Game of Chance:

"Who has the profit

and who is to blame?"

Hartmut Nevries

European Association for

the Study of Gambling

23. September 2000

Central and Eastern

European Conference on Gambling

Marriott Hotel, Warsaw, Poland

21. - 23. September 2000

Ladies and Gentlemen,

first of all I wish to thank the organizers of this year's conference of the EASG for the invitation to present my opinion about the question:

Who profits from games of chance and who is to blame?

This question seems to be answered easily:

Normally the one who supplies the game of chance has the profit and the one who takes part by betting money in order to get lots of money easily is the one to blame.

By watching more detailed this definition is too simple, as there are more winners than one recognizes at first glance and there are lots of losers who know how to handle their loss.

Please let me have several minutes of your time to confirm this statement.

The European Gambling Market

In all European Countries - like in Germany - the gambling for money is forbidden by law. Only some games and bets are excluded and licensed. And these are not always the same within the European Community and the European Community urgently demands a harmonisation in the field of games of chance.

But nowadays within the European Community and outside the principal of subsidiary applies, that means that every nation has its specific gaming law and involved regulations, without regarding the neighbour.

Only in some countries of Eastern Europe they have a more detailed gaming law and a constitutional basis for gaming, in order to protect the people against exploitation and addiction.

In summary one can say about the European gambling market, that:

-         the European Gambling Market is one of the largest economic and industrial sectors,

-         the gambling market with a yearly growth rate of 5 to 10 % is one of the few markets which develop continuously,

-         the volume of the European gambling market is higher than the respective computer or shipping industry,

-         the turnover of all legal games of chance in Europe is estimated at about 600 Billion ECU.

-         the yearly losses in legal gambling amount between 100 to 150 Billion ECU,

-         the taxes from games of chance which go directly to the countries and local authorities amount to 1 % to 5 % of the respective national budgets,

-         also in future the gambling market is going to develop very innovatively and dynamically.

One of the most essential results of a study about the "European Gambling Market" of the European Community was, that the volume of this market was nearly unknown both in public and in parliaments, and that this market has different rules and laws in each of the states of the European Community, and that a harmonization is urgently needed.

Let me mention that in this publication of thousands of pages there was not one sentence about problems with games of chance, no reference to gambling addiction or the social problems resulting there of.

The European Gambling Market represents itself very discreetly, without any lobby, without voice and apparently shy to the public. This has only changed a little during the past years when the phenomenon of Gambling in the Internet became significant in media. - I'll refer to this subject later.

Survey of the German gambling market:

The German Lotto- and Totoblock

The German Lotto- and Totoblock had its best gaming result last year with more than 14 Billion DM. 50 % of the input is paid back to the participants through a special system and this was not less than 7 Billion DM.

More than 280 people or betting teams won more than a million DM,

5 Jackpots about 17 million DM.

Without the existence of 15 lotteries and games of the German Lottoblock, huge parts of the promotion of sports, the benefit system and the cultural assistance would be heavily affected or would not even exist.

In this field of gaming we have only few negative symptoms. There are only few cases in which the excessive gambling of Lotto led the gambler into a situation of loosing existence. One cannot play on credit, these games cannot be manipulated.

These games are very popular not only in Germany but also in the neighbour states, otherwise they would not have a 50 % participation of the adult population weekly.

One can say, that lots of small individual inputs make millions for institutions deserving promotion and peripherals of society, without the need of using taxes. Besides winners are drawn and receive amounts of money and high-value prizes, which they would not have been able to earn otherwise.

It should not be forgotten when assessing this game of chance that the German Lotto organisation supplies 50,000 jobs.

Casinos

In the order of rank of gaming turnovers the 52 German casinos and their 16 affiliates have a prime position although casinos should not be assessed by the turnovers but by the gross gaming revenues.

The losses of all participants of games in German casinos and their affiliates amounted to approximately 1.55 Billion DM in 1999.

That means, referring to the individual participant, that every visit of a casino can be calculated with 120.00 DM of loss, according to the statistics of the German casinos.

Who is the winner and who is to blame now?

Because of the high taxes of 80 % to 90 % of the gross gaming revenue the respective federal country which grants the licence has the biggest profit, and not the operator of the casino.

Nearly all casino laws of the countries state that the casino taxes have to cover the budget for a big part and for a small part to cover social and cultural means.

The principle is: If losses must be then for a good object, which promotes the public or social minorities.

