Northern lights: Finland is finally going to introduce a licensing system for gambling
The transition from a gambling monopoly to a licensing system is currently in its early stages in Finland, however, it is expected that the licensing system will be implemented as early as January 1, 2025, says Antti Koivula
The state-owned gambling monopoly operator, Veikkaus, has not had a de facto monopoly online for years. Due to the tightening of responsible gambling features in Finnish legislation, which only affects Veikkaus, the company has lost its competitiveness in certain verticals. As a result, Veikkaus withdrew the support for its own monopoly last fall and has since been publicly advocating for a partial licensing system. With Veikkaus whispering in politicians’ ears and the fact that the state is losing a lot of money due to the monopoly system, politicians have been able to find a political agreement on the necessity of a change to the system in record time. Once the new government is formed following the parliamentary elections of April 2, 2023, and begins its work, the change to the licensing system is expected to be fast-tracked. This article sheds light on the circumstances that have led to the current situation and anticipates the timeframe and features of the upcoming licensing system..
The absurdity of the existing Finnish gambling monopoly
Currently, Veikkaus has the exclusive right to provide and market gambling services on mainland Finland. However, Finnish customers are legally allowed to use the services of foreign gambling operators, and it is also legal for foreign gambling operators to accept customers from Finland. What Finnish law prohibits is foreign operators advertising directed towards Finland, although many still do. On a practical level, the authorities have not had sufficient funding or the tools to intervene effectively, although the situation improved from their perspective with the Lotteries Act reform of 2022.
Struggling Veikkaus withdraws its support from its own monopoly
The enforcement problems, combined with the new and strict responsible gambling features introduced in the Lotteries Act reform of 2022, have made Veikkaus’ position increasingly difficult. Due to the monopoly system, the responsible gambling features only apply to Veikkaus and not to their competitors. Veikkaus has already struggled online for years in the verticals where they have faced serious competition, namely in casino games and fixed-odds sports betting, and their overall market share has been steadily decreasing year after year.
Veikkaus’ GGR had fallen from EUR1.8 billion to EUR1.1 billion since 2017, with no improvement in the trend in sight. As a consequence, Veikkaus made a 180-degree turn and publicly withdrew support for its own monopoly. Veikkaus CEO Olli Sarekoski first stated in Veikkaus’ interim report on August 29, 2022, that if the sharply declining trend of Veikkaus’ market share cannot be stopped, Finland will have to consider bringing all gambling under the same regulatory regime. Sarekoski’s words were echoed by Veikkaus VP Velipekka Nummikoski a week later, who underlined that Veikkaus is ready to give up its monopoly and that all gambling should be brought under the same regulatory regime. Since then, Veikkaus representatives have reiterated the same message and expressed their clear support for the shift to a partial licensing system. It is worth noting that in neighboring Sweden and Denmark, the shift from gambling monopolies to licensing systems began when the national monopoly operators Svenska Spel and ATG, and Danske Spil began advocating for the licensing system. In many ways, the situation in Finland is now analogous.
It’s all about the numbers
The main reason for Veikkaus withdrawing support from its own monopoly is in the numbers. Veikkaus’ gross gaming revenue (“GGR”) had been slowly decreasing since the merger of three Finnish gambling companies in 2017 that formed the “new Veikkaus”. In addition, the COVID-19 pandemic hit the company hard. Veikkaus GGR:
- 2017 – EUR1780 million2018 – EUR1759 million
- 2019 – EUR1691 million
- 2020 – EUR1260 million
- 2021 – EUR1100 million
- 2022 – EUR1070 million.
The whole Finnish iGaming market also suffered a significant decline during the pandemic (2017 – EUR 1978 million, 2018 – EUR2050 million, 2019 – EUR2000 million, 2020 – EUR1585 million, 2021 – EUR1490 million, 2022 – EUR1540 million). Notably, Veikkaus’ GGR is not expected to reach its pre-pandemic level again due to competitiveness problems, and currently, the company is struggling even to maintain the current level. According to predictions, the Finnish iGaming market is expected to return to the level of EUR1800 million within a few years. However, even if Veikkaus does manage to stabilize its GGR, it would continue to lose market share at an alarming pace.
