EUROPEAN STATE LOTTERIES AND TOTO ASSOCIATION

Prof. Viren
Prof. Matti Viren
University of Turku, Department of
Economics, Finland.
Gaming markets are changing rapidly.
This change manifests itself in institutions,
the nature of games and in the volume
and pricing of gaming. Formally, the
institutional set-up has not changed very
much during the past ten years. However,
under the surface a great deal has
happened. The most important engine of
change, of course, has been the internet,
which has enabled cross-border gambling
in an unprecedented scale.
Although we do not know the volume of
cross-border sale exactly, we can use the
estimates of a recent survey conducted
across European Lotteries 2 . According to
this survey, cross-border sales constitute
an average of 7.4 percent of the gaming
companies’ total sales. It is not a strikingly
big figure but when we look at the individual
games, we are faced with certain very
high percentages. For example, while
cross-border sales in lotto are around
one percent, their share in sports betting
amounts to up to 39 percent. From the
point of view of existing companies andgovernments,
the situation is alarming
already because it entails major losses of
revenue. Governments are also concerned
about tax revenue: private bookmakers do
not pay taxes on their cross-border sales,
which, in turn, is detrimental to the governments’
fiscal position.
Whatever will happen, it is clear that we
are moving towards more competitive
markets and prices will fall (accordingly,
the prizes and the payout ratios will in-
Gaming in the new market environment:
what do we know about the consequences
of the changes? 1
crease).Thus, while the average payout
ratio of the European companies is now
at 53.3 percent as compared to 48.5 percent
ten years ago, all companies expect
it to increase substantially in the next
ten years. According to the current European
state lotteries, if all restrictions
were abolished, the payout ratios could
reach 70 percent. This would obviously
increase the volume of sales. Using the
lotteries’ subjective estimates as a benchmark,
we could say that such a change
in the payout ratios would increase the
overall demand by almost one third.
Quite clearly, such changes would show
in all indicators: expenditures, production,
employment, advertising and, maybe
most importantly, problem gambling.
It is certainly worth trying to analyze the
nature and magnitude of these effects in
more detail. It is not easy and we cannot
always arrive at unambiguous results;
yet some results are quite obvious. Very
briefly, we could state:
• Gambling is good; its overall effect on
welfare is clearly positive. Hence, there
is no need to prohibit gambling altogether,
nor should reasonable growth of the
gambling sector be prevented.
• The demand for gambling is relatively
sensitive to prizes – yet not only to average
prizes but rather to the whole distribution
of prizes. With “better” prize
schemes – and with “better” games
gambling will increase even if the average
price level and household income
did not change.
• From the point of view of problem gambling,
the biggest threat may not come
from the sole expansion of gambling but
from the change in the nature gambling
to more intensive activities with higher
frequency.
• We should be worried about the market
structure in the gambling industry because
the gaming sector is not a prototype
of free competition: in fact, by abolishing
a public monopoly we may get a
private monopoly instead.
• The fiscal issues are quite complex
because they concern the role of the
governments and the measures which
governments can take in order to secure
their fiscal needs and protect consumers
without jeopardizing free entrepreneur-
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P AN RAMA
ship and free competition. The fact that
gambling generates large revenues does
not constitute a justification for government
intervention as such.
• There are numerous public policy issues
which have not been properly considered
yet. They include both crime and
misuse and the need for regulation and
control. The public policy concerns also
cover lobbying and interplay between
various suppliers and beneficiaries of
gaming revenues. All interest groups
and organizations claim that they are
just trying to improve consumer welfare,
although even the opposite might
be true.
Quite often, the alternatives are presented
as choices between black and white.
But gaming is not that simple. Take, for
instance, problem gambling. One may argue
that, thus far, problem gambling has
been well under control, and that it only
represents a problem for a small minority,
say one percent of the adult population,
which appears a typical estimate
in most jurisdictions. But we have to be
careful in quantifying the significance
of problem gambling. Small numbers of
participation may not necessarily mean
small economic impact. Moreover, the
historical record of controlling problem
gambling does not automatically translate
to similar performance with different
settings of games and gaming volumes.
The implication of all this is quite simple:
before we make affirmative conclusions
we had better find out how things are. And
that means simply more fact-finding, more
analysis, and more research.
In several speeches I did mention that
since 1994 until 2007 the European Court
of Justice did rule in 14 preliminary cases
on gambling services. In 2008 the same
European Court has already received 14
new preliminary referrals. As such this
proves that the legal disputes surrounding
gambling in the EU are creating the need
for regulatory solutions.
1 This article is based on a new book “Gaming
in the New Market Environment” (Matti
Viren, editor), Palgrave/Macmillan, 2008.
2 The survey was conducted by the Finnish
National Lottery Veikkaus in April 2006.