Shuffle up and Deal

July 10th 2010 Shuffle up and deal

A special report on gambling

Gambling.indd 1 23/06/2010 14:54 The Economist July 10th 2010 A special report on gambling 1

Shu‰e up and deal Also in this section The risk instinct Why do people bet? Page 2

At war with luck Is poker a game of skill or chance? Page 3

Bet on the bot Will Polaris do for poker what Deep Blue did for chess? Page 4

Log on, ante up Online gambling o ers the greatest threats and the biggest opportunities. Page 5

Lengthening odds New betting options imperil horseracing’s future. Page 6

Cutting o the arms The internet is radically changing the business of gambling. Now Slot machines are becoming mobile. Page 8 policy must catch up, argues Jon Fasman INPOINTING a precise moment when changed out of all recognition in the past When the chips are down Pthe world changes is never easy, even in decade but all forms of gambling world• Competition and the economic downturn retrospect. Yet it is possible to say with rela• wide. The reason has been simple: for the have hurt, but Las Vegas is †ghting back. tive con†dence that the world of gambling †rst time anyone who wants to gamble Page 9 was changed dramatically by events and has an internet connection can do so. around a green felt table at Binion’s Horse• The desire has been there for much of re• shoe in Las Vegas on May 23rd 2003, the †• corded history. An excavation of a bronze• The dragon’s gambling den nal day of that year’s World Series of Poker age city in south•eastern Iran turned up a Macau is only the start: all Asia is coming out (WSOP). The hand immediately preceding pair of dice dating back nearly 5,000 years. to play. Page 11 the †nal table‹the last nine of the tourna• Islam forbids gambling, but the Bible men• ment’s 839 competitors who would play tions casting lots or using fortune to deter• for $2.5m‹pitted Phil Ivey, one of the mine an outcome. Card•playing for money Come, all ye gullible sharpest and most ruthless players of his has often been depicted in art (see detail Lotteries are a bad bet, but everybody loves time, against Chris Moneymaker, an un• above of Georges de la Tour’s ŒThe Cheat them. Page 12 known 27•year•old accountant from Nash• with the Ace of Diamonds, circa 1635•40). ville. The newcomer eliminated Mr Ivey Gambling’s widespread and enduring Sure thing thanks to a lucky draw on the last card appeal comes as much from the hope of dealt. Mr Ivey, a stone•faced old•school imposing order on the fundamental ran• People will keep on betting, legally or illegal• player, declined to shake his vanquisher’s domness of the world as from the expecta• ly. It makes sense to tidy up the rules. Page 13 hand. Mr Moneymaker went on to win the tion of economic gain (though that certain• tournament. ly has its charms). Blaming a bad result on His victory created what came to be an o ended spirit or a good result on di• Acknowledgments called Œthe Moneymaker e ect: interest in vine favour is far more comforting than ac• In addition to the people named in this report, the author wishes to thank Jeremy Aguero, Stephen Burn, Nic poker soared. Suddenly spending time cepting the cold indi erence of probability. Coward, Scott Daruty, Behnam Dayanim, Markus Funk, playing a game on a computer looked like a But there is a darker side to gambling Bobby Geiger, Marshall Gramm, Carlos Guestrin, Mark road to riches. And those riches seemed at• with which ancient civilisations were also Harris, Simon Holliday, Randy Matthews, Adam Pliska, Peter Reynolds, Emmanuel de Rohan•Chabot, Bas Rokers, tainable. The stars in poker, unlike those in well acquainted. The Rig Veda, a collection John Shepherd, Eric Tom, Mor Weizer, Jenny Williams and professional sport, look very much like the of Hindu religious hymns more than 3,000 John Williams. spectators; they just happen to be more years old, contains a section known as the successful. In the years since Mr Money• Gambler’s Hymn which laments: ŒWith• A list of sources is at maker’s victory, the tournament has vari• out any fault of hers I have driven my de• Economist.com/specialreports ously been won by a patent lawyer, a Hol• voted wife away because of a die exceed• lywood agent and a 21•year•old profess• ing by one [an unsuccessful bet]. My An audio interview with the author is at ional poker player. mother•in•law hates me; my wife pushes Economist.com/audiovideo/specialreports It is not just professional poker that has me away. In his defeat the gambler †nds 1 2 A special report on gambling The Economist July 10th 2010

The risk instinct Why do people bet?

T 11pm there usually remained be• far back in animal experience. The instinct thrill of action. A more recent study by ŒA hind only the real, the desperate is, in itself, right and indispensable. A Henry Chase and Luke Clark at the Behav• gamblers‹persons for whom, at spas, psychologist of the same period, Clemens ioural and Clinical Neuroscience Institute there existed nothing but roulette, and France, saw similarities between gam• at Cambridge University found that near who went there for that alone. These bling and faith: both expressed a need for misses and wins in gambling produce gamesters took little note of what was go• reassurance, order and salvation. similar responses in the brain. ing on around them, and were interested Those theorists were writing about Russell Poldrack, who runs a cognitive in none of the appurtenances of the sea• gambling as a pastime, but for some peo• neuroscience lab at the University of Tex• son, but played from morning till night, ple it is much more than that. In the 1960s as at Austin, has found that activity in the and would have been ready to play and 1970s excessive gambling began to be ventromedial prefrontal cortex depends through the night until dawn had that seen as a medical problem. Robert Custer, on a person’s attitude to loss. And Paul been possible. an American psychiatrist, argued that Glimcher, a neuroeconomist at New York Playing until dawn is often possible to• gambling could be just as addictive as al• University, has shown that activity in the day, and the game is not always roulette, cohol and drugs, and indeed substance prefrontal cortex and ventral striatum re• but otherwise Dostoyevsky’s description abusers gamble to excess more often than veals the value someone puts on a reward. from 1867 will be familiar to anyone who others. About three•quarters of problem Undoubtedly gambling, like other ad• has ever been in a casino late at night. Dos• gamblers su er from depression, and dictions, depends on a complicated mix• toyevsky wrote from experience; his no• quite a few attempt suicide. Mr Custer’s ture of brain chemistry, environment and vella ŒThe Gambler is thought to have †eldwork showed that pathological gam• socialisation. Howard Sha er, a professor been written to enable him to pay his blers were often gregarious, clever and of psychiatry at Harvard Medical School, gambling debts. What is it that drives generous but also impulsive, anxious and notes that the rate of pathological gam• some people to go on betting until they restless, looking for instant grati†cation. bling in America has remained relatively lose their shirts, whereas others can take it As with many aspects of psychiatry, constant for the past 35 years, despite a or leave it? the study of gambling has moved from huge expansion in the opportunities on W.I. Thomas, an early•20th•century mind to brain. A 1989 study conducted by o er. There was a spike in the late 1990s American sociologist, argued that a taste Alec Roy, a psychiatrist, found that chron• but levels have dropped since then. Dr for risk is essential to human develop• ic gamblers had low levels of norepineph• Sha er draws a parallel with a classic vi• ment. He believed that the gambling in• rine, a chemical secreted by the brain at rus•infection curve: high at the beginning stinct Œis born in all normal persons. It is times of stress or excitement. This seemed as those most susceptible fall ill, but grad• one expression of a powerful re‡ex, †xed to suggest that such people gamble for the ually tailing o as people adapt.

