Change the Channel

By Carl Friedmann
Gustaf Hoffstedt, Secretary General of The Swedish Trade Association for Online Gambling, on the difficulties of regulating gaming

Swedish gaming regulation is facing a reckoning. Just over two years after a new licence system came into effect on 1 January, 2019, much has turned out just as well as stakeholders in our gaming market had hoped. For example, Spelpaus, the national self-exclusion scheme, has been a success with almost 60,000 Swedes blocked from any casino-related websites. It’s reasonable to think most of them are compulsive gamblers who shouldn’t set a digital foot inside any online casino.

At the same time, there’s no doubt the Swedish licence market is leaking like a sieve, with a quarter of online gaming activity having been lost to dangerous illegal websites. The sports betting market is only faring marginally better and "channeling" is by now likely the most frequently used word in the gaming policy arena. And not without reason as channeling has much to say about whether a gaming policy framework works in practice or not.

A high rate of channeling (or channelisation) is important for all serious stakeholders and their interests, including a licensed company’s desire for profitability and the government’s desire for tax revenue. But it’s also important to ensure the efficacy of essential and politically mandated consumer protection measures. The success of all is determined by the rate of channelisation. The Swedish gaming regulation, with its low rate of channeling, is heading towards a fiasco. We are not there yet but unless steps are taken in a productive direction and additional misguided government interventions like the kind we’ve seen in the past two years are avoided, failure will soon be a fait accompli. Then, all that remains will be to argue over exactly when it happened.

When the rate of channeling reaches a critically low level, serious operators will exit the market while those that remain – typically old state-run monopoly companies – are by themselves not able to attract consumers to the legal market. The legitimacy of the system has then been spent and what remains for consumers is to search outside the designated market for the gaming experiences they desire. This was Sweden’s reality less than three years ago as the rate of channeling was less than 50% in the last year of the collapsing monopoly system.

Regulating gaming doesn’t have to be that difficult. It entails including as many regulations, as many taxes, and as much consumer protection as possible without inconveniencing consumers to the point where they are encouraged to look elsewhere. An economist would probably use the Laffer Curve to illustrate this dynamic: If the tax pressure becomes too burdensome, real tax revenues will drop due to behavioral changes. Anyone wishing to maximise the desired condition, such as high tax revenues or high consumer protection, should therefore be careful not to exceed that limit.

Regulating gaming is perhaps simple, but at the same time brutal, in that there are no take-backs. Poor political decisions are irreversible and manifest as plummeting channeling rates. The customer who has once left the licensed gaming market is unlikely to return. How are we going to persuade him or her to then leave the world of milk and honey that is not subjected to gaming taxation, and where bonuses and VIP offers are completely unregulated?

Regulating gaming is like pulling on a rubber band. It's made to be stretched, so stretch it. But don’t stretch it too hard because it’ll snap. Why then is it so desperately difficult for politicians to stretch the rubber band without it snapping? I think it has to do with the fact we’re an industry with few supporters in broader society beyond our customers.

This situation forces political decision-makers to strike a sharp balance. Every attack on gaming companies is met with applause. Often, it doesn’t matter if these companies are licensed or not as few voters understand the difference. In the political world, moreover, undesirable effects of decisions are often accepted if the intentions behind them are good. The politician who makes harmful but well-meaning policy will be rewarded, while the politician who makes policy that can at least be interpreted as a concession to the gaming industry faces a difficult challenge.

The privately owned gaming industry simply has nothing to offer the vigorous politician. He or she can’t even expect a cushy seat on a corporate board at the end of their political career, which is customary for state-run gaming companies. There is not much we can do about this. These circumstances will continue to be the natural laws of gaming policy, and the politician who wants to achieve truly good outcomes in the gaming market must accept the ungrateful basic condition that there’s no political jackpot to cash out at the end of the rainbow. On the other hand, good opportunities do exist for achieving real progress with the politician who rejects the political temptations that always come with gaming regulation.

What can we do about this as an industry? To begin with, we need to scrutinise our behavior. I’m thinking of the so-called Ninja Casino ruling in Sweden and all the activities on the part of the company that precipitated that ruling. The actions of Ninja Casino testified to complete tone-deafness to the societal outrage that was triggered by aggressive advertising practices, while we were peppered with messages about lightning-fast payouts before we would even arrive at the next metro station. The case of Ninja Casino is not unique as other corners of the licensed gaming market invites us to bet on whether a certain hockey game will descend into violence, or, as was the case in England, if a certain goalkeeper struggling in his private life would be eating a pie on the substitute’s bench. Meanwhile, ads for licensed online casinos pop up on websites that illegally stream copyrighted movies or contain pornographic material. Allowing such practices to continue is tantamount toself sabotage.

The same can be said for licensed gaming companies that do not recognise the value of investing resources into public advocacy, both internally in their own organisations and through collaborative efforts like national and transnational trade associations, as well as organisations dedicated to foiling international match-fixing operations. We can be sure that even if we increase these investments tenfold, we will still be nowhere near the level of resources poured into the public discourse by some other stakeholders, particularly state-operated gaming companies and their trade associations.

Such actors are currently fueling public perceptions that Sweden – despite our alarmingly low rate of channelisation – should introduce a marketing ban for online casinos while omitting the lottery market where they continue to enjoy a monopoly. That’s why I think it's so difficult to regulate gaming.

Advertisement