Board of Director’s Annual Report
Norsk Tipping is a state-owned limited liability company that reports to the Ministry of Culture and Equality. The company is based in Hamar.
The company is regulated by the Act on Gaming of the 28.8.1992 no. 103 (Gaming Act)(in Norwegian), with subsequent amendments. The introduction of new games and establishment of gaming rules are contingent on the permission of the Ministry of Culture and Equality. The ministry also decides how large a proportion of the total stakes must be paid out as prizes.
Maximising the amount of surplus funds will never be Norsk Tipping’s primary purpose or the reason behind the state’s ownership of the company. The government’s stated hope is that Norsk Tipping will primarily be an actor that helps to move the gaming market in a responsible sociopolitical direction. There is a broad political consensus that gaming should be regulated in order to prevent negative gaming behaviours. Well-regulated governmental control via Norsk Tipping also guarantees that the surplus funds from gaming benefit society as a whole.
The company’s terms of reference are set out in guidelines for the corporate governance of companies, etc. that report to the Ministry of Culture. In line with the Ministry of Culture and Equality’s requirements, the company complies with those parts of the Norwegian Code of Practice for Corporate Governance issued by the Norwegian Corporate Governance Board (NCGB) that are relevant to the company.
Norsk Tipping reports on the economic, environmental, and social impact of its activities in line with the global standards for sustainability reporting issued by the Global Reporting Initiative (GRI). The Annual and Sustainability Report for 2021 has been prepared in line with the GRI Standards 2021. The company’s social responsibility reporting has been incorporated throughout this annual and sustainability report rather than published as a standalone document.
Summary of 2021
Like the year before, 2021 was marked by the Covid-19 pandemic. The pandemic had fewer consequences for Norsk Tipping than it did the year before. This was primarily due to the continued operation of top sports and football leagues. The level of activity in sports has a huge impact on the attractiveness of the company’s sports betting and here the year-on-year growth was significant. The shutdown and contact-reducing measures appear to have had little impact on the company’s gaming revenue, with the exception of terminal games in shops and bingo halls, as well as sales of Flaxlodd scratch games at the company’s sales agents. The company set a new record for the number of players for the second year in a row.
The population-based survey from 2020 on the scope gaming and video gaming problems in Norway indicated that the scale of gaming problems is relatively small compared with findings from international studies. The trend is, however, upwards. The survey shows that it is largely games at gaming companies other than Norsk Tipping that cause the problems, although Norsk Tipping nevertheless accepts its share of responsibility and is working to reverse the trend.
Towards the end of 2020, Norsk Tipping also noted, based on its own customer data, worrying trends among players, primarily within online casino games. Norsk Tipping has, therefore, implemented a number of measures, including reducing the maximum loss limits in the instagames category from NOK 10,000 to NOK 7,500 per month on 1.12.2020. The limit was reduced again on 1.9.2021 to NOK 5,000. In addition, the mandatory gaming break that is triggered after an hour of playing was increased from 90 seconds to 15 minutes to help players take a break from gaming. The company estimates that these measures will reduce the annual surplus funds by around NOK 250-300 million.
The overarching goal of the responsibility work in the company is to protect vulnerable players, and our ambition is to be a world leader in this area. In addition to adjusting playing limits, the company is constantly working on modifications, large and small, aimed at strengthening the protection for these groups. The target and business plan for 2022 clarifies this through its ambition to help reduce the scale of problem gaming among the public.
While Norsk Tipping has introduced measures to help reduce the scale of problem gaming behaviour, the government is working on improving regulation and enforcement. Changes to the Broadcasting Act have made it more difficult for foreign gaming companies to broadcast commercials to Norwegian TV viewers, and the prohibition on money transfers makes maintaining revenue streams a challenge. Norsk Tipping is seeing the impact of this with a steadily increasing number of players playing via Norsk Tipping and fewer via unregulated gaming providers.
