A new era for Sweden's online gambling market

When you think about Sweden, your mind inevitably conjures up images of ABBA, grim Scandi-dramas, IKEA and, latterly, meatballs. However, as a culture, Sweden is known for its openness and welcoming attitude towards outsiders. This culture pervades seemingly all aspects of Swedish life, except for its gambling market. But like the famous pop group, Sweden is preparing to ‘take a chance’ on changing that stance. Bad puns aside, Sweden has set in motion a series of events that it hopes will change the face of its gambling industry for decades to come. So, why the sudden change?

The principal body in charge of regulating Sweden’s gambling industry is the Swedish Gambling Authority (Lotteriinspektionen), so who better to ask than the person in charge of delivering these sweeping new regulations, Lotteriinspektionen director general Camilla Rosenberg. “The key aim is that the government regains control of the Swedish gambling market,” she says. “The new gambling act means that anyone operating in the Swedish market must have an authorised licence and that those operators without a licence will be shut out.”

Rosenberg first came to work for the Authority as head of the operations department in September 2015, before being appointed as acting director general of the organisation in May 2017, replacing previous incumbent Håkan Hallstedt. Born in 1966, Rosenberg holds a master of law degree from Uppsala University and has previously worked at the Swedish Energy Agency, holding several management positions, most notably as chief legal officer.

In accordance with Swedish regulations, she will serve a six-year term as director general, the bulk of which will be to ensure the successful roll out of the new regulations and that Lotteriinspektionen is ready for the influx of new operators entering the Swedish market.

Speaking about the preparations, Rosenberg adds: “We are still in the midst of a hectic period preparing for the licensing process, but we are at present finalising Lotteriinspektionen regulations, the application forms and the guidelines.

“The awarding of licences and the dates from which they will be valid will depend partly on the quality of the applications and when they are received. As part of this process, we will make a comprehensive assessment of both the application and the company behind the application. Applicants will be assessed through a combination of government and Lotteriinspektionen regulations, which will include responsible gambling measures, customer protection and strong security. We are also expanding our resources to meet the market’s upcoming transformation.”

Lotteriinspektionen expects to distribute its regulations and specifications on 10 July, well in time for the proposed parliamentary adoption date of 1 January 2019. Dealing with the re-regulation of an entire market would be a challenging task for any regulator, but Rosenberg remains upbeat about the potential future market, adding: “From what we understand, there is a significant interest from international operators seeking to join a regulated Swedish market, and we expect to receive about 55-60 applications for licences.”

The size of the problem

So how big is the problem of unlicensed online gambling in Sweden currently? For Rosenberg, it is a long-standing issue: “Unregulated online gambling companies have operated in the Swedish market for about 20 years. It is in this segment of the market that the competitive gambling is mainly found. They are essentially operating tax-free in Sweden, and, as a result, consumer protection for players using these sites is limited.”

Unlicensed online gambling operators targeting the Swedish market generated over SEK1.5bn during Q1 2018, rising by 15.3% on previous figures, meaning that unlicensed operators accounted for 27% of all online gambling in Sweden. In contrast, Sweden’s regulated Swedish gambling market was worth SEK5.63bn during Q1 2018. Its main state-run monopoly operator, Svenska Spel, saw its online gambling share only increase to 23.4% in Q1 2018 from 21.7% during the same period in 2017. Revenue from fellow monopoly holder ATG, lottery operators Folkspel, Svenska Postkodföreningen, and IOGT-NTO accounted for the remaining 22.6% share of the country’s regulated online gambling market.

Stemming the tide of money

Based on the pre-existing taxation rate of 30%, Lotteriinspektionen collected over SEK1.68bn in tax revenue from regulated operators in Q1 2018 but lost out on over SEK450m to unlicensed online operators during that time. With the market share of unlicensed gambling operators only set to increase in the foreseeable future, Sweden’s government and regulators had to act to stem the haemorrhaging.

However, a 30% taxation rate is high for any market, so a key constituent of the new legislation is aimed at reducing this, as Rosenberg explains: “The Swedish parliament has decided that all licensed operators shall have to pay a tax of 18% on the profit they make on gambling activities in Sweden. Gambling for non-profit purposes will continue to be tax exempt. It is of great importance that the non-profit, public interests can continue to develop and the conditions for financing public interests shall continue to be good in the new regulation.”

Since the authorities do not have jurisdiction over offshore gambling operators, they have instead focused their regulatory efforts on fining those firms located in Sweden which carry advertisements for these companies. Every year, offshore gambling companies spend almost SEK2.3bn on advertisements in the country, a large part of which is invested in newspapers and TV ads, dwarfing the SEK472.3m spent by Svenska Spel.

