As sports gambling becomes more ubiquitous – stimulated by TV advertising targeting young men – an inquiry focused on the illegality of offshore wagering rather than the dire social consequences is being sat on by government. By Mike Seccombe.

Sports gambling, advertising and the Barry O’Farrell review

Surely there must be times when the free-market fundamentalism of the Institute of Public Affairs shocks even their corporate paymasters or their political allies in the Liberal Party. Like last December, when the IPA submission to the federal government’s latest inquiry into the online gambling industry came in.

It was no surprise that the IPA submission paid little regard to the vast human misery and financial loss suffered by Australia’s hundreds of thousands of problem gamblers and their families.

That was to be expected: the IPA’s view of the free market makes no allowance for human frailty.

Thus the submission, authored by Chris Berg and Simon Breheny, decreed controls on gambling to be paternalistic and to have “no legitimate place in a free and liberal society”.

They went on: “Paternalism treats citizens like subordinates. The paternalist’s model of irrational individual choice is starkly at odds with the democratic philosophy of individual choice.”

In other words, winners are grinners and losers should just suck it up.

But other parts of the IPA submission would have wiped the grins off the faces of Australian gambling company executives, for the ideologues had no sympathy for them either.

Gamblers should be just as free to bet with offshore as onshore providers, the authors said. Any “restraints on trade” in the form of laws limiting the operations of overseas betting agencies would harm both consumers and the “competitive dynamism” of the global wagering industry.

“While the growth in corporate bookmaking has been a welcome increase in choice,” said Berg and Breheny, “limiting Australian consumers to Australian wagering firms is unjustifiable on any economic grounds.”

This surely was not what the gambling operators had hoped for when they supported the inquiry. The purpose, as far as they were concerned, was to persuade government that they needed protection from overseas operators.

And last September, when then social services minister Scott Morrison announced the inquiry, to be undertaken by former NSW Liberal premier Barry O’Farrell, the gambling companies had reason to believe the government would need little persuading.

In announcing the O’Farrell review, Morrison stressed the unfairness of offshore competition. So did the terms of reference, which noted estimates that “offshore wagering is a $1 billion annual illegal business in Australia”.

1 . Four areas of investigation

O’Farrell was charged with investigating four specific areas.

First was “the economic impacts of illegal offshore wagering and associated financial transactions on legitimate Australian wagering businesses, including size of the illegal industry, growth, organisation and interrelationships with other criminal industries and networks”.

The second and third areas of inquiry related to measures that might mitigate the cost of offshore wagering.

And the fourth term of reference invited O’Farrell to examine “the efficacy of approaches to protect the consumer – including warnings, information resources, public information campaigns and any other measures, regulatory or otherwise, that could mitigate the risk of negative social impacts on consumers”.

People concerned about the social impacts of the burgeoning online gambling industry were understandably unhappy. Why was the focus solely on offshore providers of online gambling services, when the real damage was done by those operators – most of them foreign owned – who held domestic licences?

Most pertinently, why was there no reference to the huge amount spent on advertising, which is creating a whole new demographic of younger, mostly male problem gamblers?

The money is staggering in its size and rate of growth. Numbers provided to The Saturday Paper by the advertising monitoring firm Ebiquity show gambling companies spent more than $59 million in 2012, $80 million in 2013, $104 million in 2014, and $129 million last year. Three-quarters of it went on TV ads.

Others put the figure even higher. The Victorian Responsible Gambling Foundation – a unique-in-Australia independent statutory authority established in 2012 by the Victorian parliament – cites a figure of $149 million in the year to August 2014.

2 . Buckets of money

Whatever the exact number, it is buckets of money. Collectively, gambling operators spend more on TV ads than the federal government. They are up there with the big supermarket chains. Anyone who watches a televised football match in Australia will know just how ubiquitous the gambling ads are.

And it works. It works best on the young, as Associate Professor Samantha Thomas, gambling expert at Deakin University, attests.

“We think that Sportsbet [controlled by the giant Irish bookmaking company Paddy Power] is responsible for about half of the advertising spend. It is the most prolific advertiser,” she says.

“The interesting thing about that is that when we talk to kids aged eight to 16, it’s the one they are most likely to be able to name.”

But not the only one.

“Kids as young as eight can name multiple company brands,” she says. “They can tell us very clearly the plot lines of the ads, the promotional catchphrases. They have a greater level of recall than their parents.”

But they are not simply parroting the lines. For many of these young people, gambling has become “normalised”, she says. Particularly among those who are fans of the AFL and NRL, gambling is seen as something intrinsic to their experience of sport.

