Lithuanian iGaming market analysis 2022: gambling services with the highest gambling risks dominate
The European Commission, on the basis of studies of the national prevalence of problem gambling in EU countries, has indicated that gambling problems are influenced by factors such as:
- The frequency of the action (the shorter the time between the actual gambling and the chance to bet, the higher the risk);
- The payout interval (the shorter the time between the bet and the outcome, the higher the risk);
- Accessibility and the social environment; the desire to recoup a loss or to be close to a win (the higher the payout and the probability of winning, the greater the illusion of recouping a loss and therefore the higher the risk);
- Perceived skills and ‘participation’ (the opportunity to participate in the event on which the gamble is being made, or to use one’s own skills to assess the likelihood of success, lends support to the psychology of the ‘almost winner’, and increases the risk);
- Commercial messages that might encourage vulnerable groups.
[Source: EUROPEAN COMMISSION, 24.3.2011, COM(2011) 128 final, GREEN PAPER “Online Gambling in the Internal Market”].
Gambling situation in Lithuania
As different gambling activities entail different social risks, it is recognised that it is necessary to apply the principles of legal and fiscal differentiation and individualisation to their regulation and taxation.
Lithuania is approaching the top of the EU countries in the context of increasing social risks
Unfortunately, in Lithuania, the legislators have ignored the above-mentioned important factors and by lumping all gambling together in national regulation, ignoring the revenue generated by the different sectors, the location of the gambling venues, and other peculiarities of the different sectors, they have prevented the gambling, betting, and lottery industry from operating in a western manner and generating maximum economic benefits for the state and society at minimum social cost.
The current national regulatory model inexorably brings Lithuania closer to the leaders of the EU countries in terms of increasing social risks. At present, Lithuania is still far from the top ten European countries where the most money is spent on gambling and lotteries. Compared to other European countries, the highest average gambling expenditure per adult in Lithuania in 2020 was €63, which is significantly lower than e.g. Denmark (€280), Finland (€338), Italy (€255) and other European countries (The Gambling Market in Numbers 2020.pdf (spillemyndigheden.dk). However, the highest average spending per adult in Lithuania on gambling and lotteries is projected to be €101 in 2022
The initial regulation of the gambling sector created the legal preconditions for the emergence of a market focused on moderate gambling, as the legislator relied on the principles of differentiation and established different operating (and control) conditions for different types of gambling, depending on the extent of their social risk.
However, in the long term, public policy has moved in the opposite direction, with moderate and lower social risk gambling being subjected to restrictions that apply only to the most aggressive types of gambling (e.g. compulsory identity checks on visitors, the obligation for gambling operators to use visitor recording equipment, excessive technical requirements for slot machines, disproportionate restrictions on gambling outlets).
This has led to a radicalisation of the market over the last five years, with remote gambling taking up more and more of the space, with online slots with unlimited stakes and winnings becoming the main service.
The State (the regulator) has been a passive spectator of this radical transformation, which is destroying the economic value generated by land-based gambling: the tax revenue it generates for the State budget, the number of jobs, the income of real estate, various service, security, IT and other service sectors are all being eroded every day.
The exponential growth of remote gambling: quo vadis Lithuania?
In the two years since 2019, when online gambling accounted for 51% of the gambling market in Lithuania (including lotteries) and did not stand out from other European countries, the situation has radically changed, with its share in Lithuania growing significantly to reach 82.5% of the gambling market in 2021.
In its anti-corruption assessment carried out in 2021, the Special Investigation Service pointed out that the legislation creates more favourable conditions for remote gambling operators to carry out their activities, with less administrative burden, than for other types of – land-based – gambling, as once they have obtained a licence and a permit, they would be able to carry out their activities indefinitely, without any additional coordination procedures with the Gambling Supervision Authority or the municipal council. The current legal framework also does not provide for additional measures to protect the interests of minors and non-gamblers from the harmful effects of remote gambling, which are more severe than those of land-based betting shops and slot machines, since the data of a player’s established account can be used by persons who are not allowed to use the same device, such as a stationary or laptop computer or a mobile phone, on the same day, in accordance with the provisions of the Law and the implementing legislation.
The flawed nature of the Lithuanian gambling market regulatory policy and legislative measures is due to the lack of reliable, socially representative and scientifically sound research on the gambling and lottery market and consumption. Regulatory decisions do not take into account the fact that different types of land-based gambling venues generate different revenues (and therefore financial risks) and incur different operating costs. This has resulted in constant attempts by regulators to tighten and restrict the regulation of all gambling activities, in the absence of any objective evidence to support the necessity/appropriateness of such restrictions and measures.
