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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
Slot machines are becoming mobile. Page 8
The internet is radically changing the business of gambling. Now
policy must catch up, argues Jon Fasman
When the chips are down
P
Competition and the economic downturn
have hurt, but Las Vegas is †ghting back.
Page 9
The dragon’s gambling den
Macau is only the start: all Asia is coming out
to play. Page 11
Come, all ye gullible
Lotteries are a bad bet, but everybody loves
them. Page 12
Sure thing
People will keep on betting, legally or illegally. It makes sense to tidy up the rules. Page 13
Acknowledgments
In addition to the people named in this report, the author
wishes to thank Jeremy Aguero, Stephen Burn, Nic
Coward, Scott Daruty, Behnam Dayanim, Markus Funk,
Bobby Geiger, Marshall Gramm, Carlos Guestrin, Mark
Harris, Simon Holliday, Randy Matthews, Adam Pliska,
Peter Reynolds, Emmanuel de Rohan-Chabot, Bas Rokers,
John Shepherd, Eric Tom, Mor Weizer, Jenny Williams and
John Williams.
A list of sources is at
Economist.com/specialreports
An audio interview with the author is at
Economist.com/audiovideo/specialreports
INPOINTING a precise moment when
the world changes is never easy, even in
retrospect. Yet it is possible to say with relative con†dence that the world of gambling
was changed dramatically by events
around a green felt table at Binion’s Horseshoe in Las Vegas on May 23rd 2003, the †nal day of that year’s World Series of Poker
(WSOP). The hand immediately preceding
the †nal table‹the last nine of the tournament’s 839 competitors who would play
for $2.5m‹pitted Phil Ivey, one of the
sharpest and most ruthless players of his
time, against Chris Moneymaker, an unknown 27-year-old accountant from Nashville. The newcomer eliminated Mr Ivey
thanks to a lucky draw on the last card
dealt. Mr Ivey, a stone-faced old-school
player, declined to shake his vanquisher’s
hand. Mr Moneymaker went on to win the
tournament.
His victory created what came to be
called Œthe Moneymaker e…ect: interest in
poker soared. Suddenly spending time
playing a game on a computer looked like a
road to riches. And those riches seemed attainable. The stars in poker, unlike those in
professional sport, look very much like the
spectators; they just happen to be more
successful. In the years since Mr Moneymaker’s victory, the tournament has variously been won by a patent lawyer, a Hollywood agent and a 21-year-old professional poker player.
It is not just professional poker that has
changed out of all recognition in the past
decade but all forms of gambling worldwide. The reason has been simple: for the
†rst time anyone who wants to gamble
and has an internet connection can do so.
The desire has been there for much of recorded history. An excavation of a bronzeage city in south-eastern Iran turned up a
pair of dice dating back nearly 5,000 years.
Islam forbids gambling, but the Bible mentions casting lots or using fortune to determine an outcome. Card-playing for money
has often been depicted in art (see detail
above of Georges de la Tour’s ŒThe Cheat
with the Ace of Diamonds, circa 1635-40).
Gambling’s widespread and enduring
appeal comes as much from the hope of
imposing order on the fundamental randomness of the world as from the expectation of economic gain (though that certainly has its charms). Blaming a bad result on
an o…ended spirit or a good result on divine favour is far more comforting than accepting the cold indi…erence of probability.
But there is a darker side to gambling
with which ancient civilisations were also
well acquainted. The Rig Veda, a collection
of Hindu religious hymns more than 3,000
years old, contains a section known as the
Gambler’s Hymn which laments: ŒWithout any fault of hers I have driven my devoted wife away because of a die exceeding by one [an unsuccessful bet]. My
mother-in-law hates me; my wife pushes
me away. In his defeat the gambler †nds 1
2 A special report on gambling
The Economist July 10th 2010
The risk instinct
ŒA
Why do people bet?
T 11pm there usually remained behind only the real, the desperate
gamblers‹persons for whom, at spas,
there existed nothing but roulette, and
who went there for that alone. These
gamesters took little note of what was going on around them, and were interested
in none of the appurtenances of the season, but played from morning till night,
and would have been ready to play
through the night until dawn had that
been possible.
Playing until dawn is often possible today, and the game is not always roulette,
but otherwise Dostoyevsky’s description
from 1867 will be familiar to anyone who
has ever been in a casino late at night. Dostoyevsky wrote from experience; his novella ŒThe Gambler is thought to have
been written to enable him to pay his
gambling debts. What is it that drives
some people to go on betting until they
lose their shirts, whereas others can take it
or leave it?
W.I. Thomas, an early-20th-century
American sociologist, argued that a taste
for risk is essential to human development. He believed that the gambling instinct Œis born in all normal persons. It is
one expression of a powerful re‡ex, †xed
far back in animal experience. The instinct
is, in itself, right and indispensable. A
psychologist of the same period, Clemens
France, saw similarities between gambling and faith: both expressed a need for
reassurance, order and salvation.
Those theorists were writing about
gambling as a pastime, but for some people it is much more than that. In the 1960s
and 1970s excessive gambling began to be
seen as a medical problem. Robert Custer,
an American psychiatrist, argued that
gambling could be just as addictive as alcohol and drugs, and indeed substance
abusers gamble to excess more often than
others. About three-quarters of problem
gamblers su…er from depression, and
quite a few attempt suicide. Mr Custer’s
†eldwork showed that pathological gamblers were often gregarious, clever and
generous but also impulsive, anxious and
restless, looking for instant grati†cation.
As with many aspects of psychiatry,
the study of gambling has moved from
mind to brain. A 1989 study conducted by
Alec Roy, a psychiatrist, found that chronic gamblers had low levels of norepinephrine, a chemical secreted by the brain at
times of stress or excitement. This seemed
to suggest that such people gamble for the
thrill of action. A more recent study by
Henry Chase and Luke Clark at the Behavioural and Clinical Neuroscience Institute
at Cambridge University found that near
misses and wins in gambling produce
similar responses in the brain.
Russell Poldrack, who runs a cognitive
neuroscience lab at the University of Texas at Austin, has found that activity in the
ventromedial prefrontal cortex depends
on a person’s attitude to loss. And Paul
Glimcher, a neuroeconomist at New York
University, has shown that activity in the
prefrontal cortex and ventral striatum reveals the value someone puts on a reward.
Undoubtedly gambling, like other addictions, depends on a complicated mixture of brain chemistry, environment and
socialisation. Howard Sha…er, a professor
of psychiatry at Harvard Medical School,
notes that the rate of pathological gambling in America has remained relatively
constant for the past 35 years, despite a
huge expansion in the opportunities on
o…er. There was a spike in the late 1990s
but levels have dropped since then. Dr
Sha…er draws a parallel with a classic virus-infection curve: high at the beginning
as those most susceptible fall ill, but gradually tailing o… as people adapt.
2 none to pity him. No one has use for a gam-
winning the jackpot in America’s richest
lottery, Mega Millions, is one in 176m. EuroMillions, available to players in nine western European countries, o…ers slightly better odds: one in 76m. Roulette players, on
average, will hit their number once in 36 or
37 attempts. Poker players’ chances of being dealt a royal ‡ush are much the same as
being struck by lightning.
enues from online gambling continue to
rise. H2 Gambling Capital, a consultancy
that monitors the global gambling market,
estimates online gambling revenues in
2009 at around $26 billion (see chart 2). 1
bler, like an aged horse put up for sale.
As the newly single poet above had just
discovered, the numbers make most forms
of gambling a mug’s game. The odds of
1
The wages of sin
Global gambling market*, 2009, % of total
Casinos
31.2
Sports
betting
5.0
Bingo/other
gaming
5.4
Source: H2
Lottery
products
29.6
Total:
$335bn
Non-casino
gaming
machines
21.6
Horseracing
7.2
*Including online
A majority sport
Yet hope never dies. In 2007 nearly half of
America’s population and over two-thirds
of Britain’s bet on something or other.
Hundreds of millions of lottery tickets are
sold every week. The global gambling market is estimated to be worth around $335
billion a year (see chart 1). Last year Las Vegas alone raked in gambling revenues of
$10.4 billion and Macau $14.7 billion.
