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Regulation versus prohibition of online gambling
The key question of the effectiveness of the Interactive Gambling Act
(IGA) inevitably raises the broader policy question of whether regulation or prohibition
is the most effective policy response to online gambling. Before detailing the
committee's assessment of the effectiveness of the IGA, this chapter introduces
the general arguments for and against prohibition of online gambling.
As part of its 2010 report into gambling, the Productivity Commission
(PC) recommended a 'managed liberalisation' of online gaming, starting with
online poker games. It argued that the effects of this change should then be
evaluated before further liberalisation is considered.
On 23 June 2010, the government responded to the PC's recommendation to
amend the IGA to allow for a liberalisation of online gaming, starting with
allowing the provision of online poker games to Australians. The media release
The Australian Government does not support the liberalisation
of online gaming, including online poker, as recommended by the Productivity
Commission...It is not convinced that liberalising online gaming would have
benefits for the Australian community which would outweigh the risks of an
increased incidence of problem gambling, particularly with the rapid changes in
The Government will examine the regulatory approach taken by
other countries with similar regulatory regimes in relation to online gaming,
such as the United States.
In particular, we will seek to work with other countries to
investigate the possibility of a more effective multilateral regulatory regime
to address this form of gambling, its social impacts and its impact on the
Australian gambling industry.
The committee is unaware of progress made with examining regulatory
approaches taken by other countries or investigating a multilateral regulatory
regime. The committee notes that the IGA is currently under review by the
Department of Broadband, Communications and the Digital Economy (DBCDE). The review
is not due to be completed until the first half of 2012.
DBCDE confirmed that this broader issue would form part of the review.
The larger question of prohibition versus regulation of online gambling is
currently under consideration by other jurisdictions which prohibit online
gambling, such as the US. While there appears to be a trend towards increased
regulation, there is substantial variability in the regulatory requirements of
jurisdictions. The committee also heard evidence that the regulatory path
undertaken by some jurisdictions has led to new issues to be addressed such as
tax evasion and constant pressure to further liberalise online gambling.
The regulatory situations in key overseas jurisdictions are dealt with in chapters
four and five. The major advantages and disadvantages of liberalisation and
prohibition are discussed below.
A summary of the case for liberalisation
A summary of the main arguments put forward for the liberalisation of
online gambling follow. Some of these are discussed in more detail further
- given the nature of internet technology, it is impossible to
effectively prohibit online gambling (currently Australians can access over 2,000
overseas gambling websites and the Australian market is approaching $800m);
- if online gambling is impossible to prohibit, rather than have
Australian customers access potentially dangerous overseas websites, it would
be better to offer a regulated environment (well defined laws and legal bodies
to enforce them) which includes consumer protection measures;
- currently problem gamblers are being channelled to overseas
websites where there is likely to be minimum protection and consumers are at
risk of being exposed to unscrupulous overseas operators;
- regulation provides the capacity to offer harm
minimisation/consumer protection measures, capacity for age verification as
well as corporation probity;
- domestic operators entering the market would increase competition
which would result in better outcomes for consumers;
- it is more difficult for sporting bodies and authorities to
monitor for and detect match-fixing when bets are placed with unregulated
offshore gambling service providers;
- a regulated environment could include economic benefits in the
form of tax revenue (although the amount is uncertain) which could be used to
contribute to racing and sporting bodies and for harm minimisation measures;
- internationally there has been a growing trend towards regulation;
- it is very resource-intensive to enforce prohibitions in this
area, as unlike land-based gambling, providers can relaunch another website
Online gambling cannot be effectively
Despite the IGA prohibiting certain forms of online gambling, it is estimated
that Australians can access over 2,000 overseas gambling websites,
and that the illegal online gambling market is approaching $800 million.
The most frequently heard argument for liberalisation is that it is
nearly impossible to effectively prohibit internet gambling. A number of
organisations agreed with this position. The Gaming Technologies Association
(GTA) submitted that online gambling is here to stay, prohibition has proved to
be a failure and a better approach would be to regulate the market with high
social responsibility standards:
Attempts to prohibit or limit online gambling domestically
have failed and would continue to fail. The Internet is a global, transnational
reality and is not subject to domestic controls; a better approach to online
gambling is appropriate legislation and regulation.
Sportsbet agreed that prohibition is not working:
Gambling is an established industry, and the internet is a modern
conduit to facilitate this activity, as was the telephone before it. There is a
long history of initial attempts at prohibition, followed by legalisation and
regulation of gambling both domestically and internationally, to prevent the
issues associated with black market and illegal gambling.
