Spelbound: How Svenska Spel is trying to work its magic in the Swedish market

The Swedish gambling market has been in the headlines on an almost daily basis over the last year following the government’s decision in June 2018 to re-regulate. Aside from the main regulatory changes, the key aim for regulation was to offer up licences to international operators for the first time. And inversely as new regulations opened, old regulations were swept aside, ending a monopoly system on gambling which had previously allowed operators Svenska Spel and ATG to dominate.

However, Svenska Spel CEO Patrik Hofbauer believes the monopoly guaranteed to it by the Swedish government was only ever a paper monopoly, as many international operators had been targeting the Swedish market for more than 10 years, albeit through the use of unlicensed sites. “In effect 90 to 95% of the companies now operating with licences in the Swedish market have been there anyway for the last 10 years,” Hofbauer adds.

A potentially beneficial byproduct of this is that Svenska Spel as a business is already used to competition from other operators, having gained that experience over the intervening period. So, when Swedish legislators agreed the creation of a new regulated and licensed Swedish market, allowing other operators to legally target Swedish punters for the first time, Svenska Spel already had the experience it needed to thrive in this space.

Hofbauer claims the market changes have led to a “level playing field” between operators and that in prospering within this new market, Svenska Spel has provided proof it “is a stronger player in the Swedish market than many may have thought because we now have strong competition and despite this have delivered good results”.

Indeed, Hofbauer believes the biggest impact of regulation is being felt by the international operators which have been obliged to become licensed as part of the process and have now become liable for increased taxation and compliance obligations. The Swedish consumer can now gamble with the full protection of Swedish law for the first time.

Svenska Spel CEO Patrik Hofbauer

But will that positivity endure? Hofbauer believes it will as regulation is “a positive move in both the short term and the long term” as it enables increased revenues for the state and additionally provides clear rules to protect customers against gambling-related harm.

Hofbauer himself only became Svenska Spel’s CEO on 1 December, previously serving as CEO of Norwegian communications company Telenor Sweden. Aside from a long career in senior positions at Swedish and Nordic facing businesses, Hofbauer has also been a professional ice hockey goalkeeper, playing in Örebro, Björklöven and Djurgården over a 10-year period.

Having experienced such a diverse career, you could be forgiven for thinking Hofbauer has had his fill of challenges and obstacles, but the biggest hurdles were in the first month of his role as Svenska Spel CEO. As he explains, “this was really the last month before the new regulations came in, and we’ve spent a good deal of that time basically rebuilding the entire company from the ground up.” At the same time Hofbauer has had to learn the intricacies of the gambling industry and Svenska Spel specifically, while also dealing with getting the new company model up, running and essentially compliant.

Breaking up is hard to do

As part of this the Svenska Spel group needed to form a revamped business structure which is fully adapted to the new licensing system. This comprises three business areas, with one strand for each of the licensing areas; Sport and Casino (online casino and sports betting), Tur (lotteries and scratchcards), and Casino Cosmopol and Vegas (land-based casinos and video lottery terminals).

Shedding some light on the challenges of this time, Hofbauer explains: “During December we underwent the biggest IT infrastructure change in the business since its inception as we separated the three businesses. On 1 January we essentially hit the start button on the new business, which was the culmination of a very memorable first month for me and a very nervous moment. Fortunately for us it went very well.”

The purpose of the reorganisation is to comply with competition rules and the new gambling legislation, and to create what it calls “a clearer business focus”. Prior to doing so, Svenska Spel consulted with two different law firms to make sure its actions were in line with the new gambling framework and Swedish competition legislation and only separated its businesses once approval was received from both firms.

“During December we underwent the biggest IT infrastructure change in the business since its inception”

Aside from this reorganisation, Svenska Spel is now able to offer new products including online casino and horseracing for the first time. It is also allowed to be more competitive in the types of products that it offers via its licensed companies.

Moving on

Despite effectively having to go back to year one in terms of its business and approach to regulation, the early revenue figures make for encouraging reading for Svenska Spel, with Q1 revenues topping SEK572.9m (£47.3m). This sum was lifted in part by a 14% increase in its online gambling revenues and a 21% rise in mobile gambling revenues.

