The Scandic Way

Sitting atop Europe on the Scandinavian Peninsula, Norway and Sweden are two of the continent’s most fiercely independent and powerful traditionalists. They consistently rank high among the top 10 nations in the world when it comes to standard of living, and are comfortable with their own systems.

The Swedish people voted not to adopt the euro currency in 2003 and Norwegian voters have said “no” twice to joining the European Union. Likewise, each nation’s government has stood fast in its decision to retain a centrally controlled monopoly approach to most forms of gaming, for as long as possible. How long that particular status quo can be maintained depends on how well the gaming needs of their respective populations are served by the existing monopolies, and on when-and if-E.U. pressures can ultimately force a change.

In Sweden, in 2007, all forms of legally allowed gaming combined produced total gross gaming revenue of SEK38.7 billion, equal to about $5.8 billion at the time. Over 86 percent of that was accounted for by the two government-owned and operated monopolies ATG and Svenska Spel.

ATG, the tote company created by the government to handle the betting on Swedish thoroughbred and harness racing, generated 31 percent of all gaming revenue. Svenska Spel, the 100 percent government-owned entity that operates all four of Sweden’s casinos, an online poker site, most lottery games and sports betting, accounted for 55 percent of the total. Various public and private lotteries produced over 8 percent, bingo almost 4 percent and low-limit table games, which for years have been allowed in restaurant bars, provided less than 2 percent of revenue.

Svenska Spel was formed in 1997 by the merging of two state-owned companies that separately had operated lotteries and sports betting. When, after years of government discussion, the decision to allow casinos was made in 1999, Svenska Spel was given control over the sector.

The company turned to Holland Casino of the Netherlands, another state-owned monopoly that had developed a successful casino formula for its own similar market, for information and know-how. The concept of the casinos was to offer a contemporary mix of moderate gaming, enjoyable dining and light entertainment, all in a socially responsible way as opposed to a purely business approach that might seek to wring maximum profit from high rollers.

The first two casinos were opened in the cities of Malmo and Sundsvall in 2001, followed by one in Gothenburg in 2002 and finally Stockholm in March 2003. The properties offer a total of about 100 tables and 1,000 slots. Along with the standard roulette and blackjack can be found punto banco, sic bo, Caribbean Stud, Casino Hold’em and Big Wheel, depending on the casino.

All four casinos offer poker cash games and weekly tournaments, spreading hold’em, Omaha and seven-card stud at a variety of limits. Each casino also provides visitors a choice of two or three restaurants and bars serving meals and light snacks.

Financial results for the five years 2003-2007 show growth in gaming revenue of at least 8 percent each year. In 2003, with all four casinos operating for most of the year, revenue was SEK720 million, about $90 million. In the next four years revenue grew to SEK853 million, SEK922 million, SEK1 billion and SEK1.15 billion, about $172 million.

How the current economic situation will affect 2008 results is not yet clear. For the first nine months of 2008, revenue was said to be up again but not by as much as the previous year. (Interim results were due to be released toward the end of October.)

At the start of June 2005, Sweden was one of the first countries to introduce a smoking ban in public places, which affected restaurants and bars and of course, the casinos as well. The immediate result was the now-predictable drop in business. Year-on-year revenue at the casinos did increase for 2005 and 2006, although only at a rate of around 8 percent-less than half the 18 percent rise experienced in 2004. But when the 2007 numbers came in, revenue growth had returned to double digits, to almost 15 percent.

With no additional properties having opened and no major expansions of existing casinos, Svenska Spel management credits the recovery to the successful efforts to expand its casino customer base. This feat might have been easier in Sweden than in some other countries facing smoking ban-related losses, simply due to the newness of the Swedish industry.

Unlike long-established casino cultures such as Germany, where a certain clientele has been cultivated for decades, Cosmopol management would not have had the time to become dependent on a small but important core group of players. Also, the original mission of the Svenska Spel casinos, with its accent on light entertainment as opposed to hard-core gambling, could have resulted in the group taking less of a hit from losing a portion of its business and being better positioned to recover by using marketing to attract a wider variety of recreational players.

Two years ago Svenska Spel received permission from the government to create two more casinos. However, elections since then have produced a new government, one which decided it was time to review the entire gaming market in Sweden-both the live and the online market-and see what if any changes were needed. That decision resulted in the casino expansion plans being put on hold.

The government commission performing the study is scheduled to issue its report with recommendations for any new legislation on December 15. A year of discussions and explorations will follow, with no official news likely before 2010. Unofficially, there is an expectation that the commission’s report will not affect the live casino sector, thus maintaining the monopoly arrangement with Svenska Spel. If that is the case, then Sweden could see two new Cosmopol casinos relatively soon.

The governmental review of Sweden’s gaming market has been necessitated primarily by the pressures produced by the phenomenon of online gaming. Basically, operators of online sports betting, poker and casinos want legally recognized access to the market of enthusiastic Swedish players-and to markets in all other countries, for that matter. Sweden and particularly those other countries with government-owned or licensed gaming monopolies want to keep the operators out completely.

