Keep an open mind: Finland weighs up the switch from a monopoly to a licensed framework

In a country where monopolies are an age-old tradition, from the retail sales of alcohol to the pharmaceutical retail sector, having a gambling monopoly is far from unusual in Finland. The state monopoly on gambling dates back 85 years, considered at the time to be the best way to reduce negative economic, social and health effects of gambling.

But it’s been a tricky journey for state-owned operator Veikkaus since the new entity was formed in 2017 through the merger of Finland’s Slot Machine Association (RAY), Fintoto and Veikkaus.   Under the Lotteries Act, Veikkaus has the exclusive right to run gambling games in Finland, excluding the Åland Islands in the Baltic Sea. For online, it offers sports betting, lottery, casino and skill games.

Veikkaus is currently facing increasing competition from foreign gambling operators and, by having to meet new and strict gambling features in the Lotteries Act reform of 2022 which only applies to Veikkaus but not its rivals, the operator has started losing significant ground.

Indeed, Veikkaus’ gross gaming revenue (GGR) has been falling over the years. Back in 2017, when the new Veikkaus was formed, the state-owned operator’s GGR was €1.8bn but by 2022 this had fallen almost 40% to under €1.1bn. Combined with less money for the state and a five percentage points drop in Veikkaus’ market share for online gaming to 53% in 2022 compared to the prior year, alarm bells started ringing. Finland had originally justified its gambling monopoly on the basis of harm prevention, so with Veikkaus’ market share falling, the case for the monopoly is crumbling. 

In September 2022, Veikkaus CEO Olli Sarekoski commented on the critical drop in market share and indicated a change of view on its own monopoly position: “Unless this drastic downward trend can be stopped, we should start considering whether all gambling should be made subject to the same regulation in Finland.” Further discussions on denouncing the status quo continued in January 2023 when Minister of European affairs and ownership steering Tytti Tuppurainen said the government would investigate the possibility of ending Veikkaus’ position as a monopoly operator.

Jari Vähänen, co-founder and partner at Finnish Gambling Consultants, previously worked for Veikkaus from 1995 to 2020. During that time, he saw Veikkaus face increased pressures in terms of product restrictions to prevent gambling harm, marketing mishaps over two advertising campaigns in 2019, and weakened business performance during Covid-19. He tells EGR: “Although business results are not the most important element, in practice they have a strong impact on political decisions.

“I would accept it if at the same time that GGR went rapidly down, the number of problem gamblers would decrease. But that hasn’t been the case. It has been around the same level of about 3% of Finnish adults suffering with gambling problems, and it has been the same number during the last 20 years at least.”

In March 2023, a new law was ratified where the ties between Veikkaus and its beneficiaries will be cut from the beginning of 2024. “In the past, Veikkaus’ proceeds have been earmarked for certain purposes, so-called good causes, and there are several thousands of beneficiaries who have received funding indirectly from Veikkaus,” points out Antti Koivula, legal adviser for Legal Gaming Attorneys at Law. “That will end in the future. And this means those thousands of beneficiaries have lost their incentive to lobby on behalf of the Veikkaus monopoly.”

Considering the aim of the country’s monopoly was to reduce gambling-related harm, Koivula states there hasn’t really been any reduction in problem gambling rates in Finland in the past decade, or an even longer time than that. He adds: “It’s rather clear that, currently, the Finnish gambling monopoly system is not functioning well. The aims placed on it haven’t been reached. The system is leaking more money and the gambling harm rates are not going down. So, something has to be done.”

For Mika Kuismanen, CEO of the Finnish Trade Association for Online Gambling (Rahapeliala), it’s clear the current system isn’t working as the country wouldn’t be discussing the transition to another regime otherwise. However, he underlines that the online and offline sectors need to be treated separately as there is no discussion about dismantling the offline monopoly. “We know that digitalisation, consumer preferences and the attractiveness of different providers, games and betting systems are very competitive. And we see from the channelisation rate that the current monopoly for the online market doesn’t work. So, I think it’s very rational that we are now discussing it or it would have been rational to discuss this many years earlier,” he explains.

