Nationwide lottery operator Sazka was initially created by the Czech state to finance sports and other organizations and was given to them outright after the revolution that toppled Communism. It was the state that refused to provide the guarantees for the Prague sports arena that has now led to Sazka’s mounting debt burden. And it was the state that first promised to give the company a monopoly over video lottery terminals but then allowed in other companies to grab a share of the market.
In this respect, it might now be tempting to see Finance Minister Miroslav Kalousek (TOP 09) as a white knight riding over the horizon and adding the final touch by taking the company into state possession. But Kalousek is not keen at the moment to profile himself as a savior on a white horse.
When recently asked by Czech Position if the state might like to take over the embattled betting company, Kalousek’s reply was nasty, brutish and short. “No way,” might be the most polite translation. Sazka’s general director would fight the move with arbitration proceedings and he would win, he argued. “The state should have taken Sazka from the sports federations immediately at the start of the 1990s and created a state lottery company. Now it is too late,” Kalousek said. With state lotteries up and running successfully around Europe and making handsome profits, is the idea of a Czech state lottery so absurd?
But with state lotteries up and running successfully around Europe and making handsome profits, is the idea of a Czech state lottery so absurd? “In my view, nothing of such a nature is ongoing either financially or politically,” commented the deputy Finance Minister responsible for the betting sector, Tomáš Zídek. The right time for such a move has long gone, he added.
It would not, however, need so much effort for the state to take Sazka under its wings. If it were able to promise existing shareholders a share of future profits in order to budge them from their claims for around Kč 8.1 billion. Theoretically, the state could also find around Kč 10 billion to pay other creditors. State officials could even try to get a better deal with some of the biggest creditors such as PPF’s Petr Kellner, Karel Komárek, Jr. and Česká spořitelna.
Zídek confirmed the possibility that the state could mastermind a deal with creditors. “Nothing is impossible, but the state would have to pass a law first. There is no law at the moment saying that the state can buy what it wants.” A law could, for example, state that Sazka has a monopoly on number-based lotteries, set down the basis for the purchase of Sazka, payment of its creditors and transformation into a state-owned company. But that is still in the realm of theory.
At an EU level, a state monopoly would probably pass. Many other states have such monopolies, and countries are given considerable freedom where they draw the lines of liberalization in the gaming sector. A more potent problem is that one Czech company, Fortuna, has already been given a license to operate a numbers-based lottery: The firm belongs to the Penta group, which already has aspirations to take over Sazka.
Another company, Synot, has also won a license for a lottery and other companies will also follow. Karel Korynta, in charge of state supervision of the lottery market, refuses to hazard a guess what companies will be next in line.
It would clearly be expensive to buy out those companies that have already been granted lottery licenses. Fortuna says that it has spent around Kč 1.0 billion on the lottery terminals, tickets, employees and other preparations for its lottery. Obviously, it would be better in this case it would be better for the state to act fast before the costs mount even further.
Sazka’s fortunes
In the case of Sazka itself, the opposite is true. The woes of the company subject to insolvency proceedings since the end of March look likely to increase but the state would not want to wait until all trust and public confidence in 55-year-old Sazka had totally evaporated.
For the moment, gamblers are still buying lottery tickets, but trust could fall away fast. Any extension of the current situation where doubts have been raised about whether Sazka can pay out big winners could be a short path to extinction with no way back, according to some PR experts sounded out by Czech Position. A takeover by some trustworthy company should, they say, happen by the summer.
“Sazka still has a good reputation; it would be sufficient to polish it up a bit more,” said the operating manager of Mather Communications, Ondřej Obluk. Such polish would not be that expensive for a company already used to spending hundreds of millions of crowns on advertising. For Obluk, the right time for such a campaign would be in the summer to counter Fortuna’s attempt to grab its market. If Sazka waits another year its number could well be up, he warns.
Gambling fever
Overall, the Czech gaming market had a pretty stable turnover of around Kč 130 billion in 2009. In spite of, or maybe more appropriately due to, Sazka’s current woes, most “healthy” gaming companies are reporting rising revenues. The “deserters” from Sazka’s Sportka lottery game appear at the moment to be numbered in a few percent rather than double figures. Many of Sportka’s gamblers are loyalists who have never tried other gambling options, even though the chances of winning the jackpot on a one-armed bandit are about the same.
A lottery in state hands would bring it an annual payout of around Kč 3.0 billion, the total that is currently distributed to sporting associations and other good causes by Sazka. Of course, the state could try to get a more indirect payoff from the lottery business from new taxes on the gaming sector which are being drawn up by the Ministry of Finance and could be in place as early as next year.
Whatever the arguments — and there are at least 16 of them in EU countries which are running state lotteries at the moment — the Czech attitude at the moment seems to be that it is not a good idea to launch a state lottery right now even though Sazka might be a perfect vehicle. “The idea of a state lottery is good, but on the other hand there is a basic truth that, generally speaking, the state is not a businessman or manager of resources,” Zídek said.
