Title: ENVIRONMENT, COMMUNICATION, INFORMATION TECHNOLOGY AND THE ARTS: Interactive Gambling (Moratorium) Bill 2000: Discussion

Date: 25 August 2000

Committee: ENVIRONMENT, COMMUNICATION, INFORMATION TECHNOLOGY AND THE ARTS

Reference: Interactive Gambling (Moratorium) Bill 2000

Place: Canberra

Questioner: CHAIR; Bishop, Sen Mark; Lundy, Sen Kate Responder: Mr Ryan; Mr Farmer

Page: 1

Proof: YES

Database: Committees Considering Bills

Source: Senate

CHAIR —I declare open this hearing of the Senate Environment, Communications, Information Technology and the Arts Legislation Committee. Today's hearings relate to the committee's inquiry into the Interactive Gambling (Moratorium) Bill 2000. The committee prefers that evidence be given in public, but should any of you at any stage wish to give your evidence, part of your evidence or answers to specific questions in camera, you may ask to do so and the committee will consider your request. I point out, however, that evidence taken in camera may subsequently be made public by order of the Senate.

I welcome Mr Timothy Ryan and Mr Richard Farmer to the table. The committee has before it your submissions, which it has authorised to be published. Could you tell me if you wish to make any alterations or additions to your submissions?

Mr Ryan —None, thank you.

Mr Farmer —No, thank you.

CHAIR —Would you like to make a brief opening statement? We have you down for an hour, so if you wish to make an opening statement we will then question you and see how it goes time wise.

Mr Ryan —I thank the committee for its invitation to appear today before this important hearing. From my perspective as an expert in information technology transaction systems, I would first like to comment that I believe it is inappropriate to make something illegal selectively on the basis of what communications technology is used. My written submission to the committee outlines the difference between waging and gaming. These definitions are equally valid in the real world and in the virtual world. `Probability' is a pervasive thing in our lives. We often hear a person referred to as `lucky', but these people often make their own luck because they take a calculated risk and back their own judgment. In researching my submission, I looked in the Macquarie Dictionary and was surprised to find that the language example for `gambling' is: in calling the general election, the prime minister is gambling on public acceptance of his policies to date.

I would venture that the Prime Minister is, in this case, wagering; it would only be a gamble if he lost. Wagering in the context of today's hearing is simply the staking of money with a licensed operator in support of that opinion. Wagering, despite some suggestions to the contrary by some commentators, is a heavily regulated and monitored business. In all states and territories there is specific legislation and regulatory bodies that administer and regulate wagering. The critical factor in wagering is the availability of information; both information that affects the assessment of probability and information on the odds offered in respect of those outcomes. The Internet has assisted in improving the availability and accessibility of this information and, in this case, it is unarguably in the public's interest.

The main thrust of my submission is that wagering and gaming are very different forms of gambling. Wagering is a betting transaction on a third party independent outcome where the odds are uncertain but assessable. It is a skill based transaction. The nature of wagering, particularly competition between legal bookmakers, results in the overall squeezing of margins sought by bookmakers in framing a market. Because Internet access lowers the transaction cost, it squeezes the price even further. Wagering is a way of heightening the entertainment experience of watching a racing or sporting event. Gambling, on the other hand, is a gamble on a chance outcome. It is undeniable that, if you play at games of chance or electronic gaming machines such as poker machines, you will lose. However, for most people this is entertainment—they are buying time—though this entertainment can lead to problem gambling.

The Netbets report by the Senate accurately defines the difference between online gaming and interactive wagering. The report defines online gaming as being a new form of gambling activity and interactive wagering as `similar in principle to legislation that regulates telephone betting'. Wagering, or the placing of a bet, is a technology independent transaction. It makes no difference if the wager is made face to face, by mail, by facsimile, by telephone, by email, online or over the Internet. The transaction is always that a punter has a bet—for example, on Essendon to beat Carlton—with a bookmaker, irrespective of the communications method. The critical issue with wagering is to define what events may be bet on—in the case of my state, it is defined in the Racing Administration Act, section 16—and what bet types are permitted on those events, which is defined in section 20 of the same act and published in the regulations. These are strict controls imposed by the government and by the regulators in New South Wales.

