Saturday, June 18, 2005

The Ethics and Economics Of Gambling

It is often said that the USA and UK are two nations divided by a common language.

The impending Party Poker flotation has highlighted a second glaring difference. The approach of the respective nations to gambling.

The greatest gambling destination in the world is Las Vegas, USA. The UK, indeed Europe, has no comparable city. Were such a city to exist, prevailing market conditions would be highly favourable towards it's future prosperity.

Prior to the 2005 election, far reaching UK government plans to liberalise the bricks and mortar gambling industry were stymied by a coalition of political parties and pressure groups.

A proposal to allow for the creation of multiple 'super casinos' in the same mould as The Bellagio, MGM Grand, Wynn, Treasure Island, Aladdin, Venetian, etc. was defeated in parliament. Plans to remodel fading seaside resorts, such as Blackpool, by allowing clusters of casinos in the same manner as the Las Vegas strip, had to be put on ice. Instead, only one super casino will be allowed in the whole of the UK.

This is hardly likely to become a mecca for European gamblers!

There appears to be a fear that introduction of these super casinos would lead to a dramatic increase in gambling addiction, and a breakdown in society. The bigger the casino, says this theory, the more addicts will be drawn through its doors.

This is a fundamental misunderstanding of the nature of these establishments.

Yes, they do have enormous gaming areas, vast arrays of slot machines blinking and bleeping hypnotically. They also have superb restaurants serving a global range of cuisines, shows which would grace Broadway or The West End, enough hotel rooms to house an army, and an inventive range of other attractions which transform each super casino into an attraction in its own right and make hospitality and entertainment a 24 hours-per-day, 365 days-per-year industry.

It is perfectly feasible to spend an activity packed week in Las Vegas without actually indulging in any gambling activity.

The best Las Vegas casinos truly are world class. An accolade of which the UK government is keen to see more UK companies become worthy.

Instead, the new watered down rules will simply promote more small casinos. Each of which will have much gaming space, but no distinctive attractions with international appeal. More gaming space, less non gaming activity. No Bellagio fountains, no Venetian gondoliers, no Mandalay Bay aquariums.

Is this what opponents of the original plans really intended?

By constraining the industry in this way, the UK has missed a huge opportunity. In this era of DIY holidays and budget flight options, traditional UK holiday destinations have suffered greatly.

The consumer is hardly likely to choose a week in Blackpool with highly variable weather, when for £50 they can be winging their way to the sunshine of Spain, or cosmopolitan European capitals, such as Rome and Paris, direct from their local airport.

Budget airline flights from the UK generally take more Britains abroad, than foreigners to Britain.

What is needed to sustain UK tourism is a better mix of attractions.

Scotland, for example, has many attractions which have an appeal in both Europe and the USA. As the home of golf and whisky, with a rich industrial and historical heritage, there are many sites well worth a visit.

One thing Scotland most definitely does not have is the weather. Mild and wet in winter, cool and wet in summer. Whilst excellent for raising pedigree cattle, it is hardly the ideal conditions for a tourist industry built on outdoor activities.

A more balanced offering, which presented a range of indoors and outdoors events, could be built around a few super casinos.

For Europeans, and east coast Americans, a long weekend in Scotland could encompass a stay in a super casino with all the attendant gambling opportunities, alongside more traditional options such as golf at St Andrews, Gleneagles, or Turnberry, a whisky distillery trip, visiting historic sites, tours of the three 50,000+ seater football stadiums in Glasgow, or a myriad of other smaller events.

Instead of The Hoover Dam, think Edinburgh Castle. For The Grand Canyon, substitute Loch Ness or The West Highland Way.

Such a combination of events would negate the disadvantages of the Scottish climate, and stimulate a year round growth in inbound tourism, as well as the conference market which thrives in Las Vegas.

There may be an increase in the number of gambling addicts, but not on the scale the doom mongers predict. Anyone who wants to gamble already has ample opportunity to do so. Not only at smaller existing bricks and mortar establishments, but also online. Another area where US and UK policy differs fundamentally.

In contrast to the puritanical approach to bricks and mortar casinos, the UK has pushed ahead with a much more liberal approach to online gambling.

