Rather than accept that banning online gambling doesn't work and makes problem gambling worse, the government is determined to impose a nanny state solution.
The government is set to significantly extend online censorship in an effort to prop up the Howard government’s failed online gambling ban, which is costing Australia millions in tax revenue and driving gamblers to unregulated and dangerous offshore sites.
In April, the government announced its response to a review of the Interactive Gambling Act (IGA) conducted by former New South Wales premier Barry O’Farrell, and on the weekend re-announced it would be pushing ahead with legislation, although despite promises it doesn’t appear to have “unveiled” the specific bill yet. The substance of the bill will involve:
- trying to ban offshore gambling sites in Australia by telling home-country regulators that they are banned in Australia;
- “name and shame lists” of offshore gambling sites;
- ban offshore sites from being licensed in Australia;
- banning directors of offshore gambling sites from travelling to Australia;
- voluntary ISP bans on offshore gambling sites;
- “consultation with the banks and credit card providers to assess the potential options and practicality of payment blocking strategies”; and
- a ban on “click-to-call” in-play betting options from licensed providers.
These Canute-like measures are motivated by the ongoing failure of the Interactive Gambling Act, one of a suite of attacks on online freedom undertaken by the Howard government. The failure of the IGA was described in forensic detail by the Productivity Commission in 2010. The PC found that the ban was being ignored by Australians, that offshore sites offered “better prices and more variety”, that the ban drove gamblers to sites “which have poor harm minimisation features and unscrupulous business practises”; “tax revenue that would otherwise have been collected from legitimate Australian sites is now collected by foreign governments” and that regulation, rather than prohibition, “would also increase competition in gambling, with better outcomes for consumers, and provide Australian businesses with greater commercial opportunities”.
Rather than moving to open-slather, which the PC thought might cause disruption, it proposed a staged liberalisation of online gambling restrictions, starting with online poker. Two years later, the Department of Communications reached a similar conclusion. Both were ignored in favour of a hand-wringing opposition to gambling. That hand-wringing has continued under the current government, led by Human Services Minister Alan Tudge, who admits his views on gambling are based not on evidence but on personal anecdotes.
The gambling industry is rightly unpopular, partly because of its intrusive and annoying advertising techniques, but Australians enjoy gambling, and the IGA has produced perverse and self-defeating outcomes, particularly in driving gamblers to poor-quality offshore sites. Rather than admit the logic that prohibition has failed, the government, in true nanny-state style, is now looking to double down with attempts to compel offshore regulators to obey Australians law and try to convince ISPs and banks to co-operate in banning access to offshore sites.
The attempt to co-opt ISPs into being an enforcement arm of the state is a particular strategy of this government — the copyright cartel has been handed the power to take ISPs to court to block access to websites, while the government tried, so far unsuccessfully, to compel ISPs to agree to an industry code under which they would pay for enforcing the cartel’s copyright infringement scheme. Remember, too, that ISPs are being forced to bear the cost — running to hundreds of millions of dollars — of implementing the government’s national mass surveillance scheme. In the event ISPs agree to bans on gambling sites, such bans would of course be trivially easy to circumvent, particularly with VPNs, which are used by nearly one in five Australians.
The attempt to pressure banks into voluntarily banning payments is even more concerning, because of the potential for such bans to extend into other areas. Such bans and their development tend to lack transparency, making them especially vulnerable to scope creep. If you’re banning payments to gambling sites, why not ban payments to euthanasia group Exit International — after all, discussing euthanasia online was banned by the Howard government in one of its other attacks on online free speech. What about unclassified pornography services? Or political or publishing sites that offend a government? The Obama administration, after all, pressured US financial and online services to shut down access to WikiLeaks.
Moreover, the PC did not see “net benefits in, and is not recommending, a ban on the use of credit cards for internet gambling (both online gaming and online wagering)” — partly because the ban would simply drive online gamblers to unregulated providers.
Nonetheless, it seems that, despite the evidence that prohibition isn’t working, it remains the preferred approach of a government far more inclined to censorship and nanny statism than the “thoroughly liberal” approach Malcolm Turnbull boasted of upon becoming Prime Minister.
Disclosure: The author doesn’t gamble, has never gambled, and regards gambling as a tax on innumeracy.
Tom Waterhouse apparently netted more than $100 million from his eponymous gambling firm — but only a small sliver of that price will make it into the ubiquitous bookie’s bank account.
