“Of course we want to be licensed in Sweden when the market regulates, but not at any price,” Henrik Tjarnstrom, Kindred chief executive
Kindred Group and Betsson are the locally founded giants of the Nordic igaming world, leveraging this presence to successfully acquire and diversify into other markets across Europe and the rest of the world. iGaming Business caught up with Kindred's Henrik Tjarnstrom (pictured left) and Betsson's Ulrik Bengtsson's (pictured right) ahead of the critical Swedish government report due out at the end of this month to discuss their hopes for regulated and non-regulated territories, nurturing innovation and, of course, the unfolding consolidation play.
Stephen Carter
iGaming Business: The Scandi-focused igaming sector continues to do well despite regulatory uncertainty (apart from Denmark). Is regulation overdone and does working in unregulated markets actually provide the best of both worlds for operators?
Henrik Tjarnstrom (HT): Regulation is not overdone in our view. We operate a regulated business, Sweden and other European markets are all regulated, either under local licenses or through our Maltese licences providing the necessary regulatory framework. If we do not comply with regulations we’re out of business, it is as simple as that.
Nevertheless, we see local licences offering a greater long-term stability in each market as it brings better access in terms of market communications, a more level playing field for all operators in that market and a sense of legitimacy among a wider stakeholder group. However, it is important to stress that the level of channelisation achieved is key for the success of any locally licensed market.
We do not see any other development possible than all European markets eventually adopting a pan-European regulation, or local licences with sensible terms and conditions, as the digital world has no boundaries. If regulators are seriously looking to gain more control, pan-European or local licences with high levels of channelisation (the ambition should be 95% or higher) is the only way forward.
Ulrik Bengtsson (UB): I am comfortable dealing with regulated and unregulated markets. Regulatory uncertainty in, for example, Sweden, is of course something our shareholders are concerned about, but it doesn’t really affect our business. We move on in Sweden as we have always done, and the fact discussions on regulation come and go doesn’t impact us.
We have been having such discussions in Sweden, for five, six, seven, 10 years, maybe even longer than that. Our ambition is to apply for a licence in Sweden once the market is regulated. But if every time there was a discussion about regulation, we would stop or do things differently, we would do nothing else. So it’s business as usual for us in these markets until there actually is a re-regulation in place.
When it comes to whether regulation is helping or not helping our sector, it is very clear to us when we started working in locally regulated markets that growth increases significantly in these post-regulation. Denmark is one example, Italy is another, as is the UK, which has grown by up to 15% [since introduction of PoCT] so there is incredible growth in these markets.
Clearly, participating in those markets presents big opportunities but also comes at a cost, in terms of the high compliance and tax burden.
iGB: The wave of M&A (buying or selling) for Scandi-focused igaming businesses shows no sign of slowing down, how much further is there to go in your eyes?
HT: The European gambling market is large, with many small operators around. As markets continue to adopt local licences, the need for scale to absorb increased duties, invest in technological developments and find growth synergies will fuel further M&A.
UB: There’s a lot more to do. If you look at the UK, there’s been consolidation between some of the bigger players, but across the rest of Europe, there’s only been a handful of bigger plays and very little consolidation has actually happened yet. Obviously, not all of the operators in these markets are of the scale of some of the bigger UK operators, but in my view there’s still plenty of consolidation to be done across Europe.
We have been very clear in our public statements that our M&A strategy is now primarily focused on acquisitions in Europe outside of Scandinavia. We want to have a balanced portfolio and 50% of our business is already in the Nordics, so it’s important for us to grow and expand our presence elsewhere.
It however doesn’t mean we won’t look at Scandinavian-focused operators in markets where we want to strengthen, and if you were to ask me if there will be increased and continued consolidation with Scandinavia, post-regulation, I would say so, yes.
iGB: The government report on the Swedish regulation is due on 31 March. Based on your dialogue and dealings with the authorities, how confident are you that they will set a sustainable framework that doesn’t seek to shore up or advantage the monopoly?
