Licensed

The Biggest Miss: Why Sweden must ease the margin-reducing burden on licensed operators

Ismail Vali, iGaming Leaders

Writing in the first part of The Biggest Miss, Ismail Vali recognised the significant regulatory shift overseen by Sweden’s Lotteriinspektionen, but identified a lack of clarity on player protection, self-exclusion, bonusing and ‘moderate’ marketing as part of the new regulations.

A week on and Vali, a senior consultant for iGaming Leaders, is back to serve his final analysis of pre vs post regulation in the country – which includes spelling out the ‘Phantom Menace’ in global gaming regulation, and issuing a warning not to place “too much margin-reducing burden” upon licensed operators whilst allowing a parallel “Wild West” online opportunity for the unlicensed.

Until the new licensing regime kicks in, Sweden has best been characterised as a “make hay while the sun shines” regulating market. Every operator has tried their hand in the Swedish iGaming free-for-all over recent years, helped by some of the best affiliate marketing initiatives. Today, the market features more than 300 sportsbooks and over 500 casinos, producing more than SEK22 billion (€2.1bn) in revenues in 2017 (Source: Dagens Nyheter).

In the penultimate quarter before regulation and licensing, how did Sweden stack up for iGaming operators in market share terms?

There are four tiers of operator in Sweden today (as can be seen in the graphic – figures from Q3), and it is the fourth, with near 20% of total market share represented by “All Other Firms”, that should be focused upon for the potential risk it may contain for other operators across the soon-to-be-licensed Tiers 1-3, all featuring firms who have already applied for Swedish licensing.

The more complicated and burdensome the impending licensing and regulation, and the more “bleeding edge” the type of new rules it seeks to impose with innovations such as no retention bonusing, the fewer of these hundreds of small presence and market share operators populating the All Other Firms bracket, will actually seek to engage with the regulatory regime.

A recent Q&A session for stakeholders with the Lotteriinspektionen, held in Stockholm on 6 November, led to some clear illumination of what both the industry and regulator are going through on this particular market evolution from regulating to regulated, and signalled how easily some operators may fall through the cracks, to help create a new black market.

Across a packed agenda for one of the Lotteriinspektionen’s first English-language Q&As, time for actual operator questions was somewhat curtailed by this statement from Katarina Abrahamsson (Lotteriinspektionen): “We can’t answer questions. We can say that there are no answers for them, today….because a lot of it is up to you (as applicants and operators) and how you meet the requirements. We’re not telling you how you can meet them, but you have to meet them.”

Ms Abrahamsson is, in my view, only being honest and direct about the effect the legislation is having upon the practical roll-out. As mentioned earlier, vague and unclear laws impact upon subsequent regulation and will likely lead to the creation of unintended black markets.

The Swedish Regulation has yet to be tested in practice, and it is clear that any lucrative gaming market, when colliding with regulation, will face taxation leakage from the system in the form of revenue accruing to unlicensed and offshore competitors. Particularly so when those competitors remain, for all practical marketing purposes, unblocked.

This I would highlight as the core focus for study, dialogue and potential change in the nascent Swedish system, for the ‘phantom menace’ it clearly presents to the predictable, and sustainable, growth and operation of the Swedish iGaming marketplace.

The phantom menace in global gaming regulation

What the lack of monitoring, policing and enforcement means for Sweden is amplified across the world, throughout most regulated and regulating gaming markets. Governments want control of the gaming business for two reasons: social responsibility and taxation yield.

They will be frustrated across both without a clear understanding and handle on the industry. Installing what is being referred to as “a level playing-field” in market after market that regulates has to be exposed, across the vast majority of existing regimes, as a desire but not yet a reality.

The playing-field is not effectively levelled to the benefit of the licence holders who have paid, and negatively amended their profitable operations, to conform to compliance rules and guidance, taxation, limitations upon advertising, etc.

What the regulated and regulating gaming world has to gain awareness of, and ultimately accept to work upon, is the ‘phantom menace’ dynamics of the following:

There is an internal value to the Swedish licensed market – upon which the licence cost, compliance and payment of taxation is premised for operators who engage with that legal, licensed market.

There is also an external value to that market for operators who choose to ignore the licensing, carry on targeting the market via affiliates, Facebook, Google and YouTube, and who, on the face of it, have a clear competitive advantage versus licence holders.

  • No taxation means more revenue can be used for marketing and player bonusing
  • No licence nor compliance with the same means bonusing for new, old and reactivating players, not just new depositing customers
  • No clear payment and IP-blocks (with criminal sanction for breach) for unlicensed, offshore sites

What does all this mean for the newly licensed marketplace? A taxation and treasury funding gap from regulated gaming: as a share of overall market activity and revenue enters the black market and simply escapes the gaze, attention and realistic control of the regulator.

When it comes to the business of regulating gaming, whatever the forecasts projected by treasury teams of numerous governments over many years now, all have been frustrated across one number: taxation yield or value, as you move from a previously ignored, unlicensed, untaxed, “illegal” industry, to one under a regulated, and taxed, legal regime status.

Put simply, any system of regulatory control is subject to risk for the operator – but also for the regulator and treasury. Nearly all countries implementing online gaming controls, and a “legal” marketplace, have suffered tax yield well below what they projected prior to creating the licensed market. In short, *not all* the business that was online, migrates to legal and taxed online business post the legislative shift, and a predictable movement in line with the law.

Hence the urgent need for adequate consultation and Q&A alongside both legislator and regulator, followed by a licensing regime that ensures adequate monitoring, policing and enforcement. Without this, the playing field will become more uneven, and the licence fees, compliance and rising tide of government control, progressively less effective and less worth co-operating and complying with.

I would even go so far as to suggest that regulators should proactively approach operators who have not applied for and conformed with licensing and insist that they apply for a licence, within a set time period, or face punitive fines and blacklisting, as well as IP and bank blocks to prevent their future market entry. Why would I sanction this?

Simply to realise the optimal and best possible evolution for the internal value of any licensed market – and the profitability and sustainability of operations for those licensed brands within it.

Ultimately, for me, and for many at the marketing face of our industry, player protection and responsible gaming are but facets of the player experience, overall – something I have written about in more detail for SBC News and CasinoBeats before over the following articles: Bricks vs Clicks and The Three Acts of Gaming – Act One, Act Two and Act Three.

We can not gain and retain players without treating them to the most entertaining, engaging and rewarding offering available. This won’t be possible if we simply just comply with well-meant, but ultimately unrealistic, licensing and regulation models that place too much margin-reducing burden upon the licensed, whilst allowing a parallel “Wild West” online opportunity for the unlicensed.

All regulated markets need the internal and external credibility that comes from monitoring, policing and enforcement, fundamentally to secure the sustainable future of taxed and regulated betting and gaming, that comes with a truly level playing-field.

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