Betfair supported this view:
You made the point that our submission said that prohibition
had failed. It absolutely has. The Productivity Commission's finding was that
online poker and casino, which is an illegal product in Australia, is three
times bigger than the regulated sports betting market here. So if you are
looking at online gambling as a whole I think you need to separate out the
focus on the regulated part of it here in Australia with the unregulated
illegal part of it which, as I said, is much, much bigger than the regulated
The Australian Internet Bookmakers Association submitted that:
Prohibition, even with added controls, is not a realistic
option. Serious consideration must therefore be given to a local licensing
scheme. This is the outcome that delivers the most benefits in terms of controlling
While not supporting legalisation and regulation at this time, Wesley
Mission also acknowledged that:
Australians will gamble increasingly online and interactive;
whether or not the government repeals the Interactive Gambling Act.
Relationships Australia emphasised that 'nothing is to be gained by
driving gambling underground'. It therefore supported consistent national
regulation of the gaming industry.
While acknowledging that it was an unusual position for a consumer organisation
to take, Ms Penny Wilson, Chief Executive Officer of the Responsible Gambling
Advocacy Centre, said it favoured liberalisation and regulation:
We have noted that it is an unusual position for a consumer
organisation, to say that whilst it is more regulation it is opening up a
market, but we feel that then at least some of the inadequacies of what is
being offered by online gambling could be addressed. For instance, you can have
compulsory pop-ups, or you can make it a requirement of the regulations that
access to self-limiting mechanisms such as limits on the amount of money or
time spent is available from the first screen, not buried somewhere in the back
of the website or not available at all. It gives you some scope for that...
A recent report from the South African Gambling Review Commission noted
Our own experience has shown that prohibition does not
extinguish demand, but simply creates the platform for illegal operators to
thrive and establish themselves and their brands.
However, it also cautioned that uncontrolled legalisation also has the
potential for stimulating latent demand on a large scale.
In a summary of arguments for and against legalisation, Associate
Professor Robert T Wood and Professor Robert J Williams pointed out that if
online gambling cannot be effectively prohibited it would be better for it to
come under legal regulatory control 'so as to accrue economic benefits, and to
better ensure player protection'.
Regarding the question of prohibition or regulation of online gambling,
the PC noted the views of researchers working in this area:
It is noteworthy that while the literature on online gambling
pays close attention to the higher rate of problem gambling, no academics
working in this area find prohibition to be the appropriate policy response.
Wood and Williams (2009) come the closest to advocating prohibition, but are
equivocal in their findings and state that there is considerable merit in
alternative approaches. The vast majority of other researchers in this field
suggest that regulation of the industry, which incorporates strict harm
minimisation principles, is preferable to prohibition (McMillen 2003, Nelson et
al. 2008, Grifith et al. 2008, Broda et al. 2008, Cotte and Latour 2009).
Trend towards increased
Dr Sally Gainsbury and Professor Alex Blaszczynski noted the trend in
international jurisdictions for increased liberalisation:
The increased liberalisation of Internet gambling regulation
is likely to continue given difficulties in enforcing prohibition, restricti[ng]
loss of revenue to offshore operators, requirement[s] to control sites to
minimize exploitation of players and to promote responsible gambling codes of
conduct and player protection.
This trend was also noted by others such as Sportsbet
and iBus Media.
Advantages of liberalisation
Potential for greater player
The PC noted that regulated access to domestic or licensed overseas
online providers could divert consumers away from unsafe sites to ones that
meet probity and consumer safety standards.
The Australian Internet Bookmakers Association advised that the online gambling
...provides responsible gambling features that exceed in both
scope and effectiveness those offered by land based gambling providers. These
include pre-commitment facilities and, in the context of gambling and the
integrity of sporting events, the identification of all clients.
The Responsible Gambling Advocacy Centre also raised concerns about the
safety of consumers and submitted that they would 'be happier and feel safer to
participate in online gambling via Australian websites if it was legal. This
would enable regulation as well as dispute resolution programs if disputes were
Ms Penny Wilson, Chief Executive Officer, Responsible Gambling Advocacy
Centre, also spoke about the potential for customer protection measures in the
If you are regulating Australian based providers, it at least
enables some protection mechanisms, some harm minimisation mechanisms, to be
put in place. People are increasingly choosing to gamble online, obviously
using sites that are not offered by Australian providers.
