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Stacking the Deck

7/16/09 - The Economist - View Source

WHO says Europe cannot produce internet giants? In one area of online commerce, at least, its companies dominate the world. Betfair, an online-betting exchange based in London, has been called the eBay of sports betting (see article), and the vast majority of the websites that allow people to play poker and other games of chance or skill for real money are based in Europe.

In part, this is because that is where the market is: Europeans place some 40% of all online wagers. A bigger reason, however, is America’s prohibition of online gambling. With its love of horse racing, sports and casinos, and its world-beating technology industry, America ought to be the natural home of this burgeoning field. But it has arrested industry entrepreneurs and ordered banks to halt payments to online-gambling firms. In June the European Commission grumbled that American restrictions on European online-gambling firms break World Trade Organisation rules.

Yet Europe itself is deeply divided when it comes to online gambling (see article). In theory there is a single market, but in practice only 13 of the European Union’s 27 member states approve of online gambling. Seven countries restrict it to gambling monopolies owned or licensed by the state, and another seven have followed the Americans and attempted to outlaw it. Dutch banks face prosecution if they transfer money to online-gambling firms abroad, and Germany, Italy and Spain are trying to get internet service-providers to block access to gambling websites. That the European Commission is defending European firms’ right to offer online gambling, even as some countries try to ban it, raises difficult questions about individual states’ ability to override the single market in sensitive areas. But despite much huffing and puffing, the commission seems reluctant to raise the legal stakes.

Don’t bet on prohibition

Politicians argue that prohibition is the best way to protect vulnerable consumers from a potentially addictive pastime. But kinks in the law expose their hypocrisy. In both America and Europe, local gambling monopolies are allowed to offer the same sorts of bets that are outlawed if placed with firms abroad. This suggests that the prohibitionist governments’ main aim is to protect the revenue that they earn from their state-approved gambling monopolies.

The belief that they can do so by bullying banks and internet companies into stopping people from placing bets abroad seems naive. Gamblers know that they can get better odds when placing bets in more open markets where the house’s take is usually 3-5% of the stake wagered. Traditional bookmakers or lotteries may keep as much as a quarter for themselves. Prohibition has not eliminated online gambling in America: a steady stream of prosecutions attests to its continuing popularity. It has, however, driven the reputable internet gambling firms to friendlier shores and has pushed those Americans most determined to bet—the very people who are the most vulnerable to gambling’s excesses—to place their wagers in the murkier bits of the internet.

Trying to stem this tide is pointless. Rather than criminalising gamblers for trying to get a better deal, governments would do far better to offer punters and online-gambling firms a safe, legal but regulated market—and gain some tax revenues to help plug their deficits at the same time.

Protecting Children
Compulsive Gambling Safeguards
Secure Financial Transactions
New Government Revenues
Regulated and Licensed Environment
International Ramifications
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