Waterhouse conducted a lengthy sale process, with some of the world’s largest gambling businesses — including Ladbrokes and BWin.Party.Digital (the owner of Party Poker) — kicking the tyres in a data room. Waterhouse was reported as seeking a valuation of $200 million for the business; in March the figure was as high as $500 million. In the end, he got $34 million cash from British giant William Hill and a potential “earn-out” of up to $70 million.
Earn-outs are a convenient way for acquirers to pick up an asset with minimal risk — the earn-out is only paid if certain (usually lofty) profit targets are met. In Waterhouse’s case, the business will need to generate $30 million in profit by 2015. Given Waterhouse is rumoured to have lost around $15 million last year, there is more chance of Fine Cotton winning the 2013 Melbourne Cup than Tom Waterhouse collecting the $70 million. That said, as advertising spending is wound back and synergies achieved, profitability should improve markedly.
What about the $34 million in cash that most media outlets have reported Waterhouse will collect? Waterhouse isn’t the only shareholder in the business — according to BRW, Tom owns around 25% of TomWaterhouse.com (ASIC searches provide little detail on the actual ownership levels). And there’s the issue of the equity already invested by shareholders (which reduced the $34 million windfall).
How do we work out how much cash the shareholders have stumped up? It’s hard to know specifics, as unlike a public company (or large private company), Waterhouse hasn’t disclosed any financial information to ASIC. However, The Wall Street Journal reports Waterhouse generated revenue of $28 million in 2013 and around $12 million in 2012. However, Waterhouse employs around 80 staff and is understood to be spending a very significant amount on advertising annually (speculation has ranged between $20-45 million in 2013). While the specifics aren’t known, investment by the Waterhouse family and other shareholders would appear to be upwards of $20 million.
Crikey asked Waterhouse for specific financial information but a spokesperson was unable to disclose any confidential data.
But if that’s the case, the $34 million cash price and $6 million debt assumption will leave shareholders with somewhere between zero and $20 million. Waterhouse’s personal windfall could be around $5 million — or possibly less.
So why sell? A Waterhouse spokesman claimed in March that the business received takeover offers on a weekly basis. The most logical explanation is that Waterhouse sold not because he was offered a fortune, but because the cash was running out. As Waterhouse himself noted earlier this year:
“What do I need to sell it for? I wouldn’t want to change my lifestyle. If I had the choice of lying on the beach or being a bookie, I’d be a bookie.”
Being a bookie, in a terribly competitive online market, has made Waterhouse a very famous and moderately rich man. But he’s a long way from unlocking all that potential market value.
A simple sports betting solution. There’s one very simple way for the government to stop what it sees as harmful advertising of sports betting on television, and it requires nothing more than consistency. Just make the same rules apply to bets made over the phone as those that already govern bets made via the internet.
Under existing federal law, once a sporting event starts it is illegal for a bookmaker to take any further internet wagers. Yet betting via phone can continue until the game is over. It really is quite ridiculous because there is no real difference between the two methods. Stop all in-play betting, and there will be no odds to update during a game. Hence no point in the “annoying” advertisements. QED.
Steady it goes. No significant change over the last week in the Crikey Election Indicator.
Things are still looking good for the Tony Abbott-led Coalition.
A Labor shocker. I know it was just a state byelection, but it is hard to interpret the weekend result in NSW’s Northern Tablelands as anything other than dismal. A primary vote of under 10% tells us something about the Labor Party brand.
And starring as Julia Gillard is … The Prime Minister’s answer to this question on the new Guardian Australia site this morning: Can you name five things on your personal bucket list?
PM: Pass lasting education reforms, see the western Bulldogs win the AFL Premiership, stay at Giraffe Manor in Kenya, walk the Way of St James through Spain and France, have Tilda Swinton play me in a movie.
The prime ministerial choice — Scottish actor Katherine Mathilda “Tilda” Swinton
Cutting from the bottom. How Laurie Oakes must pine for the days when there were subeditors who actually read what you wrote and made sure that if a story had to be shortened to fit into the space available it was done in a way that didn’t destroy the point of it. That those days have largely gone was evident on Saturday with the column the Nine Network’s politics man writes for the Murdoch tabloids.