For Las Vegas, that represents a decline
in revenue from 2008. By contrast, rev-
2
Watch it grow
Global interactive* betting industry
gross gaming yield†, $bn
FORECAST
40
35
30
25
20
15
10
5
0
2003 04 05 06 07 08 09 10 11 12
Source: H2
*Online, TV and mobile †Stakes
less prizes, including bonuses
The Economist July 10th 2010
2 The world’s gambling centres are no longer
just Vegas, Macau and Monaco; they now
also include Alderney, Gibraltar, Antigua
and Malta, whose favourable tax systems
make them irresistible homes for internetbased companies.
Thanks to these companies the old restrictions have started to crumble. Government prohibition of online gambling has
worked about as well as prohibition of
other online content, which is to say it is
observed mainly in the breach. America
remains the world’s biggest single online
gambling market by far, despite the passage in 2006 of the Unlawful Internet
Gaming Enforcement Act (UIGEA)‹a provision tacked onto a port-security bill that
prohibits the transfer of funds from a †nancial institution to an online gambling
A special report on gambling 3
site. After the ban some established sites
closed down their American operations,
but others †lled the void. Americans are
gambling roughly the same amount online
as they did in 2006.
The move online threatens some traditional forms of gambling, such as betting
on horses, but appears to bene†t others,
such as slot machines and lotteries. And
bricks-and-mortar expansion still continues. The latest addition to the Las Vegas
Strip, CityCenter, opened last December.
Covering 76 acres (31 hectares) and costing
around $8.5 billion, it is the largest privately funded construction project in American history. Thirty-three American states
have casinos (many of them operated by
around 200 Native American tribes), as do
more than 20 countries across Europe. The
Las Vegas Sands Corporation, which owns
the Venetian casinos in Las Vegas and Macau, opened Marina Bay Sands in Singapore in April. Sheldon Adelson, Sands’s
chief executive, believes that Asia can easily accommodate Œ†ve to ten Las Vegases.
In the past ten years gambling has
changed more than in the previous 70. The
internet has forced existing businesses to
adapt, opened up new opportunities and
fundamentally altered the political, economic, corporate and moral climate in
which these businesses operate. This special report will trace those changes through
the main forms of gambling, which sadly
will mean neglecting strong but local passions such as greyhound racing, bingo, jai
alai and cricket †ghts. It will begin with Mr
Moneymaker’s game. 7
Moreover, poker is spreading far beyond America. WPT poker games are
broadcast in over 150 countries to around
400m people. H2, a gambling consultancy,
puts the global online-poker market at $4.9
billion, of which America (where the
game’s legal status is dubious) accounts for
$1.4 billion. WSOP Europe has hosted tour-
naments in London since 2007. In May and
June the European Championship of Online Poker awarded some $5.1m in prize
money. The tournament was hosted by Titan Poker, which claims to be Europe’s
most popular poker site, with up to 30,000
simultaneous players. The WPT has hosted events in Spain, France and Morocco.
Like so many global crazes, this worldwide rise was powered by two engines:
television and the internet. Poker has been
on television for quite a while; CBS, an
American network, broadcast the World
Series of Poker in 1978. But the programmes
were pretty basic: a camera or two recorded the game and commentators told viewers what they could already see for themselves. Only action on the felt was visible:
two cards dealt face down to each player,
followed by a round of betting, then three
communal cards face down, another
round of betting, then a fourth and †fth
card, both followed by rounds of betting.
But for anyone who was not already a poker fan it seemed boring.
At war with luck
Is poker a game of skill or chance?
I
N 1969 Benny Binion, owner of the
Horseshoe Casino in Las Vegas, attended
the Texas Gamblers’ Reunion in Reno,
where he played high-stakes poker for several days. His opponents were a group of
men‹and men only‹with the sort of Runyonesque names endemic in poker’s history and lore: Chill, Puggy, Minnesota Fats,
Texas Dolly. The following year Mr Binion
invited the high-rollers to his casino. After
a few days the players elected Johnny
Moss the best of their number and awarded him a silver cup. Thus was the World Series of Poker (WSOP) humbly begun.
The next year it evolved into a freezeout game with a $5,000 buy-in, meaning
that once a player lost his $5,000 stake, he
could not buy his way back in. In 2006‹
the WSOP’s peak year‹8,773 entrants competed in 45 separate tournaments featuring
most of the main varieties of poker for
over $100m in prize money.
But the WSOP is not the only game in
town. The World Poker Tour (WPT) also
hosts a series of international tournaments each year. Millions of dollars,
pounds and euros change hands every
night at poker tables around the world and
on dozens of poker websites. At the time of
the Texas Gamblers’ Reunion there were
fewer than 50 poker tables in Las Vegas; today the Bellagio alone has 40, and Binion’s
Horseshoe holds four no-limit Hold ’em
tournaments every day.
Suitably inscrutable
I know something you don’t
However, in 2003 the WPT borrowed a
technique from a British poker programme
called ŒLate Night Poker, showing each
player’s two individual cards, thus allowing viewers to see the game from the inside. This proved a great success. WPT also
edited ruthlessly. The staple of thrilling 1
4 A special report on gambling
Bet on the bot
C
The Economist July 10th 2010
Will Polaris do for poker what
Deep Blue did for chess?
HECKERS (or draughts, as it is known
in Britain) used to be a fun game of
chance. But in 2007 a group of computer
programmers, systems analysts and chess
enthusiasts, led by Jonathan Schae…er at
the University of Alberta, published an
article in Science magazine with the bold
title ŒCheckers Is Solved. Using a computer program called Chinook, which was
able to crunch through the 500 billion
possible positions on a checkerboard, Mr
Schae…er and his colleagues proved that
there was a way to play checkers that
would ensure either a win or, if the opponent was another theoretically perfect
player, a draw.
With checkers thus conquered, Mr
Schae…er moved on to poker. The University of Alberta’s Computer Poker Research Group (CPRG) was building a program called Polaris, which was trying to
do for one variety of poker, heads-up limit
Texas Hold ’em (with just two players and
limited betting amounts), what Chinook
did for checkers. Michael Bowling, the
CPRG’s head, says that although the ostensible goal was to build a winning poker
program, the real aim was to Œstudy how
to build computers to make decisions in
diˆcult circumstances, especially where
there is missing information.
It is this missing information that
makes poker so complex. Unlike checkers
or chess, at which machines have also had
notable success, poker is a game of incomplete information. You do not know what
cards your opponent holds; information
is revealed as the game progresses. A good
player’s tactics will involve deception
such as bluˆng and slow-playing, both of
which create more complexities.
Soon after the article was published,
Polaris took on Phil Laak and Ali Eslami,
both poker professionals. Each played a
separate Polaris programme running in a
di…erent room, using notional money. The
human players could not communicate
with each other. To control for luck, the
games were identical and reversed: whatever cards the computer got in one room
the human got in the other. The humans
then switched rooms and played the
hands previously played by the computers, for a total of four 500-hand sessions.
The results were surprising: a draw in one
match, a resounding win by Polaris in another and two narrow victories for the humans in the remainder.
In 2008 the human †eld was expanded
to six professionals. Out of six matches
the humans won two, Polaris won three
and one was drawn. Mr Bowling attributes Polaris’s stronger performance to a
crucial modi†cation that allowed the program to adjust its strategy in response to
its opponent’s behaviour during a match.
Polaris has not competed against humans since then, but the CPRG has done
some work on another poker variety,
heads-up no-limit Hold ’em. Jack Strauss,
a prominent poker player in the 1970s and
1980s, famously described the di…erence
between limit and no limit: ŒIn limit you
are shooting at a target. In no limit the target comes alive and shoots back at you.
Mr Bowling says his no-limit Polaris can
compete Œat a low professional level.
The more interesting work, however,
may be in spin-o… applications. Mr Bowling says that the ability to solve large
games in which participants value similar
things di…erently has some applications
in auction and negotiation settings. Some
of the game-theory aspects of Polaris
have been found to improve networks of
sensors that measure variable environmental information, such as heat in a
building or chemicals in lakes.
And yet for all its prowess, Polaris is
unlikely to become the Chinook or Deep
Blue of poker, making humans obsolete.