Anglicare Tasmania was of the view that effective consumer protection
mechanisms should be in place regardless of whether a person gambles at a venue
or online. It argued that these measures should be implemented nationally and
should be consistent for all types of gambling. They should include:
- a pre-commitment scheme;
- activity information to the account holder;
- effective self-exclusion measures;
- pop up messages at least every 30 minutes that state the amount
of time played and the money lost in that session;
- pop up messages within the first 15 minutes of logging on to a
site that provide information about how to seek help for gambling problems;
- links to problem gambling tests;
- links to Australian-based counselling services;
- forced breaks in play at least once every hour;
- effective measures to prevent underage access; and
information to parents and guardians who wish to install a filter
to restrict access on their home computer.
In addition, the government should provide appropriate levels of
advertising and education to explain the risks of gambling online and how to
The Responsible Gambling Advocacy Centre said that in its view Australia
should move towards regulation of online gambling subject to a number of
conditions to protect consumers. These include:
- the use of compulsory mechanisms to enable a player to access
help and harm minimisation support in addition to optional mechanisms such as setting
a financial or time limit on play;
- practice games or bets should be required to more accurately reflect
the real game;
financial inducements to play being banned or mandatory low
limits on 'free trial bets' offered to new members;
- the development of appropriate regulatory mechanisms to ensure
providers comply with codes of conduct requirements; and
advertising during family viewing times and advertising that could
be misinterpreted by children being limited.
Clubs Australia argued that online harm minimisation measures should
mirror current land-based requirements which would include:
- voluntary pre-commitment;
- guidance for accessing problem gambler counselling services;
- restrictions on access to prevent play by minors;
- a ban on credit betting;
- a ban on inducements to gamble; and
- a ban on advertising, other than people who sign up to receive
correspondence within gaming venues (that is, excluding newsagents and other
retail outlets for lottery products).
Clubs Australia emphasised a need to provide effective harm minimisation
measures for all forms of gambling and added:
...the Federal Government has both the power and
responsibility to legislate mandatory harm minimisation measures for internet
gambling. Consistency in regulation would ensure that gamblers are not
penalised for their gambling preferences. It also has the added advantage of
avoiding giving one form of gambling a competitive advantage over the other.
The structure and nature of the online gaming environment
affords great potential for cost-effective regulation. Online harm minimisation
features are far less costly than land-based measures and can be built into
sites with relative ease and without delay. Online operators have the technical
ability to monitor play and offer interactive communication services.
Mr Paul Aalto submitted that '...the new technologies may actually
provide problem gamblers with more tools to control their punting than if they
were betting with cash'.
The Australian Christian Lobby also noted the potential benefits that
can be accessed by online technology. For example, providers may be able to
monitor spending patterns due to the use of account based betting. It submitted
A regulatory framework should include provisions to allow and
encourage online providers to maximise the potential benefits that online
technology can bring. Monitoring and tracking accounts and identifying patterns
in habits for signs of a developing problem could alleviate some of the risks
inherent in online gambling and protect those at risk.
It recommended that strategies be put in place to allow and encourage
the electronic monitoring of accounts and spending patterns in order to
identify problem gamblers.
Dr Gainsbury and Professor Blaszczynski advised that the internet offers
a unique medium to offer responsible gambling strategies. Gambling behaviour on
the internet could be monitored to identify problematic or risky behavioural
Providers could then provide practical information to assist players,
information on problem and responsible gambling and encourage the completion of
self assessment tests. Dr Gainsbury and Professor Blaszczynski are currently
working with an Australian online wagering operator to develop such a system.
The results of this research could be used for other online gambling sites to
enhance the player protection measures offered.
Professor Blaszczynski expressed his concern regarding the growth of
online gambling and the risk to consumers of playing on unregulated sites:
...I think, in the future, online gambling is going to
increase, irrespective of whether or not the government legalises online
gambling. Basically, in an environment where there are going to be increasing
internet opportunities to gamble, what we need to do is act quickly and put in
place appropriate regulatory systems to minimise risk; otherwise, in my view,
there will be strong market competition from overseas sites and they will
attract Australians and revenue will go offshore, exposing Australian players
to potential exploitation in an unregulated market. That is my concern.
My view essentially is that with technological advances and
interactive television there is going to be a climate in which people can
gamble on both national and international sites and there will be global
marketing. Whether we want to be caught on the outside or whether we want to
impose a proper regulatory body is a question the government needs to determine
at the moment.