The number of players ended somewhat higher in 2021 than the year before, and marks yet another record for the company. More than 2.1 million unique customers played one or more of Norsk Tipping’s games, and 29 per cent of them were younger than 40. This shows that the company’s offering is attractive enough to channel the desire to gamble in all age groups 18+ to a regulated offering within a responsible framework.
Norsk Tipping’s total operating revenue increased from NOK 43 billion in 2020 to NOK 44 billion in 2021. Because of the high prize shares and high degree to which prizes are reused as stakes in some of the company’s games, the development of net gaming revenue (gaming revenue less prizes) is considered a better measure of the scale of activity. Net gaming revenue amounted to NOK 8.7 billion. This represents growth of NOK 160 million (1.9 per cent) from 2020. This figure was however affected by 2020 containing an extra game cycle (week 53). Adjusted for this, the growth was 3.8 per cent.1
1) Gaming revenue, prizes and commissions are accrued in the calendar weeks. There were 53 weeks in 2020, meaning that revenue was relatively higher than in a 52-week year.
The operating expenses (without prizes) grew by NOK 26 million compared with the year before. Sales commissions were lower, while other operating expenses grew slightly. The total growth was 1.1 per cent, which was lower than price inflation in the same period. Overall, the surplus funds grew from NOK 6.167 billion to NOK 6.286 billion, which represents year-on-year growth of 2 per cent.
Lotteries are the company’s biggest category. The net gaming revenue from this category has been stable in the past 3 years and appears not to have been significantly impact by the Covid-19 pandemic. The category accounted for 64 per cent of net gaming revenue in 2021. Lotteries represent a lower risk of problem gaming than the other categories and are widely supported by the playing segment of the public, and a strong lottery portfolio is therefore important for channelling the desire to gamble to a responsibly regulated offering.
Online gaming has grown since the launch and up to 2020. Revenue levelled off in 2021. Part of the reason for this was Norsk Tipping introduction of new responsibility measures and a halving of the loss limit for the category from NOK 10,000 to NOK 5,000 since November 2020. This category is more prone to problem gaming and the company monitors developments closely. The company is constantly working on further adjustments to balance responsibility and attractiveness in this category. It is important in relation to the monopoly model that Norsk Tipping is able to channel customers in this category to a regulated and responsible offering with a view to mitigating the negative consequences of the gaming.
Sports betting is the category that saw the greatest growth in 2021. This was due to the year being less affected by Covid-19 than the year before, while the impact of the prohibition on money transfers and changes to the Broadcasting Act are making life harder for unregulated gaming providers. The regulation is working well and Norsk Tipping’s market share in the area is increasing. Net gaming revenue from the category grew by 27 per cent from 2020 and was also 18 per cent higher than the level in 2019.
In 2021, the revenue from traditional games (lotteries and sports betting) via digital channels was NOK 12 billion, compared with NOK 10 billion in 2020. This represents growth of 18 per cent. The growth in revenue via digital channels is increasing the company’s cost-effectiveness by reducing sales commissions but is also increasing the demands on the digital solutions’ capacity and functionality.
The Norwegian authorities have introduced a number of measures to restrict the ability of unregulated gaming providers to offer games to Norwegian players. Following amendment of the Broadcasting Act with effect from 1.1.2021, the Norwegian Media Authority has the authority to order distributors to prevent or impede the marketing of unregulated games that breach the Gaming Act, the Lotteries Act and Regulations issued pursuant to the Totalisator Act. There are ongoing legal proceedings related to this, where the media company Discovery Networks has sued the government in court because they believe that the Broadcasting Act’s legal basis for enforcement is contrary to EEA law.
As a consequence of the changes to the Broadcasting Act, the Ministry of Culture and Equality approved changes to the guidelines for Norsk Tipping’s marketing with effect from 1.1.2021. The changes entail, among other things, that the use of means such as high prizes and money for good causes has been toned down in the marketing and the requirements for responsible marketing have been increased.
In general, the prohibition on marketing games that are not permitted in Norway has worked well for a long time, and together with the payment prohibition, this helps to make it difficult for unregulated gaming providers to offer games targeted at the Norwegian market, which strongly supports Norsk Tipping’s channelling.
