The degree of channelization on the Swedish online gambling market

It is widely acknowledged that a portion of online gambling by people is conducted on sites that do not have a Swedish license, implying that they generally do not comply with the conditions which are stipulated by the Swedish gambling regulation, such as consumer protection routines.

Copenhagen Economics was asked by The Swedish Trade Association for Online Gambling, or BOS (Branschföreningen för Onlinespel), to empirically estimate the degree of channelization, defined as the share of total gambling online that place on sites belonging to entities that are part of the Swedish license system.

The assignment was to use alternative methods to infer the true degree of channelization in Sweden for different gambling categories (verticals) and to assess its development in the near future. The empirical evidence that underpins the findings was collected by a consumer survey, interviews with operators and suppliers on the online gambling market, statistical analysis of gambling volumes provided by market participants, and public statistics from Statistics Sweden,, The Swedish Gambling Authority and public enquiries.

Key findings:

Licensed providers are exposed to fierce competition from unlicensed alternatives offering online casino and sports betting
Consumers consider licensed and unlicensed casino sites to be substitutable with respect to trustworthiness and overall product characteristics. Unlicensed casino providers often outperform licensed ones in terms of attractiveness of bonus schemes, which is the most critical factor in marketing, acquirement and retainment of the most valuable consumers.

The odds and other trading conditions in sports betting are very transparent and easily comparable on comparison sites, but there exists some product differentiation between licensed and unlicensed providers.

The unlicensed alternatives in the verticals for horse betting, lotteries and bingo are poor substitutes for licensed sites and have minor market shares.

The overall channelization rate reflecting the situation in January 2020 for all verticals is estimated to be 81-85 percent
The estimated channelization level is broadly consistent with the 85-87 percent estimate by the SGA in November 2019 because their definition of channelization is broader and includes offline sports betting and offline horse betting, where channelization is 100 percent as there exists no real alternatives to ATG and Svenska Spel.

The channelization for online casino is 72-78 percent and decreasing
The development of online casino turnover by licensed operators decreases whereas total online gambling market increases, implying a lower and decreasing channelization level. The estimate is in line with evidence from interviews with operators.

The incentives for operating and starting unlicensed casinos are strong given the restrictions on licensed operators and because of easy of entry to the market.

The channelization for sports betting is 80-85 percent and decreasing
Licensed providers have lost 16.8 percent of revenue during 2019 compared to 2018 whereas the total market exhibits steady growth. The degree of substitutability between licensed and unlicensed sites regarding product offerings and winning probability is medium-high despite some degree of product differentiation between providers. 

The study is commissioned by The Swedish Trade Association for Online Gambling.


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