Winning Post: Sweden shows why black and white never works

Swedish operators have appealed for the government to reject a further six-month extension for the ‘temporary’ online casino restrictions. Regulus Partners observes a near-total collapse in reasoned debate and policy development between all market stakeholders.

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The Swedish government has proposed a six-month extension of the temporary restrictions to online casino (SEK5,000 /€485 weekly deposit limit; mandatory time limits; initial deposits restricted to SEK100/€9) from the end of the year to the end of H121, referencing “the development of Covid-19 going in the wrong direction in several parts of the country”.

Unsurprisingly, the domestically licensed industry is concerned about both proportionality and the rolling definition of ‘temporary’ being deployed; especially given that the restrictions already appear to have caused a high single-digit decline in licensed online casino revenue (albeit mitigated overall by the Q3 growth in betting). The policy is flawed: the exposed formerly .com industry is right to be concerned, but it should also not be all that surprised. Equally, there are several lessons here for other jurisdictions.

First, while it is very difficult to disentangle causality in overall patterns of play in Q3 (horseracing has benefitted from increased direct engagement in Q2, which has had a positive tail effect; sports betting has benefitted from an increased calendar as well as pent up demand; .com casino engagement is only vaguely visible through search analysis), it is relatively clear that the Swedish online market has been more distorted (than diminished) by Covid-19 policy responses. Sometimes, policy aims can be delivered by distortion: Australian horseracing is a huge beneficiary, for example. However, channelling customers into betting on volume horseracing, lower league sports and unlicensed casino products would seem to have few if any consumer wellbeing benefits and the little serious attempt has been made to justify them (especially given Swedish law explicitly allows consumers to find unlicensed sites and for those sites to service them so long as they don’t ‘target’ – see WPs passim). Sweden’s intervention policy for H121 is therefore as illogical as that for H220, in our view, but with the added cost of a longer, and therefore cumulatively more damaging, period of distortion (behavioural, economic, financial).

Nevertheless, it is an inescapable fact that calibrating Covid-19 responses has been highly challenging for nearly all governments and the middle of a crisis is a difficult time to form policy effectively. Equally, online casino operators would find it hard to feel especially badly hit vs. other leisure and entertainment sectors, even in Sweden. The fact that governments everywhere (especially democratic ones) feel the need to ‘do something’ in a crisis and then do it imperfectly should not surprise us more just because it affects us more (imagine trying to run a steelworks).

A more worthwhile question would be: “is the government listening to us, and if not, why not?”. Here gambling nearly everywhere has the double problem of being relatively small (except in ‘export’ states) and often disliked by a material proportion of stakeholders. However, Sweden has a homegrown ‘ex .com’ sector as well as a level of channel shift which could have moved this dial. The fact that it didn’t is perhaps unsurprising for four reasons:

  • Coming into domestic regulation, Swedish-facing operators were generating world-leading levels of per capita marketing (c. €40, vs. c. €22 in UK); there might have been a commercial initialism to this given the (lack of) regulatory structure, but the strategic and political backdrop it created was still a predictable mess
  • During 2019, the fall in marketing activity did not occur fast enough while a critical mass of licensees (32%) were sanctioned for various reasons; again, there are lots of policy distortion and regulatory clarity mitigators for this figure, but the backdrop was darkened despite domestic regulation (the UK figure was only 3%, albeit with a much longer enforcement history)
  • Sweden’s monopolies are much bigger domestic contributors, have a much closer relationship to government, are much stronger in betting than any previous .com operator and have only just been given online casino (so it is not all that strategically relevant, especially vs. maintaining political cover and protecting the products that are)
  • Sweden’s erstwhile .com operators have a bad track record of being ‘right’ about their own operating environment, meaning that shrill warnings of impending disaster really do need the sky to fall in to be believed – we are now half way through Q4 and the sky is still very much where it should be as far as the Swedish government can see: shrill lobbying rarely (if ever) allows more subtle messages to get through

Our final observation is a broader one. Online casino might only be one product group, but it tends to represent c. 50% of a given market by revenue (including bingo, ex poker). Since it still has less mass-market engagement than online betting, revenue tends to be more concentrated (as with many landbased casino markets). Consequently, deposit limits of even €485 per week (€25k pa) have caused material disruption and dislocation to the licensed sector to no obvious public health benefit (and some clear costs: searches for “unlicensed casino” in Sweden have climbed from an already high 33% of traffic).

Any policy hoping to channel consumer behaviour, rather than dictate and distort it, needs to factor the Pareto Principle (as, for example, Germany has attempted to in a rather over-engineered way). It also needs to factor in that people usually don’t like being told what to do – especially if the underlying logic behind the order seems specious, flawed or simply judgemental. If there is a way around it, a critical mass of people will find that way, this is much easier to do on the internet; it is also hard to vilify people for living their lives the way they want to (except perhaps on Twitter).

Sweden might be demonstrating the lack of efficacy of kneejerk policy reactions, but it is also demonstrating the lack of efficacy of weak industry stakeholder positions. One of the surest signs of an effective legislative and regulatory environment for gambling is that it goes unseen (rather like the white map of Sweden above). Immediately it is noticed, the political urge to ‘do something’, the triggers of the morally affronted, and the ‘cry wolf’ defensive strategy from licensees (who are typically not as well behaved or as well plugged in as they need to be) is almost sure to end badly.

Stakeholders looking for simple answers, or simple arguments, are likely to find their position to be counterproductive. Good gambling policy is complex: it needs to be considered, measured, proportionate and evidence-based; these are hard behaviours to maintain in public, harder still in a crisis. For politicians (and regulators attempting to bend to the perceived political wind), appearing to do something will always pay more immediate political dividends than appearing to listen (in any area of government involvement in public or commercial life). In this immutable context, a strong (and not selective) evidence base combined with visible good behaviour might build trust over time; aggressive-counter lobbying (especially when selective with evidence) is just likely to turn the temperature up on whatever pan the industry finds itself in.

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Article edited by SBC from Winning Post Friday 15 November 2020 (click on the below tab to access full unedited version)

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