The committee acknowledges the potential for harm minimisation measures
to be applied relatively easily in the online environment and that some are
already being offered. However, harm minimisation measures currently vary from jurisdiction
to jurisdiction as does the requirement to offer them and so cannot currently
be relied upon to mitigate harms. To be truly effective, harm minimisation
measures such as those outlined above should be uniform and required in all
jurisdictions. In any consideration of regulation in Australia, this should be
a basic starting point.
Competition and economic benefits
Submitters pointed out that tax revenue is a potential benefit from
regulation. For example, Clubs Australia noted:
Gaming expenditure and the consequential tax, employment and
other benefits would also remain in, rather than flow purely out of, the
It argued that online gambling should be regulated 'as far as possible
on parity with land based gaming to ensure equal standards of harm minimisation
and to ensure competitive neutrality as the costs of regulatory compliance are
The funneling of gambling revenue from Australian clubs and
other local operators to unknown international companies represents millions of
dollars in lost taxation revenue, jobs and community benefits. Clubs Australia
believes the level of taxation paid by internet and interactive gambling
services should be significantly raised, or that club tax rates be lowered to allow
Betfair also highlighted taxation currently going overseas:
All revenues are flowing directly offshore without any taxes
being paid in Australia. Of greater concern is that players are gambling in an
environment that does not accord with Australian regulations.
An important additional benefit of a regulated environment is
that responsible gambling initiatives could be enforced on Australian based
operators, as well as a requirement for licence fees and taxes to be paid.
However, not all agreed that liberalisation and regulation would result
in greatly increased tax revenue. Dr Mark Zirnsak of the Victorian InterChurch
Gambling Taskforce pointed out that:
...normally where gambling has been regulated or authorised
within a jurisdiction the state looks at a cost-benefit analysis where there
are the costs of the problem gambling and the harm is being caused, and that is
seen to be balanced in some way by the benefit of collecting tax. But the
problem with the online environment appears to be that often that tax revenue
does not flow, so the benefit side is much reduced in an online environment
compared to a land based gambling provider if you are doing that kind of
While the PC considered that regulation would increase competition which
would result in better outcomes for Australian consumers and would provide
Australian business with more commercial opportunities,
it emphasised that this would not be an area where significant tax revenue
would be assured:
On the tax side, though, our view was that this is not an
area where you would be seeking significant tax revenue. You could not,
precisely because of the capacity to move across borders—unlike physical poker
machines, for example, where that capacity does not genuinely exist. The tax
rates that you could achieve would be lower and we have also warned generally
of the allure of tax revenue in this area.
Issues around taxation are discussed further below. For example,
ensuring providers are subject to a local taxation regime is problematic in the
online environment as the UK has found. Currently most interactive gambling
service providers are based in 'tax havens' so there would be little incentive
for them to move. The potential for tax revenue remains uncertain. The PC
acknowledged that the amount of additional tax revenue would probably be
Risks of liberalisation
Evidence also highlighted the potential risks of liberalisation. The PC
acknowledged there would be risks with managed liberalisation:
Given the legitimacy domestic supply would provide, it would
also probably see a much larger group of people participating. If those players
developed difficulties controlling their gambling in the domestic market, there
is a risk that they would continue to play abroad on unsafe sites,
notwithstanding strong harm minimisation regulations applied to
The PC explained that 'greater access could increase the prevalence of
problem gambling and its associated harms'. Greater access would also expose 'a
new population group to the risks of problem gambling'. The greater frequency
of play 'may result in more people developing a gambling problem'. In addition,
online gambling 'can be slotted into very small periods, increasing
convenience, but also the opportunity for impulsive gambling ('morning tea
The PC emphasised that the experience of liberalising poker machines should
be heeded and recommended a cautious approach involving managed liberalisation
of online poker, which is seen by some to be a less risky form of online
The experiences of rapid liberalisation of gaming machines in
the 1990s provides a lesson about too rapid a change in the gambling
environment. A more tempered approach — involving the staged release of less
intense gaming machines would have acted as the ‘canary in the cage’, warning
of the wider potential risks. Given that lesson, a precautionary approach to
managed liberalisation would also be advisable.
The Victorian InterChurch Gambling Taskforce noted some features of
online gambling listed by the PC as lessening the risks. One was that online
gamblers are more likely to gamble at home and therefore be observed by their
The Taskforce argued that:
...we do not have accurate data on how many online gamblers are
living in situations where this is likely to be the outcome. The Commission
also made the assumption that gamblers who gamble online and get a record of
their transactions would be more likely to remain in control of their gambling,
but without any research that backed up this assumption.
