Demon gambling: Parties threatened by online gambling are behind Washington's new law

[Louis Cypher]

Reuven Brenner with Ira Terk
Financial Post

Wednesday, October 04, 2006

'No wine, no wisdom. Too much wine -- the same," wrote Pascal centuries ago. Forgetting this adage, the U.S. Senate yesterday passed a bill making it illegal for banks and credit card companies to make payments to online gambling sites (horse racing and state lotteries being exempt), effectively prohibiting playing. It will turn out to be a costly mistake politically and economically.

From Biblical times, many groups invented self-serving accusations against gambling. For a few legitimate concerns, such as access to young people or potential "addiction," there are software solutions that companies will adopt voluntarily, or regulations that governments will impose. Other concerns are opinions, with no basis in fact. People are entitled to their opinions. But they are not entitled to the facts.

For centuries, opposition to gambling has been linked to deeply held beliefs that allowing "probability" and "chance" to play significant roles in society, and industries to develop around them, would have serious detrimental consequences. At one time, banking and insurance were condemned on such principles.

The beliefs come from Biblical times, when they made sense. When populations are small and immobile, the law of large numbers does not operate. The only insurance one can have against fire, illness, floods or other misfortunes is the family, the tribe and religion, all enforcing implicit insurance based on such ties. Over time, such beliefs, whose origins become lost in the mist of time, become associated with virtue and moral behaviour.

What happens now in Washington D.C. has little to do with beliefs and more with false arguments circulated by parties threatened by this new industry. Self-interested lobbying against gambling, under various disguises, has a long history.

In 1388, Richard II secured the passage of a statute requiring people to buy items necessary for the martial arts, and stop spending money on "football, casting stone, and other such importune games." A century and a half later, Henry VIII passed a law condemning gambling on the grounds that it diminished military ability, since people used their spare time for gaming rather than archery. Both laws were enacted in response to petitions from the bowyers, fletchers, stringers, and arrowhead makers -- threatened by the reallocation of people's leisure time.

Later, the priesthood condemned railways, which enabled excursions, the use of bicycles, and music halls too. Though, by 1890, the churches, trying to hold members, approved outdoor games and dancing, and within the chapels they offered better music, and also bazaars, and cricket and football clubs. By the 20th century, some religious institutions came full circle, sponsoring bingo games and lobbied governments to give them exclusivity on this pastime. The Rev. Francis Talbot, a Catholic priest, wrote, "I cannot grow frenzied with the puritanical precisionists who rate the bourgeois pastime of bingo as a major sin.... Church bingo parties are a healthy substitute for gossip teas, lovesick movies and liberal-minded lectures."

Meanwhile, new interests emerged attacking the gambling industry. In the 1920s, the New Jersey Chamber of Commerce opposed gambling because retailers and movie theatres lost business during the racing season. In Florida, opponents of the liberalization of gambling laws included Disney World and even pari-mutual betting operations. With casinos commissioning Cirque du Soleil family friendly entertainment, Disney's opposition is not that surprising.

There are crusaders who consider gambling a drag on cultural aspirations. These opinions are unfounded, too. The biggest and best opera houses of Italy, from St Carlo in Naples to La Scala, were once private and profitable. The profits came from the casinos attached, where roulette was the favourite game. The profits paid for R&D -- the commission of new ballets and new operas. A remnant of the arrangement survived in Monte Carlo. Las Vegas, has rediscovered this financial and entertainment combination, going from cabaret to Cirque de Soleil, Andrew Lloyd Webber and other Broadway shows, and Steve Wynn putting his impressionist collection on display.

Opposition to legalized pari-mutual gambling in Texas came from religious groups and neighbouring states that already allowed such betting. These states' opposition was not due to concern on the adverse effects of betting but rather from fear that a new Texas lottery would provide competition to their own, and diminish revenues. Since 1964 most states have monopoly on selling lotteries, creating new interest groups: the bureaucrats who run the lottery operations and the politicians who spend the money they raise.

Gambling's association with crime happened only in places where it was prohibited, just as it happened with alcoholic beverages during the 1930s. Prohibitionists hoped that lack of legal alcohol would eliminate corruption. The opposite happened: Bootleggers and crime bosses bribed policemen, politicians and members of the Bureau of Prohibition. The commissioner of prohibition, Henry Anderson, concluded that unsuccessful enforcement created a general disregard for all laws and had long-term, harmful consequences. The repeal of Prohibition brought about a dramatic reduction in organized crime and corruption, and allowed alcoholics to get treatment rather than prison terms. True, when an industry is "re-legalized," the previous criminal elements stay involved for a while. No surprise there: They are the only ones who know the business at that moment.

Prohibitionists also thought that outlawing alcohol would help the young, preventing them from drinking. Yet, between 1916 and 1923, the average age of people dying from alcoholism fell by six months, when other indices showed improvement in the health of young people.

True, there is a minuscule percentage of people addicted to gambling, just as there are alcoholics, the diet-obsessed suffering from anorexia, sex addicts and workaholics. The question is this: Whereas the alcoholic beverage industry; the food industry (with precise labeling about calories and ingredients), and the diet industry are all subject to regulation, why has gambling been singled out over centuries for special condemnation? Why does "addiction" play such a role in the argument?

The media, putting unusual stories of addicted gamblers on front pages, bias perceptions. People know of Dostoyevsky's The Gambler, or movies about weak men unable to stop gambling. Few know that Dostoyevsky himself was a gambling addict and wrote feverishly to pay for his gambling debts. After he married his stenographer, who took control of the finances, he had a happy marriage and stopped gambling. It was also the end of his creative period. Delusional gamblers' stories are front-page news -- and exceptional. Calm domesticity does not sell newspapers.

Worrying about youth has merit, but it has solutions too. Software is available for identification, verification, and to automatically monitor and warn the player to be disciplined. It can help him stay within his limits and even bar gambling if requested or necessary. Controlling compulsive behavior online, using these tools, may be better than off-line. In a windowless land-based casino, where every marketing tool imaginable is used to keep gamblers at the table, there is nobody to tap them on the shoulder to call it a day.

Another issue concerns lost revenues by the states. A simple solution would require online gaming companies to incorporate and operate their businesses in the United States. Software exists to identify the players. Thus taxing them, and bringing the proper revenues to state coffers is not an issue either -- though negotiating such a deal may not be easy.

Legalizing online gambling and regulating it would help establish an already thriving, very sophisticated high-tech global industry in the United States - and Canada. Legalization would attract investment, retaining entrepreneurs and brains specialized in this business, and increasing employment and tax revenues -- as any high-tech, entertainment industry would. It also would allow legislators to enforce laws against those gambling businesses that do not comply with the law.

History has shown time and again that prohibitions, rather than solving problems, cause more. Eventually, after incurring significant costs and harmful long-term consequences, societies abolish prohibitions and regulate the industries. But they may never be able to attract back the cluster of skills that meanwhile moved out of the country.

- - -

Reuven Brenner and Ira Terk are partners in Match Strategic Partners. Mr. Brenner also holds the Repap chair at DeSautels faculty of management, McGill University.

[Mr Memory]

bump

[cecil]

Jon, What a post man. Post of the year. I mean, now that you put it that way...

[Highwayman]

How can anyone advocate additional government intervention, regulation and taxes upon themselves?


.

[homedog]

Good article LC.

I would love to see all "fatty" foods outlawed in the U.S. I am tired of seeing all the fatasses walking around.

I bet that would go over real well.