2 none to pity him. No one has use for a gam• winning the jackpot in America’s richest enues from online gambling continue to bler, like an aged horse put up for sale. lottery, Mega Millions, is one in 176m. Euro• rise. H2 Gambling Capital, a consultancy As the newly single poet above had just Millions, available to players in nine west• that monitors the global gambling market, discovered, the numbers make most forms ern European countries, o ers slightly bet• estimates online gambling revenues in of gambling a mug’s game. The odds of ter odds: one in 76m. Roulette players, on 2009 at around $26 billion (see chart 2). 1 average, will hit their number once in 36 or 37 attempts. Poker players’ chances of be• The wages of sin 1 ing dealt a royal ‡ush are much the same as Watch it grow 2 Global gambling market*, 2009, % of total being struck by lightning. Global interactive* betting industry gross gaming yield †, $bn Casinos Lottery 31.2 products A majority sport FORECAST 29.6 40 Yet hope never dies. In 2007 nearly half of 35 America’s population and over two•thirds 30 of Britain’s bet on something or other. Total: 25 $335bn Hundreds of millions of lottery tickets are Sports 20 betting sold every week. The global gambling mar• 15 5.0 Non-casino ket is estimated to be worth around $335 10 gaming machines billion a year (see chart 1). Last year Las Ve• 5 21.6 Bingo/other gas alone raked in gambling revenues of 0 gaming Horseracing $10.4 billion and Macau $14.7 billion. 2003 04 05 06 07 08 09 10 11 12 5.4 7.2 For Las Vegas, that represents a decline *Online, TV and mobile †Stakes Source: H2 *Including online in revenue from 2008. By contrast, rev• Source: H2 less prizes, including bonuses The Economist July 10th 2010 A special report on gambling 3

2 The world’s gambling centres are no longer site. After the ban some established sites Las Vegas Sands Corporation, which owns just Vegas, Macau and Monaco; they now closed down their American operations, the Venetian casinos in Las Vegas and Ma• also include Alderney, Gibraltar, Antigua but others †lled the void. Americans are cau, opened Marina Bay Sands in Singa• and Malta, whose favourable tax systems gambling roughly the same amount online pore in April. Sheldon Adelson, Sands’s make them irresistible homes for internet• as they did in 2006. chief executive, believes that Asia can easi• based companies. The move online threatens some tradi• ly accommodate Œ†ve to ten Las Vegases. Thanks to these companies the old re• tional forms of gambling, such as betting In the past ten years gambling has strictions have started to crumble. Govern• on horses, but appears to bene†t others, changed more than in the previous 70. The ment prohibition of online gambling has such as slot machines and lotteries. And internet has forced existing businesses to worked about as well as prohibition of bricks•and•mortar expansion still contin• adapt, opened up new opportunities and other online content, which is to say it is ues. The latest addition to the Las Vegas fundamentally altered the political, eco• observed mainly in the breach. America Strip, CityCenter, opened last December. nomic, corporate and moral climate in remains the world’s biggest single online Covering 76 acres (31 hectares) and costing which these businesses operate. This spe• gambling market by far, despite the pas• around $8.5 billion, it is the largest private• cial report will trace those changes through sage in 2006 of the Unlawful Internet ly funded construction project in Ameri• the main forms of gambling, which sadly Gaming Enforcement Act (UIGEA)‹a pro• can history. Thirty•three American states will mean neglecting strong but local pas• vision tacked onto a port•security bill that have casinos (many of them operated by sions such as greyhound racing, bingo, jai prohibits the transfer of funds from a †• around 200 Native American tribes), as do alai and cricket †ghts. It will begin with Mr nancial institution to an online gambling more than 20 countries across Europe. The Moneymaker’s game. 7 At war with luck

Is poker a game of skill or chance?

N 1969 Benny Binion, owner of the Moreover, poker is spreading far be• naments in London since 2007. In May and IHorseshoe Casino in Las Vegas, attended yond America. WPT poker games are June the European Championship of On• the Texas Gamblers’ Reunion in Reno, broadcast in over 150 countries to around line Poker awarded some $5.1m in prize where he played high•stakes poker for sev• 400m people. H2, a gambling consultancy, money. The tournament was hosted by Ti• eral days. His opponents were a group of puts the global online•poker market at $4.9 tan Poker, which claims to be Europe’s men‹and men only‹with the sort of Run• billion, of which America (where the most popular poker site, with up to 30,000 yonesque names endemic in poker’s his• game’s legal status is dubious) accounts for simultaneous players. The WPT has host• tory and lore: Chill, Puggy, Minnesota Fats, $1.4 billion. WSOP Europe has hosted tour• ed events in Spain, France and Morocco. Texas Dolly. The following year Mr Binion Like so many global crazes, this world• invited the high•rollers to his casino. After wide rise was powered by two engines: a few days the players elected Johnny television and the internet. Poker has been Moss the best of their number and award• on television for quite a while; CBS, an ed him a silver cup. Thus was the World Se• American network, broadcast the World ries of Poker (WSOP) humbly begun. Series of Poker in 1978. But the programmes The next year it evolved into a freeze• were pretty basic: a camera or two record• out game with a $5,000 buy•in, meaning ed the game and commentators told view• that once a player lost his $5,000 stake, he ers what they could already see for them• could not buy his way back in. In 2006‹ selves. Only action on the felt was visible: the WSOP’s peak year‹8,773 entrants com• two cards dealt face down to each player, peted in 45 separate tournaments featuring followed by a round of betting, then three most of the main varieties of poker for communal cards face down, another over $100m in prize money. round of betting, then a fourth and †fth But the WSOP is not the only game in card, both followed by rounds of betting. town. The World Poker Tour (WPT) also But for anyone who was not already a pok• hosts a series of international tourna• er fan it seemed boring. ments each year. Millions of dollars, pounds and euros change hands every I know something you don’t night at poker tables around the world and However, in 2003 the WPT borrowed a on dozens of poker websites. At the time of technique from a British poker programme the Texas Gamblers’ Reunion there were called ŒLate Night Poker, showing each fewer than 50 poker tables in Las Vegas; to• player’s two individual cards, thus allow• day the Bellagio alone has 40, and Binion’s ing viewers to see the game from the in• Horseshoe holds four no•limit Hold ’em side. This proved a great success. WPT also tournaments every day. Suitably inscrutable edited ruthlessly. The staple of thrilling 1 4 A special report on gambling The Economist July 10th 2010

Will Polaris do for poker what Bet on the bot Deep Blue did for chess?

HECKERS (or draughts, as it is known cards your opponent holds; information between limit and no limit: ŒIn limit you C in Britain) used to be a fun game of is revealed as the game progresses. A good are shooting at a target. In no limit the tar• chance. But in 2007 a group of computer player’s tactics will involve deception get comes alive and shoots back at you. programmers, systems analysts and chess such as bluˆng and slow•playing, both of Mr Bowling says his no•limit Polaris can enthusiasts, led by Jonathan Schae er at which create more complexities. compete Œat a low professional level. the University of Alberta, published an Soon after the article was published, The more interesting work, however, article in Science magazine with the bold Polaris took on Phil Laak and Ali Eslami, may be in spin•o applications. Mr Bowl• title ŒCheckers Is Solved. Using a com• both poker professionals. Each played a ing says that the ability to solve large puter program called Chinook, which was separate Polaris programme running in a games in which participants value similar able to crunch through the 500 billion di erent room, using notional money. The things di erently has some applications possible positions on a checkerboard, Mr human players could not communicate in auction and negotiation settings. Some Schae er and his colleagues proved that with each other. To control for luck, the of the game•theory aspects of Polaris there was a way to play checkers that games were identical and reversed: what• have been found to improve networks of would ensure either a win or, if the oppo• ever cards the computer got in one room sensors that measure variable environ• nent was another theoretically perfect the human got in the other. The humans mental information, such as heat in a player, a draw. then switched rooms and played the building or chemicals in lakes. With checkers thus conquered, Mr hands previously played by the comput• And yet for all its prowess, Polaris is Schae er moved on to poker. The Univer• ers, for a total of four 500•hand sessions. unlikely to become the Chinook or Deep sity of Alberta’s Computer Poker Re• The results were surprising: a draw in one Blue of poker, making humans obsolete. search Group (CPRG) was building a pro• match, a resounding win by Polaris in an• For one thing, heads•up poker is only one gram called Polaris, which was trying to other and two narrow victories for the hu• of many kinds of poker played. A †rst•rate do for one variety of poker, heads•up limit mans in the remainder. human player can hold his own in any va• Texas Hold ’em (with just two players and In 2008 the human †eld was expanded riation; a machine might †nd the transi• limited betting amounts), what Chinook to six professionals. Out of six matches tion harder. Second, most poker is still did for checkers. Michael Bowling, the the humans won two, Polaris won three played socially, whether in casinos or at CPRG’s head, says that although the os• and one was drawn. Mr Bowling attri• home, and you can’t have a beer and a tensible goal was to build a winning poker butes Polaris’s stronger performance to a natter with a bot. Online an intelligent program, the real aim was to Œstudy how crucial modi†cation that allowed the pro• machine might have a better chance. But to build computers to make decisions in gram to adjust its strategy in response to most sites have rigorous anti•bot policies, diˆcult circumstances, especially where its opponent’s behaviour during a match. particularly when it comes to transferring there is missing information. Polaris has not competed against hu• money. And creating a bot that can defeat It is this missing information that mans since then, but the CPRG has done multiple layers of security may be harder makes poker so complex. Unlike checkers some work on another poker variety, than playing †rst•rate poker. As Mr Laak or chess, at which machines have also had heads•up no•limit Hold ’em. Jack Strauss, says, Œanyone smart enough to put a bot notable success, poker is a game of incom• a prominent poker player in the 1970s and down would make way more money op• plete information. You do not know what 1980s, famously described the di erence erating above board.

