Lottoland vs. monopolies: pioneer vs. lazy incumbents or parasites vs. funding good causes?

Lottoland’s rising profile, product innovations and strong marketing have enabled it to grow hugely since 2012. The company has also attracted strong criticisms from lottery monopolies, but should the latter look at their own lack of innovation before trying to force out young competitors; or should the likes of Lottoland respect the incumbents’ positions?

Joanne Christie   

Lottoland’s success since launch has been impressive – last month it was named on the Financial Times 1000 list of the fastest growing companies in Europe, coming in at 128 after 820% revenue growth between 2012 and 2015.

It has also been branching out from its traditional bet-on-lottery model with its recent bid to become the first private lottery operator in Germany and the creation of its own independent WorldMillions product.

But its growth and subsequent expansion have raised hackles in the traditional lottery space and put some noses out of joint, particularly because it comes at a time when player enthusiasm for traditional lotteries appears to be waning.

In the UK, Camelot has been outspoken in its opposition to the secondary lottery operator selling bets on EuroMillions, particularly as it does so at a lower price than tickets sold by the UK National Lottery operator.

In March the UK government also began a consultation on closing the loophole that allows Lottoland, and others, to take bets on EuroMillions.

European Lotteries, the association which represents European lottery monopolies across Europe, has also weighed in on the UK issue.

Recently appointed secretary general Arjan van't Veer says: “European Lotteries has contributed to the public consultation of the UK government on secondary lotteries. EL believes it is essential that clear policies are put in place that recognise and protect the unique role that lotteries play in protecting players and — as a result of the operations — delivering funds for society,” he says, before making it clear where lottery monopoly operators stand in the debate.

“EL therefore agrees with the UK Government’s proposal to prohibit betting on EuroMillions (including on draws outside of the UK) in order to protect returns to society.”

The Department for Culture, Media and Sport consultation closed on May 2, with no date fixed for any decision. However, one UK lawyer told iGaming Business they doubted any responses to the consultation would change its position that taking UK bets on EuroMillions should be prohibited.

But of course a ruling prohibiting Lottoland taking bets on Euromillions would be a big blow to its UK operations; and it’s not the only area in which incumbent lottery providers are lobbying against it.

Opposition beyond the UK
In Sweden, the director general of the Swedish gambling regulator Hakan Hallstedt's report laying out the potential regulation of the Swedish igaming market includes a proposal for a new Swedish Gambling Act in which secondary lotteries are explicitly prohibited.

The proposal suggests payment blocking measures be put in place for any company attempting to circumvent the rules. Andreas Jerat, spokesperson for Svenska Spel, Sweden’s current monopoly lottery provider, seems confident such an approach will be taken.

“Although the presence of secondary lotteries in Sweden is a nuisance for Svenska Spel today, we believe that the secondary lotteries in Sweden will be less of a problem following the implementation of the new Gambling Act proposed to take effect on 1 January, 2019,” he says.

“Svenska Spel’s view is that companies providing secondary lotteries take unfair advantage of other companies’ trademarks (‘free riding’ or ‘parasitism’), which is prohibited according to the Swedish Marketing Act. Secondary lottery companies may also commit trademark infringements by using other companies’ registered trademarks (or similar marks).”

Claims of parasitism have been levelled against Lottoland by a host of lottery operators around the world, but Elicia Bravo Garcia, chief strategy officer for Lottoland, says: “We are careful not to infringe anyone else’s trademarks” and points out it owns some of their own. 

She also points out, “as you know many betting transactions are predicated on the outcome of a number of events, such as sports accumulator betting”.

This is, of course, a fair point, but for Jan Chudoba, head of legal at SAZKA, the Czech Republic’s biggest lottery operator, Lottoland has crossed the line in the past.

In an article penned for the European Lotteries’ EL Magazine last year, Chudoba, said SAZKA had “first faced Lottoland’s activities in the Czech Republic on the occasion of SAZKA’s marketing event celebrating the Eurojackpot lottery launch in October 2014.  During a show organized by SAZKA in the Prague’s city centre, hostesses in Lottoland’s branded dresses started offering to the participants an option to play Eurojackpot via the internet on Lottoland’s websites”.

Speaking to iGaming Business, Chudoba adds: “From my point of view it is unfair competition. It is a kind of free riding because they don’t invest any money in their own business. They are just parasiting on our business or what we are doing, only we are the entities who invest time, money and everything to produce the product.