Indeed, according to data released by Swedish analysts Redeye, Svenska Spel has generated a 16.7% share of the newly regulated Swedish market, second only to ATG in terms of its market share. However, Hofbauer believes in analysing these results there should be a focus on individual business areas rather than the notion of a whole market.

As he explains, its lottery operations, in which it competes with lotteries that still have licences under the old regulation, and casino operations, in which it still holds a monopoly, have been able to largely retain their strong market position. But in the licensed market, the company has performed well despite “ups and downs” during the first quarter. “You have to remember we added two product lines during this period, online casino and betting on horseracing, things we didn’t have access to in the past, giving us the opportunity to expand into new segments,” Hofbauer adds.

As the only state-owned operator in the Swedish market, Svenska Spel occupies a unique and, some might say, difficult position in that it must operate as a business but also be sensitive to the needs of the state which owns it. “For us it means we need to be a role model in everything we do, especially concerning consumer protection. Also, being state-owned helps us to keep up excellent sustainable business standards in every part of the group,” he explains.

Station break

When Svenska Spel took the unique decision to cease all advertising of its online casino gaming for the rest of 2019, the whole Swedish market took note. Some applauded while others questioned the motives of curtailing what is one of the firm’s biggest markets.  For Hofbauer, the decision to stop was due to the company’s long-held belief that risk standards should be applied to riskier gambling games and that strict rules should be applied to these games both in terms of game design and marketing.

As he explains, Svenska Spel took the next step in this approach enforcing self-regulatory standards against its own advertising of online casino, citing the company’s desire not “to be attracting at-risk individuals to the riskiest products on the gambling market”.

“It was a combination of a business decision and an ethical decision to cease the advertising of these products. As a company we’ve not discussed expanding this ban to our other products because for us in terms of risk involved with products, only online casino carries the greatest risk to players,” Hofbauer adds.

While the cessation only currently affects the company’s online casino operations and is only set to last until the end of 2019, Hofbauer does not rule out the potential expansion of this mandate further, indicating that the company will make this decision towards the end of the year.

Svenska Spel can advertise across its retail estate

By taking this decision, Svenska Spel has opened itself up to the reduction of its online casino market share by its competitors, but by the same token the operator has set a positive precedent for other operators to follow and been seen to do so by the wider market and consumer base. But in such a competitive market, still largely in its infancy, can it really afford to? Hofbauer believes this is a question best left for other operators. “Of course, I hope they will follow our lead but I recognise that each of them needs to make their own business and ethical decisions as to whether to do so.”

Taking a stand

Whether this decision is wrong or right for Svenska Spel in the long term has yet to be discerned but it certainly is in tune with the current Swedish zeitgeist on gambling advertising. The Swedish government’s call for moderation on gambling advertising, coupled with its latest call for an investigation into the possibility of a ban by as early as 2020, signals a hardening of the tone on gambling in Sweden.

Svenska Spel is one of Sweden’s largest advertisers of gambling, with ads appearing in print, online and on TV. The effects of a blanket ban would severely curtail the operator’s prime means of attracting new customers: advertising. But for Hofbauer, a ban is unlikely as he believes the Swedish government’s tough new line is about giving the industry a chance to self-regulate rather than cutting it off at the knees.

“We are only four months into the new market and you have to go back and look at the trends in Q4 2018 and look at how the whole industry spent money on advertising. Then it is no surprise that there should be high spend during the first four months of the year,” Hofbauer adds.

Qualifying this assertion, he states there is a “disproportionate” relationship between the amount being spent on advertising and its contribution to operator revenues, which he believes is mainly down to the new competition within the market, spending which will become unsustainable in the future.

Hofbauer says this will eventually stabilise as the market settles. But what if it doesn’t? Hofbauer believes a ban, despite its good intentions and reported aim of reducing problem gambling, while valid would be counter-productive and patience is required in allowing the market to self-regulate rather than an arbitrary ban.

Last year proved to be a game changer for Swedish gambling and for Svenska Spel in particular, and from the evidence of the first half of 2019, this year is proving to be just as big for the Swedish gambling behemoth. During the last year, it’s made a number of significant business adjustment in rebuilding the company from the ground up and Hofbauer believes it’s now time for Svenska Spel to “be more extrovert”, with its number one priority of providing a “caring and proactive” experience for players. Only time will tell whether this the right path for maintaining its dominant position.