The Swedish invasion

With the help of industry analysts, Tim Poole provides a deep dive into the international success of Swedish gambling rms. Why Sweden? What makes Swedish companies tick? How have they scaled such heights and what does the future hold for them?

Christian Hellman

Look through Swedish history, and certain iconic names and concepts are bound to come to mind. Museums and history books are filled with Vikings. In pop culture, Abba is synonymous with Swedish music. In industry, Sweden is famous for its labour policies – where social benefits to employees are considered among the most generous in the world. And in retail, anyone outside Sweden will immediately think of Ikea. Like ‘Googling’ something, this Swedish brand is so powerful a furniture shopper will think of ‘going to Ikea’ before ‘going to buy furniture.’

As the modern online gambling market develops further and further, however, we are morphing into a stage where the biggest Swedish names are progressing to a similar stature within our industry. They are perhaps not there yet but, as regulated markets like that of the US and Latin America heat up, Swedish expansion is continual in gambling. The region’s gaming history is, of course, already extremely rich – with the Gambling Insider office once being sent a whole book dedicated to the topic. But as the years go by, Swedish firms are truly making their mark on an international scale.

Comparably, the domestic Swedish market has been very much on the wane since is re-regulation in 2019; even the Swedish Government is in chaos right now. So why is it that Swedish firms at the same time continue to gain so much market share around the globe? Gambling Insider decided to channel its inner Wallander, investigating how and why. You can call them the Vikings of gaming, if you will; and given their achievements in gaming to this point, it’s already a case of how far they can go – and whether they can end up dominating online gambling.

THE ONES TO WATCH

For an independent view of Sweden’s finest gaming exports, we sought analysis from representatives who do not work for any of these firms. Our first contributor, Christian Hellman, is CEO of investment company Estrada, and has analysed Swedish gaming for several years. When Gambling Insider asks him which brands stand out, he responds: “They are all successes already in their own right, I would say; but looking ahead I think that as competition heats up internationally the Nordic names need to step up and bring something unique to the table. Evolution is obviously doing that and there is no reason to believe its innovation pace will grind to a halt anytime soon. CPO Todd Haushalter is certainly at the top of his game right now.”

But Hellman is keen to single out two further brands, one provider and one operator: “Kambi is a top-class supplier as its clients continue to dominate in local marketplaces, both in the Nordics and elsewhere such as the US. Long term, I believe the Nordic suppliers, perhaps more so than the operators, have a very long runway of growth ahead of them; and perhaps that runway comes at a lower incremental cost. That said, I am very impressed by Kindred Group’s performance in the US; it surely is one of the best operators on a worldwide scale.”

The Q1 2021 performance of all three highlights the substantial progress the trio are making. Evolution’s is such we will revisit it later – with a section dedicated purely to the live casino supplier and acquirer of NetEnt and Big Time Gaming. A look at Kambi’s, though, is still extremely impressive, given the fact a few doomsday predictions surfaced when DraftKings bought rival supplier SBTech. Kambi was previously a chief partner of DraftKings’ in the US, yet lost that business when the operator decided to become a public corporation, acquiring its own technology stack via SBTech. Despite this, Kambi grew its Q1 2021 revenue by 55% year-on-year to €43.2m ($52.2m).

Of course, the Covid-19 pandemic – and subsequent lockdowns that forced many consumers to pursue digital forms of entertainment, and thereby saw online gambling surge – is a factor that has immensely benefited online gaming firms the world across. Those hailing from Sweden can certainly see this as an acceleration of an already apparent trend. Kindred’s Q1 revenue was up 41%, to £352.6m ($489.2m), while fellow Nordic brand Betsson Group reported SEK 1.59bn ($190.2m) in Q1 revenue, a 12% rise. Staying on the operator side, Gustaf Hagman’s LeoVegas

recently signed a huge US-facing deal with Caesars Entertainment, having generated €96.7m in Q1 revenue, an 8% increase. It then claimed its fourth Online Casino of the Year Award at the Global Gaming Awards London. Four out of four.

Away from the operator side, examples of Swedish triumphs can be found across the industry, with supplier NetEnt performing so well Evolution simply purchased its live casino rival. Outside of live casino, though, NetEnt’s slots continue to perform excellently, while the company’s purchase of Red Tiger Gaming in September 2019 proved a masterstroke. To this day, Red Tiger’s games are flying off the shelves, so to speak, now backed by Evolution’s resources on a wider scale. Look to affiliates, meanwhile, and you will see market-leading organisations such as Catena Media and Better Collective. Online gaming and Sweden appear to be a match made in heaven.