For one thing, heads-up poker is only one
of many kinds of poker played. A †rst-rate
human player can hold his own in any variation; a machine might †nd the transition harder. Second, most poker is still
played socially, whether in casinos or at
home, and you can’t have a beer and a
natter with a bot. Online an intelligent
machine might have a better chance. But
most sites have rigorous anti-bot policies,
particularly when it comes to transferring
money. And creating a bot that can defeat
multiple layers of security may be harder
than playing †rst-rate poker. As Mr Laak
says, Œanyone smart enough to put a bot
down would make way more money operating above board.
2 televised poker is the showdown, in which
pens to them, and get out of the way when
it is someone else’s turn.
This is not a theoretical point; it is at the
heart of a dispute about poker’s future in
America, the country of its birth and its
largest single market. UIGEA (the enforcement mechanisms of which have only just
come into e…ect, even though the act was
passed in 2006) bans †nancial institutions
from transferring funds for bets in which
Œopportunity to win is predominantly subject to chance. Poker has been judged to
fall into that category (though the act exempts stocktrading and horseracing), so
sites that o…er Americans the opportunity
to play online poker have to duck and dive.
Yet the view that poker is indeed a
game of skill is gaining traction. A 2009
study carried out by Cigital, a software
consultancy, analysed 103m hands of one
of the main varieties of poker, Texas Hold
’em, played at Pokerstars.com, and found
that over 75% of them were decided before
a showdown. They thus depended far
more on the players’ betting decisions than
on the cards dealt. The Poker Players’ Alliance, a million-strong group of a†cionados, argued in the South Carolina Supreme
Court that Œthe structure and rules allow
suˆcient room for a player’s exercise of
skill to overcome the chance element in
the game. And The Global Poker Strategic 1
players bet against each other all the way
and a winner is determined only by turning up all the cards and comparing hands.
In practice, this rarely happens.
Most experienced players insist that
success at poker is not about luck. David
Sklansky, author of ŒThe Theory of Poker,
the best and most thoughtful of the many
books on poker strategies, writes that Œexpert players do not rely on luck. They are at
war with luck. They use their skills to minimise luck as much as possible. In poker,
as in life, luck can happen to anyone; it is
evenly distributed. Skilled players know
how to take advantage of it when it hap-
The Economist July 10th 2010
2 Thinking Society, founded by Charles Nes-
son, a Harvard law professor, takes a similar view. Mr Nesson sees in poker Œa language for thinking about and an
environment for experiencing the dynamics of strategy in dispute resolution.
Similarly, Garry Kasparov, a chess
grandmaster, argues that poker o…ers lessons on chance and risk management that
even his beloved game cannot. He also
notes that many chess professionals are
moving into poker, not least because the
A special report on gambling 5
money is better. Jennifer Shahade, who
twice won the American Women’s Chess
Championship and is now a semi-professional poker player, thinks that chess and
poker rely on similar skills‹a sort of calculating game-savviness‹and that chess
players are likely to succeed at poker because Œthey focus on †nding the right
moves, rather than having fun or how
their ego feels.
Yet perhaps the clearest argument in favour of poker being skill- rather than
chance-dependent comes from Mr Sklansky, and it has to do with losing rather than
winning. Imagine trying intentionally to
lose at a game of pure chance, like roulette
or baccarat. It would be impossible. At the
beginning of a deal or a roll you have to bet
on something. You can no more deliberately play badly than you can deliberately
play well. The same is not true for poker,
which o…ers multiple opportunities to
make sure you lose. Still, America’s Congress seems unconvinced. 7
Log on, ante up
Online gambling o…ers the greatest threats and the biggest opportunities
W
HEN George Bush, then America’s
president, signed the Security and
Accountability For Every Port Act into law
in 2006, parts of America’s online-gambling market retired hurt. That was because attached to the port act was the Unlawful Internet Gaming Enforcement Act
(UIGEA), which prohibited †nancial institutions from transferring funds from punters to gambling sites (though it made exceptions for horseracing, fantasy sports
and stocktrading).
The act re‡ected prevailing public opinion in America: surveys show that more
than two-thirds of the population are opposed to legalising online gambling. But
Barney Frank, a congressman who has introduced legislation to repeal UIGEA, describes its enforcement mechanisms as Œa
pain in the ass of the highest magnitude.
Many companies, including PartyGaming,
the world’s largest online-gambling company, abandoned the American market as
soon as the act was passed.
In absolute terms online gambling remains a small part of the global betting
market: a mere 8% in 2009, with revenues
of about $26 billion, according to H2. But
last year it rose even as the overall market
fell. In the coming years it is expected to
grow even more: 13% a year, says H2, with
revenues rising to $36 billion by 2012.
Those revenues will ‡ow not merely to
websites taking bets but also to companies
o…ering back-end services such as software design or proprietary gambling software. Yet online gambling presents thorny
problems as well as opportunities. Businesses that want to o…er it have to deal
with a welter of di…erent regulations‹or
operate semi-legally. Politicians have to de-
3
America leads the way
Online gambling by country, 2010, % of total*
US
17.2
Rest of Asia
8.4
Others
27.0
Rest of
Europe
13.1
Canada
3.3
Hong Kong
3.3
Source: H2
%
Japan
13.8
Britain
11.5
Italy
6.9
Germany
5.0
France
4.9
Sweden
3.7
Australia
3.4
*Forecast; includes both
on- and offshore gambling
cide whether to allow open markets or
protect state-approved (and often staterun) monopolies. The †rst is hard to do; the
second hypocritical.
The idea of using the internet for betting is not new. Donald Davies, a British
computer scientist and co-inventor of the
packet-switching technology that drives
data transmission over the internet, †rst
proposed using that technology for wagering in December 1965. The †rst commercial
online gambling sites appeared in the
mid-1990s, o…ering casino games and
sports books. Online poker followed a
couple of years later. Paradise Poker
opened in 1999, followed by PokerStars
and PartyPoker, the ‡agship product of PartyGaming, one of the †rst online-gambling
companies to go public and list on the London Stock Exchange, in 2005. In May 2010
Casinocity.com, an independent onlinegambling directory, listed 2,316 gambling
sites taking bets, excluding lotteries.
When PartyGaming and other listed
companies pulled out of America, others
†lled the void. Bookies registered o…shore,
notably in Antigua and the Mohawk Reserve in Canada. PokerStars and Full Tilt
Poker, both of which accept American
players, are now the two biggest online
poker rooms by a large margin, according
to Pokerscout.com, an online poker forum.
Thanks to UIGEA, those that cater to gamblers based in America have had to rely on
arcane money-transfer systems that fudge
the letter of the law and violate its spirit.
UIGEA’s main congressional defenders, Jon Kyl and Spencer Bachus, are both
avowed opponents of online gambling. A
Republican congressional counsel who
has worked in this area asserts that Œthere
has never been any doubt by any justice
department‹the Clinton justice department, the Bush justice department, the
Obama justice department‹that online
gambling is illegal.
Draconian punishments
Eric Holder, Mr Obama’s attorney-general,
vowed in his con†rmation hearings to enforce UIGEA. He has kept his word. In April
federal agents arrested Daniel Tzvetko…, an
Australian whose company, Automated
Clearing House, allegedly created shell
companies to allow punters to transfer
$584m from their bank accounts to gambling sites. He faces up to 75 years in prison
on bank fraud and money-laundering
charges. In May Douglas Rennick, a Canadian, was arrested on similar charges; he
pleaded guilty to the illegal transfer of
gambling funds and awaits sentence.
All this re‡ects a profound and multilayered American scepticism of online
gambling. In a 2004 report the State De- 1
6 A special report on gambling
2 partment called gambling sites Œthe func-
tional equivalent of wholly unregulated
o…shore banks, giving warning that they
might be used not only for money-laundering but also for criminal activities ranging from terrorist †nancing to tax evasion.
Online gambling companies reject such
claims, pointing to the clear audit trails offered by e-commerce. They argue that
thanks to identity screening, online casinos are far less vulnerable to fraud than
bricks-and-mortar ones.
The wild web
Europe has generally been more receptive
to the idea of legalising online gambling,
though national and European regulations
often con‡ict. There is certainly no single
European market in online gambling. In
Britain it is allowed, though it requires a licence and is taxed and regulated. Italy
started issuing online-gambling licences
this spring. France is due to follow suit on a
more limited scale. Germany banned online gambling in 2008 but allows its citizens to play in state-run lotteries online.
