Public Policy Challenges of Regulating Gambling

The Examples of Online Gambling Regulation

May 2012

- Starting position: Controlling the supply and consumption of gambling is vital ingredient in ensuring public policy outcomes can be achieved.

-The way the online industry has grown and been regulated over time, with the current point of consumption regulatory trend serves as a good example of the way policy makers have sought to meet their policy goals, ensuring player protection and social responsibility.

Online Gambling: the challenge for policymakers

1990s

2012

1995: 24 online gambling sites.

1990s characterised by little regulatory oversight and control., with online gambling growing along the internet’s growth.

2012: The current number of active websites remains subject to wide approximations. One, online directory (Casino City) estimates that online gambling sites number over 2000 (approx 700 casinos; 500 poker room, 400 sports/racing book; 300 online bingo sites; 30 betting exchanges; in addition to lotteries, skill gaming sites).

However, the European Commission Green Paper cited 14,823 active gambling sites in Europe more than 85% operated without any licence.

Growth in online gambling Growth in online gambling regulation

Global revenues estimated @ over US$30bn (2010); across EU over €6bn (2008)

1996: Monopoly operator in Finland moves online.

Offshore websites and jurisdictions emerge, with Malta (2000) being the first and remaining only EU member state to have an ‘offshore’ regulatory system. Malta has most online licences in the world.

2006: UIGEA in the US enacted, expressly prohibiting online gambling and introducing payment blocking measures. (in force from 2010)

2007: UK’s regime comes online with a open market approach to regulation as no UK licence is required to accept bets, as long as no gambling equipment is in UK.

2008: Italy’s point of consumption – ‘ring-fenced’ regulation begins.

2010 – 2012: Various shades of ring-fenced models emerge in France (2010), Estonia (2010), Belgium 2010/11, Denmark (2012), Spain (2012) and Schleswig-Holstein (2012).

Online Gambling: A Global Snapshot 2012

Online Gambling: An EU Snapshot 2012

Product Context: Online Games Regulated Across EU

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-At their broadest, regulatory approaches to online gambling seek to (in the words of the UK’s licensing objectives):

- Keep the industry crime free. - Ensure gambling is fair and open. - Protect the vulnerable and children.

- In order to meet these objectives the control of the supply and consumption of online gambling services are two inter-related parts of policy approaches.

- However, most regulatory approaches have focussed on the supply of gambling, without considering the issue of consumption and consumer behaviour to the same extent.

- Ring-fenced regulation policy context follows.

Policy Context

-There is no one definitive ‘ring-fenced’ model as the models which have emerged across the EU vary greatly. For instance:

-Italy has pioneered ring-fencing by attempting to restrict supply through website blocking and real-time control of gambling. - Belgium’s model requires a land-based licence in order to operate online gambling, thus drastically restricting legal supply. - Denmark’s model utilises all three common tools for restricting supply – payment blocking, ISP (website) blocking and advertising restrictions.

-The three main methods used to control supply and restrict access to ring-fenced markets are through:

- Payment processing blocking- Website blocking- Advertising restrictions

-Limited study has been conducted into the effectiveness of the above methods.

Ring-fenced Regulations: Supply

-Payment blocking. Norway , a monopoly market is the only jurisdiction to evaluate payment processing restrictions. A study released in 2012 found that: 54% of gamblers played as frequently on foreign sites as before ban; 5% more frequently; 39% did not know about the ban. - Norway’s regulator sees the payment ban as a signal and message to players that there is a legal supply of games and an illegal supply – and does not see the ban as an 100% effective solution. - The US also has implemented a payments ban. The indictments of Full Tilt Poker and PokerStars in April 2011, close to a year after the ban came into effect, indicates that the ban was being circumvented by players.

- Website Blocking. Three EU member states currently have black lists (Italy, Estonia and Belgium), while France has sort court injunctions against websites. The effectiveness of this method has been questioned on grounds of technology and has been criticised as shifting the problem than resolving it. -Italy's regulator has observed that blocking can only work when there is a legal alternative, and estimated in January 2012 that 50% of Italy’s betting activity had returned to black market.

Restricting Supply: What we are learning

- Advertising restrictions. The most widely utilised tool in ring-fenced but also monopoly and other regulatory models. Restricts supply by starving black market operators of advertising ‘oxygen’ in which to promote their offers. Seen by some regulators as potentially the most effective tool. - Limits to effectiveness have been raised by ‘free play’ websites, sponsorship arrangements and marketing/advertising from outside the jurisdiction.

Restricting Supply: What we are learning

-Consumer behaviour is revealing that players will seek out black market offers if the legal / regulated offer is deemed inadequate or less competitive.

-This issue is overlooked in some regulatory models. For example, while jurisdictions such as Denmark and Italy have a range of legal offers which increasingly seek to mirror what is offered on the black market (in terms of types of games available), other jurisdictions such as France and Poland have a much narrower supply of legal games.

- In addition to product range, consumption is influenced by:

- Pay-out rate / return to player (value to players): France’s mandatory payout rate has been detrimental to licensed operators in the jurisdiction as players are aware of the better value offerings on the black market.

- Taxation rates (attracting legal operators to supply regulated gambling offers): Denmark’s choice of was, in part, chosen for “the need to face competition form online operators established in other countries with lower tax rates.” A competitive tax rate was seen as essential for the objectives of the country’s law.

Ring-fenced Regulations: Consumption Issues

The challenge for policymakers

A note on player protection measures: Land-based and Online

-Studies have identified risk factors associated with online gambling to include: high level of accessibility; convenience; increased social isolation and immersive quality of the internet.

- However, a recent study (Haefeli, Lischer & Schwarz (2011)) challenges the oft held view that online gambling is inherently more risky than other forms of gambling. The study listed the feasibility of player protection measures in both land-based and online gambling – finding that all were either common practice or possible in online gambling, whereas, some were not possible in land-based settings. The protective measures listed included:

-Exclusion (partial, self-exclusion or prescribed)-Limitations (to gambling volume, gambling time, gambling frequency)- Design of the gaming structure (pop-up messages, game play information re time, volume and frequency)- Information offerings (player help materials, self-tests, interactive self-help tools, contact with qualified support)- Under-age protections (access limitations)- Credit handling

- The authors suggest that the feasibility of player protection measures in online settings might explain why the theoretical risk of online gambling does not eventuate in observed behaviours.

Adequate Funding For Player Protection And Research

- And finally, don’t neglect funding issues.

-Harvard research from 2010 showed that that only 7 out of 31 European states have earmarked money for problem gambling from gambling proceeds.

- Adequate funds for research – helps understand the implications of policy and provides an evidential basis for policy decision.

- Eg. Research can include: prevalence studies – know the numbers of problem and/or pathological gamblers, publically available information on revenues etc.

For a copy of this presentation or an explanation of the underlying material please feel

free to contact me on the details below.

www.gamblingcompliance.com

www.gamblingdata.com

Thank you!

Laurie Korpi,Legal and Research Director, International.laurie@gamblingcompliance.com

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