Laurie ended his piece with a delightful anecdote about former first lady Hazel Hawke that you would have to have read in the Hobart Mercury to really appreciate:
In Brisbane, The Courier-Mail cut the item completely which I suppose was better than cutting it in a way that destroyed its meaning. In Adelaide The Advertiser settled for half the anecdote, with a repeat of the original Oakes column extract without any reference to the aircraft knitting extension. At least that let it make sense. The Melbourne Herald Sun stopped halfway — a real example of a thoughtless sub cutting from the bottom.
But it was left to our old favourite the Sydney Daily Telegraph to completely distort the author’s meaning:
No shouting back there, but the impression of a subservient woman. Surely the leading contender for a worst subbing of the year award.
Or maybe not. Then again, punters might not agree with that subbing starting favourite. From yesterday’s Sunday Herald Sun:
News and views noted along the way.
- Trouble Down Under — “Digging up a novelist’s work from his grave is a messy business. … David Marr, White’s biographer, and others dedicated to White’s memory, decided to give us ‘The Hanging Garden.’ They were right to do so, and we should thank them for it. White, I suspect, would feel very differently.”
- Japan’s own worst enemy? — “Shinzo Abe is at the height of his popularity. But is he too much of a right-wing nut to save the country’s economy?”
- In cricket scandal, revelations on India [partial paywall]
- The politics of second chances — “Do voters think personal scandal matters and what can a politician do to recover from disgrace?” [partial paywall]
- The case for 4% inflation — “Since the double-digit inflation of the 1970s, central banks have sought to reduce inflation and keep it low. … Recent history teaches us that inflation has fallen too low. Raising inflation targets to 4% would have little cost, and it would make it easier for central banks to end future recessions.”
- Risk of social unrest rises in EU — “With unemployement at unprecedented levels in the EU, the risk of social unrest is rising, says the UN’s International Labour Organization. The ILO is warning politicians to abandon austerity and embrace job creation.”
May 6, 2013
Tom Waterhouse has to be stopped, according to one gambling industry insider. His pervasive brand of promotion is giving everyone in the gambling game a bad name. Now Tony Abbott is on the case.
Congratulations, Tom Waterhouse. In the space of three months, the promotion and advertising of sports betting in Australia has gone from a rarely mentioned distraction to what has now become a significant election issue.
The 10’s on near-certainty to be Prime Minister in five months has apparently bowed to popular opinion and media hysteria and indicated he will act on advertising in sports broadcasts. Opposition Leader Tony Abbott said yesterday:
“We are natural deregulators, not regulators. But when you’ve got a significant social nuisance, it’s important for government to at least be prepared to step in.”
Hang on a minute; don’t pokies inflict the most social pain and destruction? What does he think of them? Oh that’s right, they are part of the “social fabric”.
So how the hell did it ever come to this? If you run a business whose primary concern is gambling, then surely the obligation is with you — no matter what the law — to responsibly advertise and promote the business?
Racing integrity issues aside, what Tom Waterhouse has done is far from responsible. It’s oversaturation and an unbearably pervasive brand of promotion.
I can’t quite work out whether it was an inflated ego or a genuine marketing tactic that caused him to seek a “commentary” role with Channel Nine’s NRL coverage. Whatever the reason, it was pushing the envelope, and it’s proved the tipping point for public opinion.
Some say Nine is to blame for accepting the coin and allowing Waterhouse to live his dream on the commentary team. Rubbish. When you are in the business of gambling, the responsibility must be with the operator.
Even now with his “branded” segment on the sideline, Waterhouse is still blurring the line between bookie and commentator. Sure, tell us the odds. Tell us where the money’s gone. But why rattle off 15 insignificant stats in an attempt to persuade viewers that you know the game? You can rehearse the numbers for an hour before going to air and have as many people screaming down your ear as you like, but it still comes off as if you are trying to prove something that you are not — an NRL expert.
Not surprisingly, some of those strongly defending Waterhouse have come from within the racing industry. These are the people with the least to lose. Racing will continue to be the true “mug’s game”, and any impact from any proposed advertising restrictions during sporting events will be minimal.
The Waterhouse clan puff pieces in The Daily Telegraph from the likes of Ray Thomas have been laughable and counterproductive to their cause. Stand by for Kate Waterhouse sensationally revealing that her mum is a hard worker and her brother is misunderstood in next Sunday’s edition.
And then there is this dinosaur: “Why the animosity against young Tom?” Max Presnell asked in The Sydney Morning Herald. Utterly embarrassing stuff.