Rosenberg explains the reach of these operators: “TV commercials for online casinos and gambling operators who are unlicensed in Sweden are made possible because broadcasts are made from countries that do not have the same advertising laws as Sweden.” Consequently, the authorities have issued several injunctions against media companies over the years which have been predominantly aimed at billboard advertisers, sports teams and webpages with banners linking to foreign gambling companies.

Tipping the scales

The new bill institutes a new licensing system that would separate the online gambling and betting sector from other parts of the Swedish gambling industry, ending the monopoly on gambling enjoyed by the state and instead opening it up to international operators from 1 January 2019. “One of the main objectives of the re-regulation of the gambling market in Sweden is that most of the unregulated online gambling operators currently operating in Sweden will have to apply for a licence,” Rosenberg explains.

“The aim is the ‘channeling’ of 90% of these operators from unregulated to fully licensed and regulated. This will create better opportunities for controlling the market and establish a higher level of consumer protection, while gambling companies without licences can be excluded. The goal of the new regulations, is, of course, to ensure that most of the operators will have to apply for a licence.”

According to the new legislation, Sweden’s gambling market will be divided into the following parts: one part mainly covers online gambling and betting; one part applies to gambling that has a public benefit, such as lotteries and land-based bingo; and one section reserved for the central government, such as land-based casinos and token machines. Since parts of the Swedish gambling market will be exposed to competition for the first time, more operators will be able to apply for a licence.

As its counterparts have done in the UK, Lotteriinspektionen has been keen to espouse the protection of consumers from the negative side of gambling. It’s a philosophy which goes to the very core of its regulatory objectives, as Rosenberg explains: “Consumer protection has always been of the utmost importance in Sweden. The gambling market is regulated because gambling for money can cause problems for individuals and for society. One of the main purposes of the new regulation is to promote gambling that is healthy and safe, and that has a high level of consumer protection. Furthermore, the regulation shall help to limit the negative consequences of gambling.”

A new offence, gambling fraud, will be introduced and a special cooperation council will be established to tackle match fixing. In addition, a national self-exclusion scheme will be introduced by Lottoiinspektionen by January 2019. Addressing these new systems, Rosenberg adds: “Operators will have to enter the system themselves to ensure the customer has been excluded. It will also be combined with marketing. When a player has shut themselves down you can’t send out any more direct marketing.”

Everything in moderation

As part of this process, moderation is to be observed in the marketing of online gambling services to consumers. Lotteriinspektionen will share the supervisory responsibility for online gambling with the Swedish Consumer Protection Agency under the overarching regulations contained within the Swedish Marketing Act. Under the new regulations, marketing that contravenes the requirement of moderation in the Marketing Act is to be considered unfair to consumers.

But how far does that moderation extend? Camilla explains the reasoning: “The assessment of whether marketing is moderate is, for instance, to particularly observe that marketing does not target children or young people under the age of 18 and that the chances of winning are presented in such a way that they don’t give the impression that the chances are greater than they are.”

For Rosenberg, it isn’t a case of changing too much for the operators. “We assume that serious operators will not have any problems meeting the marketing requirements. The Lotteries Act states that it is prohibited to promote participation in lotteries that do not have permits. This prohibition will be the same in the new Gambling Act.”

In addition to the raft of regulatory changes, Lotteriinspektionen shall, from 1 January 2019, be able to request the blocking of payments and request that Sweden’s internet service providers display a warning message on those online gambling websites that are not fully licensed in Sweden, which would appear prior to the individual accessing the unlicensed site.

So how have Sweden’s ISPs reacted? “The Internet Service Providers have expressed negative opinions during the public hearing regarding the proposed legislation, meaning that it is a de facto blocking,” Rosenberg reveals. (Speaking at the government inquiry into the new gambling regulations, Jon Karlung, CEO of Bahnhof, one of Sweden’s main internet providers, said: “We do not take a stand either for or against the game. However, we strongly warn of the action to close parts of the internet which authorities consider to be unfair.”)

Looking ahead

With many businesses and governments, there is often a proclivity for staying the course and continuing with legislation regardless of public opinion and industry opposition. However, this is not true of the new Swedish gambling laws, as Rosenberg explains: “If it turns out that the intentions of the re-regulation are not met or that something goes wrong, it will be possible for adjustments to be made to the legislation.

“It is reasonable to assume that some things will therefore need to be amended, adjusted or supplemented after the Gambling Act has entered into force, as this is the experience from other re-regulations in the past.”

The government has assigned Statskontoret (the Swedish Agency for Public Management) as an independent reviewer of these new regulations, and to monitor development and evaluate the effectiveness of the new regulations from 2019 to 2021.

So Swedish regulations in three years’ time may have a very different complexion to those being rolled out today, but when all is said and done, the Swedish gambling market will never be the same again.