On a personal note, I have some experience of this, having been surprised when my rugby league fan son, then aged 10 or 11, came home from primary school bearing tales of playground discussions of odds and betting on games by his peers. When I was similarly young and football obsessed, the schoolyard talk was exclusively about the relative merits of teams and players.

Researchers in the field say my shock is not uncommon among those whose sporting memories stretch back more than a decade. It was not until the late 2000s that the sports betting phenomenon swept across Australia from the north, impelled by the internet and the easy licensing of gambling providers in the Northern Territory.

In 2007, the West Australian government passed amendments to the state’s Betting Control Act 1954 (WA), preventing interstate betting exchange operators from conducting business in WA.

Betfair challenged the law, arguing it contravened section 92 of the constitution, which protects trade between the states. The High Court found for Betfair in 2008.

“That judgement,” says Thomas, “opened the door for this saturation marketing.”

Online sports betting is not a huge part of the overall betting market. One credible study in 2014 found the proportion of gamblers wagering on sports other than horseracing was only a bit above 5 per cent – way behind other forms such as racing and the pokies.

3 . Growing fast

But where other forms of gambling are stable or, in the case of pokies, declining, online sports betting is growing fast, and the amount of money spent on it is growing even faster. Turnover roughly doubled between 2008 and 2014, according to figures from the Victorian Responsible Gambling Foundation.

Australians are probably the biggest gamblers in the world. Recent figures comparing 15 developed countries showed us to be number one, with average losses per adult of almost $1300 a year.

In 2013-14 total gambling losses were more than $21 billion, of which sports betting accounted for only $600 million or $700 million, excluding horseracing, according to Victorian Responsible Gambling Foundation figures.

“But,” says one expert, “if you put racing in, you’re up over $3 billion. There is the question of the degree to which sports betting serves as a gateway to horseracing.

“Horseracing tends to involve older males. There are racing families, where it seems to pass from father to son. Pokies [players] also tend to be older and often women. Sports betters are a whole different demographic group. Overwhelmingly they are younger men.”

And the potential for further exponential growth is huge. Two factors have been shown by gambling researchers to be central to problem gambling. First, the faster you can bet – that is, less time between placing the bet and getting a result. An enthusiastic button pusher on a poker machine can make a bet roughly every two seconds, which is what makes pokies so dangerous. Online sports betting is not quite as rapid. On the other hand, the amounts that can be wagered with each click are much larger.

The second factor is ease of access. And online betting, with its mobile apps, allows people to bet any time, any place. As social justice commentator Tim Costello observed almost a decade ago, online wagering gives people the chance to lose their home without ever leaving their home.

4 . Sad stories

And they do. Lauren Levin, the director of policy and campaigns for Financial Counselling Australia, the national peak body for financial counsellors, is a repository of sad stories.

Like the young man experiencing “personal issues” who sold his house in the city to move back to the country with his parents.

“A short time later his father said, ‘Let’s go in and pay your car rego’, and he burst into tears because the money from the house was all gone. He lost the entire proceeds in four sessions.”

Or the bloke who “borrowed” money from the financial institution for which he worked and lost the lot in a weekend. Five hundred thousand dollars. He’s now in jail.

“The language the industry use is based on people acting rationally and having a little harmless fun. But what we see, what I get when I talk to problem gamblers, is that when they are in the throes of their addiction they are not rational at all.

“It’s not rational to place 1900 bets in a day, which one guy did. The pattern of addictive gambling is anything but rational.

“Our counsellors are seeing the number of people coming in with online sports betting problems growing enormously.

“It’s not just a different demographic – predominantly young men – but they are losing vastly more in a very short space of time. The intensity of harm is far greater than we’ve seen before.”

Last August, Levin’s organisation released a report, Duds, Mugs and the A-List: The Impact of Uncontrolled Sports Betting, which detailed many such stories and catalogued the unethical practices of the online gambling industry.

It was launched by Nick Xenophon, the independent senator and anti-gambling crusader who has drafted legislation to regulate the worst excesses of the online wagering industry.

Xenophon’s proposed legislation would ban gambling ads during G-rated television shows and during the coverage of sporting events, and would severely limit the types of bets that could be offered, including bets made after a sporting event has started and so-called micro-bets on “contingencies that may or may not happen during the sporting event, eg: the second ball bowled in the first over of a cricket match will be a no-ball.”

It would also require individuals to set monthly and yearly betting limits, among other things. The bill was sent with Xenophon’s request to a senate committee, due to report on May 12.

Shortly after the release of the Duds, Mugs and the A-List report, Scott Morrison announced the O’Farrell inquiry. Coincidence? Those pushing for tougher regulation think not. They see it as a classic political bait and switch, seeking to refocus attention on the relative non-issue of offshore wagering providers.

