As already communicated in previous notes, the new Swedish regulation has so far had a large negative impact on sales, and further restrictions are under evaluation. On top of this, the Swedish Gambling Authority (Spelinspektionen) revoked SafeEnt´s (Global Gaming) license. According to the Swedish Gambling Authority, SafeEnt has made several violations of the gambling law, some of which can be classified as severe. This is not the final say as Global Gaming can appeal the decision to higher courts. However, this still indicates that the Swedish Gambling Authority can act hard if deemed necessary.
The question is now, how difficult is it to be fully compliant? Was SafeEnt a one-off event? Or is the Swedish Gambling Authority aiming at another target?
We have received information that the Swedish Gambling Authority has several supervisory matters regarding several license holders. This also includes some of the largest operators, such as Kindred (With the license holder Spooniker LTD), Betsson (With Betsson Nordic Ltd and NGG Nordic Ltd), Cherry (With Casinostugan Ltd, ComeOn Sweden Ltd, Hajper Ltd and Snabbare Ltd), WilliamHill (With Evoke Gaming Ltd), GIG (With Zecure Gaming Ltd), Flutter Entertainment (With Betfair International Plc) and GVC (With ElectraWorks Limited).
The Swedish Gambling Authority does not communicate what type of supervisory matter these are or the severity of the matters. But based on the information we have received from some of the operators, most matters are minor. For example, the matter related to Spooniker LTD is connected to betting offered on a football match in the Swedish Allsvenskan where 2 of 22 players were younger than 18 years old. The gambling law states that it is not allowed to offer betting on matches where the participants predominantly are younger than 18 years old. So, it seems like Spooniker LTD has acted in accordance with the regulation in this matter.
However, we don´t believe that the SafeEnt incident is a one-off event. There are, most likely, some smaller operators that are having difficulties to stay compliant, which is seen in the number of fines that the Swedish Gambling Authority already has issued. But it is logical, as compliance comes with a cost. The operators must develop the platform so that it is compliant with the license system, and the platform also needs to be evaluated by an accredited body by the 1st of July 2019, at the latest. Adapting the platforms has been a major issue for several operators, which became very evident at the start of the regulation. Moreover, the license system also requires additional legal expertise and this cost comes on top of an 18% gaming tax. With limited profit margins and limited resources, the licenses are at risk for the smaller operators.
This development benefits the large operators with experience from other regulated markets, as they can mitigate the additional expenses and utilize their compliance experience from other markets. Moreover, we believe that the license system is a fragile system that can´t afford to have several large operators outside the system, as the canalization will be too low. If it becomes too difficult to stay compliant even for the larger and experienced operators, then the license system will become obsolete.
We also expect to see some changes in the regulation in the next few years as the outcome of the existing regulation is reviewed. The Swedish authorities have already launched an investigation to find suitable measures to limit the marketing of gambling. The result of the investigation will be reported and published in October 2020, at the latest. We believe this will include some marketing restrictions that will benefit large brands with strong brand awareness and further enhance the large operator’s strong position in the Swedish market.
Based on the gaming taxation data for May, the Swedish market seems to be rather stable. Amongst the public companies, we note that the large international operation 888 started to report gaming tax in May and LeoVegas continues to show a positive trend.
(View data for all license holders, segmented for the listed companies in our Premium article found here.
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More operators will likely lose their license in the coming year, most likely small operators. It is not impossible that the Swedish Gambling Authority will state further examples and revoke additional licenses from larger/medium-size operators. However, this would be a gamble as it can jeopardize the whole license system.
We believe that size and experience from regulations as well as strong brand awareness will be a competitive advantage on the Swedish market. The public listed operators that clearly fit into the criteria are Kindred, Betsson, and LeoVegas. Of these Kindred seem to be the one that takes the compliance most seriously with an “over” compliance view (For example, using GGR as tax base). Kindred also holds the strongest sports betting brand in Unibet, while Leo Vegas holds the strongest casino brand, based on the latest gaming taxation data. Other state-owned and private companies that have a strong position on the Swedish market are Svenska Spel, ATG, Cherry, and Bet365.
This development should also support the consolidation on the Swedish market going forward. In the long-run, small operators will either be consolidated or go bankrupt, as size will be the key competitive factor in a mature online gambling market. Although there will always be some market space left for innovative entrepreneurs.
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