As a consequence, the UK shows signs of becoming the trading centre of the online gaming industry. While US investors in online casinos can expect the FBI to take a keen interest in their activities, they will receive more attention in the UK from government agencies keen to encourage them to put down UK roots.

Empire Poker has already floated on the AIM(junior London exchange), and in two weeks time Party Poker will float on the main London Stock Exchange with a valuation likely to place it in the top 100 companies list.

As both companies are likely to use their new status to issue further shares to take over smaller rivals, they are likely to grow further still.

Party Poker is a tremendously profitable enterprise, with margins most companies can only dream of. Online gaming is the perfect internet enterprise. All monies are paid up front, the service is delivered instantaneously to the consumer with no third party shipping costs, and for poker sites and gambling exchanges, the risk is assumed by the consumer not the service provider.

The one concern which hovers over the impending float is the possible illegality of Party Poker operations in the USA.

The nation which gave the world it's gambling mecca frowns upon any attempt to gamble within the sanctity of one's own home.

This approach is more rational than the UK approach.

A super casino, as allowed in some US states, generates a range of benefits which can be enjoyed by gambler and non gambler alike.

A lone gambler hunched over a PC, credit card in hand, generates only profits for the online casino, and in the case of poker, his more skilled, or fortunate, opponents.

Being more rational than the UK does not, however, make it a rational policy. To make criminals of millions of US consumers is to deny the reality of the situation. Online gaming is here, and here to stay.

Rather than attempting to hold back the sea of online players, the US government would be better advised to promote regulation and control, ahead of prohibition and an almost certainly futile attempt to strangle what is the perfect online enterprise.

A mechanism should be found to fund gambling addiction helplines. A surcharge on advertising of gaming sites is one option which has been suggested. By conveying legitimacy on the industry, the US government could easily justify some form of levy or tax to offset the negative social impacts of online gambling.

The USA and UK are not strangers, yet they have much to learn from each other. If their respective governments can share their experience and learn from each other, they have an opportunity to turn a perceived threat into a controllable opportunity, which can be harnessed for the common good.

If not, they risk ending up with the worst of both worlds.

In the US, a multi billion dollar industry with ineffective regulation, unclear ownership structures, and hidden social impacts.

In the UK, a rise in gambling activity, with no associated rise in ancillary benefits, and little or no boost to the tourist industry.

It is not too late to avoid this trap, but it requires bold thought and action. Can UK and US politicians rise to the challenge?


Joaquin "The Rooster" Ochoa said...

Wow! This is just a fooken awesome post...serious, you should send this to Pinky.

Pinky said...

Indeed, a great post.

Div said...

Thanks for the kind words guys. Feel free to pimp me shamelessly on your blogs ;)

Joe Speaker said...

Well said, div.

I'm of the mind the US will come around on the online gaming issue, for precisely the reasons you list. The government definitely wants to regulate the industry and is even more interested in profitting from it.

The problem, as I see it, is the right-wing politicos reconciling those desires with their stated "moral values." Tricky.

This, however:

It is perfectly feasible to spend an activity packed week in Las Vegas without actually indulging in any gambling activity.

is patently untrue. :)

Div said...

Joe, I'm afraid I must respectfully differ on the last point!

Mrs Div and I spent about six days in Vegas last year and the only gambling she did was some video poker whilst waiting for me to conclude a blackjack session.

If I hadn't been there to drag her into the darkest bowels of the casino floor, she wouldn't have gambled at all.

Other than gambling, we managed to do (from memory)
- Grand Canyon tour
- Hoover Dam tour (geeky me)
- spa day (her)
- Mystere at TI
- The Killers at Mandalay Bay
- Mandalay Bay shark reef
- classic lookalike show at Stratosphere
- Fremont St experience
- numerous gargantuan feasts
- loads of sightseeing round the various resort casinos

Even then there were loads of shows we still wanted to see but didn't have time, plus the Hopkin/de la Hoya fight was on and I didn't get to see it. We didn't spend a single second chilling by the pool.

She wants to go back at the first opportunity!

Of course I did manage to fit in some blackjack, a little poker, and enough JD and coke to float a battleship :D

April said...

Wait, there are buildings in Vegas other than the MGM Grand???

Oh, and that Plaza place for sleeping?