So where are we now? Tom Waterhouse appears to be burning a massive chunk of the family fortune in a continued marketing onslaught. Only time will tell as to whether there will be a significant return on the enormous investment. I highly doubt it. Of more concern to those within the industry, sports betting advertising has now somehow become a 2013 election issue. Which politician wouldn’t jump on the bandwagon of populist opinion?
Just a few years after the lifting of cross-state advertising restrictions, one operator has gone rogue and seems intent on dragging an entire industry down with him.
*This article was originally published at On The Punt
Apr 23, 2013
Tom Waterhouse is everywhere, but will his business go the distance? The ubiquitous online bookmaker has a high-risk business strategy mirroring the dot-com legacy.
While the controversial ubiquity of online bookmaker Tom Waterhouse has received a great deal of media coverage, far less attention has been focused on the young scion’s business model. Will he last the distance?
The 30-year-old is the son of disgraced bookmarker Robbie Waterhouse (who was banned from racetracks for 14 years after his alleged involvement in the Fine Cotton scandal) and Gai Waterhouse, one of Australia’s leading horse trainers (and the daughter of the legendary Tommy Smith). It put Tom in a pretty useful position when it comes to marketing his business. But Waterhouse didn’t rely on free PR alone to launch his eponymous bookmaker into the stratosphere — instead, he followed the well-trodden path of dot.coms: spend a huge amount on advertising to gain market share, then sell to a well-heeled existing player that has far lower return on equity requirements.
The strategy, while potentially lucrative, is certainly not without heavy risk. Most notably, running out of cash before a bigger fool comes along to overpay for the loss-making business. There have been many examples of both — think Pets.com or Webvan in the loser category, or MyCityDeals and Spreets as relative successes (for the seller, not the buyer).
The modus operandi is simple: raise a limited amount of seed money to develop the necessary web infrastructure and commence marketing. Early marketing is usually done through online “affiliates” and Google cost-per-click advertising. Affiliates are basically display advertisement wholesalers with existing relationships with thousands of sites (like blogs or news sites). Many online businesses will then tone down affiliate marketing when they’ve saturated that segment, while others will up the ante and transfer “above the line” (advertising in traditional media).
This is where things start getting really risky. The beauty of online advertising is not only its cost-effectiveness but also the ease with which an advertiser can measure return-on-investment. Virtually all online advertising allows an advertiser to track the exact spending on each particular advertisement and compare that spend with the profit generated by each user. If a form of advertising is not generating profits, it can easily be stopped and replaced by another that is (or if no online advertising is working, pull back entirely).
“Waterhouse is playing an even risker game than usual: along with finance and p-rn, gambling is a well-established segment of online commerce.”
Traditional advertising doesn’t have that very useful advantage; that’s why almost all online businesses eschew almost all forms of offline spending, which is largely devoted to brand building, rather than specific revenue generation. Of course, if done right, offline advertising can cement a brand in a market-leading positions (like Carsales, Seek or iSelect), but it’s usually done after a brand has been very well established and is profitable. Neither of which appears to be the case with TomWaterhouse.com.
Waterhouse is playing an even risker game than usual: along with finance and p-rn, gambling is a well-established segment of online commerce. Plus, gambling tends to be quite lucrative — so the CPA (otherwise known as “cost per acquisition”) of customers is relatively high (compared with, say, online shopping). Gambling companies have been known to provide incentives of upwards of $150 in gambling credit (which works out to be far less than $150, but still, is far higher than a CPA of $3, which is common for nascent segments). Waterhouse himself was last week accused of breaching gambling laws in Victoria after offering a $200 matching bet to entice new customers.
But Waterhouse’s massive gamble may be paying off. The Financial Review reported in March that British gaming giant Ladbrokes was conducting due diligence to take a 50% stake in the business, valuing the nascent enterprise at $200 million. That price lies somewhere between astronomical and moronic (BRW revealed Waterhouse himself only owns around 25% of the business, with the rest held by investors). Moreover, Ladbrokes denied making any sort of bid for Waterhouse, noting it had “no contact” with Waterhouse.
An overseas-based acquirer would purchase a business like Waterhouse solely for its members (and possibly Tom, who would need to remain as a Colonel Sanders-style figurehead with a very hefty earnings-based payment). In old-fashioned terms, this would be the economic goodwill associated with the business. The infrastructure (like website and support staff) would be nearly useless to an existing player, which would need to integrate with existing assets anyway.
