Lottery and land-based decline hits Svenska Spel Q1 revenue

25 April 2019

Swedish gaming operator Svenska Spel has reported a 5.9% decline in net gaming revenue for the first quarter of 2019, with growth in the new Sport & Casino igaming division offset by struggles in its lottery and land-based gaming units.

Total revenue for the three months ended March 31, 2019 amounted to SEK2.1bn (£170.6m/€197.4m/$219.6m), of which SEK544m came from Svenska Spel Sport & Casino. The operator said the launch of the new online casino and horse race betting products on January 1 had been “well received”. Sports betting products including Stryktipset and Europatipset had grown during the period, it added, offsetting revenue declines for other, existing products.

The lottery business, meanwhile, saw revenue fall 5.8% to SEK1.1bn. High Eurojackpot prize pots provided an SEK12m boost to the division’s revenue, though this was mitigated by the weaker performances of other lottery games.

The land-based Casino Cosmopol & Vegas division saw revenue fall 16.6% to SEK416m, due in part to tighter social responsibility controls. Revenue from the Vegas-branded gaming machines was down SEK48m, following the introduction of an enhanced login process and the shift to only accepting cash payments.

Revenue for slots and table games at Casino Cosmopol was also down, falling SEK35m, with visitor numbers falling 11% year-on-year in the first quarter. Svenska Spel noted that the opening of the Swedish igaming market would further increase pressure on its land-based business.

“We are satisfied with the results under the operating conditions,” Svenska Spel chief executive Patrik Hofbauer (pictured) said. “The transition to a new gaming market has entailed a major transition of Svenska Spel, with the group having to adapt to the new gaming regulations and competition laws.

“As a result, among other things, the Sports & Casino business area had to build up a new customer database, completely separated from the rest of the group,” he said.

Swedish re-regulation, and the accompanying expansion of Svenska Spel’s igaming offering, has seen the online channel grow in prominence, accounting for SEK736m, up 13.6% year-on-year, and accounting for 36% of total net gaming revenue. Of this, mobile accounts for 25%, following a 21% increase in Q1 revenue.

Retail, on the other hand, saw revenue fall 12.9% to SEK879m, with revenue from gaming machines in restaurants and bingo halls down 20.8% to SEK183m. Land-based casino sales amounted to SEK233m (down 13.1%), while revenue from other channels fell 9.7% to SEK28m.

The introduction of the new regulatory regime contributed to a steep increase in costs, with Svenska Spel paying SEK401m in gaming taxes in Q1, though costs related to the gaming business declined to SEK302m. Personnel costs grew to SEK299m, with other expenses amounting to SEK529m, and SEK81m was lost on depreciations and asset write-downs.

This left an operating profit for the period of SEK519m, down 54.6% year-on-year. Once finance related expenses and taxes of SEK109m were paid, Svenska Spel’s post-tax profit for the quarter fell 64.3% to SEK408m.

“We are finally up and running with the new Svenska Spel in a re-regulated gaming market,” Hofbauer said.  During the first quarter, we showed that [our position] as Sweden’s gaming company is stable.

“Lookign ahead, our focus is to further enhance our products and services to offer our customers even better experiences, but still caring about our customers.”

Analysts at Regulus Partners said the results were likely to have been skewed in part by high spend on bonus offers in the early stages of the Swedish market, but also showed the strength of Svenska Spel’s position in the market.

“There has been a tendency among some (especially online) operators and commentators to see Svenska Spel’s position in terms of overall revenue decline and see the group as a sleepy land-based led monopoly ill equipped for digital competition,” Regulus said.

“However, the greater domestic visibility of the Swedish market is revealing a the real underlying position much more clearly: Svenska Spel is a highly capable digital operator with comfortable number one market share in an aggressively competitive market,” it explained.

“Moreover, as the group gets better at online casino (a completely new product) and sign-up bonus distortion normalises (likely by H2), we expect the former monopoly’s market share to grow at the expense of its former competitors.”