Excerpts from Productivity Commission Hearing - Sept. 17

The Productivity Commission, an independent commonwealth agency that serves as the Australian government's principal review and advisory body on microeconomic policy and regulation, has undertaken a national public inquiry into the country's gambling industries. From time to time, IGN will be posting documentation of Internet gaming-related testimonies and reports submitted to the inquiry. This week we are bringing excerpts from two experts: Professor Jan McMillen, Executive Director of Australian Institute for Gambling Research and Mr. Norm Hooper. They made their presentations before the Productivity Commission on September 17, 1999.

Excerpts From Public Hearing On The Draft Report On Australia's Gambling Industries:

At Sydney on Friday, 17 September 1999

Representing the Productivity Commission:
Mr. G.R. Banks, Chairman
Mr. R. Fitzgerald, Associate Commissioner

Guest Speakers
Professor Jan McMillen, Executive Director of Australian Institute for Gambling Research
Norm Hooper

MR BANKS: Welcome back everybody on the second day of our hearings here in Sydney. Our first participant this morning is the Australian Institute for Gambling Research. Welcome to the hearings. Could I ask you to give your name please and your position.

PROF McMILLEN: Yes, I'm Professor Jan McMillen. I'm the executive director of the Australian Institute for Gambling Research. The institute is a research centre at the University of Western Sydney, Macarthur.

(Discussion continues covering various gambling impact studies and the role government should take in protecting the public from gambling's expansion. The entire transcript is available at http://www.pc.gov.au/inquiry/gambling/trans/sydney170999. Files are saved in the PDF format. If you don't already have Acrobat Reader, you can get a free download at http://www.adobe.com.)

MR FITZGERALD: Can I take you to the point that you've just raised, given that we are going to run out of time, although we've got some time? The Internet issue; you talked about that may be a way forward, yet of course we've seen in the senate committee that some states have already taken it at once, so in particular is taking the approach that there's no role for the Commonwealth, which I have to say seems an unusual position, given the instruments by which Internet gambling takes place are in fact Commonwealth jurisdictions. But nevertheless - and we've had discussions previously about your views about the Internet - you tend to be sharing our views in relation to Internet gambling, or much of what we've said about that area. Can you just clarify for me however, at the end of the day, where you think the regulatory arrangements might best sit for Internet, given the complexity of the issues that have been canvassed?

PROF McMILLEN: I think we do need some sort of joint agency between the states and Commonwealth. We're never going to be able to regulate our online gambling in the way that we have effectively site-specific gambling, but we've got to use all the resources at our disposal and certainly the Commonwealth is - you're quite right. There are heads of power that only the Commonwealth has and if we're going to use all our regulatory tools, we've got to use those heads of power. So I think it is essential to have a co-operative federalist approach on this, some agency that involves the states and the Commonwealth working co-operatively together. It concerns me.

I would resist the notion of the Commonwealth taking over this jurisdiction because we're going to end up with years of High Court cases as a result on state rights issues. That happens. So I just hope commonsense prevails. It concerns me that unfortunately what I've called predatory federalism is driving this. The states are competing with each other, trying to get a head start on the market and also wanting what they see as minimum interference. I don't think it is interference. I think this is a matter of national interest, not of state parochial interest and we've got to address it in that way.

MR BANKS: Yes, I think in two areas in particular. One is the consumer protection information side, doing that properly, the question of illegal offshore sites and that's part of that, but also just the question of the erosion of the tax base. I think the states would see it in their own interests to come to terms there, including with the Commonwealth, on that.

PROF McMILLEN: Yes, well, already we've got different proposed tax rates widely varying; 50 per cent Victoria and Queensland, 4 per cent in Norfolk Island, 8 per cent in Northern Territory. We've really got to grapple with this and get some standards and agreement.

MR BANKS: Especially with something as mobile as cyberspace gambling.

PROF McMILLEN: Absolutely. Yes, we'll just end up in a Dutch auction if we don't. This is quite ridiculous. So we've got to use the resources at our disposal.

MR FITZGERALD: At the same time the draft report was coming out just shortly before the US presidential commission on gambling made its recommendations about banning of Internet gambling, some people have said how can it be possible that the US would - one committee would indicate a ban on gambling and yet our commission has not given great weight to the banning, although we've canvassed the issues? Do you have any views about those two positions?

PROF McMILLEN: I can understand where the American national commission came from. It's a very different environment. This mirrors a lot of the arguments that have occurred in other areas, what they see as vice or sin issues like alcohol. It's either prohibition or liberalisation. But I think simply the nature of this product and the technology precludes prohibition. This is a reality. It's with us now. I'm also sceptical enough to think that there's also a certain commercial imperative there, that some vested interests in the United States are protecting their market in promoting, at least in the short-term, a period of prohibition.

But we're never going to prevent this. I mean, a 14-year-old can set up an Internet site in their bedroom. Mum and Dad wouldn't know. If they've got good graphic design skills, they can pretend it's licensed in the Northern Territory or wherever and they can do this anywhere around the world, and there's no international legislation or enforcement processes in place to do anything about it.

