Report warns against changes to Norwegian regulatory model

16 August 2019

A new study into the potential risks and rewards that would arise from Norway’s current gambling monopoly being replaced by a regime allowing offshore operators into the market has concluded that such a move could see problem gambling rise.

The report also warned previous studies claiming a more liberal regulatory model would lead to increased tax revenue may be inaccurate, and that the social contribution from regulated gambling could decline by more than NOK1.3bn (£118.7m/€129.9m/$144.0m) by 2023.

It was compiled by Olso Economics on behalf of the Norwegian Sports Federation and ExtraStiftelsen Health and Rehabilitation, a body responsible for managing a percentage of state owned operator Norsk Tipping’s profits.

Currently Norway only has two state-owned bodies permitted to offer and advertise gambling products in the market. Norsk Tipping can offer draw-based and casino games, while Norsk Rikstoto offers totalisator games. Together these bodies raise money for socially beneficial purposes, including humanitarian work, sports, healthcare, research and cultural initiatives, generating NOK5.5bn in 2018.

Net sales for the regulated market in 2017 - turnover minus profits - amounted to NOK10.5bn. However, a number of offshore, unlicensed operators target Norwegian players, and the country’s gambling regulator estimates that turnover for these companies amounted to NOK2bn for the same year.

Surveys on potential changes to the regulatory framework have offered conflicting views on whether this would benefit, or harm, players and the wider market.

One, by management consultancy Rambøll, suggested there would be no major change to state revenue whether the existing model remains in place, or if it is replaced by a licensing model. A second, by Menon Economics, suggested that a licensing model would significantly increase government revenue.

The Oslo Economics survey, on the other hand, found that these contained a number of assumptions that could not be relied upon. For example, it said, it could not be said for certain the size of the offshore market, meaning it was impossible to give a concrete estimate on potential tax revenue.

Furthermore, by opening up the market, there was a strong likelihood that Norsk Tipping revenue would be reduced by players migrating to newly licensed entrants, resulting in its social contribution declining. This would also require the operator to spend more on marketing, further eating into revenue for social causes.

The migration to non-lottery products could increase in problem gambling, as players shifted away from low-risk lottery games to casino products, with a higher risk of gambling harm.

Indeed, it added, there was no guarantee that a licensing model would be effective in channelling offshore operators into the legal market. A high tax rate, of at least 20%, would be unattractive, and if the restrictive operating conditions currently imposed on Norsk Tipping were maintained to protect players, there was no guarantee that a licence would lead to increased revenue.

Menon Economics’ claim that maintaining the status quo would see the state-owned entities lose market share to offshore competitors was also disputed.

“As we see it, the opposite is more likely to be the case,” Oslo Economics said. “The government's efforts to make money transfers between the unregulated operators and Norwegians appear to be becoming increasingly effective, and the government is now considering measures that can block players' opportunities for TV advertising through foreign TV channels.”

In conclusion, Oslo Economics said that if the current monopoly system is to be replaced by a licensing regime, it must be shown that this would be a low-risk move.

“As we see it, this is by no means fulfilled today,” it said. “On the contrary, it seems that a licensing model will carry a significant risk of increased problem gambling and reduced contributions to support the work of voluntary and non-profit organisations.

“It is difficult to see why Norwegian society would want to accept such a risk, when today's exclusive right model works well.”

The report is the second published by Oslo Economics on the Norwegian gambling market this week. It follows another, conducted on behalf of the country's government, examining the impact of closing a loophole that allows offshore operators to advertise on Norwegian television broadcast from outside the country. This, it said, could see broadcasters' revenue fall by up to NOK500m per year.