The Victorian InterChurch Gambling Taskforce concluded:
Significantly greater research is required into who would
gamble on online gaming sites and the likely prevalence of problem gambling
amongst this population before it could be known with any confidence if a
liberalised approach to online gaming would result in a net increase or
reduction in online gambling related harm.
Wesley Mission noted that if the government repeals the IGA it would
have to take on the responsibility of providing consumer protection and
responding to growing consumer concerns:
A government that repeals the prohibition on internet gaming
will take on the responsibility of ensuring that the legalised product is safe
for consumers. This will be a considerable challenge due to the jurisdictional
difficulties. Consumers in Australia who lawfully gambl[e] online will expect
the same level of consumer protection as is now provided in similar high-risk
Potential for aggressive advertising
The committee heard that liberalisation and regulation would be likely
to bring with it aggressive marketing campaigns to attract new customers and
compete with overseas sites. The Victorian InterChurch Gambling Taskforce told
Liberalising online gambling may open Australia up to
aggressive marketing by offshore providers that out-compete any Australian
businesses. These providers may then leave in their wake substantial numbers of
new people with gambling problems and the associated harms in Australia, while
the revenue moves offshore almost tax free. This in turn will leave Australian
Governments to pick up the costs of the harms caused without additional tax revenue
from the gambling activity.
Dr Zirnsak also pointed out that currently online interactive gambling
service providers cannot advertise in Australia and even though that is
imperfect at least it is contained. However, a regulated market would be likely
to result in a significant increase in advertising for these services.
The committee recognises the possible risks of liberalisation and
regulation. There are clearly a number of areas where more research is required
in order to better understand the effects and outcomes of this option as
discussed in the previous chapter. The potential for aggressive advertising to
occur with liberalisation is of great concern to the committee. There is
already community concern about the level of sports betting advertising and
action is now being considered to reduce it. Given the experience of the rapid
liberalisation of poker machines and the more recent growth in the amount of
sports betting advertising, the committee agrees that a cautious approach is
warranted which takes these experiences into consideration and learns from them.
Importantly, even in a regulated environment with required harm
minimisation measures, gambling would not be problem-free. Given the legitimacy
that allowing domestic supply would provide, it would be likely to open the
market further to more customers which would put a larger group at risk of
developing gambling problems. There would then be the potential for problem
gamblers to continue to gamble on unregulated overseas sites when confronted
with domestic harm minimisation measures.
Overseas websites would remain a risk
Even with domestic regulation, overseas websites would remain a risk for
Australians unless measures were taken to block or deter them from being able
to access them. It is likely that a problem gambler who is confronted with
domestic consumer protection measures could still access unregulated overseas
sites and would seek to do so.
The Victorian InterChurch Gambling Taskforce emphasised this point:
Further, it will be impossible to regulate offshore online
gaming sites. Thus, such sites will not have to offer the harm minimisation measures
that might be required of sites based in Australia. It is not known if gamblers
using online gaming sites within Australia, might not then migrate to use sites
located offshore without the same consumer protection measures with an
increased risk of developing a gambling problem as a result.
Would Australians prefer to gamble
on Australian websites?
Mr Andrew Twaits, Chief Executive Officer, Betfair, highlighted the
increased willingness of customers to engage in transactions online. He added
that this is not just true of wagering but also with retail and other forms of
purchasing products and services.
He added that Betfair has gone to the effort and expense of becoming licensed
in Australia because it gives the company a competitive advantage: 'we think
that ultimately customers will gravitate towards well-regulated, creditable
businesses'. He added:
So I think a strong regulatory environment in Australia,
whilst it inevitably comes with a bit of pain at the operator level while you
get used to certain things, ultimately means that it enables us to provide a
better product to the consumer.
Mr Cormac Barry, Chief Executive Officer, Sportsbet, expressed the view
that customers would prefer regulated sites:
A lot of people who use offshore sites would be nervous about
using those sites but they have no alternative. I think what would be required
is some level of public awareness that there are now online gaming sites that
are regulated within Australia and have a stamp of approval so it is easy for the
customer to identify what sites are regulated and what sites are not regulated.
I also think people would prefer to use regulated sites. They would be much
happier because they know the protections are there. They would also be happy
to know that government taxation is derived from that, so there is an economic
and a social benefit to the country of that activity. Whereas the status quo is
it happens offshore, customers are at risk and they do it anyway—possibly they
are a little naive to do it, but they do do it and that is human nature. I
think we need to give them a viable alternative.