Rahapeliala, which was founded in 2023 by operators including Entain, Flutter Entertainment and Kindred Group, is pushing for a system where “stable and responsible operators” can apply for a licence to offer online gambling in accordance with Finnish laws and regulations. Kuismanen comments on the opportunities that could open up for its founding operators if the licensed model was to be implemented: “The gambling activity is quite high in Finland so the firms see this as an attractive market. You can rely on the administrative and legal system here and almost all players use strong identification methods via the bank system. So, I would claim it’s a very safe environment to operate from an administrative point of view and it is difficult to misuse the system here.”

From an operator perspective, Åland Islands-headquartered Paf welcomes the recent developments, favouring a switch to an open licence-based system, but its senior vice-president of public affairs, Sverker Skogberg, sees it as both a challenge and an opportunity. “We think the time is mature and right to do this change now, so we support it. But it’s important not to be too hasty and to not make a quick copy and paste. You have other regulations you can look at like Sweden, Denmark and the Netherlands – but do it properly,” he asserts.  

Time for change  

On 5 January 2023, the Finnish government established a research group to outline the current state of affairs and map out alternative models for the gambling system. The Ministry of the Interior appointed a four-person team to manage the project until 15 April 2023. The body was chaired by Harri Sailas, a Finnish economist and former CEO of pension insurer Ilmarinen. Other members of the body were Mikko Alkio, a partner at law firm Roschier, former Minister of Justice Tuija Brax and Riitta Matilainen, who heads up the gambling harm prevention unit at the Finnish Association for Substance Abuse Prevention.

The research body delivered its findings to the Ministry of the Interior on 17 April after having studied gambling legislation in Sweden, Denmark, Norway, the Netherlands and France as part of the project. According to the report, the countries that have adopted a licence system (all of them apart from Norway) have succeeded in significantly improving the channelisation rate.

The panel concluded that without change to Finland’s current monopoly, the channelisation rate would fail to improve. It also stated between €500m and €550m per year is being lost to offshore sites that accept Finnish players.

Veikkaus CEO Sarekoski tells EGR that if Finland adopts a licensed model, the operator hopes change will happen sooner rather than later. Commenting on why the change of heart now, he explains: “When you observe and analyse existing figures, it is clear alternatives need to be considered. Currently, the annual GGR, which offshore companies gather from the Finnish market, equates to one-third of the whole market. In digital games, offshore operators’ market share is naturally even higher. At the same time, offshore companies operate outside the Finnish regulatory environment and their digital portfolio creates a huge proportion of gambling problems.”

Kuismanen feels there were both postives and negatives to come out of the report. He details the positives as it being well-written, widely covering issues around problem gambling and citing good international comparisons. But where it was lacking was around details and suggestions that “are probably not very well understood by the authors”. For example, the report mentions introducing a cooling-off period but fails to precisely define what that means.

The report focused a great deal on the digital gambling business moving to a licence-based system, however Vähänen points out that when operators and lottery firms are trying to introduce omnichannel solutions, you cannot have different legislation for digital and retail sales. “What I’ve told the policymakers, and I know Veikkaus agrees with me, is that the new legislation should be based on product verticals, not sales channels.”

Since the findings were published, the Ministry of Social Affairs and Health has voiced several concerns over the contents of the report. While the political parties back the idea of switching to a licensed market, civil servants are still holding onto the old traditions of a monopoly, says Vähänen. It all comes down to risk and blame. “Our civil servants are used to controlling what customers can do. When someone acts as a civil servant here in Finland, the best way to do that is to avoid any risks. And that’s why they have that kind of mentality where they are against big changes.”