2 televised poker is the showdown, in which pens to them, and get out of the way when Yet the view that poker is indeed a players bet against each other all the way it is someone else’s turn. game of skill is gaining traction. A 2009 and a winner is determined only by turn• This is not a theoretical point; it is at the study carried out by Cigital, a software ing up all the cards and comparing hands. heart of a dispute about poker’s future in consultancy, analysed 103m hands of one In practice, this rarely happens. America, the country of its birth and its of the main varieties of poker, Texas Hold Most experienced players insist that largest single market. UIGEA (the enforce• ’em, played at Pokerstars.com, and found success at poker is not about luck. David ment mechanisms of which have only just that over 75% of them were decided before Sklansky, author of ŒThe Theory of Poker, come into e ect, even though the act was a showdown. They thus depended far the best and most thoughtful of the many passed in 2006) bans †nancial institutions more on the players’ betting decisions than books on poker strategies, writes that Œex• from transferring funds for bets in which on the cards dealt. The Poker Players’ Alli• pert players do not rely on luck. They are at Œopportunity to win is predominantly sub• ance, a million•strong group of a†ciona• war with luck. They use their skills to min• ject to chance. Poker has been judged to dos, argued in the South Carolina Supreme imise luck as much as possible. In poker, fall into that category (though the act ex• Court that Œthe structure and rules allow as in life, luck can happen to anyone; it is empts stocktrading and horseracing), so suˆcient room for a player’s exercise of evenly distributed. Skilled players know sites that o er Americans the opportunity skill to overcome the chance element in how to take advantage of it when it hap• to play online poker have to duck and dive. the game. And The Global Poker Strategic 1 The Economist July 10th 2010 A special report on gambling 5

2 Thinking Society, founded by Charles Nes• money is better. Jennifer Shahade, who chance•dependent comes from Mr Sklan• son, a Harvard law professor, takes a simi• twice won the American Women’s Chess sky, and it has to do with losing rather than lar view. Mr Nesson sees in poker Œa lan• Championship and is now a semi•profes• winning. Imagine trying intentionally to guage for thinking about and an sional poker player, thinks that chess and lose at a game of pure chance, like roulette environment for experiencing the dynam• poker rely on similar skills‹a sort of calcu• or baccarat. It would be impossible. At the ics of strategy in dispute resolution. lating game•savviness‹and that chess beginning of a deal or a roll you have to bet Similarly, Garry Kasparov, a chess players are likely to succeed at poker be• on something. You can no more deliberate• grandmaster, argues that poker o ers les• cause Œthey focus on †nding the right ly play badly than you can deliberately sons on chance and risk management that moves, rather than having fun or how play well. The same is not true for poker, even his beloved game cannot. He also their ego feels. which o ers multiple opportunities to notes that many chess professionals are Yet perhaps the clearest argument in fa• make sure you lose. Still, America’s Con• moving into poker, not least because the vour of poker being skill• rather than gress seems unconvinced. 7 Log on, ante up

Online gambling o ers the greatest threats and the biggest opportunities

HEN George Bush, then America’s companies pulled out of America, others Wpresident, signed the Security and America leads the way 3 †lled the void. Bookies registered o shore, Accountability For Every Port Act into law Online gambling by country, 2010, % of total* notably in Antigua and the Mohawk Re• in 2006, parts of America’s online•gam• US Japan serve in Canada. PokerStars and Full Tilt bling market retired hurt. That was be• 17.2 13.8 Poker, both of which accept American Britain cause attached to the port act was the Un• 11.5 players, are now the two biggest online lawful Internet Gaming Enforcement Act Italy poker rooms by a large margin, according (UIGEA), which prohibited †nancial insti• Rest of Asia 6.9 to Pokerscout.com, an online poker forum. tutions from transferring funds from punt• Others8.4 Germany Thanks to UIGEA, those that cater to gam• 27.0Rest of % 5.0 ers to gambling sites (though it made ex• Europe France blers based in America have had to rely on ceptions for horseracing, fantasy sports 13.1 4.9 arcane money•transfer systems that fudge Canada and stocktrading). 3.3 Sweden the letter of the law and violate its spirit. 3.7 The act re‡ected prevailing public opin• Hong Kong Australia UIGEA’s main congressional defend• ion in America: surveys show that more 3.3 3.4 ers, Jon Kyl and Spencer Bachus, are both than two•thirds of the population are op• *Forecast; includes both avowed opponents of online gambling. A on- and offshore gambling posed to legalising online gambling. But Source: H2 Republican congressional counsel who Barney Frank, a congressman who has in• has worked in this area asserts that Œthere troduced legislation to repeal UIGEA, de• cide whether to allow open markets or has never been any doubt by any justice scribes its enforcement mechanisms as Œa protect state•approved (and often state• department‹the Clinton justice depart• pain in the ass of the highest magnitude. run) monopolies. The †rst is hard to do; the ment, the Bush justice department, the Many companies, including PartyGaming, second hypocritical. Obama justice department‹that online the world’s largest online•gambling com• The idea of using the internet for bet• gambling is illegal. pany, abandoned the American market as ting is not new. Donald Davies, a British soon as the act was passed. computer scientist and co•inventor of the Draconian punishments In absolute terms online gambling re• packet•switching technology that drives Eric Holder, Mr Obama’s attorney•general, mains a small part of the global betting data transmission over the internet, †rst vowed in his con†rmation hearings to en• market: a mere 8% in 2009, with revenues proposed using that technology for wager• force UIGEA. He has kept his word. In April of about $26 billion, according to H2. But ing in December 1965. The †rst commercial federal agents arrested Daniel Tzvetko , an last year it rose even as the overall market online gambling sites appeared in the Australian whose company, Automated fell. In the coming years it is expected to mid•1990s, o ering casino games and Clearing House, allegedly created shell grow even more: 13% a year, says H2, with sports books. Online poker followed a companies to allow punters to transfer revenues rising to $36 billion by 2012. couple of years later. Paradise Poker $584m from their bank accounts to gam• Those revenues will ‡ow not merely to opened in 1999, followed by PokerStars bling sites. He faces up to 75 years in prison websites taking bets but also to companies and PartyPoker, the ‡agship product of Par• on bank fraud and money•laundering o ering back•end services such as soft• tyGaming, one of the †rst online•gambling charges. In May Douglas Rennick, a Cana• ware design or proprietary gambling soft• companies to go public and list on the Lon• dian, was arrested on similar charges; he ware. Yet online gambling presents thorny don Stock Exchange, in 2005. In May 2010 pleaded guilty to the illegal transfer of problems as well as opportunities. Busi• Casinocity.com, an independent online• gambling funds and awaits sentence. nesses that want to o er it have to deal gambling directory, listed 2,316 gambling All this re‡ects a profound and multi• with a welter of di erent regulations‹or sites taking bets, excluding lotteries. layered American scepticism of online operate semi•legally. Politicians have to de• When PartyGaming and other listed gambling. In a 2004 report the State De•1 6 A special report on gambling The Economist July 10th 2010

