Enter the Commercial Straitjacket

17 April 2008

The appointment of Margareta Winberg, a former deputy prime minister of Sweden, as the new chairperson Svenska Spel is the latest intriguing development in the saga of Sweden’s gambling monopoly. But what, if anything, can be interpreted from Ms. Winberg’s appointment with regard to the long-term prospects of the monopoly and the wider context of European Commission proceedings and continued financial prosperity for Svenska Spel?

Ola Wiklund, a partner with Sweden-based law firm Wistrand, described the appointment of Ms. Winberg as a "clever move" on the part of the country's coalition government, the Alliance for Sweden. In an interview with Interactive Gaming News, he explained that the announcement "has political implications first and foremost."

But to understand the political implications, it is necessary to view them within the bigger picture of Swedish politics.

The Alliance is the ruling coalition, having taken power from the Social Democratic Party in the election of September 2006. By appointing a prominent Social Democratic politician to chair Svenska Spel, the Alliance is trying to prevent the scenario whereby the Social Democrats can attack it for not acting forcefully enough on social responsibility and public health in the run-up to the 2010 general election. It will be more difficult for the Social Democrats, therefore, to level this criticism if the state gambling monopoly is being headed up by one of their own party.

In light of Ms. Winberg’s appointment and the issue of social responsibility in domestic politics, Mr. Wiklund believes that Svenska Spel, commercially, will "have to put on [a] straitjacket in the years before the next election." The company could be forced to limit its plans for operational expansion and will have to be less aggressive in its marketing activity.

The result of the 2010 election could be crucial in determining the fate of the Swedish gambling monopoly, quite apart from any action taken by the European Commission. The Alliance coalition, meanwhile, has embarked on a strategy of privatizing some state-owned companies.

In March, the Swedish government sold Vin & Spirit AB, the state-owned company behind Absolut vodka, to Pernod Ricard, a France-based spirits company, for $8.4 billion. This deal marks the latest stage in a long-term plan to privatize a number of state-owned companies in industries such as banking and telecommunications. If the Alliance coalition retains power for a second term, then Svenska Spel, too, could be sold off.

Quite where these developments leave Svenska Spel’s Chief Executive Jesper Kärrbrink is uncertain. Does he have the inclination or experience to continue playing the political game, the intensity of which will surely increase with Ms. Winberg’s appointment as the new chairperson?

Also, if Mr. Wiklund is correct in his prediction that Svenska Spel will be restricted in its commercial activities for the next couple of years, will Mr. Kärrbrink still feel there is enough of a challenge for him to want to stay on as chief executive?

One piece of good news for Mr. Kärrbrink came in a report recently published by the Swedish government, which proposed that Svenska Spel’s I-poker player pool be allowed to form a larger network with those of other state-run operators. Thus far, Svenska Spel’s online poker product has proved very popular with Swedish players and has quickly built up a good share of the market at the expense of operators like Unibet.

By pooling players, the various state-run poker rooms would be able to increase liquidity and offer more valuable tournaments. One obvious partner for Svenska Spel to team up with would be Austria’s state-controlled poker room, Win2Day.at, which launched in February 2008 and uses the same Boss Media software as Svenska Spel.

At the moment, however, the initial proposal raises several interesting questions:

Would a closed network of state-run operators (Sweden, Norway, France, Germany and Austria, for example) -- be it either for poker or sports betting -- satisfy the European Commission’s concerns on competition issues and cross-border services?

For Sweden specifically, if a network of various government partners was created and then Svenska Spel was privatized shortly after 2010, presumably it would have to leave the network because the initial intention of the network would be lost.

How does this potential expansion of the poker product outside of Sweden square with the Alliance coalition's apparent aim of trying to keep gambling off the domestic political agenda?

Predicting the fate of the state gambling monopoly in Sweden becomes ever more complicated. From some angles the Swedish monopoly seems certain to crumble under the weight of sustained pressure from the European Commission. The policy of the current government to privatize state-owned companies also seems favorable to the European gambling industry. And yet, proposals for networks of state-run operators suggest that the monopoly might thrive for several years to come.

Lorien is a research analyst with Global Betting and Gaming Consultants, and currently resides on the Isle of Man. Prior to this, he spent three years at a leading United Kingdom gambling firm, providing regulatory and market research for its various international e-gaming ventures.