The development in 1998 of standards across Australia for Internet wagering services was seen in New South Wales and by all racing ministers as in the public interest as it provided greater surety, audit, integrity and harm minimisation than existing technologies allowed. Further, it was in the commercial interests of the punter as the market is easily and fully informed and, as a result, the distortions of the market are minimised. Online gaming, on the other hand, is a product of the new communications technology. It exists only online. While some states have embraced it as an opportunity for additional taxation revenues, both from their own residents and as export income, others have not. However, I find it unusual that in all states it is illegal to own an electronic gaming machine or other devices associated with gaming but that, in this case, the states will allow online access to online gaming. I see no difference between the provision of terminals in hotels, Internet cafes or in someone's home and their access to a physical electronic gaming machine.

Concerns have been raised by various parties in respect of what is sometimes called micro wagering—`Will he kick a goal? Which will be the next wicket out?' Some of these examples have been distorting what is physically possible. At the moment, the legislation that restricts wagering is very state specific, and the nature of television, et cetera, is such that, even if these products could be offered—and to properly and correctly frame a market is arguably difficult—the restrictions that are in place in all states mean that it would be impossible to offer these types of products at the moment in television, or in datacasting, as an alternative. I believe that this legislation should probably not go forward but, if it did, the approach should be technology non-specific. The address should be about whether a particular product is legal or illegal. In the case of wagering, if a bet type is inappropriate, it is not permitted by any means—face to face, via electronic communications or otherwise. I think that will be sufficient to kick off with.

Mr Farmer —Mr Chairman, thank you for the opportunity to address you. We have had a full report from the Productivity Commission, to which people gave evidence, and there has been a Senate committee report, and I did not want to go over any of that ground. I am here basically to make myself available for any questions you may have. However, I would like to explain at the start how a bookmaking business like mine works. We accept bets in two forms: either over the telephone or over the Internet. The only difference in the two forms of betting is that if someone rings on the phone one of my staff enters the material into the computer and if someone bets on the Internet they enter the information themselves. That is the only difference between phone betting and Internet betting—who performs the input into a computer terminal.

My colleague talked about the desirability of having technology non-specific rules and I think that is a very good point. I see it as an absurdity that it is possible for someone to ring me up and for me to key it in on the keyboard and yet for that person not to be able do it themselves. There are advantages of the Internet in terms of both the operator and the customer. Over 90 per cent of our customers—by number and by volume of transactions in the last year ending June 30, when we had a turnover of $89.1 million—were from the United States. About 50 per cent of the turnover came from the Internet; 50 per cent of the turnover came via the telephone. In terms of transactions rather than dollars, the Internet accounted for about 65 per cent of the transactions and the phone 35 per cent. Transactions on the Internet tended to be slightly smaller than those over the telephone.

On the telephone, we have a cost—as best as we can calculate it—of about $2.80 per bet. That is the cost of a 1800 phone call from the United States—we bear the telephone cost—and the cost of the operator who keys the bet in. We have a minimum bet on the phone of, I think, currently $50. On the Internet—where I have no phone costs, because the customer is paying the cost themselves through their Internet service provider, and where I have no operator—the cost of each transaction is currently about 20c as against $2.60 and this falls as the number of transactions increases. There is an advantage for me as an operator in that the cost of my doing business is substantially less but there is no other difference in the way that I run my business. To me, it matters not whether the $50 has come via the Internet or via the phone.

We have in fact now passed on some of that advantage. If a punter bets with us on the phone from the United States in what we call a standard bet, the punter will put on $110 to win $100, with a minimum bet size of $50. On the Internet, they have to put on only $107 to win $100, so they have a two and a bit per cent advantage if they bet on the Internet. That is a reflection of our saving in the cost. Apart from that, there is absolutely no difference. If online Internet gambling is prohibited, the only consequence will be that as a company I will have a higher cost structure and will not be able to use efficiently the new technology. My customer will also be at a disadvantage in that he will pay more for the product that he buys.

CHAIR —How are your bets paid for? Presumably, they are paid for mostly by credit card, in the case of both phone and Internet, are they?

Mr Farmer —The initial transaction that a customer has with us is invariably done via a credit card, although, under our regulations with our ACT regulator, we are not allowed to charge any individual bet to a credit card. The credit card can be used to establish an account with us as a method of transferring money into the customer's own account against which they can then have a bet.

There are grave difficulties in practice with the use of credit cards if you are in a business like mine. In the United States, which is basically my market and where I operate, credit card companies will allow any customer, for a period of six months, to cancel the transaction without any explanation.

CHAIR —That is a betting transaction, is it?