2 partment called gambling sites Œthe func• allows them to take part in state•run lotter• rah’s, the world’s largest gambling com• tional equivalent of wholly unregulated ies. Michel Barnier, the European Union’s pany, believes that the trend towards o shore banks, giving warning that they internal•market commissioner, said in Feb• legalisation across Europe will ultimately might be used not only for money•laun• ruary that he plans to seek coherent Euro• reach America and will eventually lead to dering but also for criminal activities rang• pean rules on online gambling. a convergence between bricks•and•mortar ing from terrorist †nancing to tax evasion. The laws may be muddled, but people and online businesses. More and more Online gambling companies reject such are betting anyway, even where it is illegal land•based companies, like Harrah’s, are claims, pointing to the clear audit trails of• to do so. America retains the lion’s share of dipping a toe into the online market. fered by e•commerce. They argue that the global market; its punters are expected To do so they tend to use established thanks to identity screening, online casi• to bet $5.7 billion online this year, only back•end companies rather than reinvent• nos are far less vulnerable to fraud than slightly down from its 2006 level of $6 bil• ing the roulette wheel. These companies bricks•and•mortar ones. lion. Germany and France account for Œsell the picks and shovels but don’t pros• around 5% of the market each. pect for gold, as David Loveday, who The wild web Clearly prohibition fails to prevent citi• heads a gambling•software company Europe has generally been more receptive zens who want to gamble from doing so. called Orbis, puts it. This lowers barriers of to the idea of legalising online gambling, But legalising online gambling can expand entry to the online gambling market for es• though national and European regulations the market, as demonstrated by Italy. H2 tablished names. For example, William often con‡ict. There is certainly no single predicts that that country’s gross gaming Hill, a British high•street bookmaker, runs European market in online gambling. In yield (which measures the amount of cus• a poker room for the Sun, a tabloid news• Britain it is allowed, though it requires a li• tomer monies kept by betting operations) paper; that poker room runs on software cence and is taxed and regulated. Italy from online poker, casino and bingo will developed by Playtech, a leading gam• started issuing online•gambling licences grow from just over ¤400m in 2008 to bling•software developer, whereas Wil• this spring. France is due to follow suit on a nearly ¤1.6 billion in 2012. liam Hill’s sports book is run by Orbis. more limited scale. Germany banned on• Should America’s market ever open up, Such convergence is happening not line gambling in 2008 but allows its citi• the e ect would probably be similar but only online; it is also moving across plat• zens to play in state•run lotteries online. larger. Whether and when this might hap• forms. Betfair, a betting exchange, has In 2009 Santa Casa da Misericórdia de pen, though, is uncertain. Many in the on• launched an application running the Ya• Lisboa, a Portuguese charity that runs lot• line gambling industry think it inevitable, hoo! TV Widget Engine Program, which of• teries, took bwin, an online•gambling but opposition seems entrenched. It took fers a range of interactive content. Gigi company based in Austria, to the Euro• decades to get geographically based gam• Levy, who heads 888 Holdings, a large on• pean Court of Justice, alleging that bwin’s bling regulations right; for much of the line•gambling †rm, has similar plans. He activities in Portugal infringed its national 20th century crime festered in Las Vegas. In says that at the moment sports betting is monopoly on lotteries and gambling. The laying out an online regulatory regime not Œsocial. A television•based applica• ECJ ruled in Santa Casa’s favour, stating America is likely to err on the side of cau• tion that allows punters to place a bet dur• that Œrestrictions on the freedom to pro• tion. And since gambling is a state rather ing a game with just a click is a logical de• vide services may be justi†ed by overrid• than a federal issue, any legalisation of on• velopment of the sort of in•game betting ing reasons relating to the public interest. line gambling is likely to be patchy. o ered by online bookies and exchanges. Gambling appears to fall within that cate• Yet just because America remains a lag• The idea sets sports•betting fans’ heart gory. But the ECJ had previously ruled that gard does not mean the rest of the world a‡utter‹and gives gambling opponents a country cannot prohibit its citizens from will stop. Mitch Garber, who heads the in• nightmares. But it may come too late to betting online with private operators if it teractive•entertainment division of Har• save the horses. 7 Lengthening odds

New betting options imperil horseracing’s future

N APRIL 9th nearly 45,000 people dance was 38% up on the previous year. tional. But although sports betting does Ocrammed into Oaklawn, a 106•year• Neither the charming old track nor the well online, horseracing has a particular old track nestling in the foothills of the town itself, with a population of just under problem. The business model that has kept Ouachita mountains in central Arkansas, 40,000, was built for such crowds. Enter• it going up to now is being superseded by to watch Zenyatta, a spirited six•year•old prising locals turned their lawns and shop• new and increasingly popular betting mare, win her 16th consecutive race. The fronts into parking lots at $20•25 a go. methods o ered by the internet. next day’s event‹the Arkansas derby, For racing fans everywhere such a turn• For all the national di erences, racing which in recent years has become a pre• out is reason to celebrate; it shows that the in most parts of the world has two things view ground for the more famous derby sport of kings has not lost its attractions. in common. First, it has provided one of held three weeks later in Kentucky‹drew And indeed attendance remains strong at the few legal forms of wagering and book• over 60,000 fans. In those two days punt• marquee events, such as the Arkansas and making available to most of the public for ers at the track bet nearly $6.5m. Atten• Kentucky derbies or Britain’s Grand Na• much of the past two centuries. Second, 1 The Economist July 10th 2010 A special report on gambling 7

tuel betting on horses in America fell by 52% in real terms. Whereas on•track betting has dropped every year since 1996, the o • track variety over the same period has in• creased noticeably. When o •track betting was †rst intro• duced, it was seen as a boon to the indus• try. Races being run in di erent locations were screened at the tracks so that punters at, say, Aksarben in Omaha, Nebraska, could bet on races being run at Los Alami• tos in California. The revenue from o • track betting was split so that 80% of the pool went to the state’s horsemen’s associ• ation, 17% to the place where the race was The glory days being screened and 3% to the track where the race was taking place. 2 the sport depends on money from betting. Betfair. Exchanges allow people to bet with As long as the screenings were track•to• Practically every national racing associa• each other, rather than going through a li• track and most betting was done on•track, tion the world over takes its cut from bets censed bookie or a parimutuel pool. Bet• that made some sense. But as on•track bet• placed on races. In Britain 10% of book• fair makes money by charging a small ting has fallen and the races are now being makers’ pro†ts go to the Horserace Betting commission, based on a user’s net pro†t in screened in all sorts of places that allow Levy Board, a statutory body that distrib• a given market. betting but do not stage any races (such as utes the funds to British racing interests Unlike traditional operators, the ex• greyhound tracks, casinos and now (mainly purses but also courses, breeders changes also permit betting throughout ADWs), 3% seems a paltry reward for the and veterinary science). The levy was put races. Yet although Betfair’s model attracts e ort of hosting a race. Yet †nding a new in place when punters had to bet through savvy punters who understand how mar• payment model has proved tricky. In a parimutuel pools (in which odds depend kets work, its numbers•heavy interface number of places ADWs have been forced on the number of punters backing a bet) or may intimidate casual sport punters. Not• to pay a source•market fee: for instance, licensed bookmakers. But now they have ing that the odds on Chelsea are 1.19 and 10% of all racing bets made in Virginia‹ other options, so in 2008•09 the total levy watching the market to see if they improve that is, where the punter is in Virginia, re• collected reached its lowest level in six requires more e ort than putting £10 on gardless of where the track is‹must go to years, at about £92m. Chelsea to win. Colonial Downs, the state’s main track, As other forms of gambling became le• But some punters may want to o er and to the state’s horsemen’s association. gal, betting on racing fell. Between 2003 odds against Chelsea, which Betfair allows and 2008 the amount wagered on racing and traditional bookies do not. There are A downhill race dropped by 10% in America and close to a worries that letting people bet on a nega• The sport remains in decline. California’s third in Britain. But betting at the track is tive event will encourage corruption. In oldest thoroughbred track, Bay Meadows, falling even faster. Punters in America have 2004 Chris Bell, the then boss of Lad• closed in 2008; Hollywood Park, in south• turned to advance•deposit wagering com• brokes, a bookmaker, claimed that at least ern California, is teetering; and Aqueduct, panies (ADWs) such as Youbet, TVG and one race a day was being †xed, and in Queens, was nearly sold to developers Twinspires, which combine the functions blamed betting exchanges. Yet a corrupt in 2007. New York’s racing authority, of bookmakers and television networks, jockey or trainer can always ride badly or which runs Aqueduct, Belmont Park and showing races from around the world. hobble a favourite and then bet the †eld. Saratoga, emerged from bankruptcy in They allow punters to bet using a comput• Also, online commerce is far more readily 2008‹only to have to take up a $17m emer• er, mobile phone or television remote•con• vetted and tracked than transactions by gency loan in April. trol. Dedicated race fans in America can high•street or on•track bookies, so corrup• No doubt more casualties will follow. bet on European races in the morning, tion should be far easier to sni out. After all, the sport’s success depended on American ones throughout the day and Neil Goulden, who heads Coral, anoth• its monopoly status, and that has gone. Australian and Asian ones at night, all er bookmaker, says the real problem is not Banner days still draw a crowd, but every• without having to leave home. And just as so much corruption as licensed bookmak• day racing‹ŒWednesday afternoons at casinos o er free accommodation and ers shutting up shop and o ering odds Beulah Park (a track in Columbus, Ohio), meals to big players, ADWs o er redeem• through Betfair to avoid paying tax and as one insider calls it‹is harder to sustain. able reward points as an added incentive. levy. Yet even if this is true, bookmakers In more than a dozen states some tracks Punters in Britain and Australia have an will †nd ways to get away from both any• have added slot machines or card tables to even more attractive option: betting ex• way: Ladbrokes and William Hill have attract those who want to gamble on changes. The largest is Betfair, which moved their betting operations from Brit• something other than horses. These Œraci• bought TVG in January 2009. Betfair’s rev• ain to Gibraltar, where they are exempt nos funnel much of the money from slots enue last year was £303m, up 27% from the from paying the levy and the tax on betting and tables to fund purses and subsidise previous year. Around 90% of bets placed pro†ts is 2% rather than Britain’s 15%. breeders. But cantering into that good through exchanges and more than half of The tap is also running weaker in night as an appendage to a slots parlour bets made online in Britain are through America. Between 1977 and 2006 parimu• seems a sad fate for the sport of kings. 7 8 A special report on gambling The Economist July 10th 2010

