have based their business models on customer data and in principle they could run whatever business with that excellent capability. I don’t have any “inside information” how actively those GAFA companies are in gambling area, but I would be surprised if they haven’t made any survey around that business area. If they, or just one of them, would enter to gambling business, it would mean dramatical change. To be honest, I’m not sure how well current gambling companies would succeed against them. I would say that we should hope that they won’t come or at least won’t act as operators! Probably they are not willing to take the risk of losing their brand when the reputation of gambling business is not so high…

That consolidation would also mean something else than just new companies entering to our business. We have already noticed that some gambling companies have started other businesses than just gambling. We have example even from lotteries where some big companies have moved partly to technology direction. For example FDJ from France and Camelot from UK have invested quite a lot to technology development and are nowadays trying to sell their solution to other operators. Some other lotteries like SISAL (Italy) and SAZKA (Czech) have tried to utilize their gambling solutions in other business areas like selling different kind of tickets and give payment services. I know that many gambling companies are looking for solutions where they could link gambling and casual games and offer something totally new which wouldn’t be gambling as we have used to define it. I believe that we shall see consolidation even more in near future.

I think that consolidation of different businesses would happen and succeed if there are possibilities to utilize your current competences somewhere else than you are used to do. If you have lots of information and understanding about your customers, you could use that almost in all possible business areas and that’s the main reason why those GAFA companies have managed so well. It’s much more difficult to enter in totally new area where you don’t have any expertise, capability or assets. That might be possible for start-ups, but for big existing companies it would be stupid risk. You should understand where your strengths are and try to find out new ideas where you could utilize them!

THE CHINESE GAMBLING MARKET

It’s well known fact that Macau and Hong Kong are the leading areas when we are talking about physical casino business (Macau) or horse betting business (Hong Kong). But how much we know about the Chinese gambling market? I have now visited some times in Beijing and tried to understand more what is situated in there and what might happen in next few years.

It’s obvious that when the country has about 1,4 billion inhabitants, there is huge business possibilities in all business areas and that’ the case of course in gambling business. But the State of China has prohibited gambling actions and is also controlling that quite closely. Anyhow it has said that the illegal market in sports betting and casino business is huge in Asia but it’s that the case also in China? According to estimates the illegal interactive gambling business in China is just about 1,5 B€ (GGR) which is not so much compared to the size of the country.

There is a general level prohibition on gambling activities in China, but there are few exceptions to that. There are two state-owned lotteries which have licenses to operate lottery games and limited numbers of VLT machines (video lottery terminals). They are only allowed to run lottery business in retail channel, so digital online business is not allowed – at least yet. As I already said, the Chinese state is actively fighting against illegal gambling activities and especially against cross-border operations. There are quite heavy punishments in they legislation for illegal gambling and I’m sure that they will use those tools if they manage to catch illegal operators.

Ministry of Finance has approved two licenses for lottery operations – the other one is for China Sports Lottery (CSL) and the other one for China Welfare Lottery (CWL). In fact, there seems to be a little bit strange duopoly situation in that market. As far as I know, those two licenses are almost the same. If the other lottery would get permission to introduce something new, the other one would probably get the same kind of permission. The only difference is now in sports games area where Sports Lottery has license to have some lottery style sports games.

It’s not big surprise that CSL and CWL are the two biggest lotteries in the world. Now CSL is slightly bigger than CWL but they are about the same size. The sale of both lotteries seems to be at the level of 30 billion euros a year – the total sale is about 60 B €/year. The development of sales in last ten years has been huge but now both lotteries have faced big challenges. Their businesses have suffered a lot this year and decrease has been so big that the Chinese state should consider some changes to help that business.

What kind of big changes there might be? I’m 100 % sure that China will continue with monopoly (duopoly) based system, so there won’t be any other licenses although the local governments have had and still have quite big role to decide practical level issues. Based on my knowledge the role of local governments won’t become bigger in gambling area but rather will decrease. I believe that the Chinese state will try to control even more the gambling business than they have done until now. It might mean two changes – either huge merger of CSL and CWL or tighter integration of those two companies and their local organizations. I don’t believe that this huge merger will happen very soon. That’s why I think that both CSL and CWL will have new organizational structure where central company will have bigger and more important role than they have at the moment.

The other big change which I expect to see soon is online lottery business. Online purchase of some lottery products was allowed for a while in 2015 but lotteries had to close that operation quite soon. The Chinese state released online lottery directive already in 2016 when they suggested that online lottery sales would be allowed, but nothing has happened in practical level after that. I guess that now when both lotteries have faced problems in their businesses, the government will give them license to have limited offering in online channel. I believe that the legislation will change next year and CSL and CWL could start online business in 2021. Chinese people are using mobile payment more than I have seen anywhere else and that’s why I believe that mobile lottery might be big success in China.

