Helsinki lottery presentation 6 28 05

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Information about Helsinki lottery presentation 6 28 05

Published on September 7, 2007

Author: The_Rock


ECONOMIC IMPLICATIONS OF POLICY ALTERNATIVES REGARDING GAMBLING IN FINLAND:  ECONOMIC IMPLICATIONS OF POLICY ALTERNATIVES REGARDING GAMBLING IN FINLAND William R. Eadington University of Nevada, Reno June 28, 2005 ECONOMIC DIMENSIONS OF LEGAL GAMING INDUSTRIES:  ECONOMIC DIMENSIONS OF LEGAL GAMING INDUSTRIES Important economic actors: Consumers, Suppliers, Policy Makers, Regulators, the General Public Gambling product characteristics: prize, consideration, chance Legal definition also sets rules on permitted activity Consumer motivations: Excitement, fun, anticipation, 'dream buying;' testing one’s skill (or luck) or cleverness, desire to win money For many customers, similar to other products =andgt; Choices are made around price, quality, alternatives Quality and variety of choices will affect demand A small portion of customers are going to be problematic to themselves and others MORE ECONOMIC DIMENSIONS:  MORE ECONOMIC DIMENSIONS Suppliers: Motivated to maximize profits; affected by competition, costs of operations, capital requirements, constraints on activities In Finland, constrained market with earmarking for benefits of 'good causes' via NGOs Policy Makers: Establish the legal parameters under which gaming can be offered Regulators: Directed by statute; Establish rules regarding behavior of suppliers General Public: Might be affected by externalities (positive and negative) Adverse social consequences; Excise taxes into General Fund Revenues GENERAL DESCRIPTION OF FINNISH GAMING MARKET:  GENERAL DESCRIPTION OF FINNISH GAMING MARKET Monopoly suppliers of casino products (RAY), lottery, sports wagering Capturing a large amount of profit for public benefit (numbers for illustration only) Total benefits of nearly €1 billion Total gaming revenues of about €1.3 billion High and skewed spend on gaming per capita About €270 per annum (compared to about $200 in the United States) High proportion of revenues (80%) generated by small proportion of customers (20%) GENERAL OBSERVATIONS ON MONOPOLY (COMPARED TO COMPETITION):  GENERAL OBSERVATIONS ON MONOPOLY (COMPARED TO COMPETITION) Price tends to be higher, availability of product is limited, quality is lower No 'Invisible Hand' at work Consumer is disadvantaged Market has difficulty achieving efficiency, adjusting to changing technologies, meeting changing consumer demands If natural monopoly, captures advantages of economies of scale Lotto is a 'natural monopoly' product; prize is affected by number of participants Internet tournaments also have 'network effects' similar to Lotto (i.e. Party Gaming) POSSIBLE LEGAL CHALLENGES VIA THE EUROPEAN UNION:  POSSIBLE LEGAL CHALLENGES VIA THE EUROPEAN UNION Free and fair trade rules prevail in general Gambling is increasingly viewed as 'just another commodity' =andgt; Less a vice requiring 'special treatment' Widespread availability; different product offerings; technological advances Justification of a monopoly must be made on social protections provided Providing revenue for good causes is not enough of a justification; Proportionality There is a strong chance that Finnish gaming will be opened to international competition at least within the EU =andgt; What are the policy implications for Finland? SIMPLE MODELS TO PROJECT REVENUE GENERATING CAPABILITIES OF FINNISH GAMING:  SIMPLE MODELS TO PROJECT REVENUE GENERATING CAPABILITIES OF FINNISH GAMING Suppose exclusivity of three existing exclusive franchise companies in Finland is lost CASINOS AND SLOT MACHINES: Policy makers and regulators can control locations and numbers, but cannot restrict competing companies from supplying Competition in bidding for management contracts for site-specific casinos =andgt; Inherent advantage for Finnish companies (i.e. RAY) Percentage of gross and percentage of net (i.e. 5% and 20%) Improved quality of gaming products, offerings for consumers Government can establish tax rates, conditions for playing Tax rates can be set to still achieve significant government revenues Protections in form of features, locations, constraints IMPLICATIONS FOR FINNISH LOTTERY:  IMPLICATIONS FOR FINNISH LOTTERY Cross-border competition far more likely More homogeneous product Commoditization implies price competition=andgt; lower margins Development of new delivery systems (i.e. Internet) Natural monopoly characteristics would argue toward multi-country lottery products Emergence