Mr Farmer —As I understand it, any transaction.

CHAIR —Right.

Mr Farmer —It is done where there is no signed copy of a transaction—any phone or Internet transaction. There is no difference between how they treat a phone call or an Internet transaction whether it is buying a book from Amazon or having a bet with me. They have got six months in which they can cancel it. So where someone uses a stolen credit card or some other form of fraud—let us say a child used the parents' card—it is a very simple and easy matter to cancel the transaction. In fact, you have got six months to do so. We have had to build in as best we can the defences against that, but our main defence is not allowing people to use their credit card more than twice in any one month and for more than $2,000 in total.

CHAIR —So in other words you have in-built limitations?

Mr Farmer —Yes. So their first transaction will be with the credit card—that gets them started—and then I guess about 80 per cent of our continuing business is where people will make a deposit into a bank transfer. So most of our volume of money is, in fact, done by bank transfer after the initial opening of an account.

The Australian credit card companies will not allow us to refund money to people's credit cards above the amount of their deposit. So if they deposit $1,000 and they win and they want their money back I can send the first $1,000 back to their credit card—to me that is an advantage because it does wipe out the fraud element because it goes back to the cardholder. Any money above that we will only send back to a person whose name is the same as the credit card used at a bank account—and they need to apply for money to be transferred.

CHAIR —Thank you. The other question I wanted to ask you is about monitoring. One of the issues here is the problem gambler. You have referred a little in passing there to limits, but do you actually have a system which monitors every person who bets with you through some sort of telecommunications means? Would you like to comment on that?

Mr Farmer —The computer enables you to do that irrespective of whether the bet is taken by phone or across the Net.

CHAIR —So you are aware—

Mr Farmer —We do keep customer records and we can identify winners and losers. We have been operating on the phone for four years and on the Internet for 20 months. We have not had one complaint that we have taken a bet from a problem gambler. We have not had one complaint from a parent that we have taken a bet from an under-age child. We have not had one request from a spouse of a punter to say, `Please, stop my spouse betting; he is sending us broke', nor have we had one request from a punter. We have had some losers and we have also had some winners, but never has it been brought to our attention that there is a problem gambler. It is theoretically possible to happen, but I think it is a problem that, fortunately, we in the bookmaking business confront less than those who run an Internet casino. With us, someone has a bet and then it will be many hours later before the transaction is completed. I have not done a psychological study of a punter, but my guess is that, that gap between placing your bet and then watching the game of football or rugby, is an in-built check on getting carried away with the moment.

If we had what we call `betting in the running'—for example: is this man going to kick that goal?—so you are continually betting, I suppose we would be making the bookmaking business more like a casino. We have chosen not to go down that path for the very good reason that we think we would lose at it. There would be some people we would win off—perhaps the compulsive gamblers. We would attract a different type of customer from whom we could win. But we are also pretty certain that when you are betting at any one time— in the early hours of Sunday morning here or a Saturday afternoon in the United States—on 40 games of football being played at the same time it is physically impossible even with the games that you can monitor live on television for you to know as much about what is happening as a professional who is at the game. So we have chosen not to do it and have not asked our regulator for permission to do it. My guess is that we would take the view that we should not be allowed to do it because of the dangers that you talk about of the compulsive gambler.

Senator MARK BISHOP —I have a few questions. Mr Farmer, I take it that your business is primarily a wagering business—against the distinction made by Mr Ryan?

Mr Farmer —Yes. We are 100 per cent a bookmaking business. We did have some other subsidiaries but they were sold yesterday. They were entertainment businesses—movies and video distribution businesses. We do not have an interactive licence of any kind. We are a bit of an anomaly: we operate under the ACT Bookmakers Act, which is not technology specific. If you wanted to run a casino type game, then you would be covered by different legislation than ours. Our legislation enables us to take a wager but we cannot, under our licences, play a casino game.

Senator MARK BISHOP —So you are essentially a sports orientated bookmaking service?

Mr Farmer —Yes.

Senator MARK BISHOP —You said that 90 per cent of your customers and turnover came out of the US.

Mr Farmer —Yes.

Senator MARK BISHOP —So do you offer services only to US sports or horseracing?