As BRW noted, Irish giant Paddy Power purchased the well-established Sportsbet business (which was founded way back in 1993) for $180 million in 2010. At the time, Sportsbet was making a profit of around $20 million annually. By contrast, Waterhouse is believed to be unprofitable (with advertising spend of more than $35 million annually). Moreover, Sportsbet is one of Australia’s most popular websites, ranked 153 in Alexa, compared with Waterhouse, which is ranked a relatively lowly 984 despite its monumental ad spend.
Crikey asked Tom Waterhouse for confirmation on its profitability, but spokesperson said there would be “no comment across the board on [any financial] matters”.
It’s certainly possible Waterhouse may find his patsy and sell the business for a fortune. It’s also possible he will simply run out of money before ever making a profit. Perhaps Tom could frame a market …
Jun 14, 2012
Online betting agency Sportsbet.com.au has stopped offering odds and refunded all bets on the punctuality of Melbourne's trains, after the private trains operator demanded the market be removed due to concerns over "public safety".
Online betting agency Sportsbet.com.au has stopped offering odds and refunded all bets on the punctuality of Melbourne’s trains, after operator Metro demanded the market be removed “in the interests of public safety”.
In a letter sent to Sportsbet boss Cormac Barry, Metro Trains CEO Andrew Lezala said the bets could provide a lure to gamblers looking to rort the market for financial gain at the expense of commuters.
Sportsbet drew public attention earlier this week for offering the novelty bets, which allowed punters to wager on whether the oft-maligned company would meet monthly timeliness and service requirements.
“We are concerned that the new betting market could provide a financial incentive for members of the public to interfere with the safe and timely running of train services,” said Lezala in the letter, adding that the “light-hearted” nature of the offering could have “serious consequences”.
Lezala signed off saying the company reserved its rights to seek legal damages.
The NT-based Sportsbet informed Crikey this afternoon that it had removed the market from its website today after receiving the request.
Spokesperson Haydn Lane told Crikey that just $71 had been staked on its service delivery market, with $692 bet on whether the trains would run on time — a vast majority of which was being held for Metro beating its 88% requirement.
“What needs to be understood is the markets were on the overall delivery and punctuality of the Metro network over a calendar month, not whether an individual train would or would not arrive on time,” Lane said.
“Given the volume of train services per month someone would need to repeatedly cause widespread disruption to affect the statistics in the slightest. Given the low amounts wagered on these markets it’s laughable to suggest there’s a financial incentive for anyone to do this.”
Metro spokeswoman Geraldine Mitchell told Crikey the measure was a sensible one:
“We think it’s self-evident as to why we asked Sportsbet to withdraw this market and thankfully, common sense has prevailed.”
Jun 13, 2012
In a new twist on the rising popularity of novelty gambling, online betting company Sportsbet.com.au has started taking bets on Melbourne's trains meeting punctuality and service requirements.
It was Mussolini who famously claimed to have made the trains run on time. Had “Il Duce” actually achieved that and been around in 2012 to run Victoria’s Metro train system, he may have been able to make a bit of cash on the side.
In a new twist on the rising popularity of novelty gambling, online betting company Sportsbet.com.au has started taking wagers on Melbourne’s trains meeting punctuality and service requirements. Punters can get odds of $1.35 for 88% of Metro’s services hitting deadlines in June, the target the company must reach to be considered on time. A similar market is operating for Sydney’s CityRail service, which is subject to similar public angst over tardiness and service.
Gambling researchers are concerned the move continues the normalisation of gambling, while Sportsbet says it’s all a bit of fun for its members. What is clear is that its another clever marketing ploy by a company that has become renowned for it.
“Of course the bookie will be hoping the media picks it up and gets people like me to respond in an outraged sort of way,” noted Monash University gambling academic Charles Livingstone told Crikey.
“My concern with it is that this intrusion of commercial gambling into everyday life represents a training program for bookmakers’ clients and potential clients. It’s a sort of gambling frenzy familiarisation program. In the world of commercial gambling operators, you can never escape the possibility of a gamble.”
It’s not the first time novelty gambling has caused a stir. Train betting is just one of many “current affairs” wagers currently being offered by Sportsbet, a local trendsetter in punting on events other than sports and racing.
As well as the now-standard election betting (also offered by most other online bookies), Sportsbet’s clients can bet on which country will leave the eurozone first, what Facebook’s share price will be by the end of the year and whether deoderant company Lynx’s “clean your balls” ads will be banned by the Advertising Standards Buereau.
