Untaxed, unregulated and under the radar, the so-called "unofficial" sector of online gambling is increasing in popularity.
Much of Australia's $22 billion gambling addiction has been well documented, poker machines, table games and wagering are all hugely popular with the punters. But what about online casinos? Untaxed, unregulated and under the radar, this so-called "unofficial" sector of gambling is increasing in popularity.
According to the Productivity Commission, the wild west of unregulated online gambling could be worth as much as $800 million annually. Industry experts recently pegged the number as high as $968 million -- with a third of that funneling into online poker.
Dr Sally Gainsbury, a lecturer at the Centre for Gambling Education & Research, Southern Cross University, is currently undertaking a survey into online gambling, with the results set to be presented later this year.
As part of her research, Gainsbury has studied the growth of online casinos and their popularity with Australian gamblers.
"At the moment participation compared with other forms of gambling seems low, but it appears to be growing," she told Crikey
. "The thing about these offshore sites is that many are easily accessible to younger people and problem gamblers. There is also a lack of consumer protection."
Under the Interactive Gambling Act passed in 2001
, it is illegal for online casinos to accept bets from or advertise to Australian players.
But that does not seem to have to have stopped the growth of casinos. According to Gainsbury's calculations, there were 2319 virtual casinos open for business in May this year -- "although that changes all the time" -- with 90% of operators offering play to Australian players.
One of the big operators is 888.com, who commanded revenues of $US221.7 million last year and profits of $US12.4 million (down from $US31.9 in 2009). Listed on the London Stock Exchange, its headquarters are based in the small English colony of Gibraltar -- a popular location for online casinos.
At the time of her count, Gainsbury found Gibraltar had 291 online casinos operating in its jurisdiction. Gainsbury says the reasons for Gibraltar's popularity could be due to its proximity to Europe and also its stringent regulatory body (a must for the legitimate operators).
There is also the small matter of tax, which at 1% of gambling income in Gibraltar is far more attractive than the 15% taken from the pot of operators in the UK.
Unsurprisingly, low taxes are a common theme among countries with the highest number of online casinos. English channel island Alderney charges 0% tax (only a license fee is required) and has 104 operators.
Tiny island republic Malta leads the way with 460 casinos and has an attractive tax rate of 0.5% gross amounts of bets. In Costa Rica -- a country Gainsbury says doesn't command many legitimate operators because of its lax regulation -- online casinos are treated as call centres and face attractive offers also.
As well as an attractive tax rate, Gainsbury says suitable online casino locations need a good legal framework, an availability of workers that speak the required language and a decent telecommunications set up.
Aside from all that, the country also needs to sit in a compatible time zone.
But despite an explosion in the number of casinos competing for gambler's dollars, the sector is not impervious to the odd economic shock.
According to figures recently released by gambling industry market research consultants H2 Gambling Capital, online gambling forecasts will amount to 23.66 billion euros this year, which amounts to a downgrade of year-on-year growth rates to 4.4%.
H2 attributes the recent FBI crackdown on online poker giants, PokerStars, Full Tilt Poker and Absolute Poker (which the industry dubbed "Black Friday") as one of the reasons for the drop in revenue.
Other key factors include slower than expected regulation, the Japanese earthquake and the economic slowdown in the US and Europe.
North America is still the major market for online casinos, however the Black Friday crackdown may see its importance dip. Gainsbury says Asia is being eyed off as a potential online casino goldmine, but only if they liberalise gambling laws.
With so many casinos on the market, things can get competitive. Online casinos offer myriad of bonuses to get punters to sign up. Inducements include "welcome bonuses", which are usually the doubling (or sometimes tripling) of a player's deposit.
Gainsbury says there are 200 different forms of payment at the online casinos she looked at. These options ranged from traditional credit car billing to PayPal to specialised casino deposit services.
But despite the illegality of offering play to Australians, there has yet to be a prosecution of a single operator. Gainsbury says she is surprised no action has been taken.
"Despite the Interactive Gambling Act strictly prohibiting these casinos offering play to Australians, there have been no prosecutions," she said. "To me it seems odd. I know there have been complaints, but no action has been taken."
Perhaps, with so many potential tax dollars flowing out of the country to overseas operators, the regulators will look to act. Presumably letting our gambling revenue go offshore may not sit well with the states. After all, in 2009-10, they took in $5.2 billion of tax dollars from gambling.