Koivula points out the history of the gambling monopoly in the country means Veikkaus and the predecessor companies were more than just state-owned firms and had a huge influence on decision-makers and politicians alike. In respect of differing views within governmental ministries, he adds: “If we look at the situation, for example, from the Ministry of Social Affairs and Health’s perspective, they have always been defending the Finnish monopoly saying a gambling monopoly is an effective way to tackle gambling harm.”

Cross channel

In response to the report, the Ministry of Social Affairs and Health put out a statement saying it might be damaging from the gambling harm perspective to pay too much attention to the channelisation rate. Koivula shares his interpretation of their concern: “How I understand their view is that it’s good to achieve a high channelisation rate because it puts all gambling under the regulation, and then it’s possible to impose responsible gambling measures towards those operators. But at the same time, if you try to achieve a high channelisation rate by any means you will open all the advertisements and so forth, which might be harmful from the gambling harm perspective.”

However, Vähänen from Finnish Gambling Consultants struggles to understand the ministry’s argument as he doesn’t consider these to be opposite issues. “To me, the channelisation rate is the tool to fight against gambling problems. Nowadays, one-third of gambling in Finland is going to offshore operators and 50% in digital sales is out of the control of a Finnish regulator and civil servants. So, if we won’t raise the channelisation rate, how can we control any problems?” he asks.

Though Paf’s VP of public affairs understands some of the ministry’s arguments, he outlines there are technical tools available to get that balance right. Skogberg explains: “Even if you have a high channelisation rate, which is important for everybody, you can still have room for tools like [central self-exclusion register] Spelpaus in Sweden. We have been trying to look further into how it can be done even better technically. I think the Ministry and some other stakeholders have a misperception that it is technically difficult to fulfil this need, but I think that need can be fulfilled.”

Similarly, Kuismanen of Rahapeliala doesn’t see the logic in the Ministry’s dismissal of the channelisation rate since it is designed to prevent gambling harms by keeping customers playing within the licensed market. He explains: “It is essential we get as many players as possible to the well-regulated markets and, at the moment, we don’t. In the Nordic countries, compared to Sweden and Denmark, for instance, in online gambling we are in a very bad position, with under 50% playing in the channelised market.”

Under strict instructions

The study group’s report outlined two alternative models for Finland: a partial licensing system (excluding lottery games, physical casinos and slot machines) or adoption of an even tighter monopoly model such as the one implemented in Norway. However, Vähänen agrees with other experts that it’s hard to evaluate the success of Norway’s monopoly regime. “If you look at the number of gambling problems, they have a higher level of gambling problems than any other Nordic country. They have the most problem gamblers per capita than any other and at the same time their channelisation rate is lower than any other. So, I’m not sure if the system has succeeded very well,” he remarks.

Koivula says the study acknowledges Finland shouldn’t stick with the status quo, but it didn’t examine the stricter monopoly option any further, instead concentrating on the partial licensing system. “So, in reality, they did provide two alternatives but they only examined one of them. And from my perspective, it’s rather a strong statement which of the two options they prefer,” he observes.

Paf’s Skogberg says Norway’s exclusivity monopoly theoretically can be an interesting one to evaluate for some stakeholders but if you look at the fact that Norway and Finland are the only countries in the European Economic Area (EEA) currently maintaining a monopoly, he feels like “you would go backwards”. Although Skogberg highlights that all monopolies are different, it can also cause problems when you let the market run totally free. “If you look at areas other than gaming, like the alcohol monopoly here in Finland, that’s something you have to do very carefully. You have another example of when taxi regulation was liberalised in Finland a few years ago and I think many people are a bit thoughtful of that as it really became a Wild West.”

The working group placed a high priority on the responsible gambling perspective, yet it also recognised that in order to achieve a high channelisation rate, the system cannot be too strict by discouraging operators from applying for a licence in the first place. Under a new regime, the taxation rate and restrictions imposed also need to be well balanced, states Vähänen. “If you will have quite a low taxation rate like 20%, then there can be restrictions for marketing, betting limits, etc. If it will have a high taxation rate like 30%, then the system won’t work. We can’t raise the channelisation rate if it will also have marketing restrictions, betting limits, and so on,” he explains.