THE EVOLUTION OF SWEDISH GAMING

As promised, the size and success of Evolution warrants a whole section of its own. For Q1 2021, the industry giant’s revenue shot up by 105% to €235.8m, while operating profit was up 147% to €141.6m. EBITDA rose to €160.1m, up 150%. And it is Evolution’s speed of growth that has characterised its rise more than anything. For context, the company’s Q1 2019 revenue was only €79.3m – yet it was already on a high-growth trajectory, as even this represented a 54% increase. With its acquisition of NetEnt and planned purchase of Big Time Gaming adding further to the pile, Evolution’s share price sat at SEK 1,578 in early June 2021; the June prior, it was SEK 593.20; a year before that, it was just SEK 190.20. This success has led to three Evolution-owned brands (one of which was the Evolution brand itself) winning Global Gaming Awards at the 2021 London ceremony. Many internationally have wondered what exactly Evolution is doing to set it apart to such an extent. What is its secret?

When Gambling Insider puts the question to Gustaf Hoffstedt, Secretary General of Branschföreningen för Onlinespel (BOS – the Swedish Trade Association for Online Gambling ), he concedes: “I wish I had the recipe to the secret sauce, but I don't.” Looking from the outside in, it’s difficult to overstate how successful Evolution has been in terms of company efficiency and, quite simply, the quality of its product. Countless companies will say they have a market-leading offering, while several can genuinely back this claim up to some degree. But no one can do so quite at the same level as Evolution.

“I believe it's the employees and the culture,” Hellman muses. “I have met people from the entire organisation at numerous occasions over the last six years, even before the IPO [in March 2015], and everyone really enjoys working at Evolution, from the croupiers up to the CPO and CEO. I must really give it to Jens [Von Bahr], Fredrik [Österberg] and Richard [Hadida], the Founders of Evolution, as they have created not only a great working environment but also a winning mentality. What sets Evolution

apart is that they are not competing with anyone else but with themselves – they are constantly trying to better themselves and become a little bit better than they were yesterday. It’s fantastic to see.”

It is additionally worth noting that what Evolution has done exceptionally well is ensure players must click onto the Evolution lobby, even when on an operator's site.

“There is no reason to believe Evolution's innovation pace will grind to a halt anytime soon. CPO Todd Haushalter is at the top of his game right now” - Christian Hellman

A RICH HERITAGE

Whether it’s Evolution, Better Collective or another innovative Swedish supplier in Yggdrasil, it’s clear Swedish gaming firms have not just built such an international position out of thin air. Any competing nations wanting to replicate this must look to Sweden’s rich history in gaming – and in fact more broadly. According to Hoffstedt, it is “important to emphasise gambling is only part of the success story.” He adds that skilled employees in Sweden have been able to choose between not only gambling firms but also companies with related activities, such as payments services (Trustly – heavily involved in gambling – and Klarna), video gaming (Minecraft’s Mojang) and music streaming (Spotify).

“Success breeds success,” Hoffstedt beams. “Those who have already reached success invest their capital in new talents. In terms of share of GDP invested in venture capital, Sweden is only behind Luxembourg within the EU, according to consultancy firm Copenhagen Economics. And Stockholm, with its 0.8 unicorns – i.e. start-up company with a value of at least $1bn – per 100,000 inhabitants, is globally only behind the San Francisco Bay Area with its 1.4 unicorns per 100,000 inhabitants.”

While Sweden’s population may perceive its own country as small, in reality the country is one of a dozen EU members with a population of at least 10 million. But Hoffstedt believes this perception of a lack of size has created several beneficial characteristics for the Swedish people – and its businesses. He explains: 1. First, there are no free lunches. Sweden has no self-written command height, but every position must be fought for. 2. Secondly, Swedes believe, as previously mentioned, that Sweden is far too small. International scalability is therefore a must from day one. 3. Thirdly, Sweden has a consistently low degree of hierarchy in Swedish society, which benefits job satisfaction, meaning everyone's ideas are taken advantage of. 4. Fourth, access to qualified employee skills. The most common professional category in the Stockholm region is not a nurse or a teacher – but a programmer.

PIONEERS OF THE MARKET

While the mantra of Swedish business as a collective has become well established over the years, there have naturally been key individuals along the way who have elevated Swedish gaming. When you think of great art, you immediately think of Pablo Picasso and Leonardo Da Vinci; when you think of great music, you think of Wolfgang Amadeus Mozart or Johann Sebastian Bach. The same concept can be applied to anything from sport and cinema to large-scale business – Steve Jobs, Bill Gates, Elon Musk etc. Though this will apply on a smaller scale here, Swedish gaming equally has its own forefathers and role models, according to Hellman.

“Sweden was fast to adopt the internet and in general the Swedish people enjoy tech and are curious about new inventions,” the Estrada CEO tells Gambling Insider. “Sweden has created fantastic companies in other fields because of this; such as Klarna, Spotify and Trustly. That said I must give credit to Anders Ström and Pontus Lindwall, just to mention two people (there are of course more), that helped pioneer this market and have helped pave the way for others. It’s all about role models, and Anders and Pontus have been that for many I believe.”

Ström founded both Kindred and Kambi, and remains on the board of Kambi today.