It doesn’t stop there. There’s also a market for the names of Mick Molloy’s expected twins (Richo and Jack are early favourites), the colour of the Queen’s hat at the London Olympics opening ceremony (orange/peach) and something called a “Stefanovic special” devoted to which network the Nine personality will end up at next year.
Reality television offers a slew of options for a flutter, with books currently open on the winners of talent quests such as Masterchef, Dancing With The Stars and Australia’s Got Talent. Fans can even have a crack at who will end up the next host of Nine’s The Voice, with Rolf Harris offering up juicy odds of $101 to take over from incumbent Darren McMullen.
But while Sportsbet is the only major local online bookie with a focus on these kind of bets, they aren’t the first internationally. That legacy can be tracked back to Sportsbet’s Irish parent company Paddy Power, a specialist in the media-friendly novelty bet. It’s been a transparent strategy by Paddy Power to increase its market share and attract punters.
Sportsbet spokesperson Shaun Anderson told Crikey this morning that topical bets are usually small and popular with the site’s members. “We monitor activity on novelty markets very closely to ensure the integrity of these markets is not compromised,” he added.
Sally Gainsbury, an online gambling researcher at Southern Cross University, says novelty bets are a way of generating “water cooler talk” and word-of-mouth marketing.
“As online betting is legal in Australia this is one way to attract customers and keep betting entertaining,” Gainsbury told Crikey. “[However] caution is required to ensure that these novelty bets remain ‘just for fun’ and they are not inappropriate and particularly not overly attractive to children or adolescents.”
Metro did not respond to requests for comment by deadline.
The debate over gambling, it seems, bears a close resemblance to that over drugs in its polarised nature and resistance to evidence and logic. This is not a debate where nuance and subtlety get much of a look-in.
Last week the Department of Broadband released an interim review of the Interactive Gambling Act. While identifying the extent to which the IGA had entirely failed to regulate or prohibit gambling, it actually proposed to increase the level of regulation on those forms of internet gambling that are legal and proposed some marginal changes in what it acknowledged was the useless effort to regulate the internet. The one faintly liberalising recommendation was that online poker be trialled in Australia, subject to heavy caveats and protections.
By week’s end, the review had been attacked by Tony Abbott and Nick Xenophon as opening the floodgates to online gambling or, in Abbott’s peculiar words, a “dark cave”. Indeed, his remarks are worth quoting at some length:
“I think that Australians are entitled to gamble responsibly but this is a whole new frontier of gambling which the government is proposing to open. Now, the problem with this recommendation from the government is that if it goes ahead, every computer is a casino. Every smart phone is a poker game and that’s just not on as far as the Coalition is concerned.”
Xenophon, who unlike Abbott can be taken seriously on gambling regulation because of his consistent position, knowledge of the issue and advocacy, was more measured in his language, but he glossed over the fact that this was a report by bureaucrats to the government, not a government report.
What the review team are aware of, and Xenophon and Abbott, judging by their remarks, seemingly aren’t, is that the only issue about online poker henceforth is whether Australians play it on Australian sites that are taxed and regulated locally or on overseas sites, because online poker is about to undergo a significant expansion.
As the review notes, late last year the US Department of Justice reversed its position on internet gambling, in effect meaning that absent action from Congress, online gambling other than betting on sporting contests (which has its own issues in the US) was legal. That has opened the way for US states to license online slots, poker and other forms of non-wagering gambling.
The state of Nevada is now in the process of allocating online poker licences for providers who team with “bricks and mortar” casinos (thereby ensuring the support of gambling incumbents, unlike here where the clubs and pubs industry is campaigning against online gambling). This week there will be a key meeting to determine whether Bally and International Game Technology applications go forward. The licences will start reinvigorating the US online poker industry, which was virtually shut down in April last year, to the benefit of offshore sites. But this time, the industry will be regulated and linked to well-established gambling companies that already operate in the real world, and their marketing and promotional power.