Stronger enforcement of the monopoly model will result in Norsk Tipping gaining a larger share of total gaming revenue and an ever more important role in helping to reduce problem gaming in Norway.
The most important part of Norsk Tipping’s social mission is to prevent negative consequences from gaming by offering attractive and responsible gaming, and its ambition is to be a world leader in responsible gaming. The company is, therefore, working with several research institutions to increase knowledge in this area and the results from the research are used as a basis for refining the company’s responsibility measures.
The company’s activities are generally subject to a strict regime of responsibility and casino games have been subject to further regulations ever since they were introduced. Mandatory limit setting, the absence of marketing and restrictions against ongoing measures that stimulate the increase in gaming, are examples of this. The customers have found their way to Norsk Tipping’s offering even without marketing. This is positive since the point of the company offering these games is to have an offering for those looking for casino games and who previously had to turn to unregulated gaming providers.
The reduced loss limit for instagames was the most visible measure linked to this area in 2021. The maximum amount a player can lose per month has been halved since the start of 2020. The company also has its own innovation team that is working diligently on major and minor improvements designed to pull the company’s activities in a greener direction through large and small adjustments to the games offered. The highest priority measure in 2021 was the Spillepuls responsibility tool, which monitors players’ gaming behaviour in real time and starts a personal dialogue if there are indications of higher risk. The dialogue provides the customer with insights into their gaming, invites them to spend some time reflecting on them and makes it easy to make choices that moderate their gaming.
The company measures the scope of problem gaming through systematic analyses of the player base using its Playscan tool. In 2021, the player base developed in a positive direction where it is clear that the sum of the company’s measures and the government’s stricter regulations has had a good impact.
The focus on proactive calls has continued and the company constantly contacts players with gaming patterns that may indicate problematic gaming behaviour. Some 2,000 players were called in 2021. During the call, the customer is informed about how much they have spent on gaming in the last year and possible measures for curtailing their gaming. Specific measures are agreed if the customer wants to reduce their gaming. If it becomes clear from the call that the customer has a gaming problem, he or she will be given information about services offering help and treatment.
Sustainable value creation
Norsk Tipping takes a comprehensive approach to long-term, sustainable value creation. The company’s ambition is to be a leader within social responsibility and sustainability in relevant areas, and it wants to take responsibility for how its operations impact people, society, and the environment.
The report on ownership, (St. 8 (2019–2020) Report to the Storting (white paper) The State’s Direct Ownership of Companies – Sustainable Value Creation), sets clear requirements for how state-owned companies should contribute to sustainable development within the topics identified as crucial for each company. Norsk Tipping’s work is constantly being developed further to ensure a comprehensive approach to value creation across the company and thus that it delivers in line with the owner’s expectations.
In line with the owner’s expectations, Norsk Tipping reports on important matters related to the company’s activities. Norsk Tipping’s materiality analysis was revised in 2021. Based on this analysis, significant topics were incorporated into a new model for social responsibility and sustainability with five main areas. These have been prepared in accordance with due diligence principles.
The five main areas are ‘responsible social actor’, ‘equal opportunities’, ‘sensible consumption’, ‘good business conduct’ and ‘better together’.
The work on the different areas is described in ‘Social responsibility and sustainability’(in Norwegian).
The owner and the Board are heavily focused on achieving sectoral policy objectives as cost effectively as possible. The surplus funds for good causes are a consequence of the regulation, but not the main objective. Assessments concerning responsible gaming weigh heavily in all decisions concerning the company’s development and can in isolation result in lower cost-effectiveness. Given this framework, the company must nonetheless operate as cost effectively as possible.
The surplus funds for good causes, measured as a percentage of net gaming revenue, are an important key figure for the company’s cost performance. In 2021, the figure was 72.5 per cent of net gaming revenue. This is on a par with the year before. The trend over time is that a steadily increasing share of net gaming revenue is being distributed to good causes. The main reason for the improved cost-effectiveness is that the company has succeeded in enabling those customers who wish to play games via digital channels to do so thanks to systematic efforts over many years, which triggers lower commissions than physical channels. Sales commissions were also down slightly in 2021, although the trend is starting to level off.