EU law justification for the monopoly is falling apart and the beneficiaries support is gone
Veikkaus’ total market share is currently at 70 percent, with an online market share of 53 percent. When it comes to the competitive online verticals, namely casino games and fixed-odds sports betting, Veikkaus’ market share has been estimated to be around 30 percent. Monopolies are an exception to the EU’s basic freedoms, namely the freedom to provide services and the freedom of establishment. Rules that restrict basic EU freedoms must be justified by imperative requirements in the general interest, be suitable for achieving the pursued objectives, and not go beyond what is necessary to attain them. For years, Finland has justified its gambling monopoly primarily by claiming that it is the most effective way to prevent and reduce gambling-related harm and protect the vulnerable. Without getting into the argument as to whether or not Finland has been successful, it should be noted that when the channelization rate drops too low, it is not possible, even in theory, to reach that aim. In general, 50 percent has been considered the “magic line”, and Finland is perilously close to getting there. As there is no possibility for Veikkaus’ to arrest its declining market share, it means that Finland’s EU law justification for the gambling monopoly is deteriorating, and sooner rather than later, Finland will have to go through a system change anyway. As that is the case, from Veikkaus’ perspective, the only real question is whether they will have a better or a worse starting position for the competitive market.
The third reason behind the upcoming change is tied indirectly to Veikkaus’ decreasing revenue. Gambling proceeds have been designated for certain good causes long before the creation of the new Veikkaus. The beneficiaries consist of several thousand organizations mainly from the sports, healthcare, and culture sectors. Until 2017, these beneficiaries enjoyed ever-increasing and secured funding. Consequently, they were the greatest lobbying force for the monopoly system and Veikkaus itself. In 2020, when the COVID-19 pandemic had a significant impact on Veikkaus, the beneficiaries managed to pressure the government to compensate them for the decreased funding. Now a new law has entered into force, severing the link between Veikkaus and the beneficiaries as starting January 1, 2024, Veikkaus’ proceeds will be directed to the normal state budget without being ear-marked for the beneficiaries. As a consequence the beneficiaries’ incentive to lobby on behalf of the monopoly system is eliminated.
Veikkaus convinced the politicians
Veikkaus’ change of heart convinced the politicians, and opinions quickly started to shift towards introducing a partial licensing system. On September 9, 2022, a survey was published, according to which only one smaller parliamentary party, the Christian Democrats (three percent support), was opposed to the idea of giving up the monopoly system, while the rest either supported the change or were open to considering the options for the monopoly system. The National Coalition Party (“NCP”), back then an opposition party and the biggest party in Finland according to polls, came out first. At the end of September 2022, the NCP stated that Finland should immediately start preparing to shift to a partial licensing system. This caused the other parties to go silent for a few months since the parliamentary elections were only six months away, and repeating NCP’s statement did not make sense politically. At the end of December 2022, first the Social Democrats, at the time the party of the prime minister and the second biggest party in the polls, stated that they recognized the need for the change. The following day, the Minister for European Affairs and Ownership Steering stated that the government had a unanimous view on the abolition of the Veikkaus monopoly on digital games. Practically this meant that a wide political consensus had been reached that a partial licensing system, including online casino games and betting, will be the direction in which Finland must head in the future.
The process towards partial licensing system has begun
On January 5, 2023 the Ministry of the Interior initiated a study on the alternatives for the gambling monopoly system. The project was set a deadline of 15 April, so that the results would be available for the governmental negotiations that follow the parliamentary elections of April 2, 2023. It is worth noting that initiation of the study directly contradicted the government program in place at the time, according to which the corner stone of Finnish gambling policy is strengthening the monopoly regime. It was also a historical study, as never before had Finland previously felt the need to consider alternatives to the monopoly system.