Mr Farmer —We do not offer horseracing at all—once again, because we do not think we could win at it. Our licence does enable us to do it but we have not chosen to do it. The figures I gave you were for the year ended 30 June. We started to take bets on other than United States sports for the first time in probably February this year. If we took from March to now, that United States share would be down from 90 per cent to probably 75 per cent. We now offer odds on Australian sport. That is a minor part of our business. It would be less than five per cent. European soccer events would now be perhaps 20 per cent. So it would be 75 per cent US, 20 per cent Europe and five per cent Australia. The whole of the Australian market is smaller than the New York market. I am a bookmaker who happens to be in Australia rather than a traditional Australian bookmaker.

Senator MARK BISHOP —Is the management of your company located in the ACT?

Mr Farmer —Yes.

Senator MARK BISHOP —So you seek, firstly, that the bill be rejected or, secondly, if that is not to occur, for an amendment to be made to permit wagering to continue via either phone or Internet services?

Mr Farmer —As I understand it, the legislation is for a moratorium. So, in one respect, I am beastly careless what happens to it. Insofar as I do have a licence, the moratorium would allow me to continue to operate. I am not a lawyer, and I will have to get briefed later if or when it becomes law, but my understanding is that I will be able to continue to bet in exactly the same way as I do now—by phone and the Internet—on all those events or types of transactions that I bet on before 19 May.

The only thing that I will be excluded from is betting on the Olympic Games. That is the only thing that I can think of that is of a practical nature. That is probably doing me a favour. Invariably what happens as a bookmaker is that, when you bet on a sport that you do not normally bet on, there will be someone out there who knows more about it than you. Every time we bet on a new sport we lose. You have to get your turnover up to a certain level and your knowledge up to a certain level before it becomes worth doing. So, in terms of the bill and the moratorium, as a selfish person I could even argue that it is to my advantage.

While I am an international bookmaker and my competitors are not just in Australia but around the world, there has been an advantage in being a bookmaker in Australia. In fact, if you look at our web site, you will see that we keep stressing this. Australia is a country where bookmaking has been legal for 100 years. I think the only other country in which this is so is the United Kingdom. Australia is a country which has a tradition of regulation of bookmakers by government, regulation that has been designed to protect the punter from an unscrupulous operator. I believe that there is a distinct marketing advantage for an international bookmaker like me to be a bookmaker in a proper country like Australia—rather than on an offshore island in the Caribbean—which has a proper government, a proper regulator and a history of regulation. No doubt there are limits to the advantage in that we pay a turnover tax and the balance point has been this: is the price of the turnover tax worth the marketing advantage? To this point I have always said yes. I do note, however, that my largest competitors do operate in unregulated markets. The size of the total sports waging market is difficult to determine. Some of the merchant banks have made estimates ranging from $US1 billion to $US1.3 billion. That seems to be the range of what people said the turnover was in the last 12 months. Our $A95 million comes down to $US60 million so we would be somewhere between four per cent and six per cent of the total world sports bookmaking market, if those estimates are correct. I know personally of four or five companies whose turnover is at least double ours. All of these operate in unregulated markets and pay no turnover tax, so at some point you will say, `Should I pay the 0.25 per cent turnover tax or not?'

We confidently expect our turnover this year, irrespective of the moratorium legislation, to be around $A250 million. Our July and August turnover is above our estimate. In fact, on those figures we would be going higher than that—but let us say it is $A250 million. I am sure that growth is partly coming from being in this regulated environment. But in the end the reputation of the company becomes more important than the reputation of the country. If you pay the winners and are courteous to the losers, they will keep betting with you. It would not matter if you were a bad bookmaker who was a slow payer in a regulated environment; they would soon find you out. An amazing thing about the Internet is the web sites where people swap information among themselves as to who is reputable, who is not, whose odds are fair and whose odds are not. We have a marketing budget of virtually nil now. We would spend about $600,000 a year all up on marketing. We do not intend to spend any more.

Senator MARK BISHOP —Is it your experience that your competitors who operate in essentially unregulated jurisdictions do not really offer at this stage serious competition to your company and that you do not anticipate that they will offer serious competition in the future?

Mr Farmer —I am saying that there are three or four of them that are bigger than me already, despite being in an unregulated environment. Every month that goes by where we trade fairly and competitively and pay people properly, the reputation of Canbet becomes more important than the reputation of Australia as a safe place. At the moment, I would much rather stay here than move myself to the Caribbean, because I think there is still a marketing advantage by being in Australia. For my business, it is a matter of picking up a box and moving it. So I am not really here to tell governments what they should do. Governments have to decide what is best for Australia not what is best for bookmakers, and I understand that. But as my business is not dependent upon an Australian market, the only reason for me still being in Australia with 95 per cent of my customers now overseas is that this is a proper country, with proper government and proper regulation. The Prime Minister has said that he thinks all Internet gambling should be done away with after the moratorium. If that were the decision of the government, I would just shrug my shoulders and move.