Cutting o the arms

Slot machines are becoming mobile

OMETIMES the old games are the best. machine’s lifetime. So you could have a level is generally set by law. And despite all STake, for instance, the Œreward•paying lucky streak and get back much more than the myths that slots players like to perpetu• punching bag, one of the earliest attempts you put in, or you could lose the lot. To ate‹coins need to be warmed up because at machine•based gambling. For a nickel a keep the game interesting, most of it is paid machines hate cold ones; coins should punch, punters could pound out their frus• out in dribs and drabs: a machine that re• never be overhandled because machines trations. If they hit hard enough to move a turned $95,000 of every $100,000 in one hate warm ones; machines are more likely pointer to the right spot on the dial, they huge jackpot once in a blue moon would to pay if you use a card rather than cash‹it won a prize. Or there was the Œmanila, in be too disheartening to play. is determined by random draw. Over time which hopefuls could win a prize by When it comes down to it, over the lon• the amount the machine pays back to the shooting a nickel from a pistol into a slot. ger term slot machines keep 5% of your customer will approach its average rate, These days most casinos will not even let money in return for a light show and a but, at least in regulated markets, each spin you smoke, much less punch or shoot your slimmish chance to win. But people keep is independent of the previous one. Yet way to a prize. playing. Slots pit humans against maths, slot•machine development, assisted by ad• The †rst machine to dispense coins as and the maths always win. But successful vances in networking technology, involves prizes was the three•reeled Card Bell, built slot machines get players to Œlike the feel of more than simply tinkering with payout by Charles Fey in 1898. Slot machines the maths, explains Chris Satchell, chief algorithms. thrived in San Francisco. By the time the technology oˆcer for International Game city outlawed them in 1909, it was collect• Technology. IGT, along with Bally Technol• Killer heels ing $200,000 a year in taxes from 3,200 ogies, Aristocrat and Novomatic, is one of Slot developers understand the power of slot machines. By 1931 Frank Costello, a the world’s leading slot•machine makers. branding. The most popular machine in mobster in New York, raked in $25m a year Many people like the older, mechanical IGT’s history is ŒWheel of Fortune, based from his 25,000 slots. Today, betting ma• machines on which the reels are set in mo• on a long•running television game show. chines‹slots in America, fruit machines in tion by pulling a lever rather than pressing Coming hot on its heels is the ŒSex and the Britain, pokies in Australia‹account for a button, which is why many casinos have City machine. Its reels depict diamonds, more than one•†fth of the global gambling retained them. Where video machines are chocolates and strappy shoes. Since its market. Their one arm may be vestigial, used, they sometimes feature displays that launch in November 2009 it has proved but they still make out like bandits. allow the video reels to align imperfectly, popular, earning up to †ve times as much Their appeal lies in their utter simplic• as on an old spinning•wheel machine. as the average slot machine on some ity. You do not need to understand a com• Whether the machine pays out lots of ‡oors. Like the television show it appeals plex system of betting, as in craps. You will little prizes or a few big ones, the payout to women, which indirectly makes it at•1 not hold up the action if you make a mis• take, as you might at a table game. You will not get skinned alive by people who un• derstand the game better, as novices often do when playing poker at a casino. You do not have to interact with a dealer or re• member which hand is higher. Slots are largely passive: feed them money (or cards, these days), press a but• ton, watch the wheels spin or objects align on a screen and see whether you have won, and how much. They demand noth• ing but cash and often promise payouts of 95% or better. Las Vegas has around 200,000 of them and America as a whole about 1m, taking in an average of $1 billion a day. Australia has around 200,000 po• kies, mainly in pubs and clubs, and Britain has at least 250,000 fruit machines. Alas, that 95% †gure does not mean that you personally will get back 95 cents for every dollar you feed in; rather, it means that 95% of the money taken in will be re• turned to players over the course of the Something for everyone The Economist July 10th 2010 A special report on gambling 9

2 tractive to men too. In January IGT happens to Œgo cold (ie, become unpopu• Schull, a professor of anthropology at MIT, launched a machine based on ŒAmazing lar), they sit around uselessly or have to be whose book ŒAddiction by Design: Mach• Race, a TV show. ŒAmerican Idol and taken away. With server•based games the ine Gambling in Las Vegas is due out later ŒAlice’s Adventures in Wonderland, hardware on the casino ‡oor is governed this year, found that 90% of people attend• based on another TV show and a †lm of by software on a remote server. If a game ing Gamblers Anonymous meetings in Las the famous children’s book respectively, goes cold the casino manager can change it Vegas played only machines. Ms Schull are on the way. to a di erent one in seconds. Separating says the trend towards video slots that al• These games involve more than simply the hardware and the software also speeds low gamblers to bet on as many as 100 pressing a button and waiting to see development, making it much easier and lines at once increase the frequency of whether the reels align. The ŒWheel of For• cheaper to introduce new games. The boss small payouts, making the experience tune machines have a spinning wheel on of Inspired Gaming Group (INGG), Luke seem more rewarding. That encourages Œa top of the play area; another version fea• Alvarez, calls his company Œthe iPhone of slow and gradual bleeding o of your tures an immense wheel used for bonus slots. Instead of developing games in• funds. Leslie Bernal, who heads an orga• spins. The ŒSex and the City machine of• house, it o ers an open•source code and nisation called Stop Predatory Gambling, fers video clips. ŒAmazing Race will have works with around 30 game developers. describes slots as Œa huge part of our debt the show’s host guiding players through Server•based slots are still in a minority culture and Œthe biggest something•for• bonus rounds. ŒAmerican Idol will allow but growing fast. ARIA, the ‡agship casino nothing scheme ever invented. players to judge performances shown on a at CityCenter, on the Las Vegas Strip, Yet slots spin on. In the past year IGT’s video screen. Many of these highlight a opened last December with 980 such ma• share price has risen by 40% to take its mar• shift towards what Mr Satchell calls Œcom• chines. IGT’s server•based games can also ket cap to over $5 billion. Gideon Bierer, the munity•based slots playing, designed to be found in casinos in Italy, Finland and company’s vice•president in charge of de• appeal to the Facebook generation. France. INGG operates 25,000 of them veloping slots for online and mobile play, across Britain and in smaller networks in says this market has Œbrought a lot of new Pick your app Cyprus, Italy, Australia, the Czech Repub• customers in who weren’t interested be• Increasingly slots are linked not just to lic, Cambodia and Laos. fore and didn’t have access. That is clearly each other but also to servers, which Yet moves towards faster play, bigger good news for companies such as his. Tra• makes them far more ‡exible. Traditional jackpots and more enticing machines are ditional betting hubs like Las Vegas take a slot machines o er only one game. If that not without their critics. Natasha Dow more sceptical view. 7 When the chips are down