The simple reason is that Nevada gambling revenues are struggling to recover from the financial crisis and revenue from card games, in particular, is falling, and the Nevada government, which like most US states has been desperately slashing spending, needs more. In 2007, total gaming revenue in the state reached $US12.8 billion but in 2008 and 2009 it fell 10% each year. It has since stabilised, and last year grew just ahead of inflation at 4% to $US10.8 billion, but revenue from card games and slots is continuing to fall or growing slower than inflation. And flat Las Vegas growth is no longer being offset by big growth in Macau for the gambling giants who operate there (WYNN and LAs Vegas Sands), with growth in Macau revenues slowing significantly as this Also Sprach Analyst chart shows).
Given Australians currently spend about $300 million a year on online poker in defiance of the IGA, the prospect of licensed, regulated online poker sites run by major US gambling companies is likely to inspire even faster growth than we’ve seen over the past decade.
The choice for Australian regulators is therefore simple: watch Australian dollars head to the US and other jurisdictions, or find a way to enable a regulated, licensed Australian industry.
But as last week demonstrates, even the slightest hint of deregulation induces hostility, in the same way that any trial of drug decriminalisation is demonised.
In this case, the problem is partly that many politicians remain even more poorly informed about media technologies than they are about drug use. Abbott’s glib line that “if it goes ahead, every computer is a casino. Every smart phone is a poker game” belies the fact that Australians are already using their computers as casinos and their phone as gambling devices and that will only increase, to the benefit of foreign corporations (not to mention organised crime and money launderers). What will happen when politicians eventually work out that there are whole internet-based economies operating through gaming environments, like the virtual markets where anyone can make and lose real money in MMORPGs — worth over $2.5 billion in the US alone last year.
That’s the problem with the internet — people are always using it for things someone, somewhere powerful enough to influence politicians doesn’t approve of, and their first demand is to ban it.
That was the instinct that drove the Howard government’s original IGA. And banning might enable politicians to tell the Christian lobby and anti-gambling advocates that they’re doing all they can to address the issue, however futilely, but the policy has real-world implications — problem gamblers get less help, consumers get less protection, governments get less revenue. The very problem anti-gambling types claim they want to address is exacerbated by pretending you can regulate the internet.
May 30, 2012
The government's online gambling review identifies the key problem about online gambling but does little to address it.
Despite the hand-wringing and gnashing of teeth from anti-gambling types, the Department of Broadband’s review of the Interactive Gambling Act is hardly the floodgates-opening set of recommendations it is being portrayed as. In fact, in some areas it would actually seek to impose even more meaningless regulation on a sector thriving in spite of efforts to ban it.
The IGA is a useless act, a dead letter emblematic of the Howard government’s loathing of new media that purports to regulate the internet and which has failed miserably. Australians are spending nearly $1 billion a year gambling online now and that’s likely to continue to grow. Everyone’s the loser from this: the Australian government, which is driving revenue offshore, local businesses which could attempt to compete with offshore-hosted gambling sites if allowed, and gamblers themselves, forced to use unregulated sites, often based in jurisdictions with dodgy legal structures.
The advocates of maintaining this profoundly flawed policy are many. It’s not just the nanny state types and church groups that want it retained; you’ll never guess, but local clubs want the ban maintained as well — like local retailers, they don’t like online competition, you see.
The review doesn’t recommend any removal of the ban except in relation to one area, which we’ll get to. Instead, it actually proposes to increase the level of regulation on online gambling services that are permitted, by imposing a harm minimisation code on them and making it a requirement of operating in Australia that they adhere to it. The ban would be maintained and overseas providers who currently offer services that are legal under the IGA would be required to sign up to the Australian code in order to not be made illegal.
The review also recommends strengthening measures against overseas companies that offer online gambling services that breach the IGA, like adding directors to Australia’s Movement Alert list and sending warnings to companies. But the review is at least realistic about the chances of successfully prosecuting people responsible for offshore-based websites, which are zero to none unless they’re planning an Aussie holiday.
Like the Productivity Commission before it, the review considered whether to try to use the financial system to block gambling that breaches the IGA by preventing credit card payments to certain sites, but figured it was too hard and too easily-circumvented. It did however recommend that banks be allowed to voluntarily decide to block payments by giving them safe harbour provisions. Given that Visa and Mastercard both block payments to WikiLeaks now without the need for any “safe harbour”, or for that matter any relevant regulator giving a damn, that proposal looks a little strange.
The one acknowledgement the review really gives to the comprehensive failure of the IGA is to propose a trial in which, subject to certain restrictions, online power be legalised, enabling Australians to play online on sites that meet certain criteria, including that they stop offering non-poker online gambling. Poker forms about a third of non-IGA authorised online gambling revenue; online slot machines form most of the remainder. Given the conditions, the proposal appears designed to enable an Australian site to operate rather than make it attractive for offshore sites to offer poker under Australian conditions. The review proposes that the trial be evaluated after five years.