“They are not fulfilling the statutory obligation as we do in the Czech Republic so, for example, we have to pay a surety, a financial deposit in the account of the Ministry of Finance, and of course we pay taxes and we are complying with the responsible gaming clause and other things. We have some advertising costs and the registration process, which is obligatory, which they do not.”

It’s worth pointing out that until this year, online gambling was unregulated in the Czech Republic although this year a licensing scheme for online operators has been put in place.

When asked specifically about the above events, Bravo says Lottoland is “ not currently targeting Czech customers. We are in discussions with the regulator and will be announcing our plans for Czech over the coming weeks”.

Although regulation generally opens doors for igaming firms, it may have the opposite impact in the lottery sphere.

At European Commission level a dim view has been taken of countries adopting non-EU compliant and restrictive gaming laws that shuts competition out unfairly, although the EC seems more amenable to allowing monopoly lottery operators some protection of their status.

Shift in strategy
Perhaps the potential future closure of some markets is what is behind Lottoland’s shift in strategy into bidding to run Germany’s public lottery and the creation of WorldMillions.

For the latter, however, it’s coming up against the same old gripes from incumbent providers.

Although hailed as an ‘independent’ product, the WorldMillions result is still based on other lottery draws, but instead of just one, it is two separate lottery draws: Germany’s Plus5 and Austria’s ToiToiToi.

European Lotteries has already made a public statement regarding WorldMillions: “European Lotteries has taken notice of the WorldMillions initiative by Lottoland. Lottoland has over the past few years tried to find ways to promote its own lottery alike games, whereby it uses the draws, rights and results of several games that are organised by members of European Lotteries.

“WorldMillions is built and operated in the same way. European Lotteries is of the opinion that this might be, again, at odds with the regulatory frameworks in the countries that are involved.

“European Lotteries therefore urges national gambling regulators, in the interest of the players and to safeguard existing rights, to investigate into WorldMillions.

“According to the case law of the CJEU lotteries and other games of chance can only be offered to consumers in the jurisdiction where the appropriate license has been granted.”

Lottoland’s Bravo Garcia says: “To date we have not heard or been involved in any such conversations. We respect and comply with the law and don’t anticipate that our lawful, licensed betting products should upset anyone who might consider us as competition.”

She adds: “Once again, we are extremely proud to be bringing further choice through innovation to the lottery betting market with WorldMillions.”

Meeting market demand
While national lottery providers may not be happy about it, Lottoland’s innovations appeal to players, as is evident from the near six million players it has picked up since launch four years ago.

Funds not going to good causes/society/taxes is the monopolies’ biggest argument against secondary lottery betting, but this is something that preoccupies only them, not the players.

Perhaps players just want the opportunity to be in with a chance of winning something they wouldn’t usually have access to – indeed when Lottoland launched in Australia in early 2016 with a campaign promoting the chance to bet on a US$1.5bn draw it got so many new players the website crashed.

It’s also true that in the UK at least there is some player fatigue at all the changes made by Camelot in recent years.

First it upped the price of the standard draw from £1 to £2 in 2013, then in 2015 it added 10 balls, making it even harder to win, then last year it increased the price of EuroMillions to £2.50.

Is it any wonder then that the UK Gambling Commission figures shows a significant and continuing decline in National Lottery participation over the past four years?

The issue of scale and reach can't be ignored either. Camelot recorded sales of £7.5bn in 2016, instead of worrying about an online competitor that has nowhere near the same scale should it nor concentrate on improving and modernising its product?   

It might also be the case that players now want to win more than they want to protect funds for society and if that’s the case, regulators across Europe need to give careful consideration to giving them what they want, says Wulf Hambach, partner at law firm Hambach & Hambach.

“There are two possibilities here. You licence it, issue licenses with key conditions or you prohibit it with real justifications that are also in compliance with the EU law principles.

“If the customer decides that this product is something interesting for them and if they are following that route then the state has to think twice how to regulate it.

“Prohibition is not always the right answer — it is always way more difficult to uphold a prohibition; it is smarter to try to sit at one table and figure out the conditions of a licence and a way that you can fulfil all needs, for the customer, for the state and for the operator.

“You have to have open-minded regulators that are roundtable minded and not just try to drop a stone on each plant that is just growing on the soil of customer demand. Then a lot of stones have to be thrown.”

If the UK government puts in place the widely expected ban on Lottoland offering EuroMillions bets to UK players, that will be one heavy stone.

The big question is whether other regulators will follow suit, but with Lottoland having sown plants in a lot of soil in a short space of time, it’s more likely a wildfire would need to sweep through to have a significant impact on its business.