The European Court of Justice is faced with the unenviable task of weighing the wording of the E.U. treaties and regulations against the “what if” nightmare scenarios-real or imagined-of budget ministers, religious leaders, social workers, politicians, commercial operators and other interested parties in the E.U. member states. Given the number of countries, cultures and languages involved it is not an issue that is expected to be settled any time soon.

For Sweden, the reality is that foreign-based online operators managed to take an estimated 9 percent of the country’s total gaming market in 2007. For its part, Svenska Spel managed to capture 35 percent of the online market with its own products, which include bingo, lottery games, sports betting and poker.

Revenue from all the Svenska Spel games played online or via mobile devices grew by over 38 percent to reach SEK1.2 billion in 2007. Of these games, the best performer and biggest earner was poker, which saw an increase of 86 percent to SEK385 million. To put the online poker result into perspective, of the four Cosmopol casinos, only Stockholm managed to top that performance with SEK420 million.

One of the things that make Sweden such an important legal battleground for online poker operators is the zeal of the Swedish player. A 2007 survey conducted by industry organ eCOGRA turned up the fact that Swedish online players as a group reported the highest average monthly win from their sessions. How they won is irrelevant. What matters is that to win the most, they had to be involved in a lot of games and a lot of pots, which translates to more rake for the online operator.

A standard argument used by national operators for maintaining a monopoly system is the protection of the player from the dangers of addiction. Svenska Spel has developed a tool that online players can use to self-monitor their playing habits. “Spelkoll” debuted in mid 2007, and is based on more than 17 years research at the Chalmers University of Technology in Gothenburg. A combination of behavioral science, psychology, mathematics, artificial intelligence and technology, Spelkoll compares the player’s gaming behavior to a pre-set model. If the subject begins to exhibit risky patterns of play, a signal on the screen goes from green to yellow and the player is advised to examine his or her participation, even create a budget.

If the pattern continues, eventually the signal turns to red, at which point the player is advised to call a support line and offered the option to suspend himself from gaming. Svenska Spel also stops sending the player promotional materials. The system is attracting attention in other countries, and was adopted by the Austrian lottery operator for its own online poker site.

Another area controlled by the monopoly is slot machines in bars and restaurants. The system of linked VLTs known as “Vegas” is intended to avoid the situation found in many European countries, where a loosely regulated, low-limit street machine market will often dwarf the heavily monitored, licensed casino market. The 7,000 Vegas VLTs from Spielo/GTECH offer gaming at stakes from SEK1 to SEK5 and jackpots up to SEK500.

The machines can be found in over 2,200 restaurants, bars and bingo halls. In 2007, they produced gross gaming revenue of over SEK1.9 billion-more than the total revenue produced by the four casinos. This segment is still recovering from the smoking ban introduced in 2005, but is almost back to its 2004 level. An illegal street machine market still exists, but it is thought to be nowhere near the size of similar markets in some other countries.

Just across the border in Norway, there are some similarities and some major differences in the gaming market. Norsk Tipping is the name of the government-owned entity that operates all legal gaming in Norway. Unlike Svenska Spel, the Norwegian lottery and sports betting company has not expanded into the casino business or the online poker industry. However, it has embarked on the installation of a very advanced network of 7,200 interactive video terminals from supplier ACE Interactive. The iVTs will be available in similar venues to Svenska Spel’s Vegas VLTs.

The technological features offered on the new iVTs, combined with the required player card issued by Norsk Tipping, provide the player with a number of options designed to give greater safety and choice.

To be able to play on the linked iVTs, a player must first register and be issued a player card. The card can be used to transfer money from a player’s bank account to his player account and then can be credited directly to the iVT.

Player accounts come with an automatic loss limit of NOK400 per day-about $60-and NOK2,200 per month, which are maximums mandated by the new regulations. If the player feels these amounts are too high, he can reset his own limits to a lower amount. Stakes vary depending on the game, but run between NOK10 and NOK40. The maximum jackpot is NOK1,500. The terminals also fill the role of self-service kiosk for the purchase of other Norsk Tipping products.

Another new iVT feature will allow the player to designate an authorized sports club or cultural organization to receive 5 percent of any losses in a given session. The action is intended to emphasize the “good cause” aspect of gaming and give the player some say as to who benefits.

The first trial deployment of the cashless iVTs began with eight venues in and near Hamar, where Norsk Tipping is headquartered, in summer 2008. The network should be complete within the next two years.

Although not a member of the E.U., Norway must still abide by many of the same rules as those nations that are. Norway is considered part of the European Economic Area, and EEA members are obligated to implement E.U. legislation if it is important for the functioning of the internal market. However, the relatively low-profile Norway maintains the area of gaming may keep it from running afoul of the usual free-trade treaties. The E.U. recognizes that some forms of monopolistic behavior can be allowed when it comes to gaming.