In 2021, the company announced it would be procuring ID and payment services. Norsk Tipping first awarded the contract to the provider EveryMatrix Software Ltd., although a new review found that the tender had to be rejected and was therefore awarded to Buypass AS. As a consequence of this, EveryMatrix Software Ltd. has sued Norsk Tipping in court and is claiming damages. NOK 15 million has been set aside in the accounts for 2021 in relation to this matter.
At the end of 2021, the company’s total balance sheet was NOK 6.7 billion and its equity ratio 7 per cent. The corresponding figures for 2020 were NOK 6.9 billion and 7 per cent. The company’s distributable equity amounted to NOK 335 million as at 31.12.2021.
The low equity ratio must be seen in the context of the company’s special situation in which the year’s activities accumulate surplus funds that are distributed the following year. On the date the surplus funds are distributed to recipients, equity is strengthened as a result of the activity that took place in the year after those funds were generated.
In the short term, there is relatively little uncertainty linked to the company’s future financial situation. Norsk Tipping’s status as a ‘hybrid state-owned company established by law’ with a predictable regulatory framework means that it has adequate equity and a satisfactory financial position in spite of its low equity ratio figure.
Gaming revenue is the company’s most important source of cash flow. The gaming revenue after deductions for prizes was NOK 160 million higher than in 2020. In 2021, net cash flow from operating activities amounted to NOK 6.2 billion, compared with NOK 6.7 billion in 2020. The company’s cash holdings were NOK 102 million lower year-on-year.
Norsk Tipping is by far Norway’s largest gaming company, with an estimated share of 67 per cent of the entire gaming market measured in terms of turnover.
Norsk Tipping’s corporate strategy was adjusted in May 2021. The sectoral policy objectives in the gaming market in Norway, where the main goal is to reduce problematic gaming behaviour among the public is, in the opinion of the company, well-reflected in this strategy. Norsk Tipping’s overall strategic direction should show that the Norwegian gaming model is the best for Norwegian society. The strategy is based around three strategy battles that the company must win to succeed in its social mission. The development in problem gaming among the public and the need to channel this overall appetite for gaming among the public to a regulated offering are key drivers in the strategy.
The strategy points out that the main battle that must be won is for Norsk Tipping to “actively contribute to a society with less problem gaming”. Finding the right balance between offering a responsible and an attractive gaming offering is key for the company and a fundamental premiss for the strategy. Norsk Tipping has over time been a pioneer in the work on responsibility and has deliberately sought to become a world leader in this area. When the company says in this fight that it will develop more accurate channelling goals than before, the intention is to get even closer to its goal of having a games portfolio tailored to the sectoral policy objectives and the Norwegian market situation. As a monopoly company, Norsk Tipping is supposed to play a key, proactive role in preventing problem gaming in society.
Further developing the company’s products and solutions is an important means of complying with our social mission of providing an attractive and responsible gaming environment in which the surplus funds go to good causes. The development will take place both under the direction of the company and in collaboration with other gaming companies in the regulated market who are facing similar challenges.
The main risk associated with the company’s future goal attainment relates to whether the current regulation helps to reduce problem gaming in society. Norsk Tipping has already implemented measures designed to contribute to this, and the company is constantly working on new measures in this area. At the same time, the company must have attractive products in order to successfully channel players from unregulated gaming providers. Combined with enforcing the applicable regulation by the government, the conditions are right for achieving the goals in this area.
Research, development, and innovation
Norsk Tipping does not carry out its own research and development activities as defined in the Norwegian Accounting Act. However, the company continues to involve itself in development activities in several areas linked to innovation and development in connection with its products, systems, and services, and this represents an important part of the company’s activities. More than 25 per cent of the company’s full-time equivalents work in this area.
