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The international hot potato that is internet betting

January 26th, 2014

hot-potato

The politics of banning online gambling

Hardly a week goes by without online gambling being in the news somehow. This burgeoning industry rakes in over $20 billion worldwide every year according to the latest H2 Gambling estimates. Therefore, it isn’t surprising that governments everywhere are eyeing the multi-million pot with great interest, though the reasons behind this interest aren’t always the same.

Politics has always played an important hand in the fate of online gambling. Despite the ever changing regulatory backdrop, legislative hiccups and jurisdictional problems, the industry has managed to evolve into the one of the leading forms of online entertainment among adults. In this article I take a look at the main concerns underlying governmental action to ban online gambling and its economic consequences.

Double or nothing

In a world where many countries are strapped for cash, online gambling has been under heavy fire due to new regulations. These are usually aimed either at milking the industry for extra cash, or to quash it underfoot to prevent more money from leaving a given nation’s dried-up coffers.

The fact that online gambling can elicit such diametrically opposed – yet equally justifiable reactions is one of the complicating factors that make it such a hot potato in the political arena.

A simple explanation for this dichotomy can be found in the context of the political agenda that a given government pursues.

Cashing it in

Countries like Spain and Malta have taken the bold move to legalise online gambling within their borders and grant licences to operators that want to set up shop within their jurisdiction.

The advantage of such an arrangement is that the state can rapidly line its pockets with the revenue made from taxing the profits generated from these companies and the winnings made by players.

This approach take a proactive stance over an unregulated situation, whereby money would end up siphoned by foreign governments that provide a safe environment for online betting companies. In fact, the government of Albania has gone a step further by licensing operators within its borders and then proceeding to ban all online gambling sites based abroad in order to plug the hole on the €500 million that was being spent by Albanians on foreign operators.

However, legalising online gambling carries its risks. Much to Spain’s dismay, the actual revenue figures reported by online gambling operators in the last quarter of 2013 fell short of the optimistic predictions that had been made. Analysts have pointed an accusatory finger towards a greedy government that imposed a sky-high tax rate of 25% on online winnings and discouraged gamblers from trying their luck online. Now that Portugal is also gearing up to follow its Iberian neighbour’s steps and open up the online gambling market within its borders, punters have suggested that establishing lower tax rates and permitting foreign-owned betting companies to partner up with local businesses can help create a better environment for online gambling regulation.

Stakes too high

Not all governments believe that legalising online gambling necessarily means hitting thejackpot. Some countries, like Germany and Russia, have argued that the short-term profits gained from taxing gambling wins and company revenues are eclipsed by the social and economic burden of gambling addictions. Singapore has also been faced by widespread cases of crippling gambling problems that affect worker productivity and lock up precious healthcare resources. The Singaporean government concluded that the problems associated with online gambling outweigh the $300 million pulled in by remote gambling annually, and is set to block betting websites and payments to operators.

But prohibiting online gambling outright carries significant political and economic consequences.

In the United States, where online gambling is deemed illegal in most of its forms throughout the fifty states, there exists a thriving black market that only benefits the people running the illegal games instead of the wider community. It is thought that the ban on online gambling has prevented US companies from offering more jobs to workers in this industry and deprived the states from reaping much-needed tax money.

Finding the sweet spot

The extreme positions taken in Singapore and the US haven’t been without their critics. Three states in the US currently do allow players to enjoy gambling online and there is a growing lobby in favour of enacting strong regulatory standards that allow individual states to legalise some forms of online betting, protect customers and prevent underage persons from playing. If proper regulation is put in place nationwide, the US could possibly generate over $26 billion in tax money on gambling revenues and create nearly 22,000 jobs in the field. Likewise, Singapore may soon soften its blanket restrictions and allow online play in certain cases.

Dealing with the political implications of banning or legislating online gambling is a very tough issue, but countries like the United Kingdom, Australia and France have used technology to successfully protect gamers’ interests while securing that of their respective governments.

Gambling operators are licensed only if they abide by stringent rules that ensure fairness and a safe playing environment. Regulations avoid the necessity of outlawing gambling – a nearly impossible enterprise given the accessibility of the internet – and maintain better control on its effects on players prone to addictive behaviour and minors.

Making the call

Online gambling has been the subject of intense debate, especially owing to the lack of control on betting operators based in foreign jurisdictions, the adverse effects of gambling addictions and underage play. The strategies adopted by various governments seem to reflect their political priorities: wherever money is needed, regulations have followed; if the social impact of gambling is perceived to be too negative, then governments responded by severely restricting gaming.

As technology advances and online gaming becomes more easily accessible to casual players, legislation needs to adapt to these ever-changing realities. Governments around the world are realising that the well-being of players and the prevention of addiction must also be taken into consideration in order to draft holistic and effective legislation for online gambling.

Mike Smithson