Customer loss limits hit revenue at Paf in 2018

17 May 2019

Åland Islands-based operator Paf has cited the introduction of mandatory customer loss limits for its online gaming services as the main reason behind a year-on-year decline in revenue and profit for 2018.

Group revenue for the 12 months to December 31, 2018 amounted to €111.8m (£97.8m/$125.0m), down from €116.5m in the previous year.

The operator said that this was primarily due to lower revenue from its online business, which fell from €84.5m to €80.0m as a result of the new restrictions limits, which came into effect from September of last year.

Introduced voluntarily by Paf, this limits how much online players can lose over a 12-month period. Paf acknowledged that this was always going to have a negative impact on revenue, but has been implemented “to offer a more responsible and socially acceptable gaming product”.

Revenue from the operator’s land and ships arm, which has not been impacted by the new spending limits, remained flat at €31.8m, compared to €31.9m last year.

Paf was able to offset some of this revenue decline by cutting back on spending in 2018, with total costs dropping from €32.9m in 2017 to €28.5m. As a result of lower revenue, direct costs for the internet business fell by around €1.2m.

Additional savings of €1.3m were made by streamlining and decreased use of external services, while a Supreme Administrative Court decision in February of this year ruled that Paf does not need to pay converted VAT on its purchases from partners. This decision resulted in €1.8m of cost saving for the year.

Staff costs grew marginally from €25.6m to €26.0m, while depreciation and amortisation expenses remained level at €5.8m for the year. Other operating costs grew from €25.5m to €28.1m.

However, despite efforts to make savings across the business, Paf was not able to prevent operating profit falling from €27.6m to €24.7m. Net profit also slipped from €29.4m to €24.6m, with profit before tax down from €29.6m to €25.0m.

Reflecting on the results, CEO Christer Fahlstedt (pictured) said that despite the decline in revenue and profit, he was proud of the operator for taking steps to improve its commitment to responsible gambling.

“During 2018, Paf took a step that was unique in the industry and introduced undoubtedly the strictest rules for responsible gaming imposed within the competitive section of the market,” he said.

“In particular, our unique limit for the maximum yearly loss, which we started rolling out in September 2018, has set a new level for measures that can actually demonstrate concrete results.

“An effect that inevitably involves lower earnings from players who cannot or should not play for such large amounts as they’d like to.”

Earlier this year, Paf took the unusual step of publishing detailed figures about its gambling surpluses per customer group over the past two years, urging its rivals to follow suit in order to open a “genuine debate” about problem gambling.

Fahlstedt also highlighted how Paf was able to increase in total customer base by 24% in the last year, describing these new players as high quality. He said that despite imposing the industry’s strictest requirements upon customers, growth in its user base is positive new for the operator.

“Paf is uniquely prepared to be a long-term sustainable player in serious, regulated European markets,” he said. There is a non-reversible trend towards greater transparency, increased focus on responsible gaming and ethically defensible business.

“When legislation and regulations catch up with Paf, we will be very well positioned, and will be so in an industry with a completely different reputation and pride than is unfortunately the case today.

“Paf’s challenge is to continually improve our- selves so that we can compete pro tably despite our self-imposed limits. All this while actively and enthusiastically campaigning for stricter regulation – an inspiring challenge.”

However, despite this commitment to responsible gambling, the operator’s Paf Consulting subsidiary was fined SEK100,000 by Swedish gambling regulator Spelinspektionen in March for failing to adhere to strict rules regarding a self-exclusion scheme in the country.

A number of other operators have also fallen foul of this licence requirement, with the regulator having issued a number of warnings and fines.