In 2009 Santa Casa da Misericórdia de
Lisboa, a Portuguese charity that runs lotteries, took bwin, an online-gambling
company based in Austria, to the European Court of Justice, alleging that bwin’s
activities in Portugal infringed its national
monopoly on lotteries and gambling. The
ECJ ruled in Santa Casa’s favour, stating
that Œrestrictions on the freedom to provide services may be justi†ed by overriding reasons relating to the public interest.
Gambling appears to fall within that category. But the ECJ had previously ruled that
a country cannot prohibit its citizens from
betting online with private operators if it
The Economist July 10th 2010
allows them to take part in state-run lotteries. Michel Barnier, the European Union’s
internal-market commissioner, said in February that he plans to seek coherent European rules on online gambling.
The laws may be muddled, but people
are betting anyway, even where it is illegal
to do so. America retains the lion’s share of
the global market; its punters are expected
to bet $5.7 billion online this year, only
slightly down from its 2006 level of $6 billion. Germany and France account for
around 5% of the market each.
Clearly prohibition fails to prevent citizens who want to gamble from doing so.
But legalising online gambling can expand
the market, as demonstrated by Italy. H2
predicts that that country’s gross gaming
yield (which measures the amount of customer monies kept by betting operations)
from online poker, casino and bingo will
grow from just over ¤400m in 2008 to
nearly ¤1.6 billion in 2012.
Should America’s market ever open up,
the e…ect would probably be similar but
larger. Whether and when this might happen, though, is uncertain. Many in the online gambling industry think it inevitable,
but opposition seems entrenched. It took
decades to get geographically based gambling regulations right; for much of the
20th century crime festered in Las Vegas. In
laying out an online regulatory regime
America is likely to err on the side of caution. And since gambling is a state rather
than a federal issue, any legalisation of online gambling is likely to be patchy.
Yet just because America remains a laggard does not mean the rest of the world
will stop. Mitch Garber, who heads the interactive-entertainment division of Har-
rah’s, the world’s largest gambling company, believes that the trend towards
legalisation across Europe will ultimately
reach America and will eventually lead to
a convergence between bricks-and-mortar
and online businesses. More and more
land-based companies, like Harrah’s, are
dipping a toe into the online market.
To do so they tend to use established
back-end companies rather than reinventing the roulette wheel. These companies
Œsell the picks and shovels but don’t prospect for gold, as David Loveday, who
heads a gambling-software company
called Orbis, puts it. This lowers barriers of
entry to the online gambling market for established names. For example, William
Hill, a British high-street bookmaker, runs
a poker room for the Sun, a tabloid newspaper; that poker room runs on software
developed by Playtech, a leading gambling-software developer, whereas William Hill’s sports book is run by Orbis.
Such convergence is happening not
only online; it is also moving across platforms. Betfair, a betting exchange, has
launched an application running the Yahoo! TV Widget Engine Program, which offers a range of interactive content. Gigi
Levy, who heads 888 Holdings, a large online-gambling †rm, has similar plans. He
says that at the moment sports betting is
not Œsocial. A television-based application that allows punters to place a bet during a game with just a click is a logical development of the sort of in-game betting
o…ered by online bookies and exchanges.
The idea sets sports-betting fans’ heart
a‡utter‹and gives gambling opponents
nightmares. But it may come too late to
save the horses. 7
Lengthening odds
New betting options imperil horseracing’s future
O
N APRIL 9th nearly 45,000 people
crammed into Oaklawn, a 106-yearold track nestling in the foothills of the
Ouachita mountains in central Arkansas,
to watch Zenyatta, a spirited six-year-old
mare, win her 16th consecutive race. The
next day’s event‹the Arkansas derby,
which in recent years has become a preview ground for the more famous derby
held three weeks later in Kentucky‹drew
over 60,000 fans. In those two days punters at the track bet nearly $6.5m. Atten-
dance was 38% up on the previous year.
Neither the charming old track nor the
town itself, with a population of just under
40,000, was built for such crowds. Enterprising locals turned their lawns and shopfronts into parking lots at $20-25 a go.
For racing fans everywhere such a turnout is reason to celebrate; it shows that the
sport of kings has not lost its attractions.
And indeed attendance remains strong at
marquee events, such as the Arkansas and
Kentucky derbies or Britain’s Grand Na-
tional. But although sports betting does
well online, horseracing has a particular
problem. The business model that has kept
it going up to now is being superseded by
new and increasingly popular betting
methods o…ered by the internet.
For all the national di…erences, racing
in most parts of the world has two things
in common. First, it has provided one of
the few legal forms of wagering and bookmaking available to most of the public for
much of the past two centuries. Second, 1
The Economist July 10th 2010
A special report on gambling 7
The glory days
2 the sport depends on money from betting.
Practically every national racing association the world over takes its cut from bets
placed on races. In Britain 10% of bookmakers’ pro†ts go to the Horserace Betting
Levy Board, a statutory body that distributes the funds to British racing interests
(mainly purses but also courses, breeders
and veterinary science). The levy was put
in place when punters had to bet through
parimutuel pools (in which odds depend
on the number of punters backing a bet) or
licensed bookmakers. But now they have
other options, so in 2008-09 the total levy
collected reached its lowest level in six
years, at about £92m.
As other forms of gambling became legal, betting on racing fell. Between 2003
and 2008 the amount wagered on racing
dropped by 10% in America and close to a
third in Britain. But betting at the track is
falling even faster. Punters in America have
turned to advance-deposit wagering companies (ADWs) such as Youbet, TVG and
Twinspires, which combine the functions
of bookmakers and television networks,
showing races from around the world.
They allow punters to bet using a computer, mobile phone or television remote-control. Dedicated race fans in America can
bet on European races in the morning,
American ones throughout the day and
Australian and Asian ones at night, all
without having to leave home. And just as
casinos o…er free accommodation and
meals to big players, ADWs o…er redeemable reward points as an added incentive.
Punters in Britain and Australia have an
even more attractive option: betting exchanges. The largest is Betfair, which
bought TVG in January 2009. Betfair’s revenue last year was £303m, up 27% from the
previous year. Around 90% of bets placed
through exchanges and more than half of
bets made online in Britain are through
Betfair. Exchanges allow people to bet with
each other, rather than going through a licensed bookie or a parimutuel pool. Betfair makes money by charging a small
commission, based on a user’s net pro†t in
a given market.
Unlike traditional operators, the exchanges also permit betting throughout
races. Yet although Betfair’s model attracts
savvy punters who understand how markets work, its numbers-heavy interface
may intimidate casual sport punters. Noting that the odds on Chelsea are 1.19 and
watching the market to see if they improve
requires more e…ort than putting £10 on
Chelsea to win.
But some punters may want to o…er
odds against Chelsea, which Betfair allows
and traditional bookies do not. There are
worries that letting people bet on a negative event will encourage corruption. In
2004 Chris Bell, the then boss of Ladbrokes, a bookmaker, claimed that at least
one race a day was being †xed, and
blamed betting exchanges. Yet a corrupt
jockey or trainer can always ride badly or
hobble a favourite and then bet the †eld.
Also, online commerce is far more readily
vetted and tracked than transactions by
high-street or on-track bookies, so corruption should be far easier to sni… out.
Neil Goulden, who heads Coral, another bookmaker, says the real problem is not
so much corruption as licensed bookmakers shutting up shop and o…ering odds
through Betfair to avoid paying tax and
levy. Yet even if this is true, bookmakers
will †nd ways to get away from both anyway: Ladbrokes and William Hill have
moved their betting operations from Britain to Gibraltar, where they are exempt
from paying the levy and the tax on betting
pro†ts is 2% rather than Britain’s 15%.
The tap is also running weaker in
America. Between 1977 and 2006 parimu-
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 increased noticeably.
When o…-track betting was †rst introduced, it was seen as a boon to the industry. 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 Alamitos in California. The revenue from o…track betting was split so that 80% of the
pool went to the state’s horsemen’s association, 17% to the place where the race was
being screened and 3% to the track where
the race was taking place.
