Winning Post: Easy ‘Nordic cash’ is drying up…

Regulus Partners begins November proceedings by examining the Nordic market developments. Once recognised as fruitful territory for igaming operators, heavy-handed restrictions, penalties and increased taxes have changed Scandinavia’s market outright. 

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Norway has become a much tougher market in which to operate over the last couple of years, especially for those not willing or able to get creative with payments and is planning on making its market tougher (see WP’s passim). Denmark is also fast approaching a 40% increase in GGR taxes to 28% (likely c. halving profits overall, but especially badly hitting the bottom two-thirds of the market share league table and bonus-driven operators).

Sweden continues to be a profit trap and recent Covid-led restrictions are hurting the product which the vast majority of licensees rely upon for cash generation. In this context, last week’s report to the Finnish government that Veikkaus should adopt a far more stringent product and social responsibility restrictions is perhaps more important to exposed operators (other than Veikkaus) than immediately obvious – the last source of ‘easy’ Nordic cash flow might be close to drying up…

Last week a group reporting to the Ministry of Social Affairs and Health in Finland recommended: the removal of gaming machines in secondary venues; a complete ban on slots marketing (other than to advertise the specific potential harm of the product); much deeper (harm-based) game classification; restriction and greater scrutiny of payment methods, and; mandatory player tracking to monitor makers of harm. Given the mood music in Finland currently (as, indeed, elsewhere) it is likely that these recommendations will be implemented, in our view.

At the moment, this might appear to be relevant only to Veikkaus, but the issue runs deeper than that on two levels. First, if materially more stringent social responsibility measures are to be adopted by the monopoly, then it can be fairly safely assumed that they will form the starting point of any licensing regime should Finland choose to go down that route.

This would be a radically different approach to the current almost complete freedom of action within the .com FI market (less whatever limited POS requirements might exist) and also the relative freedom of DK and SE (ex SE’s Covid restrictions: see below): player yields would likely suffer significantly in an already saturated consumer adoption market. Second, tougher monopoly rules make .com sanctions easier to get through legally – and it remains Finland’s intention to follow Norway’s payments blocking example early next year (something that has cost the more exposed NO .com operators over 30% of revenue, albeit the disruption has also left room for growth from some of the more ‘creative’ .com operators as well as the monopolies).  A tougher social responsibility position on Veikkaus is therefore directly relevant to the last big source of ‘easy’ .com money within the EU, in our view, whichever direction Finnish policy takes.

Next door, the Swedish online market has now been domestically licensed for 22 months and has faced Covid-19 related additional player safety measures for 4 of those (SEK5,000 deposit limits for gaming, session time limits and a SEK100 bonus cap, restricted to new players in any event). For some operators and providers, this may have proved as tough as stakeholders warned (we have not yet had Q3 results from some of the listed leaders).

However, the two monopolies (less effected both due to sports and player mix) have reported healthy overall Q3 results: ATG’s revenue was up 18% (horseracing +17%, 8% mix; sports betting +59%, 8% mix; casino -6%, 6% mix) and Svenska Spel’s online division (ex lottery) was up 6.5%, albeit with an online casino headwind estimated at SEK26m (5% of the division, including betting). Despite casino clearly suffering mid-single digit headwinds, overall, the SE market in Q3 still seems to be more ‘flat to up’ than clearly down (indeed, SE issues were not called out in Betsson’s or NetEnt’s Q3, despite a heavy/total gaming bias).  Consequently, the extent to which the government will be listening to casino-led operators calling for reprieve may therefore be questioned, given the extent to which the fully home-grown (and much better connected) companies are benefiting.

However, with leakage (as well as saturation) taking the head off growth, monopolies gaining market share and the most broadly-based products in terms of share taking the hit (75% of SE’s betting market including horseracing is concentrated in just three licensees, all of which are relatively weak in gaming), Sweden still looks horrible for most operators, regardless of the shape of the overall market.

We would reiterate that this highlights two key problems with the current lobbying position of many previously .com stakeholders (which might soon become relevant for Finland). First, after years of being offshore, it is exceedingly difficult to suddenly become respected, even if right on the evidence – especially if truly domestic incumbents are saying something different. Second, the pace of leakage in Sweden is likely to be a relatively slow one in absolute terms even with the Covid-19 measures implemented, though this is still cumulatively very expensive over time.

But by crying foul and predicting imminent doom, sedate change simply weakens the strength of otherwise legitimate warnings and risks the appearance of ‘crying wolf’ (a favourite pastime of gambling companies everywhere). Sweden’s gently dysfunctional market will therefore continue to be a profit trap to all but the monopolies and the most differentiated operators, in our view. And yet Sweden may soon be one of the more attractive Nordic cash flow markets on a relative basis…

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Article edited by SBC from Winning Post Friday 30 October (click on the below tab to access full unedited version)