Analysis: Shifting sands in Scandinavia

Scandinavia has long been considered Europe’s most open and attractive grey market, but recent changes suggest a rapidly diverging region. While Sweden is sailing on towards a regulated future, Norway is shouting angrily at the rising tide and Denmark is beginning to ask questions about just what direction it is headed in.

The biggest potential development, however, is in Norway. Online gambling history has a long history of pushing hard against anything resembling an open door in international markets, only taking a step back when regulators and legislators attempt to belatedly slam it shut in their faces. And so to it seems in Norway where a new law is set to be introduced to attempt to limit the grey market.

The headline issue is around DNS blocking, which is likely to be a pop-up message on any unregulated gambling site, but there are also potential measures around reporting of online gambling payments. Norway has an existing law prohibiting online gambling payments and moves to strengthen the enforcement of that is likely to make any processors that remain active there more than a little wary.

The major Nordic operators, Kindred, Betsson and LeoVegas, all shrugged off the move in various degrees of indifference. Betsson and Kindred both questioned if the law would even come into effect and that it could face legal challenges, while neither suggested they were considering withdrawing from the market. “Today we take no measures to exit from Norway and we hope this proposal will not become reality. And even if it should become reality it’s not the end of the world,” Betsson CEO Pontus Lindwall noted.

LeoVegas perhaps topped the charts for insouciance when it noted Norway as 4.6% of group revenues, but said the move wouldn’t affect its targets. “There are still no details about the proposal, but in all industries, one can expect that the conditions can change. Norway currently has no local licensing system, and instead of prohibition, I hope Norway will move towards a local regulation similar to the one we see in Sweden,” Gustaf Hagman, CEO of LeoVegas, noted in a statement.

The Swedish Model

But if Norway is going ever greyer it’s a move that seems at odds with neighbouring Sweden, where regulation is due by 2019. The opinion seems to be it’s better to have the grey market operators inside the tent passing out taxes by the millions. And as can be seen a little further south in Denmark the net results of this can be very positive for all. Tax revenues rise, consumers have more protection and the local monopoly can still get a decent piece of the pie.

That said it comes with some growing pains. Denmark’s regulated market only launched in 2012, but due to the long established grey market that already existed in the country it can be considered a fairly mature market. And the Danish market we’re seeing has some similar trends developing to those we’ve seen in the UK market in recent months with responsible gambling concerns coming ever more to the foreground.

Last week the Danish parliament discussed placing limits on bonuses amid fears the success of regulated market is leading to a rise in problem gambling in the country. The imposition of a roughly £120 maximum limit on online gambling bonuses is not going to be a silver bullet and is more likely to be the start of a series of measures designed to dial back the more aggressive activity we see in most European egaming markets.

In its annual report, the Danish gambling regulator Spillemyndigheden said that, measured according to GGR per capita, Danes were the third highest spenders in the EU for both betting and casino games. And that by the end of 2017 the number of people registered in its self-exclusion system was up 46% on 2016. The real number in ROFUS was 12,877, which is around 0.2% of the total population, but it’s the rate rather than the scale that is causing concern.

It’s not hard to extrapolate that out into a much larger number if growth continues at anything like that level through the next five years. And one data point to note from the 2017 regulator report was the relative lack of female gamblers in the market with 83% of online gamblers being male. Operators will be looking at those stats as a huge slots growth opportunity, but it should also be noted female players accounted for 23.5% of ROFUS registrations in the year.

Who takes the lead?

What will be most interesting is how much Sweden takes directly from Denmark, and its approach when it comes to the early days of the Swedish regulated market. It has already made it clear it expects firms to take a responsible approach with a so-called “duty of care”, and it says operators will only be allowed to offer sign-up bonuses and nothing more. How this applies in practice is harder to gauge and it will be interesting to see how it impacts the acquisition dynamics of a brutally competitive market.

Sweden is currently awash with online gambling operators of all kinds of scale and there is a fierce competition for new players. Kindred reported Q1 constant currency growth of 8% year-on-year in the Nordic market and noted the competitive pressures as a role in this alongside issues in Norway. It noted in its Q1 analyst call that the barriers to entry in the dot.com market in the Nordics were way too low and you sensed it welcomed regulation as much as a defensive measure as a growth opportunity.

There is no doubt a regulated market helps to protect the revenues of the major operators as much as it does the local monopolies, but the big fight over the next few years will be around the protection of customers. If Denmark and Sweden can prove a regulated market can protect most vulnerable gamblers and only allow in operators who act in their best interests then the path taken by Norway may begin to look increasingly like the wrong one.

But whatever the outcome of the next couple of years it’s looking ever more and more like the old model of the ‘Nordics’ needs to be redrawn. On one side we have Norway and the equally entrenched grey market of Finland, and on the other the regulated markets of Sweden and Denmark and a large amount of blue water between them. And how operators manage to navigate those increasingly choppy looking waters, or even if they look to jump ship entirely, will be one of the most fascinating aspects of the egaming sector over the coming months and years.