So I think prohibition, even through file service - people can move their file server -so it seems to me just flying in the face of the technology. So we've got to grapple with the issues as best we can, using the technology and the regulatory tools that we've got. I support your argument that prohibition is not a realistic option, although I acknowledge the arguments, for good social and moral reasons probably, it would be desirable. But it's just not practicable. One of the things that concerns me, for instance, is the ethical issue of Australia liberalising this form of gambling, and clearly what we're going to be doing if we do establish a global market, we're going to be transporting the problems offshore, probably into Asian markets. I think that is an ethical issue that we've got to grapple with. But it's not going to go away. It's here, and we've got to deal with it as best we can.

MR BANKS: There's an interesting issue there as to where a gambling activity takes place.

PROF McMILLEN: Yes.

MR BANKS: Therefore which jurisdiction's laws apply. There's some strength to the view that it's the jurisdiction where the player is located, whether it be in the US or Asia or whatever, and it's the local regulations that apply there that would apply to the provider.

PROF McMILLEN: And what happens if there's a dispute? Where is the location of dispute resolution? This really needs not only a national approach, it needs an international approach and we need to work towards international agreements.

MR FITZGERALD: Sure.

PROF McMILLEN: Can I make it even more complex?

MR FITZGERALD: Please.

PROF McMILLEN: One of the problems is that I think the big market is sports betting. Okay, we can control the gambling transaction and the nature of the product in a casino and in a club. How do you regulate sport that we're all going to be betting on?

MR FITZGERALD: Ensuring that that full-forward kicks true.

PROF McMILLEN: Absolutely. How do we stop bribery, corruption, manipulation? And we've now got, because this is now a global industry - sport is global - and so we've got parallel developments, the globalisation of sport and the globalisation of gambling technology. You can have - and I've painted this scenario to the senate inquiry - an operator who has an Internet or online licence in one country, there's a media owner in another country and owns a sports team in another country. Where is the jurisdiction, where is the control? It's a major problem.

MR FITZGERALD: Some would say to us that those who are actually going to be providing the wagering in relation to the sports betting, it will be in their interests to ensure that their product has an integrity, so some would say the market actually worked that out so the various TABs around the country will want to ensure that the football product or the cricket product has integrity. Others would say that that is simply not going to work over time and that there needs to be regulatory arrangements put in place, similar to what we have for the racing industry itself, which actually looks at the racing product.

MR BANKS: Our next participant is Mr Norm Hooper. Welcome to the hearings. As you know, these are hearings on the draft report and I believe you've got some points you want to make. We saw your earlier submission for the first round and had a good long discussion about that submission so we look forward to hearing what additional points you may have.

(Mr. Hooper discusses his background and covers some details regarding gambling studies and education. You can read the entire discussion in http://www.pc.gov.au/inquiry/gambling/trans/sydney170999.)

MR HOOPER: From this, we have got what I'm going to lead to - is Internet gambling. I believe that God's gift to society is the expenditure from gambling. I believe that actually the government, including your body, should ensure that no little greedy independents, including myself, could have one iota of interest in Internet gambling.

What it should be is set up - I've drawn up what is known as Scoop The Hoop. Now, why Scoop The Hoop is so important, it is done by marble draws, 50 in each of the 15 barrels. One marble is drawn from each barrel - one in 50 chance of that marble being drawn. When they are drawn, there is no way that any jockey or any trainer or any individual interfering with them - there probably would be but actually it would be highly under - to get people infering with something, especially when there is treasury officials or people reviewing the whole lot.

From that, when Internet gambling comes in - why this form of gambling is so valuable is (a) it doesn't matter how small the interest commission is that can be done or how large they desire. All they have to do is just drop or add one marble, which means that over 15 marbles a person would get up to 13 to one, they could get 12 to one, still allowing the house 12.5 per cent commission. But when Internet gambling comes in there's going to be a lot of these Internet gamblers, especially in roulette, that are offering a commission at only a deduction of 2.7 per cent. What occurs then is with Internet gambling with these marbles, the marbles can be added in addition with these 18 marbles and they deduct one one-seventeenth, which is 5.88 -2.35 per cent.

This can all be done, which means that no private enterprise can undercut Internet gambling. What we have to also consider is next year we've got the mobile phone. People will be able to just sit down, even in this room, put up their mobile phone and if they wanted to have a bet they would be able to have a bet through their mobile phone, as well as do any bank transaction.

That is why my research - 25,000 hours it took me, not to find out - it only took me about two or three days to find out that the ratio of casino two-up was around about one in 20, whereas in those days the casinos use to give you 30 to one. They lost that much money at it that they had to abandon it. Why this is so important is when people can understand that there is such a thing - and the difference between practical probabilities and spiritual, real world theorem probabilities - that (a) there is something wrong with gambling, and something can be wrong with gambling.

