bettingmarket

The newly regulated Swedish betting market opened for business on the 1st January 2019. The Swedish state retains control over land-based casinos, the big lotteries and gaming machines positioned outside casinos, but the online sports betting market, online casinos, online bingo and other digital products such as virtual sports are open for those concerns that can qualify for a licence. Licenses, which will cost between 400 000 – 700 000 SEK will be valid for a maximum of five years, and licensed operators will pay 18% tax on their gaming revenue.

Announcing 2019 1st Qtr results Betsson, one of the leading scandic betting market concerns said that that both revenue and operating profit had been negatively impacted by the new betting regulations. The company reported that taxed revenue had increased by 36 percent compared to the first quarter of 2018 and amounted to SEK 422.2 (310.0) million, corresponding to 31.7 (25.6) per cent of Group revenue. The increase was mainly due to revenue from Sweden. Betsson said:"The gaming industry is changing and Betsson’s assessment is that larger revenues from regulated markets will have an impact on operating profit as betting duties increase."

Kindred Group, another scandic betting market concern subsequently also announced that profits for the first quarter of 2019 had been significantly impacted by its new local licence in the regulated Swedish betting market. Kindred Group said at the time: "Other significant items affecting the quarter was the Swedish betting duties paid of GBP 5.2 million but also marketing investments increasing with GBP 3.8 million. This has significantly influenced the Gross winnings revenue in the quarter but also EBITDA. The total effect on Group EBITDA from the Swedish market opening in the first quarter was a reduction of GBP 18.9 million compared to the first quarter last year."

In July 2019 Betsson published their interim report for the period 1 January- 30June 2019 and it was clear that the company was still feeling the impact of having to compete in the newly regulated Swedish betting market. For the quarter APRIL –JUNE 2019 group revenue was SEK 1,277.7 million, a decrease of 5 percent. Casino revenue declined by 10 percent and Sportsbook revenue grew by 14 percent, with a sportsbook margin of 7.8 (6.3) percent. Operating income (EBIT) was SEK 196.9 (300.7) million, equivalent to an EBIT margin of 15.4 (22.3) percent. PERIOD JANUARY – JUNE 2019: Operating income (EBIT) was SEK 452.1 (512.1) million, a decrease of 12 percent. Shares in Betsson are getting hammered in response to the results - down 8.2% in early trading. Revenue from the Nordics was SEK 519.3 (621.9) million, a decrease of 17 percent, with 18 percent organic decrease. Revenue from Western Europe amounted to SEK 392.2 (443.5) million, a decrease of 12 percent, with 14 percent organic decrease. Revenue from Central & Eastern Europe and Central Asia (CEECA) amounted to SEK 284.2(214.4) million, an increase of 33 percent. Locally taxed revenue (revenue from markets where Betsson pays local betting duties)increased by 42 percent compared to the second quarter last year and amounted to SEK 457.4 (323.2) million, corresponding to 35.8 (24.0) percent of Group revenue. The increase was mainly due to revenue from Sweden and Italy.

On 24 July 2019 shares in Scandic Betting Market facing Kindred Group were hammered (see below) on the back of the release of the company's interim report for the period January – June 2019. The company reported that Gross winnings revenue amounted to GBP 226.2 (219.0) million for the second quarter of 2019, an increase of 3 per cent, and GBP 450.6 (426.8) million for the first half of 2019. Underlying EBITDA for the second quarter of 2019 was GBP 30.5 (41.7) million, and GBP 61.1 (89.2) million for the first half of 2019. Profit before tax for the second quarter of 2019 amounted to GBP 14.7 (28.9) million, and GBP 32.4 (62.5) million for the first half of 2019. Profit after tax for the second quarter of 2019 amounted to GBP 12.5 (25.5) million, and GBP 27.6 (55.4) million for the first half of 2019. Earnings per share for the second quarter of 2019 were GBP 0.055 (0.112) and GBP 0.122 (0.244) for the first half of 2019. Number of active customers during the second quarter was 1,478,437 (1,550,508). Kindred Group said: "As we have highlighted for a long time and as we saw in the first quarter of 2019, the new licensing regulation in Sweden has resulted in significant short-term margin pressure driven by higher betting duties but also higher marketing as we are investing for the longer term. Total marketing for the Group, as a percentage of Gross winnings revenue, came in at 29 per cent and was at its highest level since 2013." For the period 1 July to 22 July 2019, the daily average Gross winnings revenue in GBP was 7 per cent lower (8 per cent in constant currency) than the average daily Gross winnings revenue for the full third quarter last year.

As we have continually pointed out - the curse of regulated betting markets - increased competition, higher marketing costs, increased taxation, lower margins, and lower profitability generally on the back of intense competition. Be careful what you wish for; you just might get it.

In the table below we perform a comparative analysis of the share prices of both Betsson and Kindred group, at the date of the opening of the newly regulated Swedish betting market and in the wake of the announcement of their respective iterim reports for the period January – June 2019.