January 19, 2023 | Jon Hautamäki
From monopoly to a license model - the Finnish gambling system in historical transition
Throughout the fall 2022 there has been an on-going discussion concerning the partial opening of the Finnish gambling monopoly, which currently is completely operated by the state-owned Veikkaus Oy (hereinafter "Veikkaus"). A groundbreaking opening for the discussion on changing the long-term practice was the interim report published by Veikkaus in September 2022, in which Veikkaus itself proposes to bring all the operators of the gambling industry under the same regulation. In practice, this would mean moving to the so-called license model. Practically every political party of Finland’s parliament has since expressed support for the license model and the authorities' work on the subject has also begun.
As the topic is now more relevant than in a long time, in this article we will discuss the structure of Finland's current gambling system. We focus on the European Union’s (hereinafter "EU") view on gambling legislation, the current restrictions of the Finnish gambling system, and finally we briefly state what would probably be expected from the license model that may finally be implemented in Finland.
Regulation of gambling in the EU
Gambling legislation has not been harmonized in the EU. This means that, in principle, each member state can decide for itself how gambling activities are regulated. However, it should be noted that the free movement of companies, people, capital and goods prevails in the EU. These so-called basic freedoms are supported also by EU competition legislation, which aims to increase competition between companies. The EU has left the possibility for its member states to deviate from basic freedoms if they consider that there is a compelling reason to deviate based on the so called ordre public. Gambling has traditionally been an industry that has been restricted in the name of ordre public.
EU has set a framework in which situation restrictions to the basic freedoms are allowed. For example, in the so-called Gambelli -case, the EU intervened to Italian legislation which, under criminal penalties, prohibited foreign bookmakers from operating in Italy citing ordre public, while allowing Italian operators to increase the national betting offers. The requirements for consistency of the measures, non-discrimination and proportionality of the measures used have become central.
With the increase in online gambling, many EU countries have transitioned to the license model. In a license model, the license holder is allowed to carry out the gambling operations included in the license, although typically not all forms of gambling can be carried out freely. For a gambling operator interested to acquire a license, there are many and varied conditions set in the EU member states. These conditions may concern, for example, the experience of the company's management, the company's solvency, or the location of the company's servers. In addition, almost all member states strictly regulate gambling advertising and have developed their own tax category for gambling winnings.
The current situation of gambling legislation in Finland
Traditionally, all gambling games in Finland have been categorically grouped under the Veikkaus monopoly and are regulated by the Lotteries Act (1047/2001). The Lotteries Act states the any activity in which participation is paid for and where the participant can win money in whole or in part based by a chance is part of a lottery and is therefore it must be organized by Veikkaus. The interpretation of lotteries has been broad and led to surprising situations (for example, a so-called fantasy league built around the Finnish national hockey league was also determined by the Supreme Administrative Court as a lottery).
The Lotteries Act distinguishes between lotteries where you can win money, and so-called other lotteries. All the different types of gambling in Finland, i.e. traditional lotteries, betting, slots and casino games, as well as online versions of all these games are seen as lotteries. Veikkaus currently has the exclusive right to organize lotteries (all forms of gambling) in Finland. However, at the moment playing on foreign gambling websites is not criminalized in Finland.
Finland is one of the few EU countries that has decided that monopoly is the best way to prevent harm caused by gambling. Since monopoly is a highly restrictive measure, it should meet the requirements of consistency and proportionality of the measures used. Due to the increase in online gambling, the question has arisen whether the monopoly system works at all, and because of this, Finland has had to reconsider its position.
What kind of license models are there in other EU member states?
One example of the current developments of gambling legislation in the EU is Sweden. In Sweden, a license model has been implemented only for online gambling, which includes casino games and betting. The possibility of physical gaming in Sweden is still reserved for the monopoly. In addition, the license applicant is obliged to take preventive measures against problems arising from gambling and the license must be renewed at least every five years.
Another example is Estonia. Estonia has opened its gambling markets widely and in practice only the lottery is reserved for the national gambling company. An operator aspiring to establish gambling operations in Estonia must separately acquire its own so-called Activity License and, in addition, for gambling that takes place physically in Estonia, a so-called Operating License. The license fees vary depending on the provided type of gambling and the license's validity period.
How could Finland's new gambling legislation look like?
According to our view, it can be assumed that the gambling system in Finland will in the near future be based on the license model. Since the political and regulatory discussion has just started and the ultimate decision is going to include also political decisions, it is impossible to exactly determine how the Finnish license model is going to be structured. However, by knowing the license models of other EU countries and especially observing Finland's traditional comparison countries, it is possible to predict what Finnish gambling legislation could look like in the future.
It is almost certain that Finland will collect license fees from companies entering the market. The amount of the license fee will be affected by whether other taxes are collected in addition to the lottery tax. It can be also assumed that not all gambling operations will be opened immediately, and therefore the licensing model will likely contain different licenses depending on the gambling services provided.
Furthermore, it is likely that gambling advertising will be restricted by a separate law, and it is expected that a new authority will be established to supervise operators in the industry.
In addition, it is presumable that new operators will likely need to commit to doing their part to tackle and mitigate the negative consequences of gambling.
The Finnish gambling public policy, based on Veikkaus monopoly, has a long tradition in Finland. Bringing the license model into the gambling system would be a significant and historic change to the current situation. The change would offer completely new opportunities for the gambling industry operators in Finland. The resulting competition would probably also improve, for example, return percentages of different games and open new sponsorship opportunities for sports organizations. It should, however, be noted that the implementation of the predicted changes will take a while. At the same time, those who want to enter the Finnish market should start to prepare for the license model, so that when the market opens, the license will be granted as quickly as possible.
At Nordic Law, we have extensive experience with clients working in the gambling industry and know-how accumulated over the years regarding the gambling legislation in the entire EU region. We will continue to help our customers to navigate the new regulatory environment in Finland starting from required preparatory measures all the way to the Go2Market phase with license applications and the operation of the actual gambling business. We would be pleased to discuss with you what the transition to the Finnish market may require in the future and how to optimally prepare for it.
Our Associate Trainee Mikael Huhtala took part in writing this Article.