Sazka's CEO on Eurojackpot: Paid out! Sazka has disbursed 2.46 billion crowns to a Czech Eurojackpot winner. Paying out such a high prize has had no effect on the stability of the largest Czech lottery company: following several years of existential problems that culminated in the firm's purchase by billionaire Komárek, Sazka now once again offers its customers fairytale winnings, and instead of being in shambles, it is one of the most dynamically developing lotto business in Europe. To the delight of CEO ROBERT CHVÁTAL (47), who has been at the helm of this traditional, yet future-oriented, firm for the last two and a half years.
Are any skeletons from Aleš Hušák's era still coming out of the closet on you?
I wouldn't exaggerate the importance of Sazka's past. We manage Sazka as a standard modern corporation. I don't drive a Bentley, I don't have a personal chef, people don't have to pass through security doors, and we don't have any No Dogs or No Guns signes here. We might not be on top of the list of preferred employers yet, but young people now come and want to work for us. And rather than issues from the past, I consider more important the current debate about the regulation of lotteries and gambling and the ways of approaching this issue from a long-term conceptual viewpoint. Lumping everything together without making a distinction between gaming and hardcore gambling and without introducing differentiated regulation is a mistake. That's the most important topic that keeps me awake at night.
What was your reaction to hearing the news that a Czech customer won the main Eurojackpot of 2.46 billion crowns?
I remember very well when that happened. It was on 15 May 2015, in the middle of the ice hockey championships. I was sitting at a table with Robert Reichl at a reception. All of a sudden, I received a call from the studio where they were watching the draw in Finland, saying that the winning ticket was from the Czech Republic. From that moment on, I stayed on the phone and received several confirmations that the winner was in fact from our country. I have to tell you that I was thrilled. After a relatively short time – six months to be exact – someone from the Czech Republic won the highest ever jackpot in this popular pan-European lottery. That's what I call good luck!
From the viewpoint of interest in Eurojackpot, it must have been the best thing that could have happened… Has Sazka now paid out the winnings?
Right off the bat, the winner received 270,000 crowns in cash; we gave him that for the trip back home on the train. For the rest, however, he would have had to rent the whole train to be able to fit all the money in there. We transferred the balance of the winnings to his account on 10 August 2015.
It must have been quite a surprise for his local bank officer…
Everything is highly discreet. Not even I know the winner's name. I'm aware, however, of the support scheme because we arrange private banking services for him. We are also prepared to provide psychological and communication assistance, which the winner has not asked for yet.
Since you are required to report the winner to revenue authorities, the number of those who can leak his name becomes much higher…
He is the one required to report the winnings in his income tax return. Nobody will learn his name from us, we have approproate measures in place to ensure that. It has never happened so far that the winner's name would be disclosed at Sazka's fault.
How does the system that protects the winner's identity work?
In the case or high winnings, the winner's name is known to only one employee in the Finance Department who checks the winner's identity and inspects the winning ticket. The same employee also prepares a "first aid kit" for the winner that contains finance, investment, and communication-related advice.
After the Eurojackpot winner was announced, a video has appeared on the Internet in which a supposed winner burned the winning ticket. Did you know that the video was a fake?
TV Nova reporters arrived here immediately sniffing for information… But since we knew that the winning ticket was purchased by a person in the Pardubice Region and that the ticket in the clip showed a number identifying a branch in Central Bohemia, we were able to tell that the video was a fake in a matter of minutes. The actual identity of a ticket can be determined based on several verification elements. A betting slip can be identified not only by numbers, but also by the transaction code, there is identification of the type of paper, paper printing blocks… but I don't want to give out too much of our inside stuff. Yes, there was a ticket burning clip on the Internet, but nobody came to Sazka to claim the prize with a fake ticket. That would have been a criminal offense and the person could face considerable problems. Incidentally, lottery tickets and records of winners' identity are kept in a safe for 10 years, and access to this information is restricted.
Did you have money ready to pay out the prize?
Our rules are set by the regulator. Any violation could lead to the revocation of Sazka's license. For a lottery, the most important factor in terms of maintaining trustworthiness is always paying out all winnings. Sazka got into problems in this respect at the time when it faced insolvency due to the previous management's actions, but it has never happened that winners would not receive their legitimate winnings. And I trust that it will never happen in the future.