The NCP won the parliamentary elections of April 2, 2023, gaining 48 MPs out of 200, which means they will be the ones to initiate the governmental negotiations with the other parties to find a coalition to form a majority government. If and when they are successful, they will also get the prime minister’s seat. With the NCP in charge, the likelihood of Finland creating a balanced licensing system that is not overly strict and allows business to flourish, is the greatest. They are also the ones who are pushing for the fastest change.
After the new government has been formed and the government program drafted, the real work begins. Another more in-depth study is likely to be initiated during the next fall on the particular features of the licensing system. The draft government proposal, hearing phase, and European Commission standstill period will follow soon after. Then the actual government proposal will be drafted, and it will go through several stages in parliament before entering into force. As Veikkaus is pushing for a fast change and there is already widespread political agreement on the necessity of implementing a partial licensing system, it is expected that the process will be fast-tracked. Realistically, Finland could have a licensing system in place as early as the beginning of 2025. Whether or not that timeframe is achieved, it would be surprising if it were delayed beyond 2026.
What could the upcoming licensing system look like?
The process towards the partial licensing system is still in the early stages, and the findings of the official study are unpublished at the time of writing, but the discussion in the background has been lively since last fall. The following includes speculation based on the author’s knowledge and understanding of the situation.
The partial licensing system will only include digital casino games and fixed-odds betting, while lottery games, scratch cards, physical casinos, and slot machines will remain under the monopoly system. When it comes to betting pool games, horse racing betting, and certain other game types, for example, fast-paced lottery-type of products, it is not yet clear whether they will be included in the partial licensing system or if they will remain within the monopoly. The number of licenses will not be limited, and all companies meeting the license conditions will receive a license.
It is clear that Finland will not copy-paste a model from another jurisdiction. That being said, the licensing systems of the other Nordic countries, namely Sweden and Denmark, will be the ones examined most closely. Features from other jurisdictions will be also considered, for example, The Netherlands, Ontario, and Estonia have been mentioned in the discussions, but in general, their significance is not going to be as big. Several rules included in the current gambling legislation are expected to be carried over to the new licensing system, e.g., compulsory identification on all gambling and an age limit of 18 years.
The license price range can be expected to be similar to Sweden and Denmark, adding the price range on the area of EUR50,000 – EUR75,000. When it comes to gambling tax, it is likely that tax will be based on GGR, and it will be set somewhere between Sweden and Denmark, approximately in the area of 23 percent.
A centralized blocking system for problem players will likely be included and the Swedish SpelPaus will be used as a model. Marketing restrictions will be included, but the scope is unclear. The responsible gambling perspective and the necessity for marketing restrictions have been present in most discussions, but on the other hand, the regulator will be aiming for a high channelization rate which is not possible to achieve with an overly strict licensing system.
A Netherlands-style cooling off period has been discussed but is unlikely to be included as such. As a quick change is the most likely, there will simply not be time for long cooling off periods. On the other hand, if a cooling off period is included, it would likely be tied with the enforcement authority’s, the National Police Board’s (“NPB”) official views on illegal activities, practically speaking on their prohibition orders. Thus, if included, the cooling off period would hardly be as extensive as in the Netherlands.
Simultaneously introducing a B2B licensing system in parallel with a B2C regime has also been discussed. From the legislator’s perspective, this is seen as another safety layer and a way to better control the entire system.
Finland is expected to fast-track the shift from a gambling monopoly to a partial licensing system within the next 2-3 years. The features of the new system are yet to be decided, with key interest groups actively lobbying in the background. It is likely that Finland will closely examine the licensing models of Sweden and Denmark, while also considering features from other jurisdictions. The creation of “the world’s best blue and white gambling licensing system” will not be without challenges, as the main objectives are to achieve a high channelization rate and increase state revenue significantly while also prioritizing responsible gambling features and preventing gambling-related harm.