An in-depth look at Sweden, one year on

As one of online gambling’s longest established and most prominent grey markets, there was little doubt Sweden would attract egaming’s big guns seeking a slice of the action after re-regulation on 1 January 2019. Combine this with Sweden being one of the EU’s most advanced digital economies, as well as boasting GDP per capita north of $53,000, and this Scandinavian country had all the makings of a flourishing liberalised market. Plus, tax was set at a palatable 18% of GGR, while casino and sports betting licences, valid up to five years, were priced at SEK400,000 (€38,000) each, or SEK700,000 (€66,000) for the pair.

And yet the regulated online market comprising of European giants and former monopolies Svenska Spel and AB Trav & Galopp (ATG) has experienced a rather turbulent first 12 months. With increased compliance and customer acquisition costs, as well as player bonus and channelisation struggles (more on that later), many leading Scandinavian-centric brands have taken financial hits as travails in Sweden have become familiar features of quarterly results presentations. In Q3, by which time there were 70 online gambling licence holders, total online market revenue hit a new low of SEK3.35bn (€320m) while the likes of Betsson, NetEnt and Kindred were still citing Sweden as a chief cause for their revenue declines.

Indeed, Kindred Group CEO Henrik Tjärnström told EGR Intel in November 2019 that the market had been “more challenging than anyone expected” shortly after the Stockholm-listed group announced a 2% fall in Q3 revenues due to weak performance in Sweden. It has clearly been tough going thus far. That said, Erik Skarp, CEO and co-founder of Swedish-licensed sports betting and casino operator Bethard Group, takes a more philosophical view of the headwinds the industry has battled. “It has definitely been challenging but that is always the case in the initial phase,” he tells EGR Intel. “There have been improvements in many areas, but I believe it is fair to say that both the operators and the regulator are on a learning curve, which is completely normal.”

Make me an offer

One inconvenient speed bump on this learning curve has been the fact that operators are only permitted to award a bonus “the first time a player uses an operator’s products”. Essentially, there are acquisition bonuses, yet no loyalty bonuses or other incentives and VIP programmes to keep customers playing or reloading accounts. What that led to, especially at the start of 2019, was operators reporting a high degree of promiscuity as players flitted from one brand to the next to open accounts and take advantage of welcome offers. This ‘bonus whoring’ was especially apparent for casino brands competing for business in a segment traditionally reliant upon loyalty bonuses and other inducements to stymie churn.

“That [allowing only acquisition bonuses] wasn’t particularly smart,” says Gustaf Hoffstedt, general secretary of the Swedish trade association for online gambling, Branschföreningen för Onlinespel (BOS). For one, he suggests this stipulation impacts the duty of care operators must have for their customers. “It’s extremely difficult to monitor the punter when he or she, due to acquisition bonuses, leaves the individual operator, whereas a loyalty bonus system would actually maintain the punter, giving the operator the possibility to follow him or her during a long period. Then you can estimate whether this punter is a problem gambler or not. But the customer isn’t loyal, and it comes as no surprise since the state created incentives for not being loyal to an individual operator.”

In addition, regulations state that those gambling with a regulated operator must set deposit limits (daily, weekly and monthly), while casino sites are required to implement a three-second delay between slots spins. While these measures should be commended from an RG standpoint, there’s little doubt it has impacted operator revenues and probably also had an effect on channelisation. Last September, the SGA hailed Sweden’s channelisation rate during H1 as 91%, which was above its target threshold of 90%. The SGA said the market achieved 90% in Q1. Yet, in November 2019, the regulator put the proportion of those using legal options at 85%-87% based on figures from H2 Gambling Capital.

This 85%-87% estimate excludes lotteries and land-based casinos but does include betting on horses. Since ATG is the de facto monopoly in this vertical, it probably achieves a channelisation rate of 99% on horse betting. Therefore, this skews the channelisation rate and means, Hoffstedt points out, it is “highly plausible” sports betting and online casino has a lower channelisation rate than 85%-87%. Responding to an analyst’s question during LeoVegas’ Q3 results, CEO Gustaf Hagman said unlicensed sites targeting Swedes was a “huge problem” and LeoVegas strongly believes channelisation is as low as 75%-80% specifically for online casino.

Certain higher-staking casino customers may have decided to take their business to unlicensed sites to lap up the loyalty bonuses, VIP programmes and play without deposit limits. Meanwhile, big slots players could have perhaps been drawn to faster-paced action without pauses between each spin offered by unlicensed sites. Then there are those players who excluded themselves via self-suspension register Spelpaus.se (46,473 people have actively triggered temporary or permanent blocks of regulated gambling and direct marketing at the time of writing). For them, an abundance of unregulated sites ready to roll out the welcome mat are just a few clicks away.

With leakage to the grey and black market a thorn in the side of legal brands, calls are growing louder for B2B suppliers to be licensed locally in a bid to plug the drain. Kristian Wind, a partner at Stockholm-based consultancy Complianza and a special adviser to the SGA between May 2016 and May 2018, insists he “pushed hard” for suppliers to be licensed. His recommendation was included in an early proposal and yet B2B licensing was omitted from the final draft law.

