Gaming in the new market environment

Gaming in the New Market Environment


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Gaming in the New Market
Environment
Edited by Matti Viren


Selection and editorial matter © Matti Viren 2008
Chapters © their authors 2008
Softcover reprint of the hardcover 1st edition 2008 978-0-230-50050-1
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First published 2008 by
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ISBN 978-1-349-35270-8
ISBN 978-0-230-58261-3 (eBook)
DOI 10.1057/9780230582613
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A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Gaming in the new market environment / edited by Matti Viren.
p. cm.
Includes bibliographical references and index.
1. Gambling industry. 2. Gambling. 3. Lotteries. I. Viren, Matti.
HV6710.G38 2008
338.4′7795–dc22
10
17

9
16

8
15

7
14

6
13

2008014546
5
12

4
11

3
10

2
09

1
08


Contents
List of Tables

vi

List of Figures

vii

Acknowledgements

viii

List of Contributors

ix

Chapter 1

Introduction

1

Chapter 2

When Welfare Economics and Gambling
Studies Collide

23

Chapter 3

Demand Issues in the Market for Lotto and
Similar Games

54

Chapter 4

Lottery Design Lessons from the Dismal Science

75

Chapter 5

Lotteries as a Source of Revenue

99

Chapter 6

Problem Gambling and European Lotteries

126

Chapter 7

The Economics of Scale and Scope in the
Lottery Industry

160

Chapter 8

The Political Economy of Regulating Gambling

184

References

209

Index

221

v


List of Tables
3.1
3.2
3.3
3.4
4.1
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
6.1
7.1

7.2
7.3
7.4
7.5
7.6
7.7
8.1
8.2
8.3
8.4

Summary of demand elasticities
Regression results, UK Saturday Lotto sales (millions)
UK Saturday Lotto sales regression
Spending on Lotto and other models of gambling
Estimated parameters of log sales equations
Gross tax rates, EU lotteries
Gambling revenues (£ million) and gross tax rates, UK
Excise rates – UK National Lottery, alcohol, tobacco
and petrol products
Tax revenues, with and without the lottery
Share of total income spent on ‘vices’, by income decile
Share of spending on ‘vices’, by income decile
Correlation coefficients of expenditures
Why do people play the National Lottery?
What is ‘an excellent way to spend’ lottery money?
A summary of the most common forms of offline
commercial gambling
Panel data estimates of the cost function for European
lotteries

Cross-section estimates from the European data
Cost function estimates with the US data
Change in cost shares over time in the US
Marginal effect of sales on costs
Further estimates of scale economies
Some demand function estimates with the US data
The variables and the main bookkeeping relations
Names in Mental Health
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Shaffer, H. J., LaBrie, R. A. and LaPlante, D. (2004) ‘Laying the foundation for
quantifying regional exposure to social phenomena: considering the case of
legalized gambling as a public health toxin’. Psychology of Addictive Behaviors,
18: 40–8.


218 References
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References 219
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Index
addiction, 20, 47, 49, 52–3, 97, 131,
184, 186, 206, 207
irrationality of addiction, 190–6
machine addiction, 137
rationalising addiction, 32–8
research on, 148–53
adolescent gambling, 133, 135, 136
ad valorem, 103
ad valorem tax, 27
advance payments, 10
advertising, 11, 100, 120, 146, 149,
153, 163, 170
American Psychiatric Association, 52,
127, 131, 133, 138, 139, 144, 155,
208
ARCH test, 96
Australian gambling market, 27, 45
average costs, 19, 161, 163, 170
Becker and Murphy’s model, 35
bingo, 71–2, 102, 128, 156, 198
blackjack, 128, 139
bookmakers, 1, 54, 70, 110, 162
British Social Attitudes Survey, 120–2
cannibalisation, 14, 15, 45, 46, 66, 69,
73, 180
Camelot, 68, 87

casino, 15, 50, 53, 127–9, 133, 160,
181, 197–9
attitudes towards, 5
casinos and growth, 44–6
casinos and lotto, 70, 73, 74
casinos and problem gambling,
127–9, 133–4, 139, 142, 146–7,
149
history of, 4, 55, 197–9
casino games, 33, 146
charitable purposes, 117
charities, 71, 99, 116, 117, 121, 125,
152
churches, 203
commissions, 164

competition of lotteries, 160
compulsive gamblers, 138, 198, 208
compulsive gambling, 190, 198, 201
conscious selection, 37, 38, 78, 87,
94–6
consumer surplus, 8, 47, 51, 52, 181,
188–9, 206
consumer surplus and taxes, 108
measurement of, 26–32, 34–5, 38,
39
crime, 9, 20
cross-border sales, 1–2
cross-price elasticity of demand, 71
Danish Gambling, 186, 197–9