Roulette, Black Jack and Baccarat traditionally are games of chance where people can loose their existence.

The average German visitor of a casino has no problems with the gaming supply and the game of chance. He takes a fixed amount of money, which he is prepared to invest. When this money is used up, he is not happy but he expected the loss. But more and more people make use of cash dispensers or credit cards and so they bet more money than planned.

This trend should be watched critically by the casinos as especially weak characters not seldom are seduced and these people actually become real problems.

Again and again we see people gambling excessively and we - the gaming operators - have little influence. There is of course the measure of lockout, which means that the guest can lock himself out from visiting one or all German casinos by a blocking notice. Casinos will seldom make use of this measure, unless it is a question of manipulation or theft on the table. A suspended gambler is in permanent danger to slip off to the underground, that means to illegal games of chance.

I think that it is very dangerous if by news media the responsibility is not loaded on the gambler but on the casino or on the gaming supply, and the excessively gambling person feels confirmed he is not to be blamed but he is the victim of the gambling industry. In every action of daily life there is the temptation of misuse and exaggeration: From courage grows desire, from enjoyment grows gluttony, from the pleasure in driving grows scorching. Only in the field of games of chance the liberty of gaming is declared as a compulsive act and liberty and self-responsibility turn to addiction which demands therapy and care.

No serious person will deny that there are people who gamble beyond their circumstances, who have to be called pathological.

On these ones we pay our attention and they must be assisted, as they cannot free themselves from the vicious circle of addiction. The whole gaming supply should finally be considered as a normal institution of our life, and we must learn to handle our responsibility and discipline.

The Government, the actual beneficiary has the largest profits from this market and can hardly shirk from responsibility for the people, who need help and therapy on which reasons ever.

Some Landers are already close to solve this problem by taking parts of the gaming taxes for therapy and substitution measures for endangered and pathological gamblers.

Unfortunately these are still only statements of intention. No law and no implementing regulation specifies amounts or percentages.

If they would agree on using only one percent of the gaming taxes for therapy and fundamental research on the field of gambling addiction not less than 10 Million DM, only from the gambling market of casinos, could be spent on this object.

Gaming machines and Arcades

We cannot discuss the gaming for money without covering the field of the arcades, the street- and wall machines, although in definition they do not belong to the games of chance and the supply is not subject to law and order but to the ordinary trading law of the local authorities. The taxes are lower and the licensing requires different directives than slot machines in casinos.

The number of street and wall machines in Germany is indicated at 300,000 machines, so this number is much higher than the 5000 slot machines in German casinos.

The bets are specified at about 10.5 Billion DM by the arcade industry, including the winnings and the average tax of 60 %.

About 4 Billion DM remain with the operators and of course they have to pay running costs, wage costs, rents, provisions etc. before finding out the net profit.

The question for the winners and losers of this field of gambling should be answered rather simply:

• The loser is, without any question, the gambler who buys gaming and entertainment time on very different gaming machines by financial input.
• High profits are not to realize because the system is not made for that.

Nevertheless this entertainment and gaming industry enjoys big popularity and demand.

By extensive studies in nearly all European countries the EASG found out that the initial presumption seems to have to be confirmed, which assumes that careers of gambling addiction very often start in arcades and on street and wall machines.

At the instance of these negative results the responsible people of the arcade industry have developed an extensive list of information measures and voluntary self control. The implementation of this is often criticised as insufficient by charitable organisations and self-help-groups.

Without any question producers and operators of street and wall machines generously substitute national and international research projects on the origin of gambling addiction and the fight against it. But this often doesn't satisfy the afflicted, they demand more restriction, even prohibition. Prohibitions are no solution, but further creativity to evade these regulations.

For the circle of problem gamblers the Dutch model of the Jellinek Consultancy, by which the winners of this market should be more engaged, should be recommended.

Sports bets

Up to now sports bets are forbidden in Germany. There are only two exceptions: football, football pool, and horse betting, galloping- and trotting race.

The horse betting is organized directly on the race track or by book makers, who take approximately 35 % of the total result of 835 Million DM.

After payment of taxes millions of DM remain with the operators of sport bets and they take the total amount to help the respective sport, that means in the case of Toto the youth sport and the Lander-sports-unions. In the case of horse betting the horse-breeding and the upkeep of the race tracks. If there was no horse betting, the horse-race would be reduced to a very few representative events. A horse owner would have no more incentive for breeding and for presenting horses during the sports competition. So horse breeding, which is in Germany of international reputation would be put at risk.