of oligopolistic markets in EU Analogous to PowerBall within the United States More difficult to preserve monopoly profits =andgt; greater revenue implications for government Implicit price fixing among competing lotteries Need for consumer protections for traditional lottery are less than casinos or sports betting IMPLICATIONS FOR FINNISH SPORTS WAGERING:  IMPLICATIONS FOR FINNISH SPORTS WAGERING Cross-border competition very likely Slight advantage to Finnish language companies Consumers are very price sensitive =andgt; commoditized Limited economies of scale Intense price competition=andgt; negligible margins Government is limited in taxing capabilities Gravitate toward efficient delivery systems (i.e. mobile telephones, Internet) Very difficult to preserve monopoly profits =andgt; serious revenue implications for government Protections will need to be uniform among competing suppliers THE ROLE OF REGULATION IN FINNISH AND EU GAMING:  THE ROLE OF REGULATION IN FINNISH AND EU GAMING Primary reasons for regulation: Protect the integrity of: Accounts (to insure proper taxes are collected and shareholders are not defrauded) Ownership (to insure owners are 'fit and proper persons') Games and devices (to insure honesty of the games, and protect players from being cheated) Protect the vulnerable, especially minors and problem gamblers Protect against criminal activities being associated with and around gaming operations (i.e. tax evasion, loan sharking, money laundering, links with other illegal activities such as prostitution and drugs) CONCEPTUALIZING BENEFITS AND COSTS REGARDING GAMING:  CONCEPTUALIZING BENEFITS AND COSTS REGARDING GAMING Social Benefits: Net additions to societal wealth Social Costs: Net reductions in societal wealth Transfer payments: Shift in ownership of existing assets/commodities =andgt; neither a social benefit nor a social cost Example: Theft of an automobile Transfer of ownership =andgt; no direct Social Benefit or Cost, but Increased police activity, private protections (security systems, anti-theft devices, guards) =andgt; Allocation of resources imply a social cost GAMBLING AND SOCIAL BENEFITS:  GAMBLING AND SOCIAL BENEFITS Consumer surplus: The difference between what a consumer would be willing to pay for a commodity and what he has to pay =andgt; Gain in utility or value Ceteris Paribus, consumers benefit from new products being introduced to the marketplace Tax revenues: Capturing surplus value from consumers for other purposes =andgt; Can create 'deadweight' loss Job creation, new investment: Not direct benefits, but result of demand (assumes the economy can gravitate to full employment from macro-economic policies) PROBLEM GAMBLING AND SOCIAL COSTS:  PROBLEM GAMBLING AND SOCIAL COSTS Difficult to conceptualize and to measure Transfer of ownership of gambler’s income/wealth =andgt; No direct social cost Regrets of the gambler, family, friends =andgt; internal costs (not a social cost) Allocation of societal resources to treat problem gamblers and their families =andgt; political decision (not a social cost) Consequences of crimes related to problem gambling =andgt; resources for police, courts, prisons: Social Costs Aesthetic externalities: Should they also be considered social costs? Willingness to Pay to avoid increased permitted gaming in society HEIRARCHY OF BENEFITS & COSTS OF GAMING:  HEIRARCHY OF BENEFITS andamp; COSTS OF GAMING BENEFIT/COST RATIOS WILL RANK FROM HIGHEST TO LOWEST IN THE FOLLOWING ORDER: Destination resort casinos catering to 'foreigners'=andgt;Las Vegas, Monaco, Macao Urban casinos that provide import substitution =andgt; Detroit, Singapore Urban casinos that create new players =andgt; Stockholm, Helsinki, Moscow Convenience gambling which is easily accessible to the general public =andgt;Gaming devices in bars and taverns, small slots arcades Ultra-convenient gambling, such as inter-active television or internet gaming, mobile phone sports wagering, 'on-line keno' via the lottery GENERAL IMPLICATIONS FOR POLICY MAKERS:  GENERAL IMPLICATIONS FOR POLICY MAKERS Increased competition implies delivery of protections will become more difficult Importance of establishing the rules of product availability New delivery technologies will be more difficult to control than site-specific delivery systems for gaming products Can identification screens be developed for internet, mobile phones, etc.? Prevention strategies may be the most desirable Pro-active ways of addressing excessive gambling before it becomes an addiction

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