Olli Sarekoski, Chief Executive Officer, Veikkaus, Finland
How will the world be different when we come out of this crisis - and how will the lottery industry, retailing, consumer shopping and recreational behavior be different?
Olli Sarekoski: First of all, it is great that you used word "when" instead of "if"! It is vital to stay positive and believe that we will come out of this crisis with solid strategies for building a prosperous and sustainable future for the lottery, though it is hard to predict what will happen and what that future will look like. Some experts say that many things will be totally and permanently changed after the crisis. There are others who predict that quite rapidly we will try to live our lives as we were living earlier this year. A global pandemic is not something that we have experienced before so we are in uncharted territory.
When coronavirus forced us to maintain social distancing with everyone more or less forced to stay home with bars and restaurants closed, there are challenges related to even supply the lottery product. But the much bigger issue may well be the shock to demand. People will likely continue to be cautious about their spending and that has significant influence on consumer shopping and recreational behavior of all kinds, including gaming. I do personally also believe that digital gaming in general will take significant steps forward and that will also be the case with lottery games.
What should we be doing to position lottery operators for success in the post-coronavirus world?
Staying aligned with operational basics were fundamental pre-corona and that will not change in the post-corona world: the game portfolio needs to be interesting and include competitive features; you need to sustain the trust factor; players need to enjoy a seamless experience across all channels and game categories. Lottery operators also need to have versatile Responsible Gaming solutions, and effectively communicate them so they have the intended impact on the players. I also believe that good causes might be even more appreciated by our stakeholders, by the good causes that lottery supports, and by the general public, than before coronavirus. Our government and society will be facing some serious economic issues as we work to rebuild society’s basic economic activities. The funds generated by government lotteries will be more needed now and going forward than ever before.
Lottery has performed better than other sectors in past economic recessions. How severely will the economic repercussions of coronavirus impact Lottery?
Remains to be seen. You are right, traditionally Lotteries have been described and regarded by some as almost recession-proof. This time Lotteries, which have been able to digitalize their core business, are at least way better positioned compared to operators like casinos which lean on almost purely land-based POS.
I am not certain whether zero impact to Lotteries should necessarily be our goal. Fulfilling our mission to serve society is the positive outcome we want. For instance, coronavirus and economic disruption may cause some people to think of Lottery as a potential solution to their financial problems. We may need to escalate our dedication to Responsible Gaming to ensure we do not generate increases in sales and profits among those vulnerable players.
The overall performance analytics predict that global gambling revenues in 2020 will drop fiercely, maybe by as much as $50 billion USD, ending up to match 2015 figures. It is hard to believe that the Lottery world would be totally safe during this global pandemic and its aftermath when the broader games-of-chance industry faces double-digit decreases.
Necessity being the mother of invention, a residual impact of crises is that they tend to unlock more willingness to innovate, maybe improvements in process and operations - will that be the case now? What opportunities will emerge in the post-coronavirus world?
Ways of consumption might change. It might be the case that coronavirus impedes the forward march of economic globalization and eventually paves the way for more dependence on local sources instead of international. The virtual world of the internet is certainly more conducive to social distancing. Maybe the new normal of social behavior will be even more focused on digital platforms, iLottery, and iGaming in general. Like I said earlier, we might also face a shock to demand and who knows what happens after that. It is clear that now more than ever, Lotteries need to be more and more agile, more innovative, more willing to change and adapt to a world undergoing profound disruption.
How might we reinforce the symbiotic relationship that Lottery has always had with its retail partners?
Lottery needs to be a fair partner, encouraging open communication between Lottery and retail partners and modernizing so that large portions of those innovations are co-created with our retail partners. The POS business will continue to be truly the most important channel to every single Lottery enterprise – that relationship needs to be nourished on a daily basis!
Please describe some of the disruptive impacts that illegal (or "gray market") operators have had on the Finland market over the last two years and how that might change as a result of this crisis.
Offshore operators annually generate more than 300 million € GGR here in Finland. Within a few years it will reach annually 400 million € GGR. Veikkaus overall market share in 2019 was estimated to be 85%. Outside Veikkaus, in Finland it is the “Wild West” with inadequate regulation.
Veikkaus market share of internet gaming is lower – more like 63%. And even lower in casino and sports betting – around 50%. Of course, commercial operators will always push harder to gain more revenues and market share. I think the evidence shows that their real target is to change the system to create a regulatory environment even more favorable to their business model.
What can we expect on the regulatory front, and what might we do to defend the interests of government lottery stakeholders?
The focus of government regulators is to regulate whomever they are legally empowered to regulate. In Finland, that is Veikkaus. Clearly coronavirus has influenced regulatory bodies globally, as more and more restrictions on all forms of gambling have been set, especially on land-based POS because of the need for social distancing. So far, the restrictions that have been made or proposed are framed as being temporary. It is hard to tell how these temporary changes may end up affecting the regulatory structures on a more permanent basis.
Can you speak to the specific situation in Finland where I would think more support from the government over against illegals would be the right thing to do?
Veikkaus has stated that one condition that is crucial to the goal of continuing to generate funds for good causes is to maintain exclusive rights to offer money games here in Finland. For that exclusivity to continue, there needs to be effective enforcement of the laws and effective measures to block against offshore operators who do not pay taxes, or at least not their fair share of taxes, and do not apply the same measures to protect the players and discourage problem gambling. Additional to that, efforts to tackle illegal marketing, executed by offshore companies, should be on the regulators to-do-list. The crucial thing to understand is that Veikkaus needs to be regulated so that portfolio and services are strong and competitive, and that the players have a safe and secure gaming environment with tools to enable them to control their playing and have a healthy and fun playing experience. That can only be achieved with the preservation of a system that eliminates, or at least minimizes, illegal and unlicensed online gambling operators from disrupting the Finland consumer market-place.
Ideally, we will evolve a stronger international cooperation that requires all operators to respect the laws of each and every jurisdiction they operate in. Why should an operator be granted a license to operate legally in one country when they are operating illegally, which is to say without full and proper license, in another country? If all countries required, as a condition for getting a license to operate, that the applicant have a record of respecting the laws of all countries everywhere, I think that would be incentive for most operators to comply with the laws everywhere. I would add that I believe there would be lots of benefits to pursuing more international cooperation and mutual support to preserve stability and the rule of law. We don’t want “harmonization” wherein a supra-national body like the European Union or WTO to have power over individual nation-states to decide the regulatory framework that is best for them. But I believe everyone would be better served if we had a stronger international cooperation. And maybe a crisis like this will change our perspectives to enable that to happen.
And to be clear, it’s not about protecting Veikkaus. It is about protecting society and players. It is about preserving the rule of law that is in place to optimize service to society and protection for players. That is the purpose of an effective and enforceable regulatory structure. Let’s hope the Lottery model that has done so much good for society is allowed to continue.
What are some of the new challenges and obstacles that we will need to adjust to?
Uncertainty, fake news, populism and the danger that public sentiment becomes so divided and antagonistic that it creates civil unrest. As Winston Churchill said, democracy is the worst form of government – except for all the others which have been tried and failed miserably! These are troubling times and represent new kinds of challenges for us to figure out how to work together as a society to ensure a healthy and peaceful future for our children. Perhaps we are already seeing one positive thing come out of the pandemic crisis: people have time to reflect, to rethink, to cherish and help elders and to be with their families.