“It was a huge surprise that it had gone away because I had built quite a case for it being included, referencing among other things the experiences from Denmark as well as the UK adapting a supplier licence,” Wind explains. BOS members recently held a meeting where B2B licensing was one of the main topics discussed and there is every possibility it will be introduced to legislation after a government review into Sweden’s regulations takes place in 2020. “I expect that [supplier licensing] to be revived for a second go when everybody has had to deal with the consequences of its removal,” Wind remarks.

Swede and sour

One thing that Sweden’s re-regulated market certainly hasn’t been is dull. Barely a week has passed without EGR’s websites publishing a news story related to Sweden, with a reoccurring theme being punishments meted out to operators by the SGA. For instance, Global Gaming’s Ninja Casino brand suffered the ignominy of having its licence revoked in June 2019 due to RG and AML failings, while a clutch of operators received fines for various offences. In the first eight months alone, the total punishments amounted to SEK118.3m (€11.3m), with Betsson’s NGG Nordic hit with the largest fine – SEK19m (€1.8m) – for bonus violations.

However, just one operator, Paf, has paid its fine, according to the SGA, much to the surprise of the SGA’s director-general, Camilla Rosenberg, with other licensees sanctioned by the regulator opting to appeal. The SGA’s readiness to dish out penalties has created uneasiness among operators, particularly when the fines would appear to be disproportionate to the offence. For instance, The Stars Group and bet365 were each hit with SEK10m (€950,000) fines in July for taking bets on matches in which the majority of players were under 18, which is forbidden.

Speaking on the condition of anonymity, the boss of one licensed operator expressed his incredulity at the “huge” fines. “A million-euro fine for something that they probably took five bets on isn’t proportionate. If a smaller company like us receives a penalty of a couple million euros, that’s the end of the company. We are probably over-compliant because we can’t take the risk of a penalty like that and so we are losing market share.”

Sports betting could face further restrictions if proposals for a ban on markets that can be influenced by a single player, such as corners and red and yellow cards in football, become a reality. The plan, aimed to combat match-fixing, has received the support of Svenska Spel but is opposed by most of the international betting brands. Furthermore, a bigger concern for many operators is the prospect of the government imposing gambling ad restrictions in response to aggressive advertising, particularly in early 2019 as brands fought for share of voice in the clamour for customers.
Wind stresses that such a move would play right into the hands of unregulated brands. “All the unlicensed operators still have completely free hands on the internet and are actively targeting Swedish gamblers on search engines and social media. So, all the high rollers and most vulnerable people are even further away from a regulated jurisdiction than they have ever been, and in that sense the regulations have been a huge failure.” He adds: “Banning licensed operators from advertising would only make the unregulated market bigger.” BOS’ Hoffstedt concurs: “Should the government decide to prohibit advertisements, I believe that many of the operators will ask themselves, ‘What’s the meaning of having a Swedish licence?’ So, the state would shoot itself in the foot if it imposed such prohibition.”

Stockholm syndrome

Of course, the hoo-ha around gambling advertising could take care of itself if operators struggle to turn a profit in Sweden, and they rein in above-the-line marketing. As this re-regulated market enters its second year, the key stakeholders have much to ponder. B2B licensing and a U-turn on the prohibition on loyalty bonuses will be two key areas the approved operators will be pushing for. They’ll also be hoping for more clarity on existing regulations, some of which they have argued are open to interpretation, so as not to land themselves in more hot water with the SGA.

Indeed, Gaming Innovation Group closed it Swedish sportsbook on its in-house brands, Guts and Rizk, citing a lack of clarity in the regulations. As for the regulator itself, the priority will be somehow raising the channelisation rate to at least 90%, which is easier said than done. Perhaps it is an unachievable goal for the online casino segment if the rate does indeed languish below 80%. Payment and IP blocking of unlicensed sites isn’t the silver bullet, yet something needs to be done to enable regulated operators to compete on an equal footing with the unregulated sites. After all, Swedish law doesn’t expressly deem it illegal to take bets from Sweden without a licence.

Meanwhile, Google searches for terms such as “Swedish casino without a licence” have risen in 2019 and there are still plenty of affiliates happily diverting traffic towards unlicensed sites dolling out 10%-20% cashback on stakes on an ongoing basis. So, you may well ask how regulated sites can compete with that? Skarp says Bethard remains “very committed to Sweden but for sports only”, perhaps underlining the challenges the casino segment has faced.

“Swedish regulation made it clear that there’s a short- and long-term challenge for casino revenue in general,” he says. “We’re trying to learn from it by focusing even more on sports, an area we feel much more comfortable that we can build sustainable and quality incomes over time.”

Elsewhere though, our anonymous source paints a particularly gloomy outlook from Sweden’s coalface heading into 2020: “Channelisation will go down and regulation will be stronger,” he prophesises. “Many companies will give up on the market, that’s for sure.” Lawmakers would perhaps be wise to heed his ominous warning.