As long as the screenings were track-totrack and most betting was done on-track,
that made some sense. But as on-track betting has fallen and the races are now being
screened in all sorts of places that allow
betting but do not stage any races (such as
greyhound tracks, casinos and now
ADWs), 3% seems a paltry reward for the
e…ort of hosting a race. Yet †nding a new
payment model has proved tricky. In a
number of places ADWs have been forced
to pay a source-market fee: for instance,
10% of all racing bets made in Virginia‹
that is, where the punter is in Virginia, regardless of where the track is‹must go to
Colonial Downs, the state’s main track,
and to the state’s horsemen’s association.
A downhill race
The sport remains in decline. California’s
oldest thoroughbred track, Bay Meadows,
closed in 2008; Hollywood Park, in southern California, is teetering; and Aqueduct,
in Queens, was nearly sold to developers
in 2007. New York’s racing authority,
which runs Aqueduct, Belmont Park and
Saratoga, emerged from bankruptcy in
2008‹only to have to take up a $17m emergency loan in April.
No doubt more casualties will follow.
After all, the sport’s success depended on
its monopoly status, and that has gone.
Banner days still draw a crowd, but everyday racing‹ŒWednesday afternoons at
Beulah Park (a track in Columbus, Ohio),
as one insider calls it‹is harder to sustain.
In more than a dozen states some tracks
have added slot machines or card tables to
attract those who want to gamble on
something other than horses. These Œracinos funnel much of the money from slots
and tables to fund purses and subsidise
breeders. But cantering into that good
night as an appendage to a slots parlour
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
S
OMETIMES the old games are the best.
Take, for instance, the Œreward-paying
punching bag, one of the earliest attempts
at machine-based gambling. For a nickel a
punch, punters could pound out their frustrations. If they hit hard enough to move a
pointer to the right spot on the dial, they
won a prize. Or there was the Œmanila, in
which hopefuls could win a prize by
shooting a nickel from a pistol into a slot.
These days most casinos will not even let
you smoke, much less punch or shoot your
way to a prize.
The †rst machine to dispense coins as
prizes was the three-reeled Card Bell, built
by Charles Fey in 1898. Slot machines
thrived in San Francisco. By the time the
city outlawed them in 1909, it was collecting $200,000 a year in taxes from 3,200
slot machines. By 1931 Frank Costello, a
mobster in New York, raked in $25m a year
from his 25,000 slots. Today, betting machines‹slots in America, fruit machines in
Britain, pokies in Australia‹account for
more than one-†fth of the global gambling
market. Their one arm may be vestigial,
but they still make out like bandits.
Their appeal lies in their utter simplicity. You do not need to understand a complex system of betting, as in craps. You will
not hold up the action if you make a mistake, as you might at a table game. You will
not get skinned alive by people who understand the game better, as novices often
do when playing poker at a casino. You do
not have to interact with a dealer or remember which hand is higher.
Slots are largely passive: feed them
money (or cards, these days), press a button, watch the wheels spin or objects align
on a screen and see whether you have
won, and how much. They demand nothing 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 pokies, 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 returned to players over the course of the
machine’s lifetime. So you could have a
lucky streak and get back much more than
you put in, or you could lose the lot. To
keep the game interesting, most of it is paid
out in dribs and drabs: a machine that returned $95,000 of every $100,000 in one
huge jackpot once in a blue moon would
be too disheartening to play.
When it comes down to it, over the longer term slot machines keep 5% of your
money in return for a light show and a
slimmish chance to win. But people keep
playing. Slots pit humans against maths,
and the maths always win. But successful
slot machines get players to Œlike the feel of
the maths, explains Chris Satchell, chief
technology oˆcer for International Game
Technology. IGT, along with Bally Technologies, Aristocrat and Novomatic, is one of
the world’s leading slot-machine makers.
Many people like the older, mechanical
machines on which the reels are set in motion by pulling a lever rather than pressing
a button, which is why many casinos have
retained them. Where video machines are
used, they sometimes feature displays that
allow the video reels to align imperfectly,
as on an old spinning-wheel machine.
Whether the machine pays out lots of
little prizes or a few big ones, the payout
Something for everyone
level is generally set by law. And despite all
the myths that slots players like to perpetuate‹coins need to be warmed up because
machines hate cold ones; coins should
never be overhandled because machines
hate warm ones; machines are more likely
to pay if you use a card rather than cash‹it
is determined by random draw. Over time
the amount the machine pays back to the
customer will approach its average rate,
but, at least in regulated markets, each spin
is independent of the previous one. Yet
slot-machine development, assisted by advances in networking technology, involves
more than simply tinkering with payout
algorithms.
Killer heels
Slot developers understand the power of
branding. The most popular machine in
IGT’s history is ŒWheel of Fortune, based
on a long-running television game show.
Coming hot on its heels is the ŒSex and the
City machine. Its reels depict diamonds,
chocolates and strappy shoes. Since its
launch in November 2009 it has proved
popular, earning up to †ve times as much
as the average slot machine on some
‡oors. Like the television show it appeals
to women, which indirectly makes it at- 1
The Economist July 10th 2010
2 tractive to men too. In January IGT
launched a machine based on ŒAmazing
Race, a TV show. ŒAmerican Idol and
ŒAlice’s Adventures in Wonderland,
based on another TV show and a †lm of
the famous children’s book respectively,
are on the way.
These games involve more than simply
pressing a button and waiting to see
whether the reels align. The ŒWheel of Fortune machines have a spinning wheel on
top of the play area; another version features an immense wheel used for bonus
spins. The ŒSex and the City machine offers video clips. ŒAmazing Race will have
the show’s host guiding players through
bonus rounds. ŒAmerican Idol will allow
players to judge performances shown on a
video screen. Many of these highlight a
shift towards what Mr Satchell calls Œcommunity-based slots playing, designed to
appeal to the Facebook generation.
Pick your app
Increasingly slots are linked not just to
each other but also to servers, which
makes them far more ‡exible. Traditional
slot machines o…er only one game. If that
A special report on gambling 9
happens to Œgo cold (ie, become unpopular), they sit around uselessly or have to be
taken away. With server-based games the
hardware on the casino ‡oor is governed
by software on a remote server. If a game
goes cold the casino manager can change it
to a di…erent one in seconds. Separating
the hardware and the software also speeds
development, making it much easier and
cheaper to introduce new games. The boss
of Inspired Gaming Group (INGG), Luke
Alvarez, calls his company Œthe iPhone of
slots. Instead of developing games inhouse, it o…ers an open-source code and
works with around 30 game developers.
Server-based slots are still in a minority
but growing fast. ARIA, the ‡agship casino
at CityCenter, on the Las Vegas Strip,
opened last December with 980 such machines. IGT’s server-based games can also
be found in casinos in Italy, Finland and
France. INGG operates 25,000 of them
across Britain and in smaller networks in
Cyprus, Italy, Australia, the Czech Republic, Cambodia and Laos.
Yet moves towards faster play, bigger
jackpots and more enticing machines are
not without their critics. Natasha Dow
Schull, a professor of anthropology at MIT,
whose book ŒAddiction by Design: Machine Gambling in Las Vegas is due out later
this year, found that 90% of people attending Gamblers Anonymous meetings in Las
Vegas played only machines. Ms Schull
says the trend towards video slots that allow gamblers to bet on as many as 100
lines at once increase the frequency of
small payouts, making the experience
seem more rewarding. That encourages Œa
slow and gradual bleeding o… of your
funds. Leslie Bernal, who heads an organisation called Stop Predatory Gambling,
describes slots as Œa huge part of our debt
culture and Œthe biggest something-fornothing scheme ever invented.
Yet slots spin on. In the past year IGT’s
share price has risen by 40% to take its market cap to over $5 billion. Gideon Bierer, the
company’s vice-president in charge of developing slots for online and mobile play,
says this market has Œbrought a lot of new
customers in who weren’t interested before and didn’t have access. That is clearly
good news for companies such as his. Traditional betting hubs like Las Vegas take a
more sceptical view. 7
When the chips are down
Competition and the economic downturn have hurt, but Las Vegas is †ghting back
G
AMBLING centres operate at one remove from their local communities.
Monte Carlo’s casino is in Monaco, surrounded by but independent from France.
