Going green: Why Paf aspires to lower customer yearly loss limits even further

Back in 2006, I was lucky enough to visit the autonomous Åland Islands, a hidden gem of around 6,757 islands, during my time as a cruise ship journalist. I took a boat ride hosted by Visit Åland’s marketing manager at the time who, it turns out, now works at gambling operator Paf, based in the capital of Mariehamn. It’s a small world indeed. And the coincidences don’t stop there as not only is Paf an online gambling operator but it also supplies slot machines and gaming tables to cruise ships. This is an area that has been hit hard during the coronavirus pandemic, as cruise ships remain moored and unable to operate. For Paf, its business comprises of 70% online and 30% on cruise ships, CEO Christer Fahlstedt tells EGR Intel on a video call from his home office in Stockholm. “The cruise ship part has been more or less shut down since March/April. We’re approaching almost 12 months of virtually no operations. And we also see that not all of the ships are returning. There’s a short-term and long-term effect so that’s been a very challenging thing,” he explains. There were also challenges for the online business last year when international sports was put on hold, as well as a temporary shutdown of online gambling in Latvia from 6 April and restrictions in Spain and Sweden. However, despite the ups and downs of 2020, Fahlstedt describes it as an “okay year, all things considered” and that compared to other industries at least online gambling could still operate in most markets. For Paf’s CEO, who is used to commuting from his home in Sweden to the company’s HQ in Mariehamn, his staff adapted well to remote working in the first few months of the pandemic, but most people are keen to do a mixture of remote and office working once restrictions are lifted. The company has also introduced a new policy of ‘work from anywhere’ so if you are employed for Paf in Sweden or Finland, for instance, you can work wherever you are in that country.

The operator, which is licensed and controlled by the government of Åland, is well known for its charitable efforts and the significant support it gives to the local community. With a population of about 30,000 people, the autonomous region is totally dependent on tourism and shipping, which have both suffered immensely during the pandemic. Last year, Paf committed to providing a larger dividend of €40m to the government to assist with coronavirus relief efforts. The funds were used to support struggling businesses as well as to finance a programme of summer jobs for those out of work. “It was fortunate that we had the financial strength to be able to help out. I think it was definitely the right call by the owner,” says Fahlstedt, who throws his complete backing behind initiatives to give back to the community.

At a loss

One of Paf’s key pillars is responsible gaming. It is something its CEO takes very seriously. When Paf first introduced loss limits in 2018, these were set for online play at €30,000 per year. In 2019, this was reduced further to €25,000 and then dropped again last year to €20,000. Fahlstedt describes it as a “strategic decision” but it is also one that has had a knock-on effect on revenue, leading to a decrease of income by €2m-€3m every year. “Our view is that in a tightly regulated European market, we think you’re unlikely to be allowed to lose more than €8,000 per year. That’s what we see as the benchmark,” he goes on to say. Fahlstedt, who joined the firm in 2016, believes this is a sustainable level and that Paf needs to be prepared for the future. “We’ve been around for 55 years and we want to be around for another 55 years, this is where it’s going. It’s like with environmental laws, we’re a Tesla. This is where it’s going to end up, we want to be ahead of the curve and adjust. We’re going to be long-term sustainable.” Lofty ambitions indeed, yet it’s a goal that Fahlstedt acknowledges will take some time to achieve. While Paf hasn’t had top-line growth in the last three to four years, it has had growth in the “green segment”, i.e its sustainable players. In September, the board will make a decision about how it will move forward with this strategy and at what pace. “It’s a fine balance. We have a lot of obligations we need to serve. We have to generate funds. We need to be competitive and to grow and survive in the market. But, at the same time, we have a moral obligation to do everything we can to make sure we don’t generate money from the wrong customer groups. It’s as simple as that,” explains the Swede.

True colours

Using a colour-coded system in its annual reports, ‘green’ refers to revenue from players who lost up to €8,000 during the year while ‘red’ relates to revenue from players who lost over €30,000. And Fahlstedt is not afraid to admit there is still a long road ahead to achieve its ambitions for green revenue: “We still have a lot of money that is wrong in our numbers. There’s no denying that and we should say no to more money. This is a journey we have started and there is going to be many years left on this journey before we reach our green revenue.” Paf made €14m from the red segment in 2017, but last year this was €0. With 80% of this hitting the bottom line, Fahlstedt concedes that it “is a massive thing to say no to but it’s the right thing for us to do”. He says it makes him very proud to be the only company in the world that publishes these types of numbers in its annual reports with total transparency. “For sure, it’s a lot of money that has been lost for the owners. But we’re all in agreement that this is money we shouldn’t have. You can sugarcoat it but it’s blood money. It’s to a very big degree people who are sick and can’t control their gambling addiction, and that’s money we shouldn’t take,” he states. Turning the attention to his home turf, Fahlstedt is very vocal on his opinion of the Swedish market and the impact of weekly deposit limits of SEK5,000 (£423) and bonus caps of SEK100 (£8.50) introduced to mitigate gambling-related harm during the pandemic. He believes that it is all moving towards the €8,000 yearly limit as a proof point. And what he would like to see is a national strategy for limits, like in Belgium (€500 weekly deposit limit), as opposed to per operator. “In Sweden, the limits are too low, they don’t understand that people both win and lose. So, you’re just pushing people away who want to be loyal to their brand, and now they need to go to a new operator who has no previous track record and doesn’t know anything about them. “And the limit is reset. So, in that aspect, it’s sort of dysfunctional, counterproductive, dishonest and dangerous,” Fahlstedt voices. Having a centralised database where all the losses on licensed brands is aggregated would be the ideal scenario. He sees it almost like a ‘black box’ where the operator can’t see the data but can ask the database for information on the deposit or loss-limit for a player and apply that accordingly to their account. Paf’s CEO also believes this is the future of bonusing. “We’d be surprised if you’re in a European market and allowed to offer bonuses in five years’ time. If that’s a good or bad thing, I think that depends on whether or not you’re able to prevent unlicensed operators from working. If you can prevent unlicensed operators from accessing the market, then I don’t think we need bonuses. “But if the unlicensed operators are there, they can offer bonuses. They don’t need to pay tax or do any KYC/AML, and the whole system will break down,” he adds, which all links back to the channelisation issue in the country.