DEA, 181
dead weight loss, 20, 191, 194, 195,
206
demand for lottery products, 176
demand curve, 26, 28–32, 59, 186–90
demand elasticity, 60
DSM-III, 138–9
DSM-III-R, 138
DSM-IV, 127, 130, 133, 134, 138–9,
155
earmarking, 6, 117–20
economic growth, 43, 44
economics of gambling, 20, 56, 97
economies of scale see also scale
economies, 161
economies of scope, 161
effective price, 28, 31, 59, 71, 72, 74
elastic demand, 40, 60, 71, 108, 179,
188
electronic cash, 140, 142
EuroMillions, 3, 67, 68, 69
European Court of Justice, 7, 54
European State Lotteries and Toto
Association, 22, 162
equity, 38, 40, 48, 49, 51, 99, 104,
106, 107
excess gambling expenditures, 191

221

222 Index
excessive gambling, 38, 40, 47, 107,
135, 145, 146, 149, 182, 199
excise duties, 103
expected utility framework, 33, 53
externality, 16, 107, 115, 119, 123,
184, 185, 189, 194, 202
football pools, 3, 62, 110, 129, 131,
132
gambling prevention initiatives, 150
gambling revenues, 22, 48, 102
gambling taxes, 27, 48–50
game design, 36, 37, 76, 79, 80, 83,
86, 90, 92–4, 114
good causes, 17, 22, 50, 99, 101, 113,
116–25, 198
GamAid, 152
Gam-Anon, 152
Gamblers Anonymous, 152
gambling legislation, 48, 131, 149
Gambling State Owned Enterprise,
185, 192, 206
GamCare, 152
game design, 36, 37, 76, 79, 80, 83,
86, 90, 92–4, 114
Gaming and Wagering Business, 162
gate-keeping, 141
gender, 34, 37, 135, 142
green taxes, 208

gross tax rate, 100, 101, 102
Gulley-Scott model, 58–63
harm based conception, 130
history of lotteries, 4, 22, 48, 67,
88
horse racing, 22, 49, 127
illegal gambling, 48, 198
income level, 165, 170, 177
Indian Reverse gaming, 24
instant games, 3, 164, 173, 182
Instrumental Variable estimator, 178
Internet, 1–3, 14, 18, 54–5, 70, 176,
198
and problem gambling, 127, 129,
133, 139–43, 149, 151–2
internet gaming, 2, 70, 73, 74
internet prevention, 151

intertemporal substitution, 81, 93
investment, 11, 34, 55, 150
jackpot, 17, 18, 68–9, 95, 96, 133, 147
jackpot and demand for lotto, 58,
60, 62–4, 72–4, 76, 89–90, 120–1
jackpot and prizes, 78–9, 82–4, 87,
98, 115
jackpots, 3, 56, 57, 60, 68, 69, 74, 147
jackpot level, 78
labour supply, 108
LAD estimator, 166
Least Squares estimator, 166

legalisation of gambling, 39
Lorenz curves, 53, 109, 111, 124
lotteries as source of revenue, 99
lottery advertising, 120
lottery spending, 73, 74, 103–6, 111,
113, 118, 119
lottery tax, 6, 10, 12, 16–17, 27, 50,
103, 108, 113, 123–4
lottery ticket, 28, 62, 66, 72, 75–6,
80–1, 85, 87, 95
Lotto, 14–15, 37, 74, 76–84, 87–8, 90,
94, 98, 128, 131, 134, 173, 176–8,
182
and consumer surplus, 27, 29
demand for, 54, 56–7, 60–72
in Denmark, 197, 199
expenditure, 45
Lotto companies, 1, 3, 197, 199
Lottomatica, 9, 176
marginal costs, 8, 161–4, 173–6, 182
marketing strategies, 147
mean-variance-skewness approach, 65
minimum age, 149
mobile phones, 140
moments, 15, 16, 64, 77–80, 83–6,
88–90, 93–6
Monday Lottery, 125
money laundering, 9, 10
multistate games, 56
National Lottery, 22, 24, 57, 67–8,