Monaco’s citizens are not allowed into the
gaming rooms, but everyone else is encouraged to open their wallets. Macau is attached to mainland China only by a narrow isthmus. Until 1999 it was under
Portuguese rule. Now it is a Special Administrative Region of China, but visitors from
the mainland need a special visa.
Las Vegas sits in a valley in some of
North America’s most inhospitable terrain. It was †rst settled in 1855 by Mormons
seeking freedom from American rule. At
the beginning of the 20th century a mere
30 homesteaders tilled the scrubby soil.
But in 1911 the state government, seeking
new sources of revenue, o…ered divorces
in only six weeks, the quickest in the country. It also scrapped taxes on sales, income
and inheritance and repealed the ban on
gambling passed in 1909.
By 1951 a congressional commission
complained that too many of the men running gambling operations in Nevada were
involved with organised crime. Mobsters,
notably Meyer Lansky, Benjamin ŒBugsy
Siegel and Moe Dalitz, had gained control
of the state’s casinos, using them to launder drug money and other ill-gotten gains.
The road to respectability
Siegel made the Flamingo into the †rst luxury hotel on the Strip in 1946. Today it is
owned by Harrah’s, a listed company. The
Strip’s northernmost casino, the Stratosphere, is the property of a Goldman Sachs
aˆliate. The Strip’s largest complex, made
up of the Venetian, the Palazzo and the
Sands Expo Convention Centre, is owned
by the Las Vegas Sands Corporation, another listed company that has a $16.7 billion market cap.
Over the past half-century the city’s
population has climbed steeply and
steadily. Today nearly 2m people live in the
Las Vegas metropolitan area‹a testament
perhaps as much to the miracle of modern
air conditioning as to the irresistible allure
of gambling. But whereas the 20th century
was good to Las Vegas, the 21st may prove
more perilous.
Following a brief attempt at reinventing itself as a family-friendly resort in the
1990s, it has now tried to return to its roots
as Sin City; one of its more famous advertising campaigns promises that Œwhat happens in Vegas, stays in Vegas. It remains
the only place in America where punters
can legally bet on sports. Yet just as the rise
of other forms of gambling threatens
horseracing, so Las Vegas now faces competition from other venues. Native American casinos abound. And despite UIGEA,
so do opportunities for online gambling.
The †nancial crisis has done its bit to
make life harder. In May this year Nevada’s
unemployment rate had climbed to 14%,
the highest in any state and far above the
national average of 9.7%. In 2008 hotel-casinos provided only 16% of the state’s
jobs‹nearly seven percentage points fewer 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 massive complex on the Strip, CityCenter, to
cash in on rising demand. The cost rose
from an initial estimate of around $3 billion to over $9 billion. It opened in December 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 visitors was down 3% from the previous year
but room numbers were up 6%, slashing
the occupancy rate. Equally alarming,
gambling revenues in Nevada as a whole
fell by over 10%, the state’s steepest-ever
annual decline.
Much of this is due to the broader economic malaise, in particular the drop in
consumer spending that accompanied the
recession. But competition is also to blame.
In 1987 the Supreme Court ruled that Native American tribes could establish gambling operations on tribal lands even if
those lands lay within states that prohibit
gambling. The following year Congress
passed the Indian Gaming Regulatory Act,
which created a framework of regulation
for such businesses.
Today more than 200 tribes run casinos
in 28 states, including Nevada and California (which supplies many of the visitors to
Las Vegas). The biggest casino in America is
Foxwoods, run by the Meshantucket Pequot tribe in western Connecticut; that
and the Mohegan Sun casino, run by the
Mohegans in Connecticut, are both
around two hours’ drive from New York,
and much of their business comes from
day punters. The Pechanga Resort and Casino in Temecula, California, between Los
Angeles and San Diego, is closer to both
than is Las Vegas. In 2008 gaming revenue
at Indian casinos was about $27 billion, a
1.5% rise on the previous year, whereas Las
Vegas saw a drop. Proximity seems to
make a di…erence.
In addition to this direct competition
there are smaller foes, too. Around 15 states
have Œracinos, or slots parlours attached
to race tracks; and many of them o…er video poker, blackjack or craps, which are
computer-based versions of popular table
games. The federal ban on sports betting
outside Nevada is beginning to crumble at
the edges: Delaware lost its appeal to allow
sports betting but retains the right to take
The light fantastic
bets on multiple professional football
games, and a New Jersey state-senate panel recently approved legislation to allow
sports betting in Atlantic City.
Yet none of this may be as damaging to
Las Vegas as it appears. For one thing, most
people do not go there just to gamble: in
2009, only 13% of all visitors and a mere 2%
of †rst-time ones said gambling was their
primary purpose for visiting‹fewer than
said they were coming to see friends or
family, or for a holiday.
Give me glamour
Certainly, holidaymakers can and do gamble‹83% of visitors did‹but Las Vegas offers a Œgambling plus factor that the racinos and slots parlours opening all over
America cannot rival. Aside from attractions such as theatre, comedy and golf, Las
Vegas is full of associations (mobsters, the
Rat Pack, the World Series of Poker and so
on) that no other destination can o…er. It is
the strangest and most fantastic city in
America, glittering in the middle of the
desert like a neon mirage.
Mr Adelson, the head of Las Vegas
Sands and for some years the world’s
third-richest person, insists that he is not in
the gambling business, nor even in the
gaming business (a distinction he and Michael Leven, Las Vegas Sands’s president,
consider important; the di…erence between gaming and gambling, according to
Mr Leven, Œis the di…erence between having a cocktail and going out drinking).
As far as Mr Adelson is concerned, he is
in the integrated-resort business. His twin
hotels on the Strip, the Venetian and the
Palazzo, combine thousands of hotel
rooms, upmarket shopping (some of it lining a Venetian streetscape, complete with a
painted blue sky, canals and gondola
rides), restaurants, spas, banquet halls,
convention centres and, of course, a casino. The casino is necessary to drive revenue, just as the convention centres are essential to attract business travellers who
may then decide to return for a holiday
with their families. But around 70% of his
revenue, says Mr Adelson, comes from
non-gaming sources.
The model of using casinos as just one
of many revenue-spinners also works for
Las Vegas as a whole. In 2009 tourists on
average spent around $75 a night on accommodation and stayed for 3.6 nights.
They shelled out about $250 on food, just
over $100 on shopping, $53 on transport
and $45 on shows and sightseeing. The average gambling budget was $482 (down
sharply from 2005, when the average punter bet $627). Some 17% of visitors do not
gamble at all. But even those who do
spend more on other activities combined.
Having begun as a secluded sinning haven, tucked away in the desert, Las Vegas
has had to face the fact that its chief sin on
o…er has become much more widely available. But for casino owners it still has a big
advantage: its gambling-tax rate is capped
at 6.75%. New Jersey, home to Atlantic City,
o…ers an 8% rate, but most other places are
much greedier. Sands’s only American
property outside Vegas is in Bethlehem,
Pennsylvania, where the state taxes gross
gaming revenue at 55%.
The state of Nevada is more diversi†ed
than it was two decades ago, but it is likely
to return to strength only as Las Vegas does,
and Vegas’s fortunes depend on America’s
economy. If people have money in their
pockets, some will inevitably †nd its way
to the Strip. But there may be no need for
new hotel rooms for some time, and
growth is likely to be ‡atter than in the
past. For runaway expansion in the gambling 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
L
IKE its sister property in Las Vegas but
twice as large, the Venetian Macao is
built for MICE‹meetings, incentives, conventions (or conferences) and exhibitions.
It has 3,000 hotel suites, a 15,000-seat arena that has hosted concerts by Lady Gaga
and the Police, expensive shops and restaurants and a warren of immense gaming
rooms. Next door is the Plaza Macao, featuring yet more gaming, shops and spas, as
well as a Four Seasons hotel and the grand
residential Plaza Mansions.
Mr Adelson, the owner of the complex,
rejects the traditional Œhub and spokes casino-hotel design that forces guests to pass
through the gaming ‡oor to do anything
outside their hotel room, just in case they
feel a sudden urge to chuck some money
into a slot machine. His Plaza Macao has a
separate entrance to the Mansions and
Four Seasons, a long way from the gaming
‡oor. This is for the bene†t of Chinese government oˆcials, who may not be photographed in a gambling environment.