My biggest competitors are, I suppose, the descendants of the mob who have moved to the Caribbean and the public companies from the United Kingdom who have moved to tax shelters off the European coast—some are operating on the Isle of Mann, one in Ordenes, several in Gibraltar, some have now gone to Malta and others have gone to Cyprus. I suppose if the government here does declare that Internet gambling is something that we do not want in Australia, I would have to move my computer to one of those other countries. I would be sad to do it but, by the time that happened—which cannot be before May next year, I guess, while the government considers things while the moratorium is in place, if it is in place—I would have been looking at where to relocate my business. I would be sad and unhappy about it, because I do not believe I cause any social distress nor have I seen any evidence from those extensive inquiries by the Productivity Commission nor from the Senate committee hearing. I think it would be a very sad and futile thing if that is what we have to do. But I could not look you in the face and say that this is the end of the world for my company, because it is not.

Senator MARK BISHOP —I have one last question. Up until February, 90 per cent of your customers and turnover were US based. You said that number has come down in the last six months, to 75 per cent. Do you anticipate the bulk of growth in the future in your company as being from offshore or from within the Australian market?

Mr Farmer —I said it before and I meant it: we look on Australia as being a smaller market than that of New York. I think you would be an idiot to spend you marketing dollars and your resources in Australia, firstly, because the population is small and, secondly, The probability for a bookmaker when you first start betting in a new market or on a new sport is that you will lose. It will certainly be a very volatile market. A market on a sporting event is no different from any other market, whether you are buying a share or buying a future or buying an option. The more depth there is in the market the more likely it is that the market will accurately reflect the likely outcome. In Australia, where sports betting in all its forms is in its infancy, the market is extremely volatile. You are much more likely as a bookmaker to run into a bad trot and lose than you are betting on the most developed market in the world, which is the United States. The reason we chose the United States market was purely and simply because of this question of volatility. I do not know whether this bores you or not?

Senator MARK BISHOP —No.

Mr Farmer —I would love you to come and have a look. We sit there with two computer screens that give us live, in real time, the odds of 12 illegal casinos in the Caribbean and every major casino in Nevada betting legally—we get two different services. So if one of them changes the price—instantly, in real time, we are aware that the Stardust or the Olympic in the Caribbean have changed the tennis price and we then have the option of changing ourselves. So the market is both deep and accurate. You can still lose but the volatility is much less. In a market like Australian sport there is no such service, because it is an industry in its infancy, and we find huge volatility. We take a lot more risks. There is no such thing as the balanced book. You get very big fluctuations.

The second market we have been looking at is the European soccer market. While it is not as deep and as well developed as the markets on the United States sports, it has nevertheless got more money in it internationally than the Australian market and, thus, smaller volatility. So we expect most of our expansion this year to come from Europe by betting on the Italian soccer, the German soccer and the British soccer.

Senator MARK BISHOP —Thank you, Mr Farmer.

Senator LUNDY —On that issue of expanding your markets, the proposed bill states that you cannot change the nature of your business in any way. If the bill is passed, will that stop your plans to look at the European market so you perhaps have to adjust your service offerings to seek an expansion?

Mr Farmer —I am getting someone to draw up a list for me because, as I understand it, the onus of proof in this legislation is on us. It is very difficult to be able to prove what we were betting on, and in what form, before 19 May, so we are going back now to see exactly what events we have been betting on and then we have to give that list to our lawyer to see how it fits in. At first glance to the non-lawyer, which is me, we will still get to our $250 million turnover, irrespective of what happens to that aspect. It will be an irritant, rather than anything else.

The one part of our business that will be stopped by it is the recent expensive sponsorship of the Kangaroos football team coach. We pay a quarter of a million dollars a year. It was all based on a plan that we had worked out with the Kangaroos for them to generate incomes through a sports tipping contest which would be a cross between a traditional office tipping contest and a bet. We will now not be able to go ahead with that, so it will cost the Kangaroos half a million a year. That will be their loss, not mine. So that is one consequence. I had also spoken with eight Rugby League teams in the NRL competition and we were going to do the same thing with them. That will also now have to be put on hold until after the moratorium. They were events on which we would bet, but it would be a new form of bet which, as I read that, we would not be able to do. It is not just the event we had to bet on, but the form.

