Opinionista Paul Berkowitz 19 April 2013

I bet you we can make gambling better

Gambling is a controversial topic, and the South African gambling industry is a controversial outfit. I’m not sure we can stop people gambling, but we can give them more choice in the games they choose to play.

In the building where I stay, there are a few young children, mostly boys, in early primary school. Three of them struck up a conversation with me while I was washing my car one Sunday morning. Excited at the idea that I might be able to teach them a Life Lesson, I offered them all the spare change in my car if they helped me with the final polish. 

They accepted my challenge with a lot of enthusiasm and varying degrees of competence and were duly rewarded with around R8 in change each for a few minutes’ work. Two minutes later I spotted them sitting in a circle, flipping the coins in a game of double or nothing. 

I felt a bit conflicted at this turn of events. I hadn’t even had a chance to pat myself thoroughly on the back for instilling a proper work ethic in the youth and already they were gambling away their wages. 

The libertarian in me won out and I left them alone to save or squander the fruits of their labour, although I suspect that the oldest boy coerced the younger two to join him in their game of chance. This little story is an adequate enough mirror of a broader debate on gambling: what is its place in society and what could we do to improve the industry?

There are two themes to consider when answering these questions. One is society’s perception of gambling and its related response to the regulation of the industry. The other is the structure of the gambling industry and an analysis of that structure. The two themes are linked: a reform of the latter might lead to a reform of the former.

Can people become addicted to gambling in the same way that we understand addictions to tobacco, alcohol and heroin? The theories around so-called gambling addiction are contentious. There is some research to suggest that certain people have a genetic predisposition to gambling – and also to infidelity, general risk-taking and a love of horror movies.

Without wading into a debate of nature versus nurture, or the nature of addictive behaviour, what is clear from the available research is that heavy gamblers comprise a small percentage of total gamblers, just like heavy smokers and alcoholics. For whatever reason, the 80/20 rule of revenue (or even 90/10) applies to all of these industries: a minority of heavy consumers provides most of the revenue.

What this means, beyond all our posturing and moralising, is that the addictions of the few support these industries, and the owners of these industries know that. They can preach abstinence in whatever number of public service advertisements, but they depend on addiction for their business model.

I’m not trying to blame the industry bosses through insinuation: this is merely the state of much of the gambling industry across the world. As society we recognise that there is a degree of social harm attached to gambling and we justify taxes on gambling, in part, as some form of social restitution by the industry.

If we want to approach the industry in a practical way and try to maximise this restitution, we should move on to the industry’s existing structure and ask if it can be improved in any way. 

The structure of the gambling industry in South Africa is one of high concentration and few choices available to consumers. By far the most popular form of gambling is the national lottery, which has a state-granted monopoly. The administration of this lottery and its disbursement of monies have been heavily and routinely criticised, but more on that in a bit. 

The casino and gaming sectors are the next-most popular form of gambling. The casino sector is effectively controlled by three companies (Tsogo Sun Gaming, Peermont Global and Sun International) and the market for limited payout machines (LPMs) is heavily regulated. 

The operating of casinos and gambling machines is subject to a strict quota system that is administered by provincial governments. Gauteng has seven operating casinos, Western Cape and KwaZulu-Natal have five each, and the rest of the provinces have four or fewer casinos each in operation. Of the 37 licensed casinos in operation across South Africa, 36 are owned by the abovementioned three companies.

Casino license revenues are substantial money for the provinces, but far from make-or-break. The current budget for the Western Cape estimates that casino licenses will bring in about R290 million per year over the medium-term. That’s only around 15% of all internally-raised revenue (R2 billion) and less than 1% of total revenue (an average of R45 billion per annum). In Gauteng it’s a bit more: casino licenses are expected to bring in a bit over R700 million in 2013, 18% of revenue raised by the province (R4 billion) but still less than 1% of the R79 billion budget.

Nevertheless, the strict quota system and the gate-keeping powers it confers to provincial governments means that there is always the risk of corruption and collusion in the granting of licenses. 

The money spent on casinos is far higher than the money spent on the national lottery: latest figures show that R4.5 billion was spent on lottery tickets in 2011 compared with R14 billion at casinos. The lottery remains the most popular form of gambling, though. There are two fairly distinct markets within the overall gambling world: casino-goers generally have more money, or at least spend more money while they’re playing cards or the slots.

The National Lottery has been caught up in controversy, with accusations in recent years of money being allocated to all the wrong causes. Rich rugby franchises and special interests connected to members of the adjudicating board have been named as beneficiaries, while many reputable charities have complained about cuts to their funding. 

There are other concerns about how the money is distributed and while they are less exciting, they do point to the problems with a monopoly provider of lotteries. 

Lottery tickets are often referred to as a tax on the mathematically illiterate. It’s true that they are a blatantly negative-sum game and they account for a large share of the poor’s disposable income. Let’s not worry, for now, about limiting or changing the choices of the poor and just concentrate on how to streamline the lottery system.

My proposal is simple: break the monopoly of the national lottery and throw the market open to whoever wants to start selling tickets. There is no reason why provinces or even municipalities should not be able to stage their own lotteries. At the very least, more competition should drive up the expected return to the average punter.

More choice would also maximise the beneficial side of gambling by creating more competition for the funding of charitable causes and public works projects. If the Northern Cape became tired of waiting for its share of disbursements from the national lottery, it could announce a once-off lottery and use the profits for its own budget.

My proposal will not save any heavy gamblers from impecunity, and it doesn’t address the social impact of gambling on poverty. What it does do is increase the likelihood that some of the money spent on gambling will fund a worthy cause, and give all of us a bit more agency and choice if we should choose to indulge. Those might be the best odds you’ll get for now. DM

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