The balance between the proceeds of Veikkaus and the prevention of the negative impacts of gambling has generated some heated public debate in the past few weeks. Although the National Audit Office has not audited the operations of Veikkaus in recent years, I found issues that are still topical in our previous audits.
Writer
In 2017, the national lottery operator Veikkaus, the slot machine and Casino operator Finland’s Slot Machine Association and the horse betting outfit Fintoto merged into a single monopoly company. This new Veikkaus was given the exclusive right to operate gambling games in Finland.
Today, the gambling sector operates under state ownership steering in addition to being steered by regulations. This has brought the above-mentioned, previously independent gambling operators closer to central government.
The NAOF has rarely directly audited Veikkaus or its predecessors. This is because the gambling operators have previously been more clearly separate from the state. The company form of Veikkaus continues to affect the possibilities of the NAOF to audit the company: in the case of state-owned companies, the NAOF primarily audits the state ownership steering instead of the actual operations of these companies. [Addition on 29 January 2020:] The NAOF audited the ownership steering of Veikkaus in 2013 as part of the audit of special assignment companies.
The new Veikkaus has not yet been audited
So far the NAOF has not conducted a single audit on the new Veikkaus. However, we have audited the former lottery and betting company Veikkaus and the operations of the Slot Machine Association in the early 2000s. As the audits took place some time ago, the results are not directly applicable to the modern-day Veikkaus.
Nevertheless, I thought it would be interesting to take a look at what has changed and what has remained the same. We should also try to learn from the past to avoid repeating the same mistakes many times over.
The audits performed nearly two decades ago examined the sponsorship activities of Veikkaus and the crediting of the Slot Machine Association’s proceeds. As the task was to audit the appropriateness of the operations, the scope of the audits exceeded that of a regular financial audit.
Who decides on the distribution of Veikkaus’ profits?
When we audited the sponsorship activities of the old Veikkaus, the purpose was to ensure that the company does not decide how to distribute profits based on sponsorship and that there is always a justified financial reason for any sponsoring activities. The Ministry of Education and Culture decides on the distribution of Veikkaus’ profits.
In the 1990s, Veikkaus expanded its operations from the national lottery and football pools to new betting games. As a result, the company aimed for a better visibility in sports through sponsorship agreements, among other things. However, at the same time, many these sponsored events also received a share of Veikkaus’ proceeds allocated by the former Ministry of Education.
In its audit conducted in 2001, the NAOF could not give any strong opinions about the overall targeting of sponsorship activities. It also proved impossible to estimate the amount of sponsorship, as at the same time Veikkaus also purchased marketing visibility from the sponsored events, and it was not always straightforward to separate between the two activities.
In its conclusions and recommendations, the NAOF stated that since sponsorship as a whole is a quite complex issue, Veikkaus should base its sponsoring activities on clearly defined principles and should also be able to demonstrate the financial benefits of sponsorship. For example, the NAOF did not consider sponsoring the arts justified, as this was not considered to promote sports betting.
Areas of improvement in sponsorship: game event cooperation and marketing aimed at children
The old Veikkaus concluded sponsorship agreements primarily with the biggest sports under the concept of game event cooperation. Under these agreements, the sponsored event received a percentage of all result odds betting and fixed odds betting related to the sports in question. In addition to domestic events, the agreement could also cover events abroad within the same sports category.
The NAOF considered this to constitute a partial distribution of profits and stated that fixed sponsorship agreements would be a more appropriate mode of operation (audit of 2001).
The NAOF also commented on marketing aimed at children and young people. Some sponsorship contracts had involved developing betting games targeted at children. Although these games did not involve any monetary prizes, they still taught children and young people the principles of pools betting, for example.
At the beginning of the 2000s, there was no age limit for Veikkaus games, so in principle such marketing activities could have been considered financially smart. Nevertheless, the NAOF stated in its conclusions and recommendations that marketing and hidden advertising aimed at children and young people are against the law.
No issues in the operation of the Slot Machine Association, but external control was lacking
In its audit of Finland’s Slot Machine Association in 2002, the NAOF examined what would be the right amount of proceeds to be credited to the state considering the overall proceeds and the harmful effects of gambling. No improprieties were found in the audit. The costs of marketing, sponsorship and hospitality activities were insignificant. The audit report even mentions coffee and refreshments for a few dozen euros, as the auditors did not find any other issues to comment on.
The audit also covered payments to slot machine placement sites, but the examination did not result in any clear conclusions or recommendations. The compensations paid to placement site proprietors were already then percentage-based. The NAOF’s audit report primarily discussed ways to reduce the amount of those payments, for example, through competitive bidding.
From today’s perspective, one of the most interesting issues audited was the self-monitoring carried out by the Slot Machine Association. Although the NAOF found it to be appropriate, it was now surprising to read in the report that it was not until the early 2000s that the Slot Machine Association became obligated to monitor its cash flows from slot machine games. Until that time — as a remnant of the era of payazzo machines — it had sufficed to merely collect the cash accumulated in the slot machines.
In its audit, the NAOF considered the external control by the Ministry of the Interior to be non-existent. In practice, there were no resources to carry out such control, or even any plans or local-level instructions regarding the task. Instead, the control had relied on the Slot Machine Association’s own accounts.
In its conclusions and recommendations, the NAOF stated that control solely relying on the Slot Machine Association’s own accounts was insufficient and that there should also be additional controls in place. While the audit was still ongoing, the relevant legislation was amended and stricter provisions on control were incorporated into the Lotteries Act.
Lessons from the previous audits
Retrospectively, certain issues covered by the two previous NAOF audits still seem topical today. A monopolised gambling system must always be examined as a whole – from the perspective of both the proceeds and the prevention of negative impacts. The prevention of harmful impacts should not be separate from the gambling operations but should already be taken into account when games are planned and implemented.
Some of the problems remain largely the same: What is the appropriate way to market products the consumption of which should be limited at the same time? How should these activities be controlled to maintain a balance between the conflicting objectives?
This is a challenging task. The merger of the different gambling operators involved many changes. Now that Veikkaus has operated in its current form for a few years, it might be a good time to assess how the company accumulates assets and prevents negative impacts of gambling. The Finnish Competition and Consumer Authority has already initiated an overall assessment of the Finnish gambling system. This will also provide a great starting point for an audit on Veikkaus.
However, we also need to come up with solutions and measures to address any issues identified in these assessments. In this, political decision-making plays the key role.