128, 131, 134
and good causes, 120, 121, 125
history, 50, 52, 53


Index 223
National lottery act, 124
revenues, 100–3, 106, 108–11, 113,
114
natural monopoly, 8–9, 19, 161, 180,
181
new generation demand models, 61
New York State Lottery, 9, 176
number of outlets, 149
numbers games, 24, 37, 72, 173,
182
off-track betting, 156
online customer tracking, 142
operating costs, 164
own price elasticity of demand, 59, 71
panel data, 89, 163
pari-mutual lottery, 80
participation, 8, 30, 33, 34, 47, 48, 68,
71–2, 148
cost of, 83
and earmarking, 119–21
participation of lotteries, 120
pathological features, 18, 137
pathological gamblers, 30–4, 36–8,
42, 47, 50–2, 136–9, 143, 144,

150
definition of, 127, 130, 131
pay-out, 63, 65
per capita sales, 177
political economy, 12, 19, 181, 184–6,
200–1
Powerball, 3, 69, 173, 182
price elasticity see also demand
elasticity, 14, 28, 29, 70, 71, 107,
114, 164, 178, 186, 187, 196, 207
price of gambling, 191, 192
price structure, 199
prize distribution, 15, 16, 37, 76–80,
83–6, 89, 90, 94, 98
prize pools, 59, 61, 62, 76, 91, 98
problem gamblers see also
pathological gamblers, 7–8, 49,
52, 144, 146, 191–2, 198–200
definition of, 132–7
and internet, 140–1, 143
legislation and prevention, 149–54
problem gamblers’ demand
behaviour, 30–2, 35–7, 186

problem gambling, 7, 8, 35–6, 46–7,
107, 193, 198, 200
definition of, 126–7, 130–7, 192
and internet, 139–40
and other disorders, 143, 144
policy implications, 147–53

profiling, 132
progressive tax, 109
probabilities of winning, 62
promotions, 93
public finance, 6, 22
public ownership, 11
public policy, 8–10, 12, 19–21, 131,
181
Ramsey, 17, 107, 108, 123, 217
Ramsey rule, 17, 107, 108, 123
rational addiction, 35, 53, 209
regressive taxes, 49
regressivity, 50, 93, 109, 110, 113,
124
regulation, 10
regulatory operations, 181
remote gambling, 18, 127, 139–43,
211, 213
RESET test, 96
revenue maximisation, 16, 59, 99,
100, 114, 119, 123
revenues, 5–7, 17, 24, 28, 31, 44, 45,
48, 50, 123–4
comparisons, 100–6
and earmarking, 113
and good causes, 116–20
maximization of, 114
rollover, 15, 28, 29, 37, 57–9, 61,
63–9, 74, 76–84, 87, 88, 90–6, 98,
114–16

roulette, 127, 128, 139, 198
Saturday Lotto, 57, 64–7, 69, 87, 94
scale economies, 19, 68, 163, 172
scratchcards, 18, 56, 71, 72, 88, 128,
131, 133–6, 148
serial correlation, 78, 80–1, 86–7, 89,
90, 95
skewness, 15, 37, 63–8, 77–9, 83–6,
89–92, 212, 214
slot machines, 18, 22, 45, 73, 127,
129, 131–7, 142, 145–7, 156


224 Index
social context, 17, 131
social cost, 13, 14, 38–43, 46–9, 53,
107, 184
specification tests, 96
sports betting, 1, 3, 127, 128, 173,
182
spread betting, 129
stakeholders, 20, 131, 184–6, 191,
203, 204, 206
state finance, 44
subadditivity, 161
Superdraw, 57, 64, 67, 74, 96
syndicates, 87
take-out, 15–16, 54–61, 63–6, 71, 76,
81, 85, 92, 93, 99, 101, 114, 116
taxation, 2, 5–6, 12, 17, 27, 48–50, 99,

114, 118, 189
and welfare, 107–9
taxation of winnings, 12, 22
tax-collection costs, 106
tax incidence, 27, 49, 50, 124
tax on gambling, 188
tax rates, 2, 12, 16, 29, 99–103, 105,
114, 123
Thunderball, 65, 67, 69, 87

ticket price, 120
total sales, 1, 9, 15, 21, 95, 104, 163,
165, 166, 170, 180
trigger/spree-mechanism, 190
UK National Lottery see also National
lottery, 28, 50, 52, 53, 94, 99,
101, 103
unbalanced panel, 89
Veikkaus, 3, 22, 180
Viking lotto, 3
weak victim observation, 185, 203
wealth redistribution, 40
weekly games, 148
welfare, 13–14, 33, 38, 40–4, 114,
185, 191, 206
and addiction, 32–3
measurement of, 23–8, 35–6
and taxation, 108–9, 188–9
and welfare, 48, 51
welfare economics, 12–14, 25, 32, 38,

40–2, 48, 51–2, 97
youth gambling, 18, 135