Regulated online gaming is a hot topic, as how it is interpreted and applied varies from country to country and even province to province here in Canada. As consumers continue to embrace online gaming as a form of legitimate entertainment, the reality is that this industry will continue to expand to meet consumer demands, which in turn is forcing governments to address the need to regulate access to the products.
Canada’s online gambling market was worth about $800 million in 2010 (Global Betting & Gaming Consultants (GBGC)) and based on projections from researchers, that is a conservative estimate. By 2013, experts predicted that it would be worth approximately $1.3 billion. And yes, the majority of that money is wagered offshore.
If a government is determined to enter into online gaming and adopt a model, there are three that exist when it comes to online gaming: monopoly, hybrid, and regulated.
A monopoly model means that a lottery corporation is the only provider of product to residents of its respective province or jurisdiction. This model assumes that a government agency can build software and games to capture an appropriate percentage of the market from the bigger and more established operators. The size of the market, often referred to as liquidity, is an indication of the number of players available, which is necessary if multiplayer games such as poker are being offered. Would you rather play with an operator who gives you access to a few hundred players or tens of thousands of players?
Providing multiplayer games such as poker or single player games typical of an online casino is also technically challenging and the popular and tested products currently available are the result of many years’ research, development, and experience. It is doubtful that a lottery corporation would be able to successfully acquire the skills to successfully compete with the current market providers.
The IGC submits that careful attention should be paid to the reversals of several European countries that have abandoned the monopoly model because it failed to capture a significant percentage of the global gaming revenue or provide adequate player protections, due to the ongoing existence and popularity of more established non-local operators.
Online gamblers value choice in terms of suppliers and products, and the hybrid model straddles the gap between the monopoly and regulated models. Done right, a lottery corporation could launch its’ own products alongside games sourced from non-local operators. This is actually a hybrid model by design – the lottery corporation maintains control and applicants must be screened and accepted before their games can be loaded on to whatever player account management system is being used.
The hybrid model by default is what currently exists in Canada. A handful of provincial lottery corporations have launched their own online games yet the entire market remains open. So the provincial lottery corporations lose out on the potential tax revenue and don’t generate the level of interest or remuneration they thought possible because they can’t compete with the larger, more established operators.
This model has been recognized by governments who are interested in regulating online gaming in order to protect constituencies and generate economic benefits, as evidenced in the United Kingdom, Italy, France, Denmark, Spain, and even Estonia.
The list of countries moving from a prohibitive model towards one of managing online gaming responsibly is growing, as gradually the myths that surround online gaming are being dispelled – and regulators are recognizing that the digital domain offers a degree of transparency that is unrivalled in land-based gaming, in addition to being more straightforward to audit and control.
An open regulated marketplace would allow government agencies to collect some level of tax revenue from nearly 100% of the operators.
From the IGC’s perspective, key lessons can be learned from observing the efforts of regulated jurisdictions: that the industry can be regulated; that effective regulation protects consumers; and that it can also offer economic benefits in the manner of jobs and investments from global technology companies, taxes, licensing fees, and potential revenue sharing, all achieved through reasonable taxation.
| Government Monopoly | Open Regulated Market | |
|---|---|---|
| Market Share | Capture 20% – 30% of the market share, 20% – 25% of the time | Capture 80% – 90% of the market share |
| Consumer Protection | Protects only players using the government site, leaves the vast majority of players unprotected | Potential to capture the entire market gives regulators the ability to protect all consumers and review fairness and legitimacy of all service providers |
| Government Revenue & Enforcement Costs |
Government only receives revenue from one supplier and gains nothing from the vast majority of wagers made on-line
To maximize revenue, government is forced to use legislative, regulatory, and police enforcement powers to try to eliminate the competition Enforcement would prove very costly, and unlikely to succeed |
Government revenues not limited to a small portion of the overall market
An open regulated marketplace allows government agencies to collect from nearly 100% of the operators Rather than wasting enforcement resources in a fruitless attempt to censor the Internet, resources are used efficiently to ensure an effective regulatory regime |
| Expertise |
If the government puts all its eggs in one basket, it increases its risk of failure
It makes little sense to limit the number of operators |
Different operators bring different strengths to the table
Multiple operators appeal to different market segments and provide their government partners with options and a range of advice related to the online gaming industry |
| Consumer Empowerment | If consumers have a bad experience, believe the product is inferior, or don’t believe the odds are fair, they have no other “regulated” place to play |
An open market provides the maximum choice for consumers to experiment with different sites
An open and competitive market drives product improvements and keeps odds fair for consumers |
| Government Options | By selecting one provider the government excessively empowers its supplier, making enforcement activities virtually impossible (improbable that government would shut down its sole supplier) |
An open market provides government with the maximum flexibility to act appropriately in all situations
Government is free in the knowledge that an entire sector or revenue stream isn’t risked by its actions |