The third potential big change might be sports betting. CSL is running some football and basketball sports games but there is no real official sports betting in China. There would be huge business potential available in sports betting, but the Chinese politicians might consider sports betting as “too heavy gambling” and that’s why I don’t believe that fixed odds sports betting would be allowed very soon. CSL and CWL might have chance to get more wider license for lottery style sports games (pool-based games) in next few years.

As a short summary I would say that there will be some big changes in the Chinese gambling market, but it won’t open big business opportunities for foreign companies at least in short term. The State of China will keep tight control on that and will help their own companies to develop their businesses. Some good gambling technology suppliers might have business possibilities if they managed to establish joint venture companies together with Chinese operators.

ABOUT US SPORTS BETTING MARKET AGAIN

I wrote blog about US Sports Betting 7 months ago. I’m probably too short-tempered when I’m going to write about the same issue so short again, but I’ll do it. If you remember the previous US blog well, I would say that not so much has changed yet, but I have got some new information and ideas after that.

I start with the regulatory situation of US Sports Betting market. Now, or actually few weeks ago, there are 13 states which have already started Sports Betting. That’s some more than it was in spring 2019. There are also 6 states which have passed the legal process and where Sports Betting would be legal but where no one has started it yet. If I have understood it correctly, there are also something like 5 states where the legalization process is actively going on and where Sports Betting will probably be legal at the latest next year. So, it seems that Sports Betting will be legal in half of states quite soon. There are still some big states like California missing from that list.

How big is the unregulated US Sports Betting market now? I’m afraid that no one really knows, but I trust on H2GC research company. H2GC estimates that the handle of unregulated Sports Betting market is 196 billion $ and gross gaming revenue (GGR) of that is about 10 B$. So, we are talking about huge market and market potential for newly regulated companies. I don’t know how big share of that the regulated companies are supposed to get from that unregulated market, but I believe that it will be big share anyhow.

H2GC has also given estimates for the growth of regulated US Sports Betting. They are expecting it to reach the size of 9 B$ in next 10 years. That would mean almost 1 billion dollars growth every year because it’s now a little bit less than 1 B$. It seems that there will be 24 states which have legalized Sports Betting in 2020 and there will be more states which will do that later. According to estimates there will be 38 states where Sports Betting will be legal until 2024.

It’s obvious that US market is not working in the same way than European or Asian Sports Betting market. We have noticed that at least now when some big Europe based companies have entered to US market. US Sports Betting is based really much on US Sports and different bet types than we used to have here in Europe. The three main sports in US Sports Betting markets are basketball (about 29 %), baseball (26 %) and American football (18 %). The most popular bet types are “Las Vegas style” bets. As I already wrote in my previous US Sports Betting blog, I think that it will be hard and almost impossible to beat Las Vegas bookmakers in those sports and bet types. The new companies should introduce something else.

The share of digital channel(s) has been quite small, but I’m sure that it will increase a lot in the future. H2GC has estimated that after ten years from now the size (GGR) of online Sports Betting will be about 6 B$ and landbased about 3 B$. As you know it’s easier to utilize skills in data and customer areas in digital channels than in landbased business. At least until now the Las Vegas based Sports Betting operators have concentrated on business which they have used to run. That might be “weakness” where the new legal operators should try to hit?

I don’t have much new information about the Sports Betting plans of big media and technology companies. They actions might change the whole Sports Betting market, not only in US but also globally. It’s not sure at all that they are going to act as Sports Betting operators, but I believe that at least those media (TV) companies who have Sports TV-rights will utilize those rights somehow in Sports Betting business too. There is already one interesting example. Score is offering maybe the most popular live results service of sports events to tens millions of customers. They introduced own Sports Betting offering in New Jersey some months ago and business results of that seem to be good ones. I’m keen on seeing what will happen if even bigger media companies will do the same…

It’s not sure what the State Lotteries will do. There are just four lotteries (Delaware, Oregon, Rhode Island and West Virginia) which have started their own Sports Betting operations. Last week I heard from Patricia McQueen from NASPL that there are few more states where lotteries have already license to start Sports Betting, but which haven’t yet done that. As far as I understood right, Montana will be the fifth one quite soon and probably New Hampshire and District of Columbia will follow later. Tennessee will also start Sports Betting quite soon, but there lottery will act as a regulator which sounds to me really strange…

The business model of existing Sports Betting lotteries seems to be mainly based on casino model where they are offering Sports betting in casinos and/or at the racinos (race track casinos). Just Oregon lottery has introduced mobile based model and probably New Hampshire lottery will do the same. I’m not sure how well that casino-based business model could serve the potential customers? I’m afraid that lotteries won’t succeed in Sports Betting competition if they won’t develop more modern business models. They should concentrate on utilizing their wide customer base. It’s of course easy to say but I would be keen on doing that also in practice if there would be need for help…