Vähänen acknowledges there are important results to analyse from Sweden since its re-regulation in January 2019, but he is quick to argue the Swedish system should not be simply copied over to Finland. The same with the Dutch and Danish models, and he urges Finland to learn from these in terms of what has worked and what can be done better.

While those within the industry have not been able to fully assess the success of Norway’s monopoly regime, what has been clear from neighbouring Nordic countries Denmark and Sweden is that since the pair switched from a monopoly to a licensed market, problem gambling numbers have decreased while state income has risen.

Rahapeliala’s CEO reiterates times have changed and that the current monopoly system in Finland is outdated now we live in a fast-paced, digitalised world where consumer preferences change quickly. “It’s impossible to claim that the monopoly system could fulfil the requirements the world has nowadays. I think it’s also a bit arrogant from the Finnish point of view to argue we know better than the rest of Europe. So, my thoughts of being the only other monopoly in the EEA, I’m not very happy about that,” he shares.

Money, money, money

The Ministry of Social Affairs and Health also suggested in its response to the study’s findings that the state’s income from gambling activities could decrease with the licensing system. Using Denmark and Sweden as examples where state income has increased, Vähänen says there is no evidence state income will fall. According to data from Finnish Gambling Consultants, it expects government income to increase by 10%-20% under a licensing regime.

On the flip side, Koivula from Legal Gaming Attorneys at Law argues lower state income would be the worst-case scenario if the government imposed a severely restrictive framework where operators had no incentive to obtain a licence. “Obviously the channelisation rate would be low and Finland would not get the licensing fees and tax income from gambling that goes outside the system currently,” he remarks.

Since Finland’s parliamentary election took place on 2 April, the parties are currently negotiating on forming a new government, with the next step to create the government programme, which sets out its most important policies for the coming four-year term. Koivula comments on what he expects to see happen next: “I’m really expecting them to add a note there that Finland will shift to a licensing regime during this parliamentary term as that’s already been stated as one of the National Coalition Party’s aims. They have publicly stated they wish to abolish the Veikkaus monopoly during this parliamentary term.”

Vähänen expects politicians to make a final decision next year and Finland could have a new partial licence-based system valid from the beginning of 2026. He would like to see a taxation rate of around 20%-25% on GGR, as proposed by the working group, as well as a national-level personalised deposit limit. Finally, he wants to see new legislation based on product verticals as opposed to sales channels.

As CEO of the trade association representing online operators, Kuismanen is confident the industry’s views will be taken into account during the government negotiations. “I’ve met almost all parties’ politicians who have shown an interest on this issue and also the others. We have a very good collaboration with Finnish decision-makers, so that’s been good,” he adds.

Skogberg says most stakeholders are hopeful a new system could be in place by 2025-26 “because in the Finnish culture if you decide to do something, and there is the political will and consensus, you can do it surprisingly fast”.

Flying the blue and white flag

Paf’s VP of public affairs would like to see a well-thought through so-called ‘blue and white model’ with a good supervision system in place, the right balance in terms of marketing rules, as well as an aim to achieve a channelisation rate of over 90%.

“Finland, along with its decision-makers, has a unique opportunity now to watch what has been done in other countries and to take their own approach from that so there will be a good mix between regulation, marketing and free market access,” he comments.

In an ideal world, Koivula wishes to see changes completed at a fast pace as “there’s really no time to waste any more”. He favours the move to a licensing system, whether that is a partial one or one in which all gambling will be licensed. “I would really like to see a licensing system that has been well prepared and that requires including the industry experts into the discussion.

“It’s also important for the Finnish decision-makers to understand it’s not necessary to reinvent the wheel. There are plenty of good models out there in other jurisdictions, and we have the opportunity of a lifetime to learn from them and to include the best characteristics and the most functioning characteristics in the Finnish blue-and-white licensing regime,” he asserts.