We have also had to put on hold, as I understand it, an expansion into the Asian market. We were on the verge of bringing out a Chinese, Japanese and Korean version of our web site, and we are not even sure whether we can change the cosmetics of the web site to reflect that. Once again, it will cost me a fortune at the lawyers, but we will see what happens. If I cannot do that, that also will be a severe impediment. Whereas I am confident we will get to our $250 million without impediment, my guess is that without those restrictions, even with the moratorium, we would get closer to $400 million turnover than $250 million.

Senator LUNDY —Thank you. With respect to that sort of innovation in changing your business, given the legislation is currently structured as a 12-month moratorium, to what degree would you be able to plan for your business post moratorium?

Mr Farmer —The main planning I will be doing is: where do I move it? It is a public company listed on the Australian Stock Exchange. I have a duty to my shareholders to ensure that the business continues. With the Prime Minister's clearly stated ultimate objective of completely banning Internet gaming, I have a responsibility to ensure that the business continues and that my shareholders' funds are protected, so a major task for me between now and May will be working out if it is more attractive to live in Malta, Cyprus or Antigua.

CHAIR —A terrible choice. Mr Ryan, if you want to make a comment about anything, perhaps you could add it for the record.

Senator LUNDY —I just want to get it clear that despite this moratorium being presented as something that has a very specific sunset clause, that it only goes for 12 months, you are making no assumption that it will not result in a complete ban?

Mr Farmer —I have got great respect for prime ministers, and when a prime minister says that his objective is to ban my industry I take him seriously. I know that it is a decision that a government will make on the basis of what they think is best for the country. He has made it clear that he thinks it is best for the country that my industry does not exist, so I have to look at where I move my industry to. I think it is unfortunate and I think it is wrong headed, but he does not need me to say that. He is an intelligent man. So are the members of this committee. They do not need me to say that there is a difference between wagering and gaming, that the social evils that the Productivity Commission found were all related to gaming, principally in the form of poker machines. You do not need me to repeat that. You are intelligent people, you have read the words; and so has the Prime Minister. Despite having read that, he says that he thinks that my industry should not exist.

The only thing I can do is look to where I can move it. I will keep it here as long as I can and I hope he does not end up with that legislation. I hope that, at the very least, he makes the distinction between wagering and gaming. But if the parliament does do it, then there is no point in me saying how silly or wrong it is; I have got to live with the laws of the country. If that means I have to move, I have to move. That is what I will be doing between now and next May—planning where I move to. Mine is an international business; Australia is irrelevant to me. If someone said to me tomorrow that I cannot take a bet from any Australian from now until the end of May, I would happily agree. It is irrelevant to me. He would not be happy, but it is irrelevant to me.

Mr Ryan —The Prime Minister has also said that the objective of this bill is not to stop people gambling or stop the level of enjoyment that most Australians have in having a gamble. There are certainly conflicting messages in this. There is no doubt the attack of this bill and the concern of the public is directed more towards gaming than wagering. Regulators and parties that have not traditionally been involved in the regulation of gaming and wagering, or gambling generally, often have a misconception or misunderstanding of the two forms.

There has been a wonderful television series over the last six weeks on the ABC called The Track which traced the history of betting in Australia. The second episode went into extraordinary detail on the wowserism at the turn of the century. You could basically move the clock forward 100 years and say we are doing it all again. There is no doubt there is a whipped-up fervour, that comes with some religious objectives, about the issue of problem gambling, and I have equal concerns about it. In trying to meet my objectives in establishing a business, the last thing I want, or Richard wants, is a problem gambler. The objection in building a web site, providing a service and growing a business is about services to the client base. A client that gives you $10 or $15 worth of revenue a month, allowing for average losses et cetera, translates in value to a public company to around $2,000 per customer. That is the sort of business you want; you do not need someone who is going to cause you problems or grief or anything that goes with it as well.

The estimate of the number of problem gamblers is one to two per cent of the marketplace. I think the other 98 per cent of the marketplace is pretty attractive. Gambling is often portrayed as an illness. If there is a lesser of two evils, wagering is certainly it. It would be in the government's interest, the punters' interest and everybody's interest if everyone got more interested in wagering than in gaming devices. If you bet at a poker machine you will lose. I never put money in a poker machines unless I am walking out of a pub with some change in my pocket and I am quite happy to get rid of it because it will put a hole in my pocket. If I win I take the money. My friends say, `Let's put the rest of it through.' I say, Don't be daft—take the money out of the till, turn it into notes and put it into your pocket.' You cannot win at gaming machines.

