Sweden and the road to M&A

As the year draws to a close there is only one thing on many egaming operator’s Christmas List: a Swedish online gambling licence. Some 70 applications have been put in for the pending regulated market and so far 24 of those have received their licence prior to the January 2019 go-live date including many of the biggest names in online gambling. A wintry Sweden is the hottest place in egaming right now, but it may not be all it seems.

It’s not hard to see why Sweden is proving so attractive to operators. This is likely to be the largest regulated European market outside of the UK and Italy and nobody wants to miss out. The regulator pegged “non-regulated” firms at €538m in 2017, but the total online market is believed to be even higher and including both local and grey market operators, is as large as €1bn for 2018 by most estimates from a population of around 10 million.

If you want further proof you only need to look at LeoVegas, which reported €77m in Swedish revenue for 2017 and looks in line for slightly higher in 2018. Unless we assign LeoVegas a very large double-digit market share of the Swedish online casino market then this implies a market of some scale and with the number of major operators active in Sweden it’s hard to see it any other way. Indeed the list of the already-licenced firms reads like a who’s who of egaming.

The early runners and riders

Kindred, Betsson, The Stars Group, Mr Green, LeoVegas, bet365, Casumo, GVC Holdings, Tombola and Betway are all present and alongside some rising stars such as SuprNation, Videoslots, Global Gaming and Bethard. It’s a market where clearly nobody can afford to miss out and many more are wanting a slice of the pie. Added to the list above we have the SkillOnNet white labels, Interwetten, tipwin and no-account casino firm Mandalorian already licensed, with nearly 50 more groups pending.

But what’s different from previous regulated markets such as Italy or Spain is this is not a brave new world for Sweden. If anything the Swedish market is one of the most mature and established in the European online gambling market, and most of the operators licensed will be looking to defend share more than benefit from any early revenue growth in the market. With per capita spend already up in the top tier for Europe at roughly the levels in the UK and a market heavily exposed to gambling advertising across all media, it’s hard to put forward a case for sudden and aggressive growth.

Then again you could have said similar things of the Danish regulated market, which has seen its online casino market more than double since 2012, although a decent part of this has been the gradual addition of operators who withdrew initially to the market and an active fight against the black market. This “channelization” of the existing grey market into the new regulated is a much-discussed topic among regulators and it looks like Sweden will have one of the highest rates in its first year of operation, simply due to the number and quality of licensed operators so far. One of the hopes of the newly regulated operators is they will pick up market share from black market firms that are forced out of the market by a mix of regulatory action and public education, but you wonder just how big that remaining unregulated sector will be.

For the likes of Kindred, Betsson and LeoVegas, Sweden represents more a market they can’t afford to lose share in, and one where they will be fighting extremely hard to get share of voice in the early market. This will only be heightened by direct competition with ex-monopoly Svenska Spel in the online casino sector for the first time and the purported growth from smaller firms unable to compete or unwilling to become licensed appears to possibly be lower than some would hope.

The rush to market or the rush to M&A?

Perhaps this is why, so far, we’ve yet to see any major new brands entering the regulated market. This is less a wonderland of new opportunity and more a mature market shifting to a new set of operating conditions. It would take a brave operator with no history in the Swedish market to want to enter this market from day one. And this is what presents the most intriguing aspect of the new Swedish market. What impact will it have on M&A in the sector?

Mediavision predicted the Swedish market will experience a similar consolidation to the UK in 2019, once the market opens. A recent blog post written by the firm said: “If the Swedish market were to follow the examples set by Denmark and Great Britain, we can expect the number of actors to decrease and several mergers to take place.”

We’ve already seen William Hill acquire MRG in part to gain a foothold in the Nordic markets, with the regulated Swedish and Danish markets by far the most important part of that. As can be seen from the licensees so far there are a number of small-to-large takeout candidates among them and it would be no shock for the firms absent from the market to look to buy their way in. Another major impact of the regulation could also be some internal consolidation.

The question being raised already is how many major brands will be sustainable in a market the size of Sweden once you add in Svenska Spel and rising operational costs. This is a market that is looking like being one of the closely-regulated markets with customer protection at the forefront and some aggressive regulatory controls such as those on retention bonusing already in play. It would be no surprise to see more changes introduced during 2019 and 2020 as the regulators get more feedback from operators and players too.

With Sweden’s likely slow growth rate compared to other newly regulated markets and increasing regulatory pressure, along with the tax demands imposed on previously grey market operators this feels like a market ripe for M&A in the short-term. And it will be fascinating to see this play out in the new year. Sweden is set to be a “new” regulated market like no other we’ve seen in online gambling so far.