To what extent has the 2.46 billion crown jackpot burdened Sazka in particular?
The highest-ever prize is possible only thanks to the fact that forces are joined on a pan-European scale, where each country acts as a guarantor. Each of us puts some money on the side to be able to pay for the highest winnings. The way it works is that we contribute if the winner is from Finland, and our Finnish counterparts contribute if the winner is from here. It's a reciprocal system, where funds are paid from a shared pool. Sazka could not afford to pay such a high prize alone, were it not a member of this prestigious pan-European consortium.
When a Czech client won the highest-ever Sportka jackpot of 400 million in 2013, it must have hurt Sazka a bit, didn't it?
On the contrary, we were very happy that the jackpot in our biggest national lottery climbed up so high. Immediately after receiving money from customers, Sazka puts aside funds that are earmarked for the disbursement of winnings. We never touch money allocated to the payout of prizes. This way, it can never happed that we would lack funds for the most important purpose – for paying winnings to those who have tried and got lucky.
How much money does Sazka receive from bettors in the Czech Republic every week?
Our weekly revenues fluctuate and depend on many factors, the size of the jackpot being the most important one. Other factors include the number of working days in a month and, for example, the weather. When it's nice outside, people tend to go swimming rather than buy lottery tickets. Another factor is the level of marketing support. That being said, the amount of money spent on lotto tickets per week does not grow in any dramatic fashion; this year, we've recorded an increase by some two percent. The rise of Eurojackpot, however, was highly dynamic; the lottery has filled a gap in the market because it is attractive for everyone, including the young generation.
Once Eurojackpot was launched, it was necessary to generate weekly revenues of 20 million crowns. Have sales now increased?
As regards Eurojackpot, ticket sales depend even more on the total size of the jackpot than is the case with Sportka. And it makes a big difference whether the jackpot is below or over a billlion. Eurojackpot is a "billionaire's" lottery, whereas Sportka is our domestic lottery that turns a much larger number of people into millionaires. Altogether, we have not only one billionaire this year, but also 111 millionaires. Including a man who has just won 40 million. During the past six months, our Eurojackpot sales have amounted to 25 million crowns a week.
After you took over Sazka's helm, the number of points of sale has risen from the original 6,500 to over 7,000. Why did you opt for this strategy, today in the age of the Internet?
I believe in the combination of brick-and-mortar shops and the digital world. We must do everything we can as far as portfolio and accessibility are concerned to ensure that our little lottery continues to grow. Compared to the rest of Europe, Sazka is no giant; we're a little brother to most of our European counterparts. If you compare the Czech lottery sector with Austria, the latter has a turnover of one billion euros while we will be able to grow to only approximately 400 million euros this year. And note that Austria has a population of eight million, while the Czech Republic has 10 million. I've lived in Austria for six years, and I say that we share one culture that is divided by two languages. The difference lies in the structure – the ratio between real gambling and lotteries, so-called games of chance.
Are you upset about being considered a part of the gambling industry?
Our entire sector is called the gaming and gambling industry. We are a part of gaming; the gambling segment includes slot machines and casinos, including virtual ones. Lotteries, scratch tickets, and odds betting are more in the gaming vein; they don't involve spending the whole night gambling in an arcade.
But the draft of the new lottery act places Sazka in the same category, at least as far as lottery taxes are concerned…
We are frustrated by the fact that the lawmakers are trying to find a quick fix and lump incongruous issues together. Using one tax rate and use a one size fits all approach. That is wrong because the Czech market is skewed off axis to the detriment of lotteries. Sazka's slice of the whole pie of gaming and gambling is below 10%. The entire industry generates 150 billion in turnover. Slot machines account for 100 billion, casinos generate a few billion, and odds betting brings in 30 billion; Sazka's turnover amounts to only nine billion.
Does it mean that you don't consider Sportka and scratch tickets gambling?
Time and again, we have done our best to explain that there has never been a case where a person who bought a scratch ticket or who regularly buys Sportka lotto tickets would become homeless. We insist that there is a big difference between taking 20 seconds to buy a ticket at a gas station and playing on slot machines in a bar until the wee hours of the morning.
The Ministry of Finance, however, sees the entire industry as a juicy package from which more money to government coffers can be extracted than before. So, a 30% tax will be imposed on everyone…
We don't like that everything is lumped together this way. Taxes might be higher in some countries, but the government also provides exclusivity there, while we, as a private company, do not enjoy such a status.