Says Samantha Thomas: “The amount of money they cite as flowing to offshore providers, the billion-dollar figure quoted as the reason for the inquiry, seems to have been plucked out of thin air.”

In its submission to the inquiry, the Victorian Responsible Gambling Foundation also said there was no reliable source for the estimate.

“[T]here is actually little or no robust evidence that leakage of revenue is a major or growing issue for Australia as result of Australians betting with illegal wagering operators,” it said.

“There are no independent participation studies that isolate offshore from onshore wagering but the figures for other types of offshore gambling by Victorians were estimated to be 0.1 per cent of the population.”

That is not to say there is not a problem with offshore gambling providers, only that it is very small compared with onshore providers.

One of the major concerns was alluded to in the title of the Financial Counselling Australia report. It was a quote from a former employee of a sports betting company, describing how his former company categorised its customers. “A-list” customers were wined and dined and offered credit ranging from $100,000 to $500,000. “B-list” customers were offered up to $20,000 in credit. The “duds” or “mugs” were offered $200-$500 of unsolicited credit.

5 . Getting around the law

The online gambling companies do not use the term “credit”, though. As Levin notes, true credit is governed by responsible lending laws.

The online betting agencies get around those laws by offering what they call “deferred payment” facilities, which are on very short terms of only a week, and which charge no interest.

This, says one expert, is another area in which onshore operators are more dangerous to problem gamblers than offshore providers.

“One thing you are not likely to get from an overseas operator is credit, because they have no way to collect, given they are illegal,” he says. “But it makes perfect sense for a legal entity in Australia to advance a customer, say, $3000.”

And, says Levin, when the customer can’t pay it back, they then max out multiple credit cards, or go to payday lenders.

But again, there was no mention of this borderline-legal practice in the terms of reference for the O’Farrell inquiry.

The behaviour of the new generation of wagering companies does make you wonder why they are in need of any protection at all. At least it does to Mark Zirnsak, the social justice spokesman for the Uniting Church in Victoria and Tasmania.

Zirnsak’s concerns relate not only to problem gambling, but, through his connections with the tax justice network, to tax avoidance by corporations.

He notes that the most recent statistics released by the Australian Taxation Office show that in 2013-14 Sportsbet paid just $7.6 million in tax on a total $255 million of income, and on taxable income of $45.6 million.

William Hill, another of the big operators, had income of $156 million and paid nothing at all. As with other multinational companies operating online, he says there are suspicions of profit shifting.

He says “at least four” of the seven companies represented by the peak body for the online sports betting firms, the Australia Wagering Council, have connections in tax havens.

He also notes other dubious activities. “Paddy Power was just fined £300,000 in the UK for failing to prevent money laundering through its operations there.”

Other wagering companies have been caught up in bribery and money laundering investigations overseas, he says. “And these companies claim to be the ethical providers who need protection from the nasty offshore providers? I don’t think so.”

The Saturday Paper contacted William Hill and Sportsbet about their tax affairs and alleged links to the tax haven of Gibraltar. William Hill did not respond. A spokesman for Sportsbet denied any “direct link” to the tax haven of Gibraltar.

He explained that the company claims a research and development rebate of $6 million on taxable income of $45.6 million which “ applies due to our extensive investment and production of new technology and is something we are very proud of doing and we will continue to do.”

6 . Hopes for tighter regulation

The Turnbull government has now been sitting on the O’Farrell report for several months. The suggestion is it may be released in the next few weeks.

Notwithstanding the fact the terms of reference for the inquiry were devoid of any mention of the issues of greatest concern to those who would address problem gambling, hope remains that there will be movement on tighter regulation of the domestic industry.

Thomas says the sector expects “the government will not allow the gambling companies to do live in-play betting”. There have already been leaks to that effect, and suggestions also that the practice of offering credit might be forbidden.

But on the biggest issue of all, the wall-to-wall TV advertising of gambling services, particularly to children, the reform advocates expect nothing.

“There’s an election coming,” says Thomas. “They saw the campaign against the Gillard government when she was advocating pre-commitment on poker machines. They won’t want to upset not only the online industry but also the broadcasters, who make an extraordinary amount of money from it, in an election year.”

Bottom line, those ubiquitous ads will keep appearing on your TV whenever you watch sport.

If you are watching with your children and feel the need to explain gambling to them, you could do it in the way the IPA explained it to the O’Farrell review, as “a way human beings come to terms with risk, understand uncertainty, and engage with the metaphysical concept of chance”.

Or you could just hit the mute button on your remote.

This article was first published in the print edition of The Saturday Paper on April 9, 2016 as "Playing the flop".

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Mike Seccombe is The Saturday Paper’s national correspondent.

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