In my previous column, I described the likely transition from a monopoly to a license-based system in Finland. I will continue on this same topic at a slightly more general level. In several countries, especially in Europe, traditional lotteries that previously operated as monopoly companies have moved to competitive markets. How have these companies managed, and what have been the biggest reasons for success or failure? What can lotteries planning a similar change learn from these experiences?
It is self-evident that the operating models of a monopoly company are not the same as companies operating in a competitive market. Traditionally, the companies that sell lottery games have invested in a vast retail sales network and reasonably active marketing of jackpots. Emphasising operational efficiency and maximising profit have generally not been at the top of lotteries’ strategic choices. That has not necessarily been a bad thing if you think about it from the point of view of responsible gaming. Monopoly always causes functional inefficiency, which has at least somewhat reduced potential gaming, which may have reduced gaming problems.
Several state lotteries have operated, and some still work, as state offices. That has meant putting the games up for sale and assuming that customers will find them because there is nothing else available. Such a mentality has no chance of succeeding in a competitive market. Fortunately, lotteries have understood this, and most have received permission from their owners to modernise their business models. However, the growing importance of responsible gaming has brought a new dilemma to planning, where several companies have experienced the emphasis on responsibility and business as opposing forces. Of course, this is not the actual situation, but I think the thought model has caused wrong conclusions in several companies.
During the 21st century, most European lotteries have expanded their product range from traditional lottery games to other gambling areas. Sports games are part of the lottery company’s product range in many countries. Some companies have also included horse betting, and some also offer casino games. Only a few lotteries can operate all product areas in a monopoly position. The most common model is one where lottery games are still in a monopoly system, but lotteries compete with other gambling operators in other product areas. Even in lottery games, the companies already face competition, although, in principle, they still have exclusive rights to those products.
The combination of a monopoly and a license-based system causes lotteries at least competition law challenges. According to the general principle, the company is not allowed to use the profit obtained based on its monopoly position through competition in the market because such an action distorts free competition. Because of that, several countries have devised a solution where the lottery monopoly and licensed companies are separated into different companies. That model is transparent, but at the same time, it reduces the lottery’s ability to utilise all its expertise in the overall operation.
At the beginning of the 2010s, I followed the change in Denmark, where most gambling operations were transferred from a monopoly to a license-based system. That change did not happen simultaneously for all product areas, but the results were still interesting. The lottery company, Danske Spil, surprised me positively when, after the change, it started to gain even more market share in sports betting. Thanks to the shift, Danske Spil got the opportunity to compete against other betting companies on the same terms, allowing the company to use its reputation and broad customer base. Before the change, the lottery’s betting rules and conditions were weaker than those of competitors, which caused significant damage to its reputation. After the change, that problem disappeared, and Danske Spil was immediately ready to operate like a modern business enterprise. However, according to research, this did not cause problems from the point of view of responsible gaming.
After the early years, the situation in Denmark has changed somewhat, but Danske Licens Spil has remained the largest company in the competitive market. That shows that lotteries have good, or even better, chances to succeed in the license-based system if the companies are ready to invest in developing their business and fully exploiting their competitive advantages.
The change in the Swedish gambling system took place about four years ago. Lottery company Svenska Spel’s experiences are very similar to Danske Spil’s. The competitive situation in Sweden is much stricter than in Denmark because about a hundred gambling companies have a Swedish gambling license. Svenska Spel faces tough competition in all other areas except traditional lottery games. Despite this, the company has maintained its market position when it has the same operational conditions as previous offshore operators. So far, the biggest winner in the Swedish gambling market has been ATG, which before the change, was a monopoly company operating only horse betting.
Lotteries should not be afraid to expand their operations beyond lottery games or expand sales into digital channels where customers have other options. A much worse solution is to remain a seller of lottery games in the retail channel, in which case there is no prospect of a better future. Expansion into new areas, however, requires the development of operations and business models. Often this means not only the acquisition of technology but also at least some personnel changes. Running sports and casino games, operating in digital channels, and modern customer management requires different skills than selling lottery games in the retail channel.
However, lotteries have several strengths that they can take advantage of in a competitive market. Such strengths include, e.g., the company’s well-known and respected brand, an extensive customer base, an extensive retail sales network, and extensive financial resources compared to most gambling companies. However, the strengths must be able to develop a real competitive advantage compared to other companies operating in the market. Because of their brand, lotteries generally cannot be as aggressive as private gambling operators. However, this can even be a competitive advantage in the eyes of the general public because the lottery operation is more responsible than other gambling companies.
The gambling world, with it the lottery world, is changing globally. Lotteries cannot live in their own closed bubble because more and more other gambling and gaming options are available to customers. Lotteries must keep up with developments or preferably be at the forefront of developments so they can continue generating money for good causes. Change is a great opportunity, which, however, requires careful planning. It is worth learning from other lotteries’ good and bad experiences, and outside help is certainly available.
Jari Vähänen has enjoyed a long and successful career in the gambling sector, having cut his teeth in the horse racing and betting business. He has spent the biggest part of that time with Veikkaus, the Finnish national lottery and gambling operator, where he was responsible for horse and sports betting business. While there he started digital sale channels, introduced the first customer-based strategy and took care of international relationships and businesses. Having resigned from the lottery in spring 2020, he established The Finnish Gambling Consultants Ltd and is now helping lotteries and other gambling operators and suppliers to further develop their businesses.