Breaking Down the EL Report

26 October 2006

The European Lotteries and Toto Association (EL), published a study on the European Union's gambling sector, undertaken by the London Economics Consulting Group (LE).

Following are paragraphs taken from the Executive Summary:

- This report documents the special place occupied by State lotteries and totos in the European gaming market. It highlights the negative impact full liberalization of the European gaming sector would have, by allowing for unfettered cross-border provision of gaming services;

- State control of gaming activities typically aims to satisfy the demand for gaming in a measured and controlled manner while avoiding or limiting to the greatest extent possible the negative economic and social consequences typically associated with gaming, including fraud, crime and corruption;

- Our review of the EU25 gaming market suggests that, in 2004, total expenditures on gaming stood at €290 billion or 2.8% of EU25-wide GDP. The five largest markets (UK, France, Germany, Spain and Italy) account for about 75% of the EU25 gaming expenditures. It is important to note that these estimates do not take into account any grey or illegal gaming;

- Per-capita spending on gaming varies greatly across the EU25, ranging from €20 in 2004 in Lithuania to €1,900 in Austria. The average across the EU was €630 in 2004;

- A 1% increase in GDP per capita is associated with an increase of 1.1% in gaming expenditures, while an increase in the share of non-lottery expenditures in total gaming expenditures (a proxy for societal attitudes towards gaming) is associated with an increase of 3.3% in total gaming expenditures;

- The total expenditure on lotteries in the EU25 (excluding Malta) was €63 billion in 2004. This represents a 22% share of the gaming market. The market share of lotteries varies markedly across Member States in the EU25, ranging from a low of less than 1% in Latvia to a high of 58% in Italy in 2004;

- The level of spending, on a per capita basis, on lotteries also varies markedly across the EU25, from €260 in Spain in 2004 to €2 in Latvia; - A 1% increase in GDP per capita is associated with an increase of 1.5% in lottery expenditures while an increase in the share of non-lottery expenditures in total gaming expenditures is associated with a decrease of 1.9% in lottery expenditures;

- State lotteries pay out a lower share of their turnover in prize monies than for-profit operators. In 2004, 53% of EU-wide expenditures on lotteries were paid in prize monies, while a selection of for-profit operators paid back 91% of their turnover to players;

- In contrast, State lotteries channeled about 33% of their EU-wide turnover to good causes and the government in the form of taxes, while for-profit gaming operators paid less than 3% of their turnover in taxes to the government;

- The good causes funded by State lotteries cover a wide range of sectors such science and health, education and youth, sport and culture, national heritage and charities, many of which are supportive of the Lisbon Strategy.

- A review of academic studies on the substitution between lotteries and other forms of gaming strongly suggests that lotteries are substitutes to other forms of gaming. Thus, the growth in non-lottery gaming in a liberalized gaming sector is likely to come at the expense of lotteries, a fact confirmed by the actual developments observed in Australia following the recent liberalization of the gaming sector;

- Liberalization of the gaming sector could entail very large losses to good causes. One observes that losses could be as high as 70 to 95% in countries where lotteries have currently a very high market share;

- For the EU25 as a whole (excluding Italy and Malta, countries for which data are not available), funds provided to good causes would fall by as much as 35%, from an original figure of €15.9 billion;

- In 12 of the 23 countries in our sample, the decline in the funding provided to good causes could be 20% or greater;

- In absolute terms, the loss to good causes could total €5.5 billion, with a few countries experiencing very significant losses of €500 million or more (France, Germany, and Spain);

- Winners from the liberalization of the gaming sector, namely the for-profit operators, pay no or very low taxes. Thus, unless their taxes are raised, the increase in their activity will not provide sources of income that would offset the losses of the good causes;

- Thus, liberalization of the gaming sector is likely to involve a significant redistribution from good causes to players and the owners of the for-profit operators;

- Finally, gambling-related social and economic costs will increase significantly as developments in other jurisdictions have shown. Unfortunately however, at the present time no robust data exist that would allow one to quantify these social costs for the EU25.

EL Comments

EL states that, according to LE, a deregulation could lead to a rise in gambling addictions and increase the risk of criminal infiltration of the gaming sector. The study also shows that liberalization could entail very large losses to good causes to which state lotteries contribute. All this would unavoidably impose a substantial social and economic cost on society.

EL President Dr. Winfried Wortmann said, "We can all see, on a daily basis, the impact of unregulated gambling not only in Europe but across the world. Today, four out of five online gambling sites are unregulated and most of the others are regulated by offshore jurisdictions. As a result, I believe that offshore, online gambling is threatening important aspects of our society."

In presenting a copy of the study to the office of Charlie McCreevey, the EU Commissioner for the Internal Market, Wortmann called for discussion of the issue on a multi-pillar basis.

"As a sector, we aim to be pragmatic and constructive," Wortmann said. "We recognize that, in addition to the internal market aspects of the issue, wider implications need to be addressed - notably consumer protection, health, taxation and international trade but also issues such as organized crime, money laundering and other crime-related activities, stemming from unregulated gambling. Offshore online gambling is a real issue for our society as we know it.

"EL believes this report, which has just been completed, represents an important contribution to the ongoing debate on the future of gaming activities in the EU. However, in the light of its findings, we believe that further research still needs to be done on the negative impact of potential liberalization of the sector."

EBA Comments

Torbjörn Ihre of the European Betting Association promotes the right under EU law for members based and licensed in one member state to promote their services in, and accept business from, all other EU member states.

"As indicated in its title, this paper is a 'case for the state lotteries,' and no one is in disagreement with this statement," Ihre said of the report.

The mandate given to LE was to provide the lotteries with a normative case for them making defensive claims to their significance, and the EBA complains that the paper is based almost exclusively on data submitted by the lotteries.

The association also points out that LE does not methodologically distinguish its research in examining the various categories of gambling (lotteries, sports betting, gaming machines etc), but rather sums them up or refers to specific categories wherever it is convenient to make an argument

For example, Ihre says that it is very unclear as to whom the so-called "for profit" operators the lotteries refers. (Are the lotteries not also "for profit" commercial enterprises with advertisements and marketing strategies and given targets for delivering profits to their owners, the governments?) Further, there are no distinctions between licensed EU operators and offshore operators. Nor are there distinctions between online and bricks-and-mortar operators.

Finally, the EBA argues that EL misrepresents the positions of private operators, claiming that they desire a liberalized market. This cannot be any further from the truth, says Ihre, who maintains that private operators have called for a regulated market ensuring the protection of the consumer and that other social issues are forcefully addressed, but with a fair and level competitive playing field for all operators, private and state-owned.

Rob van der Gaast has a background in sports journalism. He worked for over seven years as the head of sports for Dutch National Radio and has developed new concepts for the TV and the gambling industry. Now he operates from Istanbul as an independent gambling research analyst. He specializes in European gambling matters and in privatizations of gambling operators. Rob has contributed to IGN since Jul 09, 2001.