Mark Wignall | FTC firing blanks at Supreme Ventures

In mid-2021, it was determined that Minister Audley Shaw, minister of Industry, Commerce, Agriculture, and Fisheries, had requested some form of a probe in relation to the Fair Trading Commission (FTC) investigation into the termination of Agents Agreements by Supreme Ventures Limited (SVL).

In 2011, just before the Jamaica Labour Party administration lost power, he had reportedly advised the Betting, Gaming and Lotteries Commission (BGLC) that it should consult Cabinet before any new licence in the sector was issued.

He did not do this because of any hanky panky. Widespread research had shown that after a single lottery player had established itself in a jurisdiction like Jamaica, the addition of other players did not follow the standard business model where more competition gave the consumer the bigger, better deal.

Gaming operators like Supreme Ventures are, basically, money spigots to governments, spewing out ready cash for worthwhile social programmes. Adding others in the hope that the consumer will get a better deal does not quite pan out. In this case, the competition ends up cannibalising each other and the Government’s input suffers.

That was plainly a no-nonsense approach from Shaw, who must have known that “multiple lottery operator structures are in place nearly exclusively by default in jurisdictions that have lacked the regulatory framework to prevent this evolution. There is no precedent, in the worldwide lottery industry, whereby a jurisdiction has regulated itself into a multiple lottery structure in the past 20-plus years”, according to many studies I have seen.

ANY CHANGE IN MINISTERIAL POSITION?

Did the former minister change his mind, and when and why? Not so long ago, the head of the BGLC told Nationwide that Finance Minister Nigel Clarke had not made any similar request to the Cabinet.

Well, the study generated by the FTC dated February 2022 has been delivered. On its face, it looks impressive, but as a solution for what it hopes to mine, it’s a disappointment. It was conducted by three researchers, and nowhere in the study does it indicate that any of them has a business background.

What it is not short of is the researchers stating how much they know about research per se.

But they unintentionally hit upon the meat of the study. ‘The intention of the Fair Commission Act is to protect consumers and the competitive process itself. It is not designed to protect particular competitors who may be affected by an exercise of market power.”

SVL is following just that - exercising its marketing power. Seriously now, what was SVL supposed to do? Roll over and give Mahoe Gaming and Goodwill - the two competitors who came later - room to manoeuvre, spread their wings and gather competitive strength?

That is not how I understand capitalism works. If Mahoe and Goodwill came later, is the FTC investigation saying that SVL should stall and wait on these two competitors to catch up?

The fact is that SVL occupies a position of dominance because it was the first player in the market. Had Mahoe or Goodwill had the good fortune to be there first, it would obviously be turning the screws on SVL.

From what I have seen and known, in the instances where SVL has terminated the agreement with agents that were also doing business with the competition, it was done because, in the specific instances, it suited the business model of SVL. How else can one explain that SVL is still doing business with some of those who are still doing business with the competition?

According to the FTC report: “Prior to 2020, there was only one lottery service provider. Having applied for a Lottery Operator licence in December 2009, Goodwill was granted the licence in July 2020 due to what the operators characterize as regulatory hurdles. The overcoming of these hurdles also paved the way for Mahoe to enter the market in a much shorter time frame. In particular, Mahoe was granted a Lottery Operator licence in August 2020, having applied for the licence in July 2019.”

PRICING AS STRATEGY

The FTC reports that for over 20 years prior to entry, the incumbent offered a fixed-prize payout of $26:1, returning to players 72.22 per cent of wagers placed. Mahoe was the first to enter on February 5, 2021, offering the more favourable payout of $27:1 (returning to players 75 per cent of total wagers placed). Supreme Ventures responded to this entry by increasing its payout to $28:1 (returning to players 77.78 per cent of total wagers placed). On February 10, 2021, the second entry occurred, with Goodwill offering payout of $30:1 (returning to players 81 per cent of total wagers placed). In turn, Supreme Ventures increased its payout immediately to $30.50:1 (returning to players 84.72 per cent of total wagers placed).’

SVL probably had more market leverage to apply for higher payouts without actually implementing them. If the competition cannot stand up to that strategy, then maybe it ought to open a sewing class.

The FTC “... determined that the abusive conduct had the effect of lessening competition substantially by harming competitors and potential competitors (discouraging expansion by increasing the cost of distributing games and discouraging entry by seeking approval to offer unprofitably high payouts) and harming players (reducing the variety of games accessible to players at a given retailer location).”

According to the FTC, “the staff recommends that the Commissioner take the appropriate measures to correct the breach identified in this report’.

I am not getting a sense that anyone important at SVL is sufficiently incensed to immediately respond to this “breach”.

One connected person who did not want to be named said: “You said it. It’s business and its competition. Some can stand it by bearing the excess heat of the kitchen. When I was in my 20s and I launched out in business, I understood competition as something quite unkind and unpleasant.

“If you want to succeed in it you have to stay the course. I am now in my 50s and I went through the rough times. Mahoe and Goodwill must run this course. That is, if they can stand the competition.”

Mark Wignall is a political and public affairs analyst. Email feedback to columns@gleanerjm.com and mawigsr@gmail.com.