Since the beginning of October, lotto aficionados in the Czech Republic, as well as their counterparts in Germany and Finland, can play Eurojackpot, a lottery similar to the American PowerBall in which the winner can walk away with as much as two and a half billion crowns. Sazka is happy about the rising interest in the game and the results of the initial six draws. "Eurojackpot is a kind of lottery that has been missing in our portfolio. People bet for all the money in the jackpot, not for the second, third, or fourth place," explains Sazka's CEO Robert Chvátal.
E15: Why did the negotiations that preceded Sazka's joining of the Eurojackpot multinational lottery take so long?
For one thing, the conditions demanded by the consortium that organizes the lottery were very demanding. For example, their security requirements. We've had to prove that our systems are protected at the highest level required by the World Lottery Association. The Ministry of Finance, which regulates the lottery business, had strict requirements as well. Among other things, we had to provide the ministry with information on supervision during the draw procedure, which does not take place in the Czech Republic, but in the Finnish capital of Helsinki. We also had to clarify taxation issues. But in the end, once we demonstrated that the game would bring money to the Czech state coffers through lottery taxes, a license was issued.
E15: Every week, people spend on average some 20 million crowns on lottery tickets. Is that a satisfactory figure?
So far, the figures are consistent with our expectations. Last week, our revenues exceeded 20 million for the first time. That clearly shows that people are after the amount of money in the jackpot (the jackpot has been growing for the past several weeks, reaching the 1.14 billion crown mark last week). Moreover, there has been the second highest Sportka win in the Czech Republic, which came up to 195 million crowns. That also helped somewhat in turning people's attention toward Eurojackpot. That being said, however, Czechs still need to learn more about the game and get to know it hands-on; it was launched only at the beginning of last October. It would be foolish to expect that after one month, our earnings would match those of Sportka, which has been around for the last 50 years. In fact, we didn't expect anything like that.
E15: Sazka's goal with Eurojackpot is to attract young customers and people who have not betted until now. At the same time, however, Sazka must avoid cannibalizing on Sportka. Are you being successful in that?
The outcome of tests we carried out at the beginning of the year clearly shows that there is interest on the part of completely new bettors. Whether we're doing well or not will only be confirmed by a survey conducted next spring. We'll ask how many people play lotteries and which ones, whether it's Sportka or Eurojackpot. That will show how widespread gaming is in the Czech Republic. While about a third of Czechs buy lottery tickets, the average number of bettors in Western European countries is roughly a half of their populations. For instance, in England, which is a country of bettors, as many as 70% of people buy a ticket at least once a year.
E15: With Sportka, Sazka has a 95% share of the Czech number lottery market. Is that not enough?
Our ambition is to bring Sazka, a national lottery, to a higher level and catch up with Western Europe. The Czech Republic has outpaced its Western European counterparts with regard to gambling machines, which is a segment where Sazka is not active. But as far as lotteries are concerned, we're still lagging behind the West, both in respect of revenues and the number of bettors. A comparison shows that lottery sales account on average for 0.5% of the GDP in Western European countries, but for only a half of that, 0.25%, in the Czech Republic. Likewise, we're not entirely happy about the overall role lotteries play in the Czech gaming and betting business. The correlation between games, which includes lotteries, and gambling is skewed in the Czech Republic. We want to change that by bringing the share of games and lotteries above the share of gambling. The current situation can be illustrated by the fact that while our last year's revenues amounted to eight billion in total, proceeds from gambling machines and odds betting came up to 51 and 29 billion crowns, respectively.
E15: Isn't it odd that the new law will be called the Gambling Act, which means that Sportka and scratch tickets will be classified in the gambling category?
That, indeed, is an unfortunate formulation. The current law is called the Lottery Act, and it includes gambling. Perhaps the current name does not accurately designate the overall purpose of the legislation, but neither does the one that's in the works. The English-speaking world uses the term "gaming and gambling industry". Maybe the word lottery would be more appropriate in the Czech Republic because people are familiar with this term.