However, Wesley Mission was not confident that an Australian-based industry
would be preferred by Australians and emphasised:
Clearly the Productivity Commission missed the key points,
which are (1) that online gaming is already available to Australian citizens;
(2) that legalising online gaming will probably not result in a significant
growth of an Australian online gaming industry, but rather growth in Australians
gambling on offshore websites; and (3) that legalising online gaming will
result in widespread advertising of gaming products.
Ms Penny Wilson of the Responsible Gambling Advocacy Centre also discussed
the likelihood of consumers choosing Australian sites if they were available:
In the past, it was shown that Australian consumers would
prefer Australian websites because of issues of safety and consumer protection.
That is not necessarily the case anymore. But our underdeveloped e-commerce
sector does mean that people choose Australian based websites because they feel
more secure and comfortable; however, they still look at the global market for
more choice. So they will find another outlet for that gambling.
The PC said the evidence is not clear whether Australians, particularly
young Australians, would choose to use a better regulated Australian site over
an unregulated overseas site but concluded that at least some would:
...we do not actually know, because we do not have the
alternatives. There would certainly be a percentage of young people who would
want to gamble on an Australian site, and that would influence their decision,
but I am not sure whether that is a large or small percentage given that the
product would be the same. Obviously, if the product changes then there may be
a difference. But, if we are saying we have the same product but are delivering
one on a secure site and one on a less secure site, I do not know what the
evidence would be in relation to that particular target group. What we would
assume is that, as they grow older, they probably become more risk averse and,
at least for that group, that they are more likely to use a regulated
Australian site than another site.
The other issue that is raised is if you could educate young
people to use these particular Australian regulated sites in preference to
others at an earlier age. Does that have an effect or not? I do not know the
answer to that, but at the moment they do not have that option. They only have
one option, and that is to use variously regulated international sites. As you
rightly say, that is exactly what they will do. So, if we were able to offer a
more secure Australian based site, would some of those young people move to
that site? Probably—but I do not know if there is any evidence that would
indicate how many would do that.
The committee notes there is research available to support the view that
Australians may prefer Australian sites but also evidence to indicate this is
not a certainty. The report prepared for the Ontario Problem Gambling Research
Centre found that for the international internet gamblers, the main issues that
influenced which internet site to use included: general reputation of the site;
recommendation from friends; better game experience/interface; monetary
deposits being safe and wins paid out in the timely manner; and familiarity, i.e.
many do not 'shop around' after they find a site to gamble on.
Melbourne University online researcher Dr Brent Coker found that people
form relationships with websites and if they are satisfied they will return.
Applying this to the online gambling environment, this may mean that those
gamblers already using overseas websites would be less likely to change to
Australian-based gambling websites.
Research released by PricewaterhouseCoopers in July 2011 on online
shopping behaviour called into question the view that Australians prefer to use
Australian websites. It showed that Australians are making more purchases
online with total purchases expected to reach $13.6 billion in 2011, a rise of
13 per cent from 2010, and almost double over the next four years. The report
estimated that just under half of the amount spent is paid to overseas stores.
Consumers reported that they continue to look for value for money. The main
drivers for shopping online are price, range of product and convenience. The
report added that consumers feel more at ease buying online and are more
comfortable with the payment methods.
Research released by the Australian Communications and Media Authority (ACMA)
in November 2010 showed that in relation to making purchases online, 68 per
cent reported using Australian sites despite having the option to shop
overseas. The reasons cited were to support local industry (24 per cent) and
that they did not trust overseas sites (23 per cent). The most common reason
for shopping online was convenience, followed by price.
In its draft report, Economic Structure and Performance of the
Australian Retail Industry, the PC acknowledged conflicting results regarding
the preference for Australian websites and mentioned a survey of 5,000 people
by the Sydney Morning Herald in October 2010 which showed 70 per cent
shopped mostly on overseas websites, 19 per cent shopped with Australian online
sites and 11 per cent did not shop online. The PC concluded:
This information reveals that caution should be exercised in
interpreting the results of surveys of consumers' preferences for purchasing
from domestic or foreign websites. For example, there is a possibility of self
selection bias for respondents to the Sydney Morning Herald survey whereas the
results of the ACMA survey are likely to be more representative and not subject
to self selection.
The PC drew on the evidence from its inquiry on retailing at the hearing
Groups like eBay and others are very keen on enhancing their
reputation for security, ensuring that they go over and above the law to make
these safe sites. The evidence is that they are very popular. I do not know
whether we have figures, but it seems that people are choosing to purchase
through these protected and regulated sites. I am sure there are a lot of
transactions going directly outside of those, but the history in Australia
seems to be that people do want to use secure sites for making transactions—for
obvious reasons—and there are overarching consumer protection laws in place.