The development of digital sales solutions and services represents an important element of the company’s renewal and there is always a need to improve and modify the company’s solutions. The further development and integration of responsibility measures in order to help reduce problematic gaming behaviour is an important component of this work, and a dedicated development team constantly works on further improvements in this area. The most comprehensive measure in 2021 was the implementation of a new ID and payment solution.
Norsk Tipping conducts some transactions, and holds some reserves, in foreign currencies and is therefore exposed to a certain degree of financial risk. The largest transactions are linked to prizes in games operated in partnership with publicly owned gaming companies in other countries. The company is also exposed to credit risk related to settlements with its sales agents. Settlements for the preceding week’s sales are paid during the succeeding week by means of automatic deductions. Guarantee and deposit arrangements have been established that considerably reduce this credit risk. The company incurred no significant losses linked to receivables from sales agents in 2021.
The liquidity situation is satisfactory since the company generates significant distributable funds by means of its day-to-day operations. At the end of the year, the company had a positive balance of cash and cash equivalents amounting to NOK 6.1 billion, most of which was deposited as sight deposits with the Treasury in Norges Bank. The company believes that the level of uncertainty linked to its financial status next year is relatively low.
Going concern assumption
In the opinion of the Board, the annual accounts and annual report provide a true and fair picture of the company’s financial position and activities at the end of the year.
The annual accounts were prepared on the basis of an assumption that the company is a going concern. The Board is not aware of any significant factors that have emerged or events that have occurred during the accounting year, or subsequent to the end of the accounting year, that impact the going concern assumption or the annual accounts.
Directors’ and officers’ liability insurance has been taken out for board members, the CEO and other employees who have had independent management responsibility. The insurance covers their potential liability, up to NOK 25 million per year, in relation to the company and third parties in the event of damage to assets as a result of actions or omissions for which they are liable due to their leading role.
The working environment
Norsk Tipping is an inclusive workplace company and has an explicit ambition of ensuring equal opportunities in the company. The company is constantly working on measures aimed at improving the gender balance among the company’s employees and managers. Some 33 per cent of the company’s senior management team are women. The overall proportion of women in management positions is 32 per cent, while 37 per cent of the 404 permanent employees are women. Because of the pandemic, working from home was used extensively for large parts of the year. This has been challenging for the working environment and can contribute to weakening the employees’ sense of belonging to the company. During the period, measures were implemented to counter this, including many outdoor activities. Throughout the year, the company prioritised giving employees who live alone or face challenging working conditions at home an opportunity to work in the company’s premises within the applicable restrictions.
The company has produced a report on the gender equality situation and the activities that have been initiated to fulfil its activity duty, see the employee chapter in the annual report(in Norwegian).
Total sickness absence for 2021 was 3.6 per cent. This represents a reduction of 0.3 per cent from 2020. Norsk Tipping’s overarching goal is to keep sickness absence below 4 per cent.
No injuries resulting in absence were registered in 2021.
Climate and environment
Norsk Tipping is Eco-Lighthouse certified. The overarching goal for the climate work is to reduce the company’s climate footprint. The footprint is measured in relation to the international GHG Protocol and the total footprint for 2021 was 423.96 tonnes of CO2 equivalents (tCO2e). This was an increase of 10.6 tonnes compared with 2020.
The factors in Norsk Tipping’s activities that resulted in the highest climate and environmental impact in 2021 were linked to the company’s energy consumption and transport. Norsk Tipping constantly assesses the input factors that could be adjusted to reduce the climate footprint from the company’s activities.
Distribution of annual result
The company’s distributable equity is held in an investment fund and other equity. Total distributable equity amounted to NOK 335 million as at 31.12.2021.
The Board’s proposal regarding the distribution of the annual surplus funds is as follows:
|The Tippenøkkelen fixed distribution formula||NOK 5,497 million|
|The Grassroots Share||NOK 737 million|
|The Bingo Operators’ surplus funds for good causes||NOK 36 million|
|Measures against gaming addiction||NOK 17 million|
|Total distribution of the annual result||NOK 6,286 million|