E15: The Association of Odds Betting Operators has commissioned an analysis that suggests that taxes on number lotteries in the European Union are on average higher than in the Czech Republic, specifically 28% versus 20%, respectively. One of the objectives of the law that is being drafted is a change of tax rates. Do you have any indications that tax on number lotteries will increase?
Everything must be regarded in a broader context. In most EU countries, lotteries are run by a monopoly operator and, consequently, are subject to higher taxes. That is not the case in the Czech Republic. Sazka doesn't have a monopoly over number lotteries, scratch tickers, or odds betting. As far as lottery taxes are concerned, the regulator has so far indicated that there could be not one, but several taxation levels. Tax rates should be set according to the adverse social impact of a game or, where applicable, the potential excessive playing has to cause major sociopathic phenomena. That is not the case with our company, however, because I've never seen anybody at a local tabagerie who would buy, say, 100 tickets for one Eurojackpot draw.
E15: The new law is expected to allow Czech firms to operate number lotteries and casinos over the Internet. Is an Internet casino something Sazka would like to get into?
At this point, we don't have enough information to say that Sazka will use the Internet to offer entirely new products. We will certainly use the Internet to present our best-known games, such as Sportka, Happy 10, Keno, and Eurojackpot. Thanks to contacts we maintain with other national lotteries, we are aware that for instance in Finland, gaming companies earn over 35% of their revenues from Internet sales. That is our main priority and strategy for strengthening the portfolio. The extent to which the portfolio might be enlarged after we enter the Internet is question of testing the market. And that is something we will likely do next year.
E15: And a casino?
No decision has been made as of now. However, rather than asking people whether they want a casino, we're interested in finding out what kind of product they would like Sazka to bring out. We don't want to force products onto customers; they have to express their preferences first. They have to specify what they expect from Sazka. We will then take care of the rest. In my view, Sazka's business is not about taking hundreds of thousands from a few VIP clients during one night. Sazka's DNA is a countrywide lottery, where a lot of people bet a small amount that won't break their back. We're not in the business of running Casino Royal, where rich men go to spend millions. That's not us. That's not our game.
E15: Last year, Sportka sales reached 5.13 billion crowns, as Sazka's overall revenues hit the eight billion crown mark. Do you now have an estimate of your revenues this year?
The management's goal is to ensure that Sazka continues to grow as a national lottery. If we want to catch up with Western Europe, we have to innovate and offer new products. Sazkamobil and Eurojackpot are a good example of that. Thanks to that, we expect that Sazka will continue to grow this year, at a double-digit rate. That is our forecast, and there is nothing else I can say. The other goal we have is to sustain a double-digit growth.
E15: Out of the eight billion of your revenues, only 220 million came from non-lottery operations. Will this sum increase as well? What sources will your revenues come from?
Non-lottery operations are secondary in our business, but they are important nevertheless. They include, for example, Sazkamobil whose clientele continues to grow and which is expected to have some 120,000 users by the end of the year. The non-lottery part of our business also includes transaction services via terminals. Last year, we added Air Bank and formed a partnership with UPC. However, these things tend to be one-time projects rather than strategically planned ventures. At this time, non-lottery operations are not a priority which we would be actively developing. We concentrate, first and foremost, on our main business, which is lotteries.
E15: Sazka has owned a stake in four firms, including KPS Media, Sportlease, and GTECH. Will there be any change in that respect?
In the past, we used KPS Media for selling soccer league rights. That has ended because we believe that this activity should not be a part of our main business. In the future, we will focus on expanding digital marketing, improving Internet sales, innovating lottery products, and offering new features with a view to attacting a half of the Czech population to our lotteries. In the past, KPS also handled the production of broadcasts of lottery draws, but this task has been transferred to Sazka itself. KPS also worked for O2 Arena and handled broadcasts on a giant television cube there. The arena no longer belongs to us (it is currently owned by PPF), so why keep it? KPS Media will be wound down and its operations incorporated into Sazka's.