Macau is the world’s biggest gambling
market, and until 2001 it was entirely controlled by one company, Sociedade de Turismo e Diversões de Macau (STDM), headed by Stanley Ho. Mr Ho’s garish pair of
casinos, the ‡agship Casino Lisboa and the
newer Grand Lisboa, remain the most
prominent gambling establishment in central Macau, but he now faces sti… competition from a pair of seasoned Las Vegas
companies, Wynn Resorts and Sands China, 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 popular 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 contrast, has craps and blackjack tables, a poker room, a sports book, a number of restaurants 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-
tended; a single poker table was occupied;
blackjack action was scant; four employees stood around a craps table enticing
passers-by to try their luck. By contrast baccarat and sic bo were going at full tilt. Old
gambling habits die hard.
The competition from Messrs Adelson
and Wynn ended Mr Ho’s monopoly
(though his company still accounts for
about one-third of the territory’s gambling
market) and boosted Macau’s overall revenue. Last year the island’s 30-odd casinos
generated income of around $15 billion.
According to GBGC, a consultancy that
specialises in the gambling industry, its
overall gambling revenue in that year rose
by nearly 10%, whereas North America’s
fell by 7% and Europe’s by 12%. And Macao
is going from strength to strength: in the
†rst quarter of 2010 its gambling revenues
were 57% up on a year earlier.
Mainlanders’ playground
The Chinese are known as passionate
gamblers, and Macau is where they come
to play. Steve Jacobs, the head of Sands
China, reckons that four-†fths of his visitors hail from the mainland and the rest
mainly from other Asian countries, notably Taiwan, South Korea, Vietnam and In-
Gambling markets don’t come bigger
dia. Most of the Venetian Macao’s revenue
comes from wealthy guests, many of
whom are on junkets organised by businesses in China that market them to visitors, plan the travel and extend credit to
gamblers. The casinos provide the gaming
and generally split the proceeds with the
junket operators.
Chinese visiting rights, however, are
tightly controlled by the government.
Mainlanders need a visa to go to Macau,
and the authorities are apt to change the
frequency and duration of permitted visits
on a whim. Last year, after a number of
embarrassing stories about government
oˆcials using public funds to bet in Macau, mainlanders were limited to one visit
every three months. Even so, Mr Jacobs
said that visa restrictions are Œone of the
things I think least about: the Chinese
government is clearly happy maintaining
Macau as a source of steady gambling revenue, close to but politically separate from
the mainland. And with a population of
over 1 billion, mainland China has enough
people to keep the visitors coming despite
the restrictions.
In fact, Macau draws so many punters
that casinos are literally rising from the sea:
the Venetian and the Plaza anchor a devel- 1
12 A special report on gambling
2 opment known as the Cotai Strip, built on
a †ve-kilometre piece of reclaimed land
that links the two Macanese islands of Coloane and Taipa. The ŒCotai part of the
new plot’s name comes from the †rst syllables of the two islands; the Strip part of it is
clearly meant to evoke Las Vegas. Galaxy
opened the Grand Waldo, the †rst resort
there, in 2006; the Venetian and Plaza followed soon after and will be joined by two
more Sands developments. There will also
be new hotels from Ra‰es, Conrad, Hilton,
Sheraton, Swissotel and St Regis.
Busting out all over
The Cotai Strip may be the most high-pro†le gambling development in Asia, but
there are plenty of others. In the past few
months Singapore has seen the opening of
two large integrated resorts, Resorts World
Sentosa and Marina Bay Sands, which cost
The Economist July 10th 2010
about $10 billion. The Philippines Amusement and Gaming Corporation (PAGCOR)
has launched a hotel-and-casino complex
on a large chunk of reclaimed land in Manila Bay. According to PAGCOR, its partners in the venture‹Australia’s Bloomsbury Investments, Malaysia’s Genting
Group and Aruze, a Japanese company
known mainly for its pachinko and slot
machines‹each stand ready to invest $2
billion-3 billion in the venture.
In 2008 the government of Vietnam
granted Asian Coast Development, a Canadian company, the right to construct †ve
integrated resorts on 169 hectares of beachfront land near Ho Chi Minh City. The †rst
of them, the MGM Grand Ho Tram, is
scheduled to open in 2013. In Bavet, Cambodia, south-east of Phnom Penh, the
$100m Titan King Casino opened in February this year. It joins a number of other
Cambodian casinos near the country’s
borders with Vietnam and Thailand. In Japan the only legal forms of gambling at the
moment are pachinko, the lottery and
horseracing, but that could soon change.
Mr Jacobs predicts that if the Japanese
market were to open up, it would be †ve to
ten times the size of Macau’s.
Yet many Asian governments, for all
their eagerness to get their hands on more
tax revenue, still remain ambivalent about
gambling. Singapore charges its own citizens S$100 ($72) to enter its casinos but foreigners pay nothing. Only one of South Korea’s 14 casinos is open to the locals.
Egyptian and North Korean casinos too
will happily take foreigners’ money yet bar
their own citizens. China rations mainlanders’ access to Macau. On the Chinese
mainland the only legal form of gambling
is a thriving lottery. 7
Come, all ye gullible
Lotteries are a bad bet, but everybody loves them
O
N A cool and clear spring Friday night,
in the basement of an anodyne oˆce
building in the Paris suburb of BoulogneBillancourt, about a dozen people took
their places to go through the weekly ritual
of making one European rich beyond his
wildest dreams. Tumblers were spun,
numbered balls drawn, pearly white teeth
‡ashed, breaths held‹but in the end there
was no winner in that week’s EuroMillions draw. The ¤79m ($100m) jackpot was
rolled over to the following week, when
the prize went up to just over ¤100m
($125m) and the draw produced a single
winner, from Britain. It was the biggest lottery windfall in British history, though still
nowhere near the world record, a stunning
$390m split between two tickets in an
American Mega Millions draw.
EuroMillions is run jointly by the Française des Jeux, Loterías y Apuestas del Estado and Camelot, which operate the
French, Spanish and British lotteries respectively. It is open to players in Britain,
Ireland, France, Spain, Luxembourg, Austria, Belgium, Portugal and Switzerland;
measured by the number of players, it is
the world’s biggest lottery. During the
week of the missed draw last spring some
26m Europeans bought tickets. The draw
takes place in Paris every Friday night between 9pm and 10pm; it is recorded and
sent to the participating countries, which
work the footage into their own presentations. The prizes are tax-free and handed
over at once and in full, whereas in America the prizes are taxed and the winners are
generally given the option of receiving the
full amount in yearly instalments or a portion of it as an immediate lump sum.
Like most modern lotteries, EuroMillions funds good causes of many kinds.
But that is not what gets people excited.
What the lottery sells, according to Christophe Blanchard-Dignac, the head of Française des Jeux, is a dream. That dream is of
great personal wealth, even if the lottery is
perhaps the only game in the world in
which your chances of winning are not
greatly increased by playing because the
odds are so long.
Enduring allure
And yet lotteries have been perhaps the
most enduring form of gambling. Slot machines are an outgrowth of the Industrial
Revolution; card and dice games go in and
out of fashion (who now bets on Hazard or
Faro, popular in the 18th and 19th centuries?); the patterns and subjects of sports
betting vary widely between countries
and cultures; but the idea of taking a small
‡utter on a chance of immense riches
holds almost universal appeal.
Historically, large-scale lotteries have
served two purposes: encouraging commerce in cash-poor societies and contributing to civic welfare. In 1522 a Venetian
dealer o…ered punters the chance to win
carpets in a draw for a small entry fee. Two
centuries later lotteries in colonial America provided a mechanism for selling indivisible, expensive pieces of property.
Thomas Je…erson approved of this method Œwhere many run small risks for the
chance of obtaining a high prize.
Proceeds from lotteries helped to fund
repairs to the Cinque Ports on the Sussex
and Kent coasts, and to build Westminster
Bridge. They also generated †nance for
such notable American institutions as Columbia and Yale universities and Williams
and Dartmouth colleges. George Washington called gambling Œthe child of avarice,
the brother of iniquity and the father of
mischief, but Benjamin Franklin organised a lottery in Philadelphia in 1746.