Competition and the economic downturn have hurt, but Las Vegas is †ghting back

AMBLING centres operate at one re• complained that too many of the men run• air conditioning as to the irresistible allure Gmove from their local communities. ning gambling operations in Nevada were of gambling. But whereas the 20th century Monte Carlo’s casino is in Monaco, sur• involved with organised crime. Mobsters, was good to Las Vegas, the 21st may prove rounded by but independent from France. notably Meyer Lansky, Benjamin ŒBugsy more perilous. Monaco’s citizens are not allowed into the Siegel and Moe Dalitz, had gained control Following a brief attempt at reinvent• gaming rooms, but everyone else is en• of the state’s casinos, using them to laun• ing itself as a family•friendly resort in the couraged to open their wallets. Macau is at• der drug money and other ill•gotten gains. 1990s, it has now tried to return to its roots tached to mainland China only by a nar• as Sin City; one of its more famous adver• row isthmus. Until 1999 it was under The road to respectability tising campaigns promises that Œwhat hap• Portuguese rule. Now it is a Special Admin• Siegel made the Flamingo into the †rst lux• pens in Vegas, stays in Vegas. It remains istrative Region of China, but visitors from ury hotel on the Strip in 1946. Today it is the only place in America where punters the mainland need a special visa. owned by Harrah’s, a listed company. The can legally bet on sports. Yet just as the rise Las Vegas sits in a valley in some of Strip’s northernmost casino, the Strato• of other forms of gambling threatens North America’s most inhospitable ter• sphere, is the property of a Goldman Sachs horseracing, so Las Vegas now faces com• rain. It was †rst settled in 1855 by Mormons aˆliate. The Strip’s largest complex, made petition from other venues. Native Ameri• seeking freedom from American rule. At up of the Venetian, the Palazzo and the can casinos abound. And despite UIGEA, the beginning of the 20th century a mere Sands Expo Convention Centre, is owned so do opportunities for online gambling. 30 homesteaders tilled the scrubby soil. by the Las Vegas Sands Corporation, an• The †nancial crisis has done its bit to But in 1911 the state government, seeking other listed company that has a $16.7 bil• make life harder. In May this year Nevada’s new sources of revenue, o ered divorces lion market cap. unemployment rate had climbed to 14%, in only six weeks, the quickest in the coun• Over the past half•century the city’s the highest in any state and far above the try. It also scrapped taxes on sales, income population has climbed steeply and national average of 9.7%. In 2008 hotel•ca• and inheritance and repealed the ban on steadily. Today nearly 2m people live in the sinos provided only 16% of the state’s gambling passed in 1909. Las Vegas metropolitan area‹a testament jobs‹nearly seven percentage points few• By 1951 a congressional commission perhaps as much to the miracle of modern er than at the peak, in 1994. The state has 1 10 A special report on gambling The Economist July 10th 2010

2 tried hard to diversify, but gaming and tou• rism remain a big part of the economy, so the drop in consumer spending in the past two years has a ected Nevada more than most other states. The crisis hit at the end of a long period when visitor numbers were growing faster than the number of hotel rooms. In 2004 MGM Mirage announced plans for a mas• sive complex on the Strip, CityCenter, to cash in on rising demand. The cost rose from an initial estimate of around $3 bil• lion to over $9 billion. It opened in Decem• ber last year, adding 4,800 hotel rooms to a city already struggling to †ll the rooms it had. By the end of 2009 the number of visi• tors was down 3% from the previous year The light fantastic but room numbers were up 6%, slashing the occupancy rate. Equally alarming, bets on multiple professional football convention centres and, of course, a casi• gambling revenues in Nevada as a whole games, and a New Jersey state•senate pan• no. The casino is necessary to drive rev• fell by over 10%, the state’s steepest•ever el recently approved legislation to allow enue, just as the convention centres are es• annual decline. sports betting in Atlantic City. sential to attract business travellers who Much of this is due to the broader eco• Yet none of this may be as damaging to may then decide to return for a holiday nomic malaise, in particular the drop in Las Vegas as it appears. For one thing, most with their families. But around 70% of his consumer spending that accompanied the people do not go there just to gamble: in revenue, says Mr Adelson, comes from recession. But competition is also to blame. 2009, only 13% of all visitors and a mere 2% non•gaming sources. In 1987 the Supreme Court ruled that Na• of †rst•time ones said gambling was their The model of using casinos as just one tive American tribes could establish gam• primary purpose for visiting‹fewer than of many revenue•spinners also works for bling operations on tribal lands even if said they were coming to see friends or Las Vegas as a whole. In 2009 tourists on those lands lay within states that prohibit family, or for a holiday. average spent around $75 a night on ac• gambling. The following year Congress commodation and stayed for 3.6 nights. passed the Indian Gaming Regulatory Act, Give me glamour They shelled out about $250 on food, just which created a framework of regulation Certainly, holidaymakers can and do gam• over $100 on shopping, $53 on transport for such businesses. ble‹83% of visitors did‹but Las Vegas of• and $45 on shows and sightseeing. The av• Today more than 200 tribes run casinos fers a Œgambling plus factor that the raci• erage gambling budget was $482 (down in 28 states, including Nevada and Califor• nos and slots parlours opening all over sharply from 2005, when the average punt• nia (which supplies many of the visitors to America cannot rival. Aside from attrac• er bet $627). Some 17% of visitors do not Las Vegas). The biggest casino in America is tions such as theatre, comedy and golf, Las gamble at all. But even those who do Foxwoods, run by the Meshantucket Pe• Vegas is full of associations (mobsters, the spend more on other activities combined. quot tribe in western Connecticut; that Rat Pack, the World Series of Poker and so Having begun as a secluded sinning ha• and the Mohegan Sun casino, run by the on) that no other destination can o er. It is ven, tucked away in the desert, Las Vegas Mohegans in Connecticut, are both the strangest and most fantastic city in has had to face the fact that its chief sin on around two hours’ drive from New York, America, glittering in the middle of the o er has become much more widely avail• and much of their business comes from desert like a neon mirage. able. But for casino owners it still has a big day punters. The Pechanga Resort and Ca• Mr Adelson, the head of Las Vegas advantage: its gambling•tax rate is capped sino in Temecula, California, between Los Sands and for some years the world’s at 6.75%. New Jersey, home to Atlantic City, Angeles and San Diego, is closer to both third•richest person, insists that he is not in o ers an 8% rate, but most other places are than is Las Vegas. In 2008 gaming revenue the gambling business, nor even in the much greedier. Sands’s only American at Indian casinos was about $27 billion, a gaming business (a distinction he and Mi• property outside Vegas is in Bethlehem, 1.5% rise on the previous year, whereas Las chael Leven, Las Vegas Sands’s president, Pennsylvania, where the state taxes gross Vegas saw a drop. Proximity seems to consider important; the di erence be• gaming revenue at 55%. make a di erence. tween gaming and gambling, according to The state of Nevada is more diversi†ed In addition to this direct competition Mr Leven, Œis the di erence between hav• than it was two decades ago, but it is likely there are smaller foes, too. Around 15 states ing a cocktail and going out drinking). to return to strength only as Las Vegas does, have Œracinos, or slots parlours attached As far as Mr Adelson is concerned, he is and Vegas’s fortunes depend on America’s to race tracks; and many of them o er vid• in the integrated•resort business. His twin economy. If people have money in their eo poker, blackjack or craps, which are hotels on the Strip, the Venetian and the pockets, some will inevitably †nd its way computer•based versions of popular table Palazzo, combine thousands of hotel to the Strip. But there may be no need for games. The federal ban on sports betting rooms, upmarket shopping (some of it lin• new hotel rooms for some time, and outside Nevada is beginning to crumble at ing a Venetian streetscape, complete with a growth is likely to be ‡atter than in the the edges: Delaware lost its appeal to allow painted blue sky, canals and gondola past. For runaway expansion in the gam• sports betting but retains the right to take rides), restaurants, spas, banquet halls, bling market, look east. 7 The Economist July 10th 2010 A special report on gambling 11