Now, there are instances - for instance tossing dice. I've got six dice here. I could explain what I'm saying to you if you had time. If you had someone who spent two hours with me I could actually give them such a complete, different change of what is going on with gambling that even you people would be amazed and say, "Well, why have we wasted so much time," because I can assure you that most of the time since Sir Laurence Street's inquiry into gambling has been wasted. There has been millions of dollars spent. We've basically given it to the wowser fraternity as hush money.

I used to be a member of the National Association of Gambling Studies and I was in contact the other week with one of the professors that started it. I mentioned it to him in regards to that and he said, "Yes, unfortunately there's that many that went with good intentions against gambling, now they are prepared to receive what they are getting to keep quiet." Now, that is not right. As far as I'm concerned, if I die tomorrow the state would probably have to bury me because I'll be a pauper.

The point is, as long as I'm alive I will fight for the rights of the average person, and also I believe that our educational system has to be upgraded. The only way we can do this is by people like yourselves saying, "Right, if I'm correct or if I'm wrong, get someone to investigate it." You can go down to the casino now where they would be playing two-up and I could draw out a bit of paper and just put all squares on it and with an average of every 13 spinners there will be one of those within 38 results will toss five by ones. There will also be, amongst those spinners, a bracket of five evens, which means over those 38 tosses there's 19 bets that are the person - if they could bet on five ones would lose, and there's one by five ones which they have the stake which makes the 20th.

People say, "How can you get 38:20 even money in a game," whereas there's only 38 results and yet you were going to outlay 20 bets because 19 are lost and the other one is won, because actually it's a different kettle of fish altogether. There's a lot of things within the history of mathematics - even Einstein. He said - which I've said myself for years, until I realised - that if you can't win at an even money level stake, you can't win by compounding your bets and doing it in a progressive manner -as is proved. On Internet gambling we could offer the Yanks our Australian dollar for .625 cents US dollar, and as long as they bet on the martingale method, over a period of time, when they lose they're going to lose 32 by .625, which gives you the equivalent to $A20. When they exchange it back over we would still make $A1.6 for every Australian dollar that we outlay, that is with the exchange rate.

This is educational. You've got people, when they are interested, they haven't got the time because they've got their own lives to live. Now look, basically I think if I could get that across to you and you're prepared to get someone to actually interview and be prepared to go to the casino, I could save your time and my time. I could also probably - if this was done 25 years ago I could have saved 25,000 hours of my own time. So I'll leave it at that, but I would like you to have a look at that tape.

MR FITZGERALD: You'll leave us those materials, that would be great.

MR HOOPER: Incidentally, in regards to education in schools - the teachers. With this new program that's come in, they are concerned because they don't know nothing about probabilities in relation to gambling and they don't know - how are they expected to teach the students when they don't know themselves?

Now, in regards to this probability book, I tore this out of an old book that I had at home. It relates to equal likely outcomes, which is what we call the probability is all about, but it's also got outcomes which are not equally like it. That is also in regards to tossing two coins. Even D.L. Lampert back 300 years ago, he made a mistake because he thought that the chances of getting two heads or two tails, or ones, were equally likely. Today we know that's not right. Look, I could leave it at that.

MR FITZGERALD: And you've given us your book previously which goes through those theories.

MR HOOPER: Yes, but the point is you have to understand that since that time I've still spent 16 hours a day going over my own theorems and going over my own work, going to casinos at random, selecting results and there is nothing that has changed my opinion. I know during the years that I have been researching all this, I have had times of enlightenment, "Why have you wasted so much time, Norm, you're wrong." But then I walk around, probably because I used to always when I had a mathematical problem - just take a couple of dogs for a walk, then after walking about 400 yards my head would clear and I would say, "Of course I'm right."

Unfortunately with this - I had a good friend, John Rafferty, who died in the last couple of months. He used to be involved in the CSIRO and he was into genetic probabilites and that is the reason why he could understand what I was relating to, because he knew - well, that's what he was. He was a mathematics statistician in the old CSIR before the "O" went on it. He was the person that actually recommended -and he insisted. "Norm," he said, "it doesn't matter how you get ridiculed, how incomprehensible people think that you are. It's been done to everyone before. Keep going, because eventually the people that think that you are an idiot - history's going to judge them as the idiots." So I'll just leave it at that I think.

MR BANKS: Good, thank you very much, Mr Hooper, again, for contributing to the hearings.

MR HOOPER: I'll leave you these.

MR FITZGERALD: Yes, that would be great, thank you.

MR HOOPER: There's no need to push over it. You can post them back to me. They've got my address. Thanks very much.

MR BANKS: Thank you. I'll just ask for the record if there is anyone here in Sydney who wishes to appear in these hearings? There being no-one, I will adjourn the hearings. We have hearings scheduled for both Perth and Brisbane but I believe the numbers in Perth aren't such that we will be holding hearings in Perth itself. So that means that we will be resuming in Brisbane on 30 September. Thank you.