GAMING giant Supreme Ventures Limited (SVL) could be warned for prosecution by the Fair Trading Commission (FTC), which has cited the Jamaican-based company for abusing its dominant market position in the Jamaican gaming business in a draft report.

The FTC has concluded that since the onset of competition in the local gaming market space with licences being issued to Goodwill Gaming Enterprises and Mahoe Gaming Enterprises Limited in 2020, SVL has been engaging in conduct which the commission is challenging as a breach of the Fair Competition Act.

Following a complaint and investigation, the FTC determined that SVL abused its dominant position in the local lottery market by “limiting the expansion of entrants through the restriction of competitor’s access to a critical input (retailers). Supreme Ventures restricted the access of its competitors to a crucial input (ie, retailers) by strategically terminating and/or threatening to terminate agreements with some retailers which also engage the services of competing lottery operators.”

In its 32-page report, which was uploaded to the FTC website on Monday, “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).

The FTC is adamant that SVL’s conduct did not meet the standards to be exempted from being treated as a breach of the Fair Competition Act, arguing that the overall conclusion is that the challenged conduct is likely to breach sections 19-21 of the Fair Competition Act. As such the FTC executive staff is recommending that its “Commissioners take the appropriate measures to correct the breach identified in this Report.”

The fair trade regulatory body observes that with the entry of competition in the space, “there is a noticeable shift in the terms and conditions under which SVL engaged and/or disengage retailers in furtherance of its channel and business realignment strategy. In many instances, SVL terminated the services of retailers, who also engaged competing operators.

Examples of abuse of dominant market position

The FTC in its investigation report detailed two examples in which SVL abused its dominant market position. Firstly, the FTC cited where SVL secured approval to offer odds of up to 50:1 for its pick 1 lottery game (Cash Pot), contending that “such high odds are likely to be ex-ante unprofitable for a lottery game with a field of only 36 numbers and therefore would be irrational to implement for any profit-maximising enterprise.”

Secondly, within two weeks of the first entry (Mahoe), Supreme Ventures terminated the first of 48 retailer agreements with retailers, which distributed games for the recent entrants, in pursuant to its channel and business realignment strategy. As such the FTC challenged the conduct of SVL on the basis that the objective and/or effect of the strategies described above was to maintain its dominant position in the promotion of lottery games by discouraging retailers from engaging competing operators.

The challenged conduct was investigated under sections 19-21 of the Fair Competition Act, which prohibit any action of an enterprise occupying a dominant position in a market from abusing its dominance to the detriment of effective competition. As a result, the FTC has determined that, “SVL is unduly restricting rivals’ access to the most cost-effective distribution sales channel (retailers) and players are likely to be deprived of potential benefits of competition in the long run in terms of higher payouts, faster pace of product innovations and greater variety of lottery games at a given location.”

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).

SVL termination of retailers

SVL, the complaint said, has been engaged in conduct with the objective and/or effect of limiting the entry and/or expansion of competitors in the relevant market. The observed conduct by the FTC coincides with the granting of two lottery operator licences to Goodwill Gaming Enterprises Mahoe Gaming Enterprises Limited in July and August 2020, respectively.

The conduct, the FTC asserts, has had a significant effect on the network of retailers accessible to recent entrants. “As a consequence of the challenged conduct, a total of 156 (88.6 per cent) of the 176 retailers engaged by Mahoe opted to either limit or abandon distribution of Mahoe games in favour of SVL’s games,” the FTC investigation report documents.

In particular, the 176 retailers (covering 247 locations) which had engaged Mahoe had also engaged Supreme Ventures and therefore were subjected to the challenge conduct. Of this amount, 20 retailers (35 locations) refused to terminate their agreement with Mahoe and were subsequently terminated by Supreme Ventures.

A further 100 retailers (134 locations) opted to exit the agreement with Mahoe to comply with Supreme Ventures’ directive for exclusivity. The other 56 retailers (78 locations) maintained agreements with both Mahoe and SVL by operating terminals of Mahoe and SVL at separate locations.

SVL faces insufficient constraints from current and potential competitors

To the extent that the challenged conduct is restricting the access of entrants to a crucial input (existing, independent retailers), the FTC concludes that expansion in the market is likely to be insufficient to avert anticompetitive conduct.

Accordingly, the FTC concludes that SVL is unlikely to face constraints from potential competitors since competitive entry is unlikely given the restricted access of new entrants to existing independent retailers. The conclusion is that SVL is dominant in the relevant market as it faces insufficient constraints from its competitors and potential competitors.

However, the FTC report articulated that “SVL’s conduct is causing harm to players of lottery games. As indicated above, SVL implementation of its channel and business realignment strategy limits the number of lottery operators present at locations where Supreme Ventures is present, which limits the number of gaming options players could choose from at the locations impacted by the strategy.”

When contacted, Supreme Ventures said they will answer questions about the report after reading it properly.