The opening months of the Swedish online market were always destined to be tricky for the operators and suppliers to negotiate given the strictures imposed from the off by the country’s gambling regulators.
Seemingly taking a leaf out of the UK Gambling Commission’s book on proactive regulation, the Swedish Gambling Authority (Spelinspektionen) has already sent warning letter to all licensees with regard to self-exclusion violations while the minister with responsibility for gambling has also warned on the tone and content of advertising.
It all means that, as Kristoffer Lindström, analyst at Stockholm-based investment bank Redeye, put it in a note issued one month into the new era, the first quarter will be “bumpy” for any company with a high degree of exposure to Sweden.
This isn’t just the licensees. Comments from some of the listed super-affiliates, which to differing degrees derive revenues from the Swedish market, suggest the regulated market is proving to be as tough as was expected.
Raketech, for instance which Lindström estimates generates around 60% to 70% of revenues from Sweden, said it had put in place “robust new compliance criteria” and had discontinued partnerships with Swedish-facing unregulated entities.
The company noted that the whole market was still in the stabilisation phase, but it noted that though traffic numbers were high, the average deposit level was lower and that average lifetime values were likely to be lower in the first quarter.
Gaming Innovation Group, which also reported in early February and has both operational and affiliate interest in Sweden, said meanwhile that the market would likely follow a “similar pattern” to other newly-regulated territories with SEO set to be “more challenging” due to paid adverts being allowed at the top of Google’s rankings.
Catena Media – which Redeye estimates has at most a 10% exposure to Sweden – said comparatively little about Sweden although it noted it would “only maintain contractual relations” with operators that were compliant in Sweden.
One obvious show of faith in the long-term of the Swedish market came from Better Collective which in December bought the Swedish-facing sports-betting affiliate Ribacka in a deal worth up to €30m.
Hjalmar Ahlberg, analyst at Stockholm-based investment research and advisory firm Kepler Cheuvreux, said that it was clear that most operators were positive on the long-term prospects for the market, even as in the short-term the market becomes a tougher one to negotiate in terms of regulations.
“My impression is that all the larger established operators have already implemented much of the requested player protection and are also familiar with this from other regulated markets such as UK and Denmark,” he says.
Noting the drop off in player values, Lindström suggests that there are three main factors behind the falling numbers. First, the self-exclusion scheme Spelpaus is “working.
“So far 17,000-plus players have signed up for Spelpaus,” he notes. “The self-exclusion will obviously lead to smaller market so the effects during the first quarter will be direct.”
Second, they believe it will take time for the customers to understand fully the dynamics of the new deposit and withdrawal limits. Interestingly, they add that a lot of the customers are using the Pay N Play concept, with fast deposits and withdrawals, “which leads to a high deposit turnover.”
“If the limit is hit the customers can choose to increase the limit, but there is a three-day delay before that change comes into effect. We believe the new deposit system will influence the player value during the first few quarters, but the impact will decrease over time as players get used to how it works.”
Third, Lindström believes that going by Google search trends, Svenska Spel’s online casino debut is attracting “significant volumes”.
“As Svenska Spel Casino Online now offers the same games as the other operators, it looks like at least some of the players chooses to play at the site, which obviously will hurt the customer intake and volumes for the other operators,” he says.
“The state-owned operator has also been relatively aggressive with marketing campaigns during the first-month post regulation.”
Finally, they add that the new bonus restrictions are also having an effect, making it harder for operators to drive engagement marketing. “Previously they could send out bonus offerings to players that had not played for a while; this is now gone. We find it likely that the customer’s engagement has decreased with fewer login sessions, which also drives down the player value.”
It remains likely the top operators working previously in the grey market will maintain their market share, albeit on reduced margins. But Ahlberg suggests that alongside Svenska Spel claiming a share of the online casino market, some smaller operators might struggle.
“Smaller companies which might have trouble adopting to tougher regulations and the cost for tax will lose out,” he says.
None of which, Lindström suggests, is helping investors work out who will be the winners from the listed operators with an exposure in Sweden. “It’s evident that the current investor sentiment for the sector is low as the regulation creates uncertainty,” he says.
Moreover, he doesn’t think the first quarter reports either that we have already seen or those upcoming will “help to calm down the investors,” although he does think that the new landscape will encourage even more M&A.
“The long-term winners will be the ones who can handle the new conditions, create the best products and continue to innovate,” he adds.