Small is beautiful: Portugal continues to hit new heights despite its poor channelisation rate

The start of 2024 saw the Portuguese gaming regulator, Serviço de Regulação e Inspeção de Jogos (SRIJ), release its latest figures for the market, relating to Q3 2023, which showed that online gaming and betting activity generated a record €215.3m in gross revenue for licensed operators, an increase of 36% from the same period in 2022. Of this total, online casino generated €134.4m – a new high for the vertical – while sports betting accounted for €81.9m. Total registered online players hit 3.9 million in Q3, with over 200,000 new signups in the three months to the end of September.   

The success of the Iberian nation’s online gambling market, which was approved in a 2015 Decree to offer sports betting, casino and poker, is somewhat remarkable given its modest population of around 10 million and with it still being in its infancy compared to more established regulated markets such as the UK, Spain and Italy.

Yet it’s a market that continues to defy gravity as it maintains an upward trajectory. Indeed, Q2 2023 revenue of €205.9m was also a record high at the time for the online segment, while 2023 is shaping up to shatter 2022’s full-year numbers once the regulator eventually releases data for the fourth quarter.

Online revenue reached record levels, not only at the back-end of 2022 but also during H1 2023. Gross gambling revenue (GGR) grew 24.8% year on year (YoY) to €196.4m from €157.4m in Q1 2023, while Q2 recorded a 41.8% YoY increase to €205.9m from €145.2m. Much of that success last year wasn’t just down to gambling but, as Ricardo Domingues, president of Portugal’s online betting and gambling association (APAJO), puts it, “the digital entertainment industry”.

Highlighting that online gambling is still relatively new to those living in Portugal, he points out the role licensed operators play in providing a fun and safe space: “Like other categories in this industry, its evolution has been accelerated in recent years, and, in Portugal, online gambling has the added effect of being a relatively new product. The licensed operators are playing their part in providing quality products and services to Portuguese consumers, within the bounds of what is allowed.”

Sticking with the SRIJ figures, the Portuguese market has ballooned 300% from the €53.7m generated in the third quarter of 2019. Ricardo Branquinho da Fonseca, Betano’s Portugal country manager, tells EGR that the market’s sustained growth is down to regulation still being a “novelty for many”. Factoring in the circumstances surrounding the Covid-19 pandemic, which impacted what people could and couldn’t do, Fonseca points to it being the “start of the accelerated growth”.

“This was the moment where many people lacking other gaming entertainment options first got in touch with the online gaming experience. Since then, and due to the versatility, accessibility and unique features that online gaming offers, we have witnessed a consistent and healthy growth pattern; not because customers are playing more but because there has been a shift towards online gaming.” However, he admits that players are betting relatively low stakes, although it attracts a younger audience.

Having worked with the online sector since it regulated, Alcina de Oliveira Alves, senior associate with CCA Law Firm, says it remains a very attractive market “even considering there is less interest now than before” and that its regulation has been a success from a financial perspective. From Q3 2017 to Q3 2023, the number of operators has increased by 10 and there have been 19 new licences, Oliveira Alves tells EGR.

“Overall, if we analyse the market statistics, the trend has been one of growth, which reflects, among other aspects, on new operators seeking to obtain licences,” she explains.

That said, she points to a lack of product diversification. “Due to legislation constraints, all operators offer the same types of games and within those types, so it is very difficult to differentiate their core characteristics and make them more appealing to players.” This could change, though, as the SRIJ recently approved so-called crash games and that, for Oliveira Alves, is the first step in the right direction.

Change the channel

Such a change could improve the channelisation rate, which was estimated to be around 66% during Covid-19. APAJO president Domingues says the rate did not increase significantly in 2023 and that the Portuguese market has hit a ceiling when it comes to converting players from gambling with illegal operators to those with a licence.

The SRIJ says there are currently 13 active sports betting licences and 17 active for games of chance. However, there were 23 unlicensed sites issued with notifications to stop serving Portuguese players and 84 websites identified as needing blocking. Domingues insists APAJO will be “strongly engaged” with raising the channelisation rate in 2024.

He says: “To illustrate this, the yearly study conducted by [survey firm] Aximage for APAJO, focusing on online gambling habits of the Portuguese, revealed an evolution in the percentage of players using exclusively locally licensed operators from 44% in 2019 to 60% in 2022. However, in 2023, the figures showed no evolution from the previous year, and even a small reduction.”

