Can Sweden save the European dream?

Sweden’s proposal for an open regulated online gambling market was cautiously welcomed by an industry reeling from some regulatory body blows in recent months. The road to regulation has never been an easy one, and for all the progress made in the past decade there is a genuine risk of the sector taking a step backwards in 2017. And within this context, the progress in Sweden begins to take on some major significance.

The previous year was a decidedly mixed one for regulation advocates with strong growth in Italy and Spain, and a hugely positive response to increased regulatory oversight in the UK, cast against some more regressive moves elsewhere. Poland and the Czech Republic introduced regulatory regimes with tax rates set at punitive levels, while operators withdrew from the similarly structured Portugal market in their droves.

The bright new hope of the Netherlands also frustrated with a 29% tax rate and glacial progress towards market opening, with late 2018 now looking likely as a go-live date. The Dutch market could still be a breakthrough in terms of establishing a major revenue generating market with strong channelisation, but its troubled progress is not something to suggest optimism for the rest of Europe to follow suit.

Dangers of delays

Kindred Group, the largest operator in the Nordic market, was clear that similar in-fighting and delays can’t happen in Sweden. “For re-regulation to be successful there is no room for major changes in the investigator’s proposal. Delays will endanger the whole reform,” Peter Alling, head of public affairs Nordics at Kindred Group, said.

Alling pointed towards any regulatory uncertainty acting as a brake on operators currently in the grey market applying for licences and warned of a black market problem similar to that faced by the Spanish and Italian markets in their early stages.

“We know that any attempt to regulate prices, limit the choice of games, or charge high taxes will have a negative effect on channelisation,” he added.

But it’s far from a Kindred-specific issue at play here. What operators have seen over the past five years is a gradual increase in taxes and regulatory oversight throughout Europe. And those now looking to move towards a regulated local market seem to be taking the top end of the typical taxation rate spread of 15-25% as a starting point without realising the negative consequences this can have.

Protect and save

Or perhaps they are fully aware of the consequences of their actions. Many of the newly regulating markets have well established local land-based operators or state-owned monopolies, and protecting their interests is a not unreasonable objective. And it’s worth noting that Sweden is no exception here with Svenska Spel likely to be at the heart of any discussions over the way forward.

But the initial signs from Sweden are promising with talk of a 18% tax rate for online and it’s likely we’ll see significant interest in the market both from the existing grey market firms and the larger international operators. We’ve already seen the Danish market establish itself as a €400m a year online market from a population of just 5.6 million. Sweden with a population closer to 10 million and even more interest from operators in the market could easily be worth double that.

A regulated environment could create a market almost as large as the €1bn Italian regulated sector. And in the absence of any other major regulated market with sustainable tax rates appearing in Europe in the near future, it’s likely this will lead to some movement in the M&A sector as operators prepare to take advantage when the market opens in 2019. It could also shift the balance of power in the egaming world a little towards the Nordic-focused operators.

Warning signs ahead

Kindred, ComeOn and Betsson are the most likely candidates to try and shore up their positions with acquisitions, but you wouldn’t rule out the likes of Paddy Power Betfair, GVC Holdings, Ladbrokes Coral and Amaya from making a play here. Acquiring key pre-regulated market assets could be vital to avoid a very expensive launch in what will be a hugely competitive market.

But this all rests on progress remaining quick and the legislation remaining modern and business friendly. Sweden could be the market that brings the regulated market concept back to some consensus against a backdrop of an increasingly fractured-looking European outlook. If it proves a success then Norway will surely follow suit and perhaps others both inside and outside of Europe will look north for a model in future.

If, however, Sweden gets bogged down in regulatory red-tape, vested interest in-fighting and over-inflated tax demands we will see a very different picture emerging and potentially some expensive grey market acquisitions denting bottom lines. It’s a hugely important 12 months ahead for the Nordics and for the European sector as a whole. And as ever the outcome is far from clear at this stage.