But Sazka has what is nearly a monopoly in number lotteries. You control 95% of the market…
Yes, we have a 95% share of the market. But our position on the market is shamelessly abused by the fact that the Internet offers numerous alternatives that include products other than lotteries. In view of that, the idea of imposing higher taxation on those who have always paid taxes and ignoring the illegal business on the Internet, which brutally parasitizes on legal proven concepts, does appear shortsighted and lacking concept… This issue is not something that should be ignored.
Does it mean that the government should prohibit illegal gaming on the Internet?
The Internet is an important phenomenon in any business and rather than turning head the other way, it is necessary to understand well its dynamic growth and the possibilities it offers. Lottery taxes should be differentiated based on the degree of social risks involved. There are methodologies allowing to determine that. Another issue is that our industry should be shaped the same way it is in civilized European countries; for example, in Norway, slot machines account for a half of the market as opposed to 80% in the Czech Republic. The third thing is dealing with illegal Internet-based operators. A suitable taxation structure as well as protective measures can be used to create a well regulated environment that will protect customers who just want to place a simple bet and, at the same time, will allow collecting more in lottery taxes in a sound competitive environment.
Will the Czech government increase its revenues by raising lottery taxes or not?
I think that no additional revenues will not generated by raising taxes in an across-the-board fashion. A differentiated approach combined with measures protecting the market and allowing new players to enter it would be more appropriate. Sazka has the potential to have a turnover of 20 billion instead of nine or 10. Consequently, we could pay double the amount of taxes at the current rate rate. That's the way to go. Not the simplistic one-size-fits-all solution that is in the making.
Will Sazka's base of operations remain in the Czech Republic?
We have said that a partial relocation would be the most extreme measure. By mentioning relocation, we wanted to say that we didn't want to be disqualified and be required to pay more in taxes while those who evade taxation are ignored; we have been paying taxes in a transparent manner since 1955. The way things are planned, the gap will become increasingly wider. If things develop in an unfavorable manner, we will consider relocating a part of our business elsewhere because it would mean that the Czech government has no intention to protect the local market.
Are you planning activities abroad?
Not under the Sazka brand. However, the KKCG Group clearly has the ambition to build some sort of an international gaming group. Today, the group consists of Sazka in the Czech Republic and OPAP in Greece. And it's no secret that we're looking at additional acquisitions, for instance in Austria.
Is the Greek lottery market stable or in a similarly broken-down state as the country's economy?
Considering the Greek macroeconomic situation, one can hardly claim that things in Greece are stable. The condition there notwithstanding, however, the Greek lottery is about eight times larger than ours. And note that the population of Greece is 10 million, as well. People from the south are more inclined to play games. They try their luck and share that with others, whereas we are more conservative in this regard in the Protestant sense. Hence, while about a third of the Czech population play lotteries, in Greece, it's two thirds… It's the same in Italy or Portugal, where lotto companies have two billion euros in turnover, and there are 10 million of them too… So, that's what we're talking about.
A comparison of the years 2014 and 2013 shows that Sazka's sales grew 15% to 9.2 billion. What is your outlook for this year?
Our forecasts show that revenues will exceed the 10 billion crown mark. It means that we will pay between 900 million to one billion in lottery tax, while last year, we paid 800 million. In addition, we have been paying corporate tax in recent years and we are not allowed to deduct VAT. All things considered, the amount of taxes we now pay comes up to close to 40%.
But Sazka's profitability has decreased by 40%. What's behind the fact that Sazka is growing, but its earnings are on a decline?
It shows that we invest into technologies and Internet platforms that will be of fundamental importance in the future. Moreover, we have reconstructed two floors in our building to upgrade the premises to the current standard. Without any exaggeration, the office of former CEO Hušák was a fine example of socialist realism. The drop in profit testifies to the fact that the new owner who bought Sazka when it was bankrupt and paid billions for it is now willing to wait, to invest into the future, and not to drain cash from the company at the present time. The government plans to impose regulatory measures next year, as the Internet will open as a new gaming space. That's why we decided to invest into the Internet, which is a domain where our business will move in the future anyway. Moreover, we have started Eurojackpot and launched Sazkamobil, two investments that won't yield benefits in the first year of operation.