It’s a sensible step in the right direction of regulation rather than banning, but floodgates it ain’t. In fact the review looks almost bizarre in identifying how comprehensively the IGA has failed and yet proposing to do virtually nothing about it. The manner in which anti-gambling advocates have attacked the report illustrates how hard it is to have a rational debate about gambling in th face of all evidence.
And bear in mind of course that the government may not even accept the recommendations of the review. It was, after all, merely put together by departmental officials.
If nothing changes, of course, then online gambling will continue to surge in popularity, and no one here will get the benefits of a more rational approach.
Nov 3, 2011
The Coalition has proposed greater internet censorship as part of its counter-proposals on gambling reform. The US experience shows it doesn't work.
After complaining that proposed mandatory pre-commitment pokies reforms were “nanny statism”, the Coalition has called for comment on ways to strengthen internet censorship and restrict advertising in its own gambling reform paper.
The discussion paper, launched yesterday, invites comments on a voluntary pre-commitment scheme, more counselling services for problem gamblers and a review of exclusion programs. It also suggests the current bans on online gambling — via the Howard government’s 2001 Interactive Gambling Act — be “strengthened”:
“The Coalition does not support any relaxation of these laws. However, there are ongoing community concerns that the laws are not adequately enforced and that Australians are able to access online casino style games and poker machine style games. The risk for users of online gaming sites is that they are offshore (and therefore no guarantee of probity, return on funds won, authenticity), can be accessed by minors and problem gamblers with ease and do not operate within the checks and balances (such as counselling and self-exclusion) that are outlined in this paper. In addition, online gambling sites do not pay tax in Australia and invariably do not employ Australians, unlike the broader domestic gambling industry. The Coalition is keen to receive input about how the current laws might be further strengthened to limit the risk of online gambling access to Australian consumers.”
The Howard-era laws purport to ban the provision of the quaintly-named “interactive gambling services” to Australians. As the Productivity Commission showed in its gambling review, the laws are a dead letter. The PC found Australian online gambling via foreign sites had “grown strongly” since the laws were introduced (as it has in other countries) and — as the Coalition admits — therefore Australian gamblers use poorer regulated sites and Australian governments miss out on tax revenue because of the ban. The PC called for the ban to be lifted in favour of “managed liberalisation.”
The PC also investigated whether it was feasible to implement the IGA more effectively. It concluded the only way to do so would be to add identified gambling sites to the government’s proposed internet filter. Even then, of course, the filter can be easily bypassed by anyone with a modicum of IT knowledge.
Many US states and the US government have similar anti-online gambling laws and have gone in far more extreme directions in an effort to make them work, including bans on financial institutions transferring money to them. In September, the state of Kentucky tried to seize several gambling-related domain names, an approach also tried by the FBI. The US has also repeatedly indicted foreign nationals for operating gambling sites or related financial transactions, including an Australian citizen. Online gambling in the US has been similarly unaffected by even these draconian laws. Analysts estimate the US online gambling market accounts for more than a quarter of the global market and is worth $7 billion a year.
The Coalition also invited comments on a proposal to ban most gambling venues, including online venues, from offering credit to gamblers, which would also be a dead letter for foreign-based gambling sites, and banning the promotion of live odds during broadcasts of gambling-related events.
The paper also alludes to other mechanisms for online regulation in its final proposal, that lawmakers “cooperate with financial institutions” in the enforcement of online gambling bans. Putting aside that it’s usually financial institutions that have to cooperate with lawmakers, the proposal appears to raise the possibility that financial institutions could be required to somehow prevent payment by Australians to overseas gambling sites. As the PC noted in considering a separate proposal to ban credit card usage for gambling, this would be easily circumvented by mechanisms such as PayPal.
Given the PC’s conclusions about the difficulty of “strengthening” the current online gambling ban, it appears the only other means of doing so open to the Coalition would be to embrace the US approach of trying to seize domain names and extradite foreign nationals for operating sites. However, as the US experience suggests, even these draconian attempts have failed to stop people gambling online.
Either the Coalition isn’t serious about gambling reform, or it has failed to do the most basic homework on why governments usually fail when they want to “regulate the internet”.