Long game

Fahlstedt’s home country of Sweden is a market that Paf is incredibly serious about and it is where the company wants to be long term. “And I’m talking 55 years from now, we want to be one of the big operators in Sweden,” he says. The acquisition of Swedish-licensed gaming company Mandalorian Technologies in March 2020 is further confirmation of Paf’s commitment to the market. “Mandalorian is an excellent addition. We get a brand with a different profile. We’re learning a lot, from new experiences, new ways of approaching technology and approaching marketing. It has given us a platform in Sweden, where we are one of those to be reckoned with in the long game,” the Swede boldly sets out. In terms of growth opportunities through further M&A, Paf’s chief exec is firm that the opportunity is there for the taking, should the right deal come along. “We’re in this for the long run, we want to grow. We think M&A is definitely one of the tools we want to apply,” he remarks. However, the valuations and prices in the market are currently too high and Fahlstedt doesn’t want to fall into the trap of a negative synergy. “We have time and financial stability. So, we’re going to be waiting when there are people who want to access this industry in any of the markets we operate in in the Baltics, Sweden or even Spain. We’re not in a hurry and currently the prices are really high. But M&A is for sure something I would be disappointed with if we haven’t acquired another company in three years’ time,” he adds.

For sure, it’s a lot of money that has been lost for the owners. But we’re all in agreement that this is money we shouldn’t have. You can sugarcoat it but it’s blood money. It’s to a very big degree people who are sick and can’t control their gambling addiction, and that’s money we shouldn’t take

And when it comes to looking at new markets to enter, Paf’s CEO is clear that the firm will “never work in unregulated markets”. With its own strict “self-inflicted” level of regulation, it only makes sense for the Åland Islands-based operator to be present in very tightly regulated markets. However, soon-to-be-regulated markets like the Netherlands may be out of reach due to costs and competition. “We looked at the Netherlands but decided not to do that. We think the competition is going to be really tough, and we’re in enough markets today. And every new market with all the compliance rules and everything comes with a lot of additional costs. I would be surprised if we enter a new market in the next 12 months.” Instead, while its competitors are eyeing up the US, South America or Asia, the operator is focusing on growth in its existing markets. “We think medium term that would benefit us so we’ll dig where we stand and try to become bigger there,” he shares.

Staying tech savvy

As part of the company philosophy on transparency and its involvement with local communities, last December Paf embarked on an open-source technology project in an important milestone for the business. The project means that source code written by Paf’s own software developers can be made publicly available to allow for wider contributions. This can be either by open-sourcing employees’ own projects or by contributing to existing projects. In addition, the operator has also unveiled a Technology Radar system, which covers the entire Paf technology portfolio, sharing details on technologies at the assessment, trial, implementation or on-hold stage. Fahlstedt explains that staying abreast of new technology is vital for the kind of talent Paf wants to hire. Potential staff want to know what kind of technologies a business is working with, especially when they could choose to go and work for companies like Spotify or Lyft, he explains. Looking ahead to the next 12 months, it is impossible to predict how 2021 will turn out amid the ongoing coronavirus pandemic. Will it be a continuation of 2020 or will it see some return to normality? “We definitely hope the shipping companies come back and can open for summer season. But from the online side, we’re unlikely to buy a company and we will not enter any new markets in the next 12 months,” Fahlstedt openly tells EGR Intel. However, he is keen to build on the underlying growth it has seen in the sustainable segments such as the green revenue. “A euro earned from someone in the yellow and orange segments are not nearly as valuable for us. That’s a temporary thing that will go away with time. So, we’re looking at a lot of this core green revenue as we have really strong growth there. That gives us comfort for years going forward.” For Paf, which won the sustainability accolade at trade body SPER’s Swedish Gambling Awards in 2020, being “green” really is the name of the game. Whether that relates to the solar panels used on the roof of its Mariehamn HQ or to its ‘green’ revenue from players, it is a word that is clearly synonymous with Paf and at the heart of its company culture and ethos.