Domingues adds that the market needs to “evolve” further and continue its push against the illegal gambling sites. “There must be an effort from the Portuguese authorities to support the channelisation of demand to locally licensed operators. To achieve this, the fight against illegal gambling needs to intensify, and the products, features and offers in the regulated environment crucially need updating.”

To combat the black market, APAJO calls for a two-pronged approach. The first is a “systematic effort” from the authorities against the illegal operators, as well as those that support them. The second is to expand the licensed offerings. For Oliveira Alves, it’s quite a complex issue given APAJO’s 2019 survey found more than half of players gambled with both licensed and unlicensed sites. She insists that more research needs to be conducted on the amount of money spent offshore, as does changing existing regulations to “allow operators to diversify their games to differentiate from one another”.

Of course, workable gaming tax rates are conducive to preventing leakage to the black market. But despite Portugal’s sports betting tax rate being halved from 16% to 8% of turnover in 2020, it is still extraordinarily high. For comparison, Poland, which also taxes based on turnover, forces licensed bookmakers to hand over 12% of turnover. Even so, 8% of turnover equates to around 50% of GGR, far outstripping most of Europe.

When asked how this stymies the market, Domingues notes that it plays a key role in the “gambling ecosystem”. While he would not say how likely it was that there would be a switch to a tax framework based on GGR as it is with igaming (25%), he points out that APAJO has been assessing the best model to support the sustainability of the market in the long term.

But what about how a turnover tax impacts a sportsbook’s offering? Fonseca of Kaizen Gaming-owned Betano feels the operator had no choice but to adapt to the high taxation. “We had to learn how to navigate the conditions. We have adapted our offering to how things are and are making our way, learning and improving our product and services day
by day. This is how we do it in Portugal and in every other regulated market that we operate in.”

But he adds that the high taxation will have a negative impact on the market going forward and lead to fewer customers playing with licensed operators. Fonseca says: “This has happened time and time again in more mature markets at their acceleration phase, which is similar to what online gambling is witnessing now.”

Even with that being a possibility, Fonseca does not foresee a pivot to a GGR tax rate any time soon. Yet Oliveira Alves suggests it will happen eventually as it would entice more operators to enter the market. “It’s just a matter of time considering that since the beginning of the licensed market in Portugal there has been considerable discussions around this matter.”

She adds that operators struggle to offer competitive odds because of the 8% turnover tax, which in turn encourages players to go elsewhere. “Players will always look for the better odds, and currently those odds are on the illegal market,” she says.

The responsible way  

Like with any country that offers regulated online gambling, safer gambling protocols have to be up to scratch to avoid people suffering from gambling-related harm. Last November, Pedro Hubert, psychologist and director at the Instituto de Apoio ao Jogador (Player Support Institute), called for Portugal to have a more robust self-exclusion system. As it stands, players can request to be excluded from gambling websites by filling out a form provided by SRIJ and that exclusion lasts for a minimum of three months up to a date set by the player or, if no date is provided, indefinitely.

There was an 8.3% increase quarter on quarter for Q3 2023 in the amount of people self-excluding, which stood at 196,600 people. Domingues admits in his conversation with EGR that there could be improvements, such as a mechanism being activated once a player self-excludes that applies to all operators, not just the ones a player names in their request to the SRIJ. So, effectively, a national exclusion register.

Emphasising that the trade body has spoken to “academics and healthcare professionals”, Hubert comments: “Education of consumers is needed to remove the negative connotation around the use of responsible gambling tools. Everyone should be setting limits before playing in order to ensure healthy gambling patterns are maintained. Consequently, an increase in responsible gambling tools’ usage should not be misconstrued as an increase in problem gambling.”

For Oliveira Alves, the current system works but there is something missing. “What seems to be lacking in the Portuguese jurisdiction is enough legal grounds to grant operators more powers and/or freedom to impose said exclusion and keep it in place for as long as necessary to fight or prevent addiction.”

She says there is one thing operators keep asking: “What can we do next?” It’s a question not just for safer gambling protocols, but one for their future in the Portuguese market.

So, there is still work to do. Portugal hasn’t attracted as many operators as expected or hoped for, with 13 active sports betting and 17 casino licences currently. Sweden is a country with a similar population and yet has dozens of licensed brands. Portugal’s modest licence count goes some way to explaining why channelisation is estimated to be around 60%, according to APAJO, meaning more than one in three bets are with unlicensed sites.

But overall, the quality products and services available on the market are being enjoyed by the Portuguese population, with Oliveira Alves pointing out: “The majority of registered players are adults between 18 and 34 years old, which shows that a generation of new adults in Portugal enjoy online gambling and betting, ensuring the market’s good health for years to come.”