Nordic gambling companies are profitable, but at a cost

Gambling

Published 31 Mar 2021

Nordic gambling companies raise significant amounts of money for their host societies. However, these high revenues are mainly achieved by high total consumption in gambling. This entails individual, social, and societal harms. The economic efficiency of gambling operation is therefore not the same as effectiveness in terms of promoting public health or societal well-being.

Our recent article ‘On the efficiency of Nordic state-controlled monopolies’ published in Nordic Studies on Alcohol and Drugs assesses the ways six Nordic gambling companies (Veikkaus, Svenska Spel, ATG, Norsk Tipping, Norsk Rikstoto and Danske Spil) raise money for their host societies. Gambling raises important income for governments in each Nordic country, but the Finnish Veikkaus appears to raise the highest amounts both in relative and in absolute numbers.

In our analysis, we use income statements of the six Nordic gambling operators from 2017. We calculate how much they contribute to societies, how the companies compare to each other, and analyse where the differences come from. The amounts of public revenue that are raised by gambling operation vary depending on the total volume of gambling, market shares of companies, and operating costs. The impact of institutional differences, such as taxation levels, is not very important within the Nordics given that the societies in question are similar to each other.

Electronic gambling machines produce high revenue

The total volume of gambling is heavily related to the kind of game products that operators have on offer. Electronic gambling machines in particular appear to produce high revenue. Finland in particular has a comparatively dense network of electronic gambling machines and high participation rate in this type of gambling, as the machines are located in food stores, cafes, and other public places, unlike in other European countries.

The operators with the highest total revenue also have the highest total costs, but costs do not grow as fast as the revenue that companies produce. This also explains why the largest Nordic companies (Veikkaus and Norsk Tipping) appear to be more cost-efficient. The selection of game products is another important reason. For example, casinos require more personnel and workforce than operation of lotteries.

A final reason to explain why some companies produce more revenue may be how the gambling system is organised in each country. Finland and Norway operate full state-owned monopolies on gambling. Sweden and Denmark have opened important parts of their gambling markets to licensed competition. Licensing means more market competition, and possibly more costs in relation to, for example, regulation but also smaller market shares for government-owned monopolies.

Discussion about economic efficiency is problematic

The public revenue raised with gambling operations creates also with a cost in each Nordic country. Gambling causes harms to individuals, families, and communities (Sulkunen et al., 2021). Some of these harms can directly be translated into costs (e.g., treatment costs), others are more intangible (e.g., increased absenteeism from work, problems in personal relationships, etc.). For this reason, discussing economic efficiency of gambling operation is also problematic: many of the downsides of this source of money are not as easily to calculate. It is also difficult to pinpoint how much additional revenue gambling would create in comparison to other economic activity.

Even though the understanding of the harms caused by gambling has increased, gambling remains to be used as a revenue source. Gambling companies provide governments much needed revenue in times when the burden of taxation has shifted from corporations to income taxes (Nikkinen et al., 2018).

Based on our analysis, it is nevertheless questionable whether the Nordic ideals of equal and fair society are advanced through gambling, even if the proceeds would be allocated to ‘good causes’. The involvement of states in operating gambling in the Nordics is justified by reducing harms, particularly in the case of monopolistic systems (Nikkinen, 2019).

Nordic monopolies not particularly effective on diminishing the harms

Available evidence nevertheless shows that the Nordic monopolies are not particularly effective in diminishing the harms from gambling (Egerer et al. (eds.) 2018). As referred earlier, Sweden and Denmark have (in 2019 and 2012, respectively) opened their markets into licensing, with so far little impact on existing problem gambling levels.

We have suggested earlier that governments view the ‘public good’ in relation to gambling as fiscal good (Nikkinen & Marionneau, 2014). The results of this study also support this idea. Collecting revenue should not be the priority over a commitment to protecting public health. Research is needed also into the cost at what financial gain is achieved.

 

Janne Nikkinen
University Researcher, Center for Research on Addiction, Control and Governance (CEACG), University of Helsinki

Virve Marionneau
Postdoctoral researcher, Centre for Research on Addiction, Control and Governance (CEACG), University of Helsinki

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