Also in this field the betting works with small inputs of the horse betters preserving and promoting performance, which otherwise had to be done by state, like in England or Hungary for example.

A glance across German borders shows us the small range of sports bets in Germany.

British people invest more than 20 Billion DM in sports bets,

French people bet more than 15 Billion DM on horses,

and the race track in Hong Kong has a yearly turnover of 18 Billion DM.

Japanese people bet on boat races between 25 Billion and 30 Billion DM yearly.

Even the Chinese bet on boat-racing, although games of chance and  betting for money is forbidden by death penalty.

Gambling on the INTERNET

Irrespective of the question who will have the profit and who will be to be blamed on the German or the European gambling market, this market and this industry will have a totally new challenge, which hasn't existed up to now: The INTERNET is a communication system with inexhaustible possibilities in the field of transferring know-how, of trading, of banking. But it is also an open door for crime, fraud and misuse, without legal prosecution, because up to now the national constitutions do not know adequate legal bases. We can see this also in the field of pornography or espionage.

There are criminal activities especially where personal data, account numbers, numbers of credit cards etc. are disclosed and so can be misused.

Laws and control systems protect the citizen against misuse to the borders or even on the ground. But the INTERNET requires totally new protection systems, as no passport control, no entrance control and no check cameras can help. Illegal information flows through the World Wide Web into every room without problems. Time is precious. At first the Internet was a media only for several insiders. It will soon be a mass media for everybody.

In the USA 70 % of the adult population have already access to the internet. In Germany the quota was 18 % at the end of 1999. But the percentage of internet users below the age of twenty is already

nearly 40 % in Germany.

The Internet needs to remain the media of fast and free information. But we, the users and especially legislation must develop minimum standards and legal directives to stop the misuse and the criminal potential now, while it is still possible.

National solutions for a global system may be an attempt, but not really helpful. The Net requires international, global network solutions.

Today it seems - at least in Europe - that the gambling on the Internet creates only few problems, as the people who rule the system, invest there money in trading and not in gambling.

European people are also afraid of making it possible for an unknown system to use their banking connection and their credit cards. A very natural protection, which still keeps the quota of misuse at a low level. But what will happen if somebody gets somebodies credit card or access to another's bank account? Here we still have too little protection and too little security.

After long discussions in the United States the gambling on the Internet has been forbidden by law because of the rocketing misuses. Thus not only the supply but also the usage is punishable.

All our good intentions, we discussed here, in order to decrease the misuse of  games of chance and the gambling addiction, must surrender to the access of the uncontrolled and not censored use of world wide gaming supply entering our offices and living rooms by the Internet. In this we will have a big leap in numbers of losers, who are addicted and who need our help. I am under the impression that our society and also our responsible politicians have not yet noticed the danger adequately. To my knowledge  there are many assistants in the Ministries of interior who look for criminal supplies in the Internet on criterion of states security. No authority is handling the gambling on the internet and its consequences. Looking to the USA we can see the danger which might threaten us soon. There are more than 300,000 cases known to the justice authorities in which misuse on the Internet is the object. They do not find any judicial decision because there is no law.

Games of chance in media

Let us talk about another aspect of gaming, which possibly makes all our efforts look dilettante. The public order to the operators who handle games of chance under concession and under control today in Europe is clearly formulated:

• canalisation of the gaming impulse
• avoidance of gambling addiction
• avoidance of criminal exploitation
• protection of the citizen against himself, that means against ruinous gambling.

Gaming operators who only aspire large profits, if to supply the state with more taxes or in order to optimise own profits will soon have reached their end of growth if, at the same time, they want to meet the codex of their company philosophy.

More and more the gambling market becomes interesting for other industries and other markets, which deal in the marketing of products or events, or media markets, where the question are viewing rates or the wide audience interest.

These markets will develop in international or even in global areas if media groups or marketing specialists, in addition to their products, discover that a bigger turn-on-quota or a bigger acceptance can be reached if their product or sports event is combined with lotteries, betting or games of chance. That would open a door which legislation cannot handle easily.

This a question of enormous development facilities, investments, jobs to which politics and current society norms can put up little resistance.