The dragon’s gambling den

Macau is only the start: all Asia is coming out to play

IKE its sister property in Las Vegas but tended; a single poker table was occupied; dia. Most of the Venetian Macao’s revenue Ltwice as large, the Venetian Macao is blackjack action was scant; four employ• comes from wealthy guests, many of built for MICE‹meetings, incentives, con• ees stood around a craps table enticing whom are on junkets organised by busi• ventions (or conferences) and exhibitions. passers•by to try their luck. By contrast bac• nesses in China that market them to visi• It has 3,000 hotel suites, a 15,000•seat are• carat and sic bo were going at full tilt. Old tors, plan the travel and extend credit to na that has hosted concerts by Lady Gaga gambling habits die hard. gamblers. The casinos provide the gaming and the Police, expensive shops and res• The competition from Messrs Adelson and generally split the proceeds with the taurants and a warren of immense gaming and Wynn ended Mr Ho’s monopoly junket operators. rooms. Next door is the Plaza Macao, fea• (though his company still accounts for Chinese visiting rights, however, are turing yet more gaming, shops and spas, as about one•third of the territory’s gambling tightly controlled by the government. well as a Four Seasons hotel and the grand market) and boosted Macau’s overall rev• Mainlanders need a visa to go to Macau, residential Plaza Mansions. enue. Last year the island’s 30•odd casinos and the authorities are apt to change the Mr Adelson, the owner of the complex, generated income of around $15 billion. frequency and duration of permitted visits rejects the traditional Œhub and spokes ca• According to GBGC, a consultancy that on a whim. Last year, after a number of sino•hotel design that forces guests to pass specialises in the gambling industry, its embarrassing stories about government through the gaming ‡oor to do anything overall gambling revenue in that year rose oˆcials using public funds to bet in Ma• outside their hotel room, just in case they by nearly 10%, whereas North America’s cau, mainlanders were limited to one visit feel a sudden urge to chuck some money fell by 7% and Europe’s by 12%. And Macao every three months. Even so, Mr Jacobs into a slot machine. His Plaza Macao has a is going from strength to strength: in the said that visa restrictions are Œone of the separate entrance to the Mansions and †rst quarter of 2010 its gambling revenues things I think least about: the Chinese Four Seasons, a long way from the gaming were 57% up on a year earlier. government is clearly happy maintaining ‡oor. This is for the bene†t of Chinese gov• Macau as a source of steady gambling rev• ernment oˆcials, who may not be photo• Mainlanders’ playground enue, close to but politically separate from graphed in a gambling environment. The Chinese are known as passionate the mainland. And with a population of Macau is the world’s biggest gambling gamblers, and Macau is where they come over 1billion, mainland China has enough market, and until 2001 it was entirely con• to play. Steve Jacobs, the head of Sands people to keep the visitors coming despite trolled by one company, Sociedade de Tu• China, reckons that four•†fths of his visi• the restrictions. rismo e Diversões de Macau (STDM), head• tors hail from the mainland and the rest In fact, Macau draws so many punters ed by Stanley Ho. Mr Ho’s garish pair of mainly from other Asian countries, nota• that casinos are literally rising from the sea: casinos, the ‡agship Casino Lisboa and the bly Taiwan, South Korea, Vietnam and In• the Venetian and the Plaza anchor a devel•1 newer Grand Lisboa, remain the most prominent gambling establishment in cen• tral Macau, but he now faces sti competi• tion from a pair of seasoned Las Vegas companies, Wynn Resorts and Sands Chi• na, a subsidiary of Las Vegas Sands, as well as China’s Galaxy Entertainment Group. The contrast between Mr Ho’s ‡agships illustrates the way that Macau’s gambling market has evolved. Casino Lisboa is small, tightly packed, loud and smoky. Nearly all of the gaming ‡oor is taken up by tables o ering Macau’s two most popu• lar games: baccarat‹in which punters bet on the turn of a card‹and sic bo, in which they bet on the value of three rolled dice. Both involve about as much skill as betting on coin ‡ips. The Grand Lisboa, by con• trast, has craps and blackjack tables, a pok• er room, a sports book, a number of restau• rants ranging from the upmarket to an excellent noodle shop, and hundreds of slot machines. However, on a recent visit the sportsbook stood empty and unat• Gambling markets don’t come bigger 12 A special report on gambling The Economist July 10th 2010

2 opment known as the Cotai Strip, built on about $10 billion. The Philippines Amuse• Cambodian casinos near the country’s a †ve•kilometre piece of reclaimed land ment and Gaming Corporation (PAGCOR) borders with Vietnam and Thailand. In Ja• that links the two Macanese islands of Co• has launched a hotel•and•casino complex pan the only legal forms of gambling at the loane and Taipa. The ŒCotai part of the on a large chunk of reclaimed land in Ma• moment are pachinko, the lottery and new plot’s name comes from the †rst sylla• nila Bay. According to PAGCOR, its part• horseracing, but that could soon change. bles of the two islands; the Strip part of it is ners in the venture‹Australia’s Blooms• Mr Jacobs predicts that if the Japanese clearly meant to evoke Las Vegas. Galaxy bury Investments, Malaysia’s Genting market were to open up, it would be †ve to opened the Grand Waldo, the †rst resort Group and Aruze, a Japanese company ten times the size of Macau’s. there, in 2006; the Venetian and Plaza fol• known mainly for its pachinko and slot Yet many Asian governments, for all lowed soon after and will be joined by two machines‹each stand ready to invest $2 their eagerness to get their hands on more more Sands developments. There will also billion•3 billion in the venture. tax revenue, still remain ambivalent about be new hotels from Ra‰es, Conrad, Hilton, In 2008 the government of Vietnam gambling. Singapore charges its own citi• Sheraton, Swissotel and St Regis. granted Asian Coast Development, a Ca• zens S$100 ($72) to enter its casinos but for• nadian company, the right to construct †ve eigners pay nothing. Only one of South Ko• Busting out all over integrated resorts on 169 hectares of beach• rea’s 14 casinos is open to the locals. The Cotai Strip may be the most high•pro• front land near Ho Chi Minh City. The †rst Egyptian and North Korean casinos too †le gambling development in Asia, but of them, the MGM Grand Ho Tram, is will happily take foreigners’ money yet bar there are plenty of others. In the past few scheduled to open in 2013. In Bavet, Cam• their own citizens. China rations main• months Singapore has seen the opening of bodia, south•east of Phnom Penh, the landers’ access to Macau. On the Chinese two large integrated resorts, Resorts World $100m Titan King Casino opened in Febru• mainland the only legal form of gambling Sentosa and Marina Bay Sands, which cost ary this year. It joins a number of other is a thriving lottery. 7 Come, all ye gullible

Lotteries are a bad bet, but everybody loves them

N A cool and clear spring Friday night, sent to the participating countries, which Historically, large•scale lotteries have Oin the basement of an anodyne oˆce work the footage into their own presenta• served two purposes: encouraging com• building in the Paris suburb of Boulogne• tions. The prizes are tax•free and handed merce in cash•poor societies and contrib• Billancourt, about a dozen people took over at once and in full, whereas in Ameri• uting to civic welfare. In 1522 a Venetian their places to go through the weekly ritual ca the prizes are taxed and the winners are dealer o ered punters the chance to win of making one European rich beyond his generally given the option of receiving the carpets in a draw for a small entry fee. Two wildest dreams. Tumblers were spun, full amount in yearly instalments or a por• centuries later lotteries in colonial Ameri• numbered balls drawn, pearly white teeth tion of it as an immediate lump sum. ca provided a mechanism for selling indi• ‡ashed, breaths held‹but in the end there Like most modern lotteries, EuroMil• visible, expensive pieces of property. was no winner in that week’s EuroMil• lions funds good causes of many kinds. Thomas Je erson approved of this meth• lions draw. The ¤79m ($100m) jackpot was But that is not what gets people excited. od Œwhere many run small risks for the rolled over to the following week, when What the lottery sells, according to Chris• chance of obtaining a high prize. the prize went up to just over ¤100m tophe Blanchard•Dignac, the head of Fran• Proceeds from lotteries helped to fund ($125m) and the draw produced a single çaise des Jeux, is a dream. That dream is of repairs to the Cinque Ports on the Sussex winner, from Britain. It was the biggest lot• great personal wealth, even if the lottery is and Kent coasts, and to build Westminster tery windfall in British history, though still perhaps the only game in the world in Bridge. They also generated †nance for nowhere near the world record, a stunning which your chances of winning are not such notable American institutions as Co• $390m split between two tickets in an greatly increased by playing because the lumbia and Yale universities and Williams American Mega Millions draw. odds are so long. and Dartmouth colleges. George Washing• EuroMillions is run jointly by the Fran• ton called gambling Œthe child of avarice, çaise des Jeux, Loterías y Apuestas del Es• Enduring allure the brother of iniquity and the father of tado and Camelot, which operate the And yet lotteries have been perhaps the mischief, but Benjamin Franklin organ• French, Spanish and British lotteries re• most enduring form of gambling. Slot ma• ised a lottery in Philadelphia in 1746. spectively. It is open to players in Britain, chines are an outgrowth of the Industrial The modern French lottery began in Ireland, France, Spain, Luxembourg, Aus• Revolution; card and dice games go in and 1933 to help people who had been wid• tria, Belgium, Portugal and Switzerland; out of fashion (who now bets on Hazard or owed, orphaned or injured in the †rst measured by the number of players, it is Faro, popular in the 18th and 19th centu• world war. Today Française des Jeux †• the world’s biggest lottery. During the ries?); the patterns and subjects of sports nances French sports; its contributions ac• week of the missed draw last spring some betting vary widely between countries counted for more than 80% of the budget 26m Europeans bought tickets. The draw and cultures; but the idea of taking a small of the Centre National de Developpement takes place in Paris every Friday night be• ‡utter on a chance of immense riches du Sport in 2009. In Britain, where more tween 9pm and 10pm; it is recorded and holds almost universal appeal. than 70% of the adult population play reg•1 The Economist July 10th 2010 A special report on gambling 13