None of that exists in the unregulated gambling sites that they currently
access. The consumer protection laws do not seem to be capturing them, and
obviously there is no secure way of using those sites other than picking the
best in the world.
A report by KPMG noted that:
Prospective online gaming customers remain sensitive to any
perception that a provider cannot in some way be trusted, while existing customers
may be fickle and easily switch to a provider they perceive as more
trustworthy. The constituents of trust are broad and range from the potential
for fraud or players using software to beat the system, to security issues that
cause players to be concerned for their online information.
The KPMG report also noted that:
In addition to reputation and security concerns, online
gamers must be assured that they have a fair chance to win, and that operators
are conducting themselves properly. Unlike 'land-based' casinos, where players
can physically see the way the games operate or cards are dealt, online and
digital forms of these games require greater faith.
3.66 Preliminary research conducted by Dr Sally Gainsbury and Professor Alex
Blaszcznski on the characteristics of internet gamblers in Australia found that
players were primarily concerned with safety and security of online gambling
sites and 'chose sites based on their ability to protect and return their
money, their reputation, payouts and bonuses'. Secondary considerations
included 'legality and the country that the site was based in'.
As there is no direct evidence to show that Australians would prefer
Australian-based online gambling websites for casino-type games, the committee considers
that caution is needed when attempting to extrapolate online retail preferences
to the online gaming environment. The committee acknowledges that not all
overseas gambling websites are dangerous and unregulated. There are overseas
websites with good reputations and it is in their interests to operate well to
capture repeat custom. The research mentioned above indicates if a customer is
satisfied with a website they are more likely to return. This could result in
customers maintaining relationships with their existing overseas online
gambling websites and, in a regulated environment, adding Australian-based ones
to their options rather than swapping one for the other. With customers looking
for value for money, it is also questionable whether well-regulated Australian
websites, likely with higher costs, could match offers from overseas websites. It
is important to note that the inducements to gamble and competitive pricing also
drive customers to websites rather than the fact that they are regulated and/or
Australian-based. If the ability to advertise and offer inducements in a
regulated Australian environment was limited, this could make people more
likely to use overseas websites if they are susceptible to such advertising and
Can Australian-based gambling sites
One of the questions that was raised in this area was whether an
Australian-based gambling provider could realistically compete with unregulated
overseas providers. Dr Gainsbury and Professor Blaszczynski noted a disparity
where some sites that abide by regulatory requirements have to compete with
offshore sites 'that offer better odds, more products and have fewer personal
Dr Gainsbury added:
I would certainly say that it is a very competitive market
and liberalising and regulating some sites in Australia will not necessarily
reduce the number of offshore competitors. Evidence from other jurisdictions
that have liberalised and implemented their own sites suggests that they do
capture, in some cases, a minority. Sweden, for example, has only 30 per cent
of the poker market on its state-based site. So sites have to be competitive,
which is going to have implications for how much you can tax sites so they can
offer attractive rates to players and the various advertising rights that they
have. So certainly the regulatory model would have to ensure that any
liberalised and legalised site would be competitive in an international market.
Absolutely, if it is going to be a model where there is a liberalisation, there
will have to be efforts to reduce the attractiveness of competitor sites. That
might be by restricting advertising or providing incentives for sites. So there
would have to be a dual approach to protect the licensees.
Mr Cormac Barry, Chief Executive Officer, Sportsbet, also highlighted
the competitive environment:
It is important that a balance is struck and people are
conscious that it is very, very easy for the customer to go elsewhere. So we
need to create a regulatory environment that satisfies customer needs and does
not create too many barriers to entry for those customers to use regulated
Ensuring Australian-based providers could compete with those overseas
was also emphasised by Mr Barry:
I accept your point that an offshore site that provides
inducements may draw or attract consumers. I think that only reinforces the
point I made earlier that you need to ensure that the industry in Australia can
compete on terms with those offshore operators. That said, we do need to enforce
high standards in order to protect consumers.
Wesley Mission highlighted the experience of the now defunct Lasseter’s
Online where an Australian regulated product was not able to compete with
offshore competitors because it could not offer the same level of inducements
to gamble as the competitors.
Wesley Mission noted that online gambling providers would be attracted
to countries where they pay less tax:
As the gambling market becomes truly transnational, there will
be a growing currency flow overseas as online and interactive gambling operations
are established in low cost and low regulation jurisdictions.