Today it is no longer necessary to go to a ticket counter and take part in a sports bet or a lottery. Via Internet or Online system you only need a personal computer and a mouse click and we can imagine the additional profits possible for certain groups if the respective sports event, football, baseball, horse race or Formula 1 could be combined with a bet. The user takes part in a global betting, working with extremely high prices - which makes interest grow, makes the number of participants grow, makes the budget of advertising expenses grow, because this always conforms to the viewing ratings. Also this game cannot be controlled by local or national authorities if the processing computer is installed on the Caymans or in Curacao.

Just imagine that product introductions are combined with games of chance and bets and these are offered at certain times on certain channels. The national lottery and betting law will be totally by-passed if the sender is installed outside the jurisdiction. There are already starts - not in Germany - but in Sweden, in Australia and in some countries of the British Kingdom, where these programmes up to now still run for charitable organisations or the national sports promotion. This market booms and requires additional channels.

The following consequences would necessarily affect the gambling market, without any regard for the gambler and participant:

• The game of chance would be used like other sales promotion measures and would be, as it were, a subliminal accompaniment.
• The games of chance lose their local, regional or national identity, because the high investments only count in global use. And as there is not and will not be in close future an international gaming law, also in this point the participant has no protection.
• The market economic use of the game of chance is exposed to the power of the market and under these premises the canalisation of the gaming impulse in the traditional manner is not possible. The market and the market power don't stop before the gambling addiction of the individual (Inter-Toto-Congress, Berlin, 1997).
• A global gaming supply requires enormous investment and creates a totally new increase of employment. How long can a local or national law prevent such a booming industry?
• The technical development more and more erodes the national law and order system. A kind of voluntary self-control fakes a certain control to the government. But one point is definite: once de-regulated, the way back is very difficult (Dr. W. Wortmann at the Inter-Toto-Congress in Berlin, 1997).

Examples:

The financing of all the Swedish sports be it youth, high-performance or old-age sports is exclusively possible through a national TV lottery. On Friday afternoons between 6.30 and 7.00 h nearly every adult Swede watches TV and participates in the so-called sports-bingo, which is in store with high winning chances with high priced winnings, and totally new products and services are introduced. The profit from this lottery flows totally to the national sports, and this does not need any state promotion.

Similar systems can be found in Australia, where the high-performance sports like the old-age sports are financed by profits from gaming machines installed in special clubrooms.

A large Canadian building enterprise offered the authorities of Nordrhein-Westfalen to build the biggest European shopping and entertainment centre in Oberhausen and to finance this project of billions of DM privately. The only condition: A casino of American style must be installed and licensed in this project. The profits of the games of chance should, of course, not flow to Nordrhein-Westfalen but to the investor.

How long will a federal authority be able to withstand such an attractive offer if hundred thousands of new jobs can be created and a world wide game of chance brings additional taxes of billions to discharge the budget or social duties?

Switzerland has for decades restrained from a gaming law. Only when it was made public how many millions of franc Swiss citizens spent in the neighbour casinos of France, Italy, Austria and Germany which didn't accrue to the Swiss budget, the outlook changed and the Swiss casino law was introduced. Again the old rule was used:

"If we cannot prevent this, our citizens and not the neighbour state should have the advantage."

Result:

I have tried to find out about the German and the European gaming and gambling market "who has the profit and who is to blame".

I tried to make it clear, that the prohibition of games of chance cannot be a solution, but would only impair lots of helpful organizations and threat their existence, if this source of revenue would no longer exist.

I tried to make it clear that the gaming and the gaming industry, also in Germany, supplies and secures 150,000 jobs, which would be endangered if the gambling would no longer be possible.

I tried to make it clear, that people have a permanent gaming impulse which would not disappear through prohibition but would look for activity in the illegal field.

I have tried to present the real temptations and threats of this market without being able to give you perfect solutions or simple answers.

I have tried to explain, why it is so extremely difficult to control and harmonize this market by measures of law and regulation. It is the human being with his yearning for a little luck, for the hint of god, lifting him from the mass and make him happy, without the need of exerting himself too much, without being born in palaces and without having inherited a super brain. One only needs to participate, one only needs to buy a ticket, one only needs to meet the right number or make the right tip.

I tried to make it clear that we will have to learn to live with a wide gaming supply and that the state needs to assist the citizens who are not strong enough themselves, to meet the rules of this market.

I think there is a long way to go, until all fellow-citizens have recognized the high personal risk in participation on games of chance, and that gaming is like shopping in the supermarket where one can choose from a big supply, but the only should buy what in the end he can pay for.

Please judge for yourselves and hopefully my statement has not only found your attention but also your approval.

Thank you for your attention.