The concern with online gaming that you are going to be able to put a virtual machine in everybody's home is an issue. But the technology difference with wagering and how it is operated, the frequency of the type of product, the intensity that goes with gaming as against wagering, makes wagering very different. I have some experience in that I look after the Seven Network's Teletext wagering information service and starter broadcast services and I can tell you that the way legislation works across state borders you cannot distribute information services on it.

There is no possibility by 18 May 2002, let alone 2001, that true interactive digital television gambling products will be available. Will the next ball be a wide or will it be hit for four? It is just not a reasonable proposition from the viewpoint of trying to offer it as a product. You will not be able to offer it on national television, you will not be able to distribute the odds, you will not be able to create a fair and fully informed market and, as Richard has pointed out, you will not be able to create market depth. In the absence of any of those things, the bookmaker will lose, the punters will lose and it will be an improbable consequence. It is about providing a service. There is an increased awareness of sports wagering. It is starting to provide a benefit to sports in the same way that wagering on racing provides a benefit to the racing industry. Richard's sponsorship of the Kangaroos is an aggressive move towards providing some of those sorts of services, and that is where these things are going to end up.

It is within the government's prerogative to look at banning a product as such. If online gaming exists purely as a product online, which is the only place where it does exist, then it is feasible that the government should look at that. But if something is technology independent, trying to isolate between one part or the other is getting very narrow. I find the explanatory memorandum's examples of what is or is not a continuing business in the case of wagering are highly conflicting and confusing. The ultimate test has to be what a bookmaker was licensed to do at 18 May. In the case of New South Wales it is very specific: the minister legislates or puts in regulations what events you can bet on and what bet types you can do within that. It is all about ensuring that there is a result, that the result is easily identifiable and that there are no disputes.

The ministers in 1998 embraced Internet wagering as a way of providing greater surety for punters and for harm minimisation. You present the user with a statement and he knows what his losses are. The likelihood of a problem gambler facing up at an Internet environment or a telephone betting environment are pretty remote because he gets a statement and he knows how much he has lost. Someone who is a problem gambler tends to go where they only remember the wins; they do not want to remember the losses.

Wagering with bookmakers on a racecourse has got increasingly difficult because of the skills of the punters. A group of professional punters in the seventies and eighties, led by Don Scott and called the Legal Eagles, revolutionised to a certain extent wagering on horseracing with bookmakers by identifying clearly how to determine proper ratings and whether or not handicappers had got it right with regard to what weight a horse carried and being able to determine a well-overed horse in a horserace. These people changed how that worked. It is much harder for a bookmaker to make a margin. In the last five years, if favourite backers had backed every favourite in a weighted way they would have come out in front, no matter what. Wagering is quite a balanced service. On the other hand, with gaming, I think that with proper regulation of it and with harm minimisation, then if someone enjoys it and understands it and is doing it for entertainment, as the majority of people who gamble do, they probably should be allowed to do it. But whether or not it will create further problems is an issue.

Senator LUNDY —Thank you. I just want to return to one point with respect to the ACT Bookmakers Act. When did you apply for and receive your licence under that act to operate as a bookmaker?

Mr Farmer —I have got two licences under that act—one in the name of Canbet Sports Bookmakers Pty Ltd and a second one in the name of Capital Sports Pty Ltd. Both of the licences were issued in 1996. The Capital Sports licence we bought on 28 June this year, having agreed to buy it last year. It is in fact barely operating at the moment. We bought it because the nature of the licence was not specific as to the meeting—we can bet in any form approved by the regulator and the regulator had approved for Canbet to bet on the Internet two years ago, and we were in the process of making a submission for Capital Sports.

If the moratorium bill is passed, I suppose the only consequence which I should have mentioned is that we will be taking legal action because we have paid $3 million for a licence where someone is purporting to take away our property right. I am yet to be advised as to whether I end up having to sue the ACT government, the federal government or a combination of both, but it is something for down the track if the legislation gets through. The interactive gaming licences I have not applied for.

Senator LUNDY —I was looking for that distinction, so thank you for that.

CHAIR —I thank the witnesses for appearing.