The modern French lottery began in
1933 to help people who had been widowed, orphaned or injured in the †rst
world war. Today Française des Jeux †nances French sports; its contributions accounted for more than 80% of the budget
of the Centre National de Developpement
du Sport in 2009. In Britain, where more
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
£24 billion to good causes since its †rst lottery draw in 1994, including sport, arts, heritage and education.
Education is also a main recipient of
American lottery largesse. California’s lottery has been giving 34 cents in every dollar to public schools since 1984. Arkansas
started its lottery in 2009 with the express
aim of funding scholarships for the state’s
students and universities. And in Georgia
lotteries have provided over 1m residents
with scholarships to go to college.
The respectable face of gambling
This tradition of civic support may be one
reason why lotteries are more widely accepted, and therefore more accessible,
than other forms of gambling. The World
Lottery Association has members from
over 90 countries. Most American states
have lotteries, and even in some of those
that do not, residents can still buy tickets in
the two multistate lotteries, PowerBall and
Mega Millions.
Lotteries also hold their appeal well in
tough times. They account for nearly onethird of the global gambling market, with
sales expected to rise this year as the bets
on o…er grow more diverse: not just scratch
cards and number draws but also online
and mobile o…erings, a small but increasingly important business.
Money taken from the general population and used by the government as it sees
Highly improbable
†t is also known by another name. Henry
Fielding hit upon it in his ballad-opera
ŒThe Lottery, written in 1731: ŒA Lottery is
a Taxation,/Upon all the Fools in Creation;/And Heav’n be praised,/It is easily
raised,/Credulity’s always in Fashion:/For,
Folly’s a Fund,/Will Never Lose Ground,/
While Fools are so rife in the Nation. According to the National Conference of
State Legislatures, in 2006 American lotter-
ies generated nearly $17 billion in revenue
for state governments. The chance of winning the Mega Millions jackpot is about
one in 176m. For comparison, an individual’s chance of being struck by lightning is
around one in 750,000.
And if lotteries are a tax, they su…er
from being regressive. A study carried out
in 2009 by Theos, a British think-tank,
found that poor Britons spent a greater part
of their income on lottery tickets, particularly scratch cards, than rich ones. In South
Carolina, households with incomes of less
than $40,000 a year account for 28% of the
state’s population but more than half of its
frequent lottery players.
More than one American in †ve thinks
that buying lottery tickets constitutes a
sound retirement plan, according to a Tax
Foundation study. And research carried
out by the Federal Reserve Bank of St Louis
in seven American states found that much
of the money spent on lottery tickets came
from some form of government assistance
(such as social security, unemployment or
disability bene†t).
Buying a lottery ticket may be a foolish
bet, but given that people are so willing to
play, it is unrealistic to ask governments
not to back the game. European enthusiasm for lotteries has already led Française
des Jeux, Camelot and MUSL, which runs
Mega Millions and Powerball, to start planning for a global lottery, with a tentative
launch date of 2012. 7
Sure thing
People will keep on betting, legally or illegally. It makes sense to tidy up the rules
I
N 1950-51 a US Senate commission headed by Estes Kefauver, a senator from Tennessee, investigated organised crime in
America. It came out strongly against legalising gambling. ŒThe availability of huge
sums of cash and the incentive to control
political action result in gamblers and racketeers too often taking part in government.
In states where gambling is illegal, this alliance of gamblers, gangsters and government will yield to the spotlight of publicityðbut where gambling receives a cloak
of respectability through legalisation,
there is no weapon which can be used to
keep the gamblers and their money out of
politics. In other words, not only is gambling a vice; gamblers themselves are an
inherently corrupting force.
That view has a long history. Somerset
Maugham called Monaco Œa sunny place
for shady people. At the time of the Kefauver investigation the same could have
been said of Las Vegas. Yet as Moe Dalitz, a
mobster from Cleveland who owned the
Desert Inn, quipped when a friend asked
him about his clubs, Œhow was I to know
those gambling joints were illegal? There
were so many judges and politicians at
them, I †gured they had to be all right.
Needless to say, betting is not limited to
its legal enclaves; as with drugs today and
alcohol in America 90 years ago, prohibition largely fails. It is impossible to say how
much Americans spend on illegal betting,
but estimates run as high as $380 billion.
The internet has made such betting easier,
though unregulated sites, often run by o…shore crews, carry their own dangers.
Legalising gambling certainly has its
costs. Crime and pathological gambling
tend to be higher in areas with casinos.
America’s National Council on Problem
Gambling estimates that 1% of American
adults are pathological gamblers and another 2-3% have problems controlling their
habit. In Britain some 0.6% of the population are thought to be problem gamblers, a
status associated with being in poor
health, single, separated or divorced andhaving fewer educational quali†cations
than others. Problem gamblers are also
more likely to be unemployed and to commit crimes.
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 gamblers 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 foreigners in free, as in Singapore.
A kingdom for a horse
2 on moral grounds. Taylor Branch, a histori-
an and a supporter of the Stop Predatory
Gambling coalition, argues that statesponsored gambling (lotteries and slots) is
Œa corruption of democracy because it
ð[tricks citizens] into thinking they are going to get rich, but they are really going to
be paying my taxes. Opponents also argue that it encourages addiction‹a disproportionate amount of revenue from slots
and lotteries comes from frequent players‹and relies upon the immortal hope of
getting something for nothing.
Yet arguing that states encourage addiction by legalising, taxing and regulating
gambling is akin to arguing that they encourage alcoholism by legalising, taxing
and regulating alcohol consumption.
Some people bet too much, some people
drink too much, but most are capable of
doing both in moderation, and the state
should not stand in their way.
Still, creating a regulatory regime will
not be easy, particularly given the rapid
changes now sweeping the industry. Las
Vegas took the better part of a century to
extricate itself from the control of organised crime. That history has coloured
America’s attitude towards online gambling and caused it to proceed more cautiously than most European countries.
But using that history as an excuse for
inaction or blanket bans of online gambling would be a mistake. The days when
mobsters could ‡y planeloads of cash between Las Vegas, Miami and Switzerland
are over. Unlike wads of cash, money wagered online leaves a clear audit trail. Customers are at risk today not from betting
online but from betting through unregulated sites located in foreign jurisdictions that
leave them no recourse when they are
cheated, and which themselves have proven vulnerable to cybercrime (notably ex-
tortion by botnets, which attack the site
and block bets during high-pro†le sporting
events). Properly overseen and regulated,
online gambling should be no more susceptible to fraud and money-laundering
than e-commerce in general.
The days of blanket bans in America
may be ending anyway. There is growing
discontent with federal interference in
what should be an issue for the states. Delaware challenged the federal ban on sports
betting unsuccessfully; New Jersey is gearing up for another run, and is considering a
referendum to make online gambling legal
in that state for its own residents.
Attitudes in Europe have ranged from
the permissive to the strongly opposed,
which has made it hard to align gambling
rules to create more of a single market.
There have been calls for harmonisation,
but the European Court of Justice does not
seem to have pursued a consistent line,
which makes Mr Barnier’s call for a green
O…er to readers
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Look at it rationally
Britain seems to have found the right balance between paternalism and permissiveness, recognising that people who
wish to gamble will do so‹particularly today, when all they need is a computer, a
broadband connection and a credit card.
Ensuring that they are not cheated requires
regulation, rigorous oversight and a commitment to an open and competitive market. All of these things are to the good.
Many people would disagree. But they
would do better to try to persuade their fellow citizens to spend their money more
wisely than to appeal to governments to
enforce crude bans. On the face of it that
should be easy: the most popular forms of
gambling‹slots, lotteries and casino
games‹are simply bad bets which players
are likely to lose.
But rational individuals should not be
prevented from indulging in the odd speculative wager, whether on a lottery ticket
or in the housing market. Governments
around the world increasingly seem to recognise this (or at least they seem to like the
revenues that ‡ow from regulated and
taxed gambling). Globally, online as well
as in the world of bricks and mortar, the
trend is toward greater legalisation and regulation. Civil libertarians will rejoice. The
house will still win. 7
Future special reports
Egypt July 17th
Latin America September 11th
Forests September 25th
The world economy October 9th
Turkey October 23rd
Smart systems November 6th
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