Between 2011 and 2015, new types of gambling organisation – online and telephone betting – were legalised by orders of the Director of the Gambling Supervisory Authority, allowing three betting companies to organise such gambling. Despite the fact that the administrative courts have declared this type of legalisation of remote gambling unlawful by annulling the Orders, the responsible authorities have not taken any control action to put an end to the organisation of remote gambling. On the contrary, there was an active effort to ensure that the Seimas legalised them as soon as possible by means of appropriate amendments to the Gambling Act. Allowing betting companies to organise remote gambling several years before remote gambling was legalised ex lege (by law) gave them an unfair competitive advantage, as during this period they were uncontrolled, built up the largest database of users (without even having the right to collect and store personal data) and took over the remote gambling market. This has led to an extremely rapid growth in the use and dominance of the most socially dangerous unlimited bet remote gambling at enormous levels.
Legislative initiatives in the last decade have tended to increase the operating costs for the operators of the lower revenue generating land-based (traditional) Category B machines and betting shops (through the imposition of permit expiry dates, increases in licence fees), and to make the operation of these sectors unsafe in terms of investment and operation and extremely risky in terms of investment and operation, through barriers to entry (the requirement of municipal council approval for the setting up of Category B machines and betting shops and for the establishment of other forms of gambling). The imposition of a requirement for the consent of municipal councils on Category B slot parlours and betting shops for limited gambling is clearly excessive and is likely to lead to the closure of venues that have been in operation for 10-15 years. This would create the conditions for the exclusion of traditional (land-based) gambling from the gambling services market, ultimately transforming the national gambling market into one dominated by remote gambling operators whose business model (software, technical support, workplaces, etc.) is located outside Lithuania (i.e. in tax-favoured areas).
Taxation of the gambling sector: finding the right balance between public and private benefits
A differentiated rather than a standardised approach should be taken in order to find adequate individualised taxation for the different gambling sectors, and at the same time to correct the current unjustified distortions in the taxation of different segments of the same market.
Differentiated regulation should be based on criteria that reflect the specificities of the different gambling sectors:
The criterion of loss per hour; the distinction between traditional and remote gambling. It is also necessary to coordinate adjustments to tax rates with new and planned regulatory solutions, given that the introduction of any new control requirement often has a significant impact on the increase in compliance costs for gaming and lottery operations.
For less risky gambling (lotteries, slot machines with limited stakes, etc.), experts recommend a less intense restriction of access, but a strong restriction of gambling parameters.
It is not appropriate to require personal identification of users or to restrict access geographically in games with limited parameters.
It is also recommended that the average amount of money spent by a country’s population on different forms of leisure should be taken into account when deciding on the parameters of such gambling (e.g. betting or winning limits).
Loteries taxation in Lithuania
The design of gaming and lottery tax rates should take into account the changes in the legal framework already in place or planned, as well as the fact that in the practice of EU countries.
The majority of the lottery segment is occupied by national lotteries with a public purpose, and the undertakings providing these services are to be considered as undertakings of public interest, with the main purpose and raison d’etre of mobilising funds for good causes, such as sport, culture, art and heritage.
National lotteries in most EU countries are organised either by state-owned companies (e.g. Eesti Loto in Estonia, Latloto in Latvia) or by private companies selected by public concession tender for a certain period of time, whose costs and profits are fixed by law and whose main part of the revenue is earmarked to finance projects of public interest.
This regulation and administrative practice explains (but by no means justifies) why the per capita amount of support for sport by lottery organisations in Lithuania is €1.19 (2012 data), while in Finland it is €27.8, in Denmark €17.2, and in the United Kingdom €11.45. It is the model of organising national lotteries that is the most efficient and beneficial for the state.
When setting tax rates for lotteries and gambling, it would be advisable to set a ceiling on the profitability of the companies (15-20%) and to allocate the excess profits to ‘good cause’ (public interest) projects (a similar regulation is in place in the UK for the organiser of the national lottery.
It is adequate, balanced, differentiated regulation based on the best practices of other European countries that would allow the State to manage the social risks of the gambling market, increase the State’s revenue and reduce the aggressive development of gambling services that pose the greatest risks of gambling.