Lindwall, meanwhile, is President and CEO of Betsson AB, but perhaps more importantly founded NetEnt in 1996. Alongside this influential duo, there are swathes of Swedish entrepreneurs that helped form the gaming market in its current form. These include the aforementioned Founders of Evolution, LeoVegas Founder and CEO Hagman, Entain CEO Jette Nygaard-Andersen, Therese Hillman, former NetEnt CEO, Erik Bergman, Founder of Catena Media, Jesper Kärrbrink, former CEO of Mr Green, Kambi CEO Kristian Nylén, Evolution CEO Martin Carlesund, Haushalter and many, many more. Here, the will of the individual has truly helped fuel the progress of the collective.

THE US OUTLOOK

Swedish growth to date has left both Hellman and Hoffstedt confident of high performance in a pivotal region within gambling: the US. Online gaming is only just opening up across North America, and sports betting has either been or is being legalised across dozens of states since the overturning of PASPA in June 2018. At this early time, Swedish firms have built themselves a solid base from which to wrestle US market share. Global competition is stiff, with mammoth operators such as MGM Resorts International, Caesars Entertainment, DraftKings, Flutter Entertainment and Entain in the mix, and suppliers like Scientific Games, IGT and others already holding a strong foothold in the US. But recent launches for Betsson and LeoVegas have continued a trend of Swedish entries into key US states. Kambi, Kindred and Evolution, meanwhile, have already built strong positions in North America. Asked if he can envisage Swedish firms competing at the highest level in the US long term, Hellman responds: “Certainly I can. Just as Volvo is a top brand in the US and globally, as is Ericsson and Ikea – and now also Spotify and Klarna. It’s about the product and not where it comes from – and Evolution, Kambi and Kindred bring a top product.” He reiterates: “If consumers like the product, and they do, they don't care where it's from.”

Hoffstedt draws a similar conclusion, noting that Swedish gambling companies are signing new business agreements in the US “almost daily.” The BOS Secretary General observes that cooperation with US domestic companies is the main strategy moving forward. “Whether Evolution, Kambi, Kindred, LeoVegas or any other Swedish gambling company will be as successful in the US as other Swedish enterprises such as Spotify remains to be seen, but there is a tradition in Sweden to lean against; USA is Sweden's third-most important trading partner measured in export value.”

Gustaf Hoffstedt

CLOSER TO HOME

It is perhaps with some irony, then, that any conversation about Sweden’s domestic gambling market leads down a totally different path. For all the worldwide strength of the Evolutions, Kambis, Kindreds and Betssons, the comparative struggles of the regulated market in Sweden itself have been well documented. Hoffstedt has been one of the foremost critics of what he sees as excessive Government intervention since re-regulation in 2019. Previously within the pages of Gambling Insider, he has lamented the role of the regulator, a lack of dialogue between regulator and operators, and questioned the regulator’s treatment of state-owned brands Svenska Spel and Casino Cosmopol. Responsible gambling proponents, along with anti-gambling critics, may hold up the Swedish Gambling Authority as the archetypal regulator – one that takes a firm line against any wrongdoing.

However, from an investor’s point of view, this has so far translated to a shrinking of the market and even a deterrent to gaining a Swedish licence. It has prompted what Hoffstedt believes would be a “sense of sadness” from Swedish corporations excelling internationally. He explains: “Everyone in Sweden can note how representatives of the Government travel around the world to promote the export of military equipment, that our Government since the end of the 1990s awards a music export prize and that the Government repeatedly highlights the Swedish gaming industry as an international success story – nota bene: gaming, not gambling. The actions of a Government are important. In addition to opening to international business, positive recognition from the Government creates pride in the industry. There is significant potential for improvement here, for any minister who breaks the Government’s hitherto taboo and dares to highlight gambling and its important contribution to Sweden.”

Additional uncertainty in Sweden now stems from the fact its Prime Minister, Stefan Lofven, became the first PM in the country's history to lose a vote of no confidence. He subsequently resigned.

And yet dwindling gross gaming revenue in Sweden may actually act as the final sign of how far Sweden’s biggest gambling companies have come. As Hellman concludes, the Swedish market has been “tough” since re-regulation – but it is no longer that much of a focus for its highest-achieving exports. “It's a small source of revenues for the names mentioned in this article,” he says. “It's the market where these companies come from but in terms of group revenue, it's rather small nowadays.” Even if the Swedish domestic market was flying, therefore, it might have only been a dot on the radar for its top graduates. Swedish expansion has been such that gambling revenue now comes from all over Europe and is beginning to pour in from both the US and Latin America.

Where next for Swedish gambling, considering the heights it has already scaled? Evolution, Kindred, Kambi, Betsson, LeoVegas, Yggdrasil, Better Collective, Catena Media and the nation’s other success stories are unlikely to rest on their laurels. Besides, given the competition across some of Europe’s more mature markets, and fledgling online gambling marketplaces like New Jersey and Pennsylvania, they simply wouldn’t be able to without falling behind. Much like the staggering growth of Evolution’s share price in recent years, Swedish gambling’s stock is only likely to get higher. How high will likely depend on market penetration in the US; but a steady foundation has already been built on American soil – supported by a smorgasbord of online gambling growth worldwide.