HT: So far, signs point towards a sensible view on how the Swedish market should be re-regulated. What happens after the report has been published is of course critical in order to obtain a functioning market with a high level of channelisation. All actors, online operators and incumbents alike, need to accept that one needs to give a little to get something.
We believe the proposal will present a well-thought-through compromise that can’t be fundamentally altered if we are to reach the target of a re-regulated market by 2019.
From our perspective, it’s critical that channelisation reaches a level of around 95%, which will not happen if the tax rate is set higher than the very low end of the proposed 15% – 20% span. Nor will the market function properly if Svenska Spel or ATG are allowed to maintain the combined online-offline operations that they have today.
We just have to look to Denmark where Danske Spil remains as the dominant operator despite promises from the Danish government to sell parts of it. This is not a sustainable solution for an open market. Fair and equal competition is crucial for the success of any re-regulated market.
UB: Our dialogue and interactions with the regulator have been positive, which is always important if we are to end up with effective regulation in place. Based on that dialogue, the regulator appears to have designed a framework that should be to the benefit of the operators, the consumer and the state.
So we are pretty confident the report will recommend a reasonably well-balanced regulation. However, that does not of course guarantee that the regulation that we eventually end up with is going to be well-balanced, because it’s only a report. So we are going to have to wait and see.
iGB: Leading on from this, would your strong presence and positioning in Sweden necessitate you taking a licence anyway (as many did in France) regardless of the tax rate and conditions?
HT: We of course want to obtain a local licence in Sweden when the market re-regulates, however not at any price. We understand that we will need to compromise on many areas in order to reach this objective, and we expect the incumbents to do the same, but we will not apply for a licence in a country that does not have the intention to create a functioning market and a level playing field for all operators.
UB: I don’t have an opinion on that at this point, to be honest, because it all depends on how it looks.
iGB: The last 12 months has seen Nordic-founded operators make investments in in-house R&D/innovation units. Why are they doing this now and is it not a risk to divert spend away from other business areas at this time
HT: If you are referring to Kindred Futures, this is a vehicle intended to find and harness new techniques and solutions that will help us improve as a business. An example of this is our exploration into the field of AI and how it can help us detect early signs of problem gambling amongst others things. We already use our proprietary PS-EDS system, which helps us identify signs of problematic gambling before it gets out of hand.
Exploring how AI can add to this is a way for us to ensure our customers continue to play in a responsible and safe way, which in turn means that we can retain them as customers for longer. Investing in R&D/innovation is not a cost but a necessity for us to remain at the very forefront of the gambling industry and it is truly integrated into our business model.
UB: We have always had that aspect of our business in-house. That is our heritage. It’s significant because it gives us access to some of the brightest, high-quality minds in the world. But I don’t think it reflects a macro trend of needing to develop different pools to find great talent across the globe, as I think that would have been an approach we would have needed to have started developing 10-15 years ago.
The Applied Technology Centre in London we opened last year is just one of the tools to enable us to continue developing our technology in the direction we want.
iGB: How do you see the 12-24 month outlook for the Nordic igaming sector in light of the additional uncertainty created by the Brexit vote on top of the usual sector risks?
HT: Uncertainty is never desirable, nevertheless we have a positive view of the Nordic market and anticipation for the re-regulation of the Swedish market. This is one of our biggest regions in terms of revenues and with stable economies in all markets. We are of course monitoring how Brexit will affect all our markets but right now, any comments on how it would affect the industry would be pure speculation.
UB: Historically, Nordic gaming companies have developed well over a very long period, and I see no reason why it should not continue that way in the future. Betsson feels exceptionally well positioned for continued growth in all our markets, with robust in-house technology, good product, strong marketing skills and ability, and of course excellent people. I also think there are some additional opportunities ahead of us, in terms of regulation and consolidation.
As for Brexit, it’s really hard to say what the impact will be on the sector before we know the parameters. But I’m fundamentally positive, and I will say the UK will probably be fine, as will the rest of Europe.
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