2 ularly, Camelot has distributed more than ies generated nearly $17 billion in revenue £24 billion to good causes since its †rst lot• for state governments. The chance of win• tery draw in 1994, including sport, arts, her• ning the Mega Millions jackpot is about itage and education. one in 176m. For comparison, an individ• Education is also a main recipient of ual’s chance of being struck by lightning is American lottery largesse. California’s lot• around one in 750,000. tery has been giving 34 cents in every dol• And if lotteries are a tax, they su er lar to public schools since 1984. Arkansas from being regressive. A study carried out started its lottery in 2009 with the express in 2009 by Theos, a British think•tank, aim of funding scholarships for the state’s found that poor Britons spent a greater part students and universities. And in Georgia of their income on lottery tickets, particu• lotteries have provided over 1m residents larly scratch cards, than rich ones. In South with scholarships to go to college. Carolina, households with incomes of less than $40,000 a year account for 28% of the The respectable face of gambling state’s population but more than half of its This tradition of civic support may be one frequent lottery players. reason why lotteries are more widely ac• More than one American in †ve thinks cepted, and therefore more accessible, that buying lottery tickets constitutes a than other forms of gambling. The World sound retirement plan, according to a Tax Lottery Association has members from Foundation study. And research carried over 90 countries. Most American states out by the Federal Reserve Bank of St Louis have lotteries, and even in some of those in seven American states found that much that do not, residents can still buy tickets in of the money spent on lottery tickets came the two multistate lotteries, PowerBall and Highly improbable from some form of government assistance Mega Millions. (such as social security, unemployment or Lotteries also hold their appeal well in †t is also known by another name. Henry disability bene†t). tough times. They account for nearly one• Fielding hit upon it in his ballad•opera Buying a lottery ticket may be a foolish third of the global gambling market, with ŒThe Lottery, written in 1731: ŒA Lottery is bet, but given that people are so willing to sales expected to rise this year as the bets a Taxation,/Upon all the Fools in Cre• play, it is unrealistic to ask governments on o er grow more diverse: not just scratch ation;/And Heav’n be praised,/It is easily not to back the game. European enthusi• cards and number draws but also online raised,/Credulity’s always in Fashion:/For, asm for lotteries has already led Française and mobile o erings, a small but increas• Folly’s a Fund,/Will Never Lose Ground,/ des Jeux, Camelot and MUSL, which runs ingly important business. While Fools are so rife in the Nation. Ac• Mega Millions and Powerball, to start plan• Money taken from the general popula• cording to the National Conference of ning for a global lottery, with a tentative tion and used by the government as it sees State Legislatures, in 2006 American lotter• launch date of 2012. 7 Sure thing

People will keep on betting, legally or illegally. It makes sense to tidy up the rules

N 1950•51 a US Senate commission head• That view has a long history. Somerset though unregulated sites, often run by o • Ied by Estes Kefauver, a senator from Ten• Maugham called Monaco Œa sunny place shore crews, carry their own dangers. nessee, investigated organised crime in for shady people. At the time of the Kefau• Legalising gambling certainly has its America. It came out strongly against lega• ver investigation the same could have costs. Crime and pathological gambling lising gambling. ŒThe availability of huge been said of Las Vegas. Yet as Moe Dalitz, a tend to be higher in areas with casinos. sums of cash and the incentive to control mobster from Cleveland who owned the America’s National Council on Problem political action result in gamblers and rack• Desert Inn, quipped when a friend asked Gambling estimates that 1% of American eteers too often taking part in government. him about his clubs, Œhow was I to know adults are pathological gamblers and an• In states where gambling is illegal, this alli• those gambling joints were illegal? There other 2•3% have problems controlling their ance of gamblers, gangsters and govern• were so many judges and politicians at habit. In Britain some 0.6% of the popula• ment will yield to the spotlight of publici• them, I †gured they had to be all right. tion are thought to be problem gamblers, a tyðbut where gambling receives a cloak Needless to say, betting is not limited to status associated with being in poor of respectability through legalisation, its legal enclaves; as with drugs today and health, single, separated or divorced and• there is no weapon which can be used to alcohol in America 90 years ago, prohibi• having fewer educational quali†cations keep the gamblers and their money out of tion largely fails. It is impossible to say how than others. Problem gamblers are also politics. In other words, not only is gam• much Americans spend on illegal betting, more likely to be unemployed and to com• bling a vice; gamblers themselves are an but estimates run as high as $380 billion. mit crimes. inherently corrupting force. The internet has made such betting easier, Gambling will always draw opposition 1 14 A special report on gambling The Economist July 10th 2010

paper all the more welcome. China appears content to send its gam• blers o to Macau. The idea of fencing o the activity appears to be gaining support across Asia, whether by placing casinos in remote places, as in Cambodia, or by charging citizens for entry but allowing for• eigners in free, as in Singapore.

Look at it rationally Britain seems to have found the right bal• ance between paternalism and permis• siveness, recognising that people who wish to gamble will do so‹particularly to• day, when all they need is a computer, a broadband connection and a credit card. A kingdom for a horse Ensuring that they are not cheated requires regulation, rigorous oversight and a com• 2 on moral grounds. Taylor Branch, a histori• tortion by botnets, which attack the site mitment to an open and competitive mar• an and a supporter of the Stop Predatory and block bets during high•pro†le sporting ket. All of these things are to the good. Gambling coalition, argues that state• events). Properly overseen and regulated, Many people would disagree. But they sponsored gambling (lotteries and slots) is online gambling should be no more sus• would do better to try to persuade their fel• Œa corruption of democracy because it ceptible to fraud and money•laundering low citizens to spend their money more ð[tricks citizens] into thinking they are go• than e•commerce in general. wisely than to appeal to governments to ing to get rich, but they are really going to The days of blanket bans in America enforce crude bans. On the face of it that be paying my taxes. Opponents also ar• may be ending anyway. There is growing should be easy: the most popular forms of gue that it encourages addiction‹a dispro• discontent with federal interference in gambling‹slots, lotteries and casino portionate amount of revenue from slots what should be an issue for the states. Del• games‹are simply bad bets which players and lotteries comes from frequent play• aware challenged the federal ban on sports are likely to lose. ers‹and relies upon the immortal hope of betting unsuccessfully; New Jersey is gear• But rational individuals should not be getting something for nothing. ing up for another run, and is considering a prevented from indulging in the odd spec• Yet arguing that states encourage addic• referendum to make online gambling legal ulative wager, whether on a lottery ticket tion by legalising, taxing and regulating in that state for its own residents. or in the housing market. Governments gambling is akin to arguing that they en• Attitudes in Europe have ranged from around the world increasingly seem to re• courage alcoholism by legalising, taxing the permissive to the strongly opposed, cognise this (or at least they seem to like the and regulating alcohol consumption. which has made it hard to align gambling revenues that ‡ow from regulated and Some people bet too much, some people rules to create more of a single market. taxed gambling). Globally, online as well drink too much, but most are capable of There have been calls for harmonisation, as in the world of bricks and mortar, the doing both in moderation, and the state but the European Court of Justice does not trend is toward greater legalisation and reg• should not stand in their way. seem to have pursued a consistent line, ulation. Civil libertarians will rejoice. The Still, creating a regulatory regime will which makes Mr Barnier’s call for a green house will still win. 7 not be easy, particularly given the rapid changes now sweeping the industry. Las O er to readers Vegas took the better part of a century to Future special reports Reprints of this special report are available from Egypt July 17th extricate itself from the control of organ• The Rights and Syndication Department. Latin America September 11th ised crime. That history has coloured A minimum order of †ve copies is required. Forests September 25th America’s attitude towards online gam• The world economy October 9th Corporate o er bling and caused it to proceed more cau• Turkey October 23rd Customisation options on corporate orders of 100 Smart systems November 6th tiously than most European countries. or more are available. Please contact us to discuss But using that history as an excuse for your requirements. inaction or blanket bans of online gam• For more information on how to order special bling would be a mistake. The days when reports, reprints or any queries you may have mobsters could ‡y planeloads of cash be• please contact: tween Las Vegas, Miami and Switzerland are over. Unlike wads of cash, money wa• The Rights and Syndication Department 26 Red Lion Square gered online leaves a clear audit trail. Cus• London WC1R 4HQ tomers are at risk today not from betting Tel +44 (0)20 7576 8148 online but from betting through unregulat• Fax +44 (0)20 7576 8492 ed sites located in foreign jurisdictions that e•mail: [email protected] Previous special reports and a list of leave them no recourse when they are www.economist.com.rights forthcoming ones can be found online cheated, and which themselves have pro• Economist.com/rights Economist.com/specialreports ven vulnerable to cybercrime (notably ex•