As Lottoland looks to Germany, how will it address challenge from monopolies?

Lottoland’s roll out of its products in the UK has come up against significant push back from National Lottery operator Camelot.

As it seeks to get licensed in Germany, how will it address the challenges from incumbent operators it is likely to encounter in such a major market?

By Amanda McCormack

In most countries lotteries operate as monopolies and anything that challenges their model and revenues is bound to cause reaction and, in most cases, push back and friction. 

Lottoland is that challenger in 2017 and since launch in 2013 the Gibraltar-licensed lottery betting operator has grown substantially, in both revenues and profile.

Its insurance-backed lottery betting model allows punters to wager bets on the results of worldwide lotteries (Euro Millions, Powerball etc.) without them having to be in in the country physically or having to buy a lottery ticket.

Its detractors, such as UK National Lottery operator Camelot, say it is using a legal loophole to offer its services and that Lottoland can afford to offer cheaper tickets because it doesn’t contribute to as many charity causes and social projects.

In response, Lottoland says it is not obliged to do so but also that its operations are much closer to those of a standard betting platform, with all the risks and liabilities involved, than that of a lottery.

In the UK, the government recently announced the launch of an open consultation into “prohibiting third-party betting on non-UK Euro Millions draws” following lobbying by Camelot. 

The UK authorities said Lottoland was a direct threat to the financing of ‘Good Causes’ and that the group’s model was “clearly contrary to the spirit and intention of section 95, which seeks to preserve a distinction between betting and The National Lottery”.

Lottoland responded, saying Camelot should offer consumers more choice and look at itself rather than try to shut out new entrants: “When the price of a EuroMillions ticket was increased to £2.50 we froze the price of betting on the main draw at £2, offering those customers who were dissatisfied with the price hike a viable alternative, something we believe the UK consumers deserve.

“We understand this clearly agitates the monopoly but giving choice and value is in the best interest of the consumer. We believe this agenda is clearly being driven by Camelot lobbying to protect their monopoly and bully any competition out of the market, a precedent we have seen with society lotteries and most notably the Health Lottery.

New entrant in German market
“We also believe the time has come to have a general discussion about the justification of the monopoly. Monopolies always hinder innovation and progress. The ones paying the bill are the UK consumers, especially in terms of lack of innovation and higher prices.”

In Germany, Lottoland has, this month, put in a bid to be the first private company to operate a state lottery, thus moving away from its traditional bet-on-lottery model.

However, German states have already been trying to put players off the firm by saying that customers may not receive their winnings if they wager with them.

The German regulatory landscape is different to the UK's and Wulf Hambach, partner at law firm  Hambach & Hambach, told iGaming Business: “Generally speaking I am convinced that the minimal changes of the Interstate Treaty on Gambling which the prime ministers (of the German regions) decided on 16 March put the lottery monopoly under extra pressure even though some (not all!) of the German state lotteries are convinced that such a restrictive regulatory approach protects their grounds.

“The reason is simple: if you look to Denmark or UK where you see way less restriction in online gambling services it is way easier for the government to drive a state-owned lottery since neither the European Commission and Court nor the national courts are attacking the lottery system in these states.

“If you stick to an unjustified and unbalanced prohibition within your legal gambling system, law suits triggered from EU-licensed operators will continue to happen and in seminal cases also be successful – as we have recently seen in the states of Hesse or North Rhine Westphalia.”

Why is Lottoland looking to run lotteries in Germany? Elicia Brave Garcia, chief strategy officer for the company, says there are big opportunities in the country: “Germany is one of the largest economies in Europe and has a long-standing tradition of playing lotteries. Sadly, due to the state-monopoly the lottery market is underdeveloped and lacking innovation.

“We believe there is high consumer demand for modern lotteries. The figures speak for themselves. For example, the turnover of the state lotteries is in sever decline, it is currently approximately €7bn per year, a significant drop from 2014 when it was €11bn. There is a clear need for change to reinvigorate the lottery market and reenergise and excite lottery players.”

The company says it has applied for a licence in the country because it wants “to operate in the German market as a fully “in-country” licensed lottery operator (that is, under a German licence rather than under our European one)”.

Garcia adds that Lottoland wants to be in open dialogue with the German authorities and that “by applying for a licence we are publicly committing ourselves to this strategy and advocating our intentions unequivocally to the German state authorities”.

Lotto and Totoblock criticism 
Lotto and Totoblock (DLTB) represent Germany's 16 regional lotteries and did not mince its words when talking about operatros such as Lottoland. It said it welcomed “the intention of the countries to combat illegal gambling, especially on the Internet more effectively”.

It added: “Companies with their illegal bets on lotteries (black lotteries) are a form of product piracy, do not provide protection against gambling, mislead consumers, circumvent the tax obligations in Germany and do not generate any benefits for the common good.”

However, Lottoland's Garcia countered that German lottery monopolies “systematically disregard the limits of admissible advertising, which they have a clear obligation to observe. These breaches include large scale sports sponsorships as well as extensive TV and online advertising”.

“This clearly indicates that the German gambling regulation in its current form does not have as its main objective the aim of minimising issues around gambling addiction and therefore preventing excessive gambling.

“While other sectors like sports betting or (land-based) slot machines and casinos are part of an open, regulated, private and competitive market, lotteries – which demonstrably are a safer product for consumers – are kept locked-up under a strict state monopoly. This is clearly contradictory to the inherent objective of German law.”

Lottoland argues that there are many examples which show that private companies can operate lotteries as effectively, efficiently and safely, if not better, than state-owned companies. It also points out that Germany sees 40% of lottery money going directly to individual states’ finance ministries.

Although it is obvious that strong regulations are needed, Lottoland says there is no reason a private company cannot adhere to them just as well as a state-owned company.

Garcia said: “In accordance with the current German regulation for lotteries, 23% of revenues would be assigned to projects for the public benefit or to a designated charity. With regards to our products, we plan to launch and create our very own unique lottery products.”

Lottoland online = 0.1% of Camelot turnover
So unlike in the UK, where Lottoland faces criticism for not having to contribute parts of its revenues to good causes, in Germany, where to all intents and purposes it would be running a traditional lottery, it is different story.

In many ways what is going on in the lottery sector with Lottoland is no different to what the likes of bwin, Unibet or Sportingbet experienced some 10 years ago in the online betting space.

An online entrant comes onto the scene unafraid of challenging established monopolies and disrupts their model and revenues. Or maybe more appropriately it shows up their shortcomings and the poor returns they offer players, which is bound to wind up those monopolies even more.  

Looking to the future the only certainty is that the lobbying and war of words between the likes of Camelot and Lottoland will continue. However the issue of scale and channels is one that is worth pointing out.

As Lottoland itself commented: “The opportunity to bet on EuroMillions with Lottoland is only available online (c.80% of Camelot's revenue is generated through retail). To put this into perspective, Lottoland Euromillions betting revenues are less than 0.1% of Camelot’s total turnover, we are not affecting them or reducing their ability to give to Good Causes in any way.”

Nonetheless, as it continues to expand and push the boundaries in places like Germany the only question will be how much of a market position it will be able to carve out for itself.