The Victorian InterChurch Gambling Taskforce raised concerns about the
numbers of providers located in 'tax havens' and the associated issues of
probity and tax avoidance. They told the committee about reports that Betfair in
the UK is seeking to move offshore to be licensed out of Gibraltar to avoid
paying the 15 per cent UK tax. In addition, the Taskforce mentioned that Betfair
have put in a complaint to the European Commission seeking to oppose the Greek
laws on online gambling, which include a requirement for gambling providers to
pay a 30 per cent tax.
The Victorian InterChurch Gambling Taskforce told the committee that
European jurisdictions that have attempted to liberalise online gambling and
then regulate it are 'really struggling to make that work' as:
They are constantly having to try to update their regulation
to try to keep up with what is going on. They get pressure to continually
liberalise, because arguments are made that any restrictions they put on are
anticompetitive and in breach of either European Commission trade rules or WTO
rules—and that therefore they need to open up their markets further.
Their experience is that they are getting harm from problem
gambling and yet the tax revenue is being lost to offshore gambling providers
and attempts to try to regulate or shut that down are then met with problems
around whether that is providing restrictions on trade. The route of a
regulated liberalised market is not a simple solution and does not appear to
address both that serious issue of harm being caused within a jurisdiction and,
at the same time, tax revenue being lost to offshore providers operating out of
Dr Mark Zirnsak told the committee that Australian-based sites would
have difficulty competing with overseas sites. He explained the reasons:
Lasseter[s] previously found that they had trouble competing.
That is hardly surprising. If you have an offshore operator that is operating
out of a jurisdiction that requires very low levels of regulation and that pays
very low fees and little or no tax at all while an Australian provider is
regulated and paying tax, then competition is going to be difficult. They are going
to have much higher costs.
Further, the tax arrangements in these secrecy jurisdictions
will allow providers in these jurisdictions a financial advantage over a
provider based in Australia, and actively encourage tax avoidance.
The Australian Crime Commission listed a number of risks associated with
online gambling including tax avoidance and fraud:
Online gambling is an identified money laundering risk and
increasingly is also acknowledged as a risk for revenue and taxation fraud.
This is because of the difficulties associated with identifying the source of
income and the actual geographic location where the gambling activity takes
Portability of the online business
Dr Zirnsak also told the committee of the following disturbing
possibility, where providers could establish themselves in Australia and then
move overseas to avoid or minimise tax, taking customers with them to a less
Potentially, the offshore provider is going to be able to
offer much better deals to gamblers to, once they are gambling in the
Australian environment, attract them into the offshore environment. So you have
built the market through funnelling people into firms regulated in the
Australian market and then having the offshore providers picking them off and
shifting them over. And you may even have Australian companies do that. Tatts
currently operate an online gambling facility out of Malta, so you could
imagine Tatts setting up an Australian business that gets people in to play on
a regulated Australian provider and then moves them to the Malta one. I do not
want to cast aspersions on that particular company, but you could imagine a
situation in which a company has an operation running out of Australia and an
operation running out of somewhere else that markets from that operation to
their offshore operation, which would be operating in a secrecy jurisdiction in
which they do not pay any tax.
However, the committee heard that legislation and regulations could be drafted
to address this scenario:
Prof. Blaszczynski: This is where I think the
government has a place in terms of monitoring, auditing and regulating that
particular industry. I am not sure whether or not that occurs in Alderney or
other areas where it is legalised. But, again, I do not think it is a question
of whether or not to legalise it; it is a matter of putting in the appropriate
systems and procedures to prevent that from happening.
Dr Gainsbury: That is true. There are different
regulatory systems that can be set up. For example, in Italy, operators have to
have their servers and a business headquartered within the country. So, if that
is something that is of concern, it can be written into the regulation and made
a requirement of licensees.
Committee majority view
It is unclear to what extent regulated Australian online gaming websites
providing casino-type games could compete with easily accessible offshore
websites. A more regulated environment with higher costs is likely to have
difficulty competing with less regulated sites from overseas which would
increase pressure to decrease standards and taxation. It is likely that
Australian-based businesses would have to advertise and market aggressively and
would wish to provide strong incentives to firstly try to draw people from
overseas-based websites and secondly to find new customers. This increased
marketing could end up being very dangerous to those who are vulnerable, such
as children or those who already have a gambling problem.
The committee majority questions whether Australia could achieve an
industry that could effectively compete with unregulated overseas sites while
enforcing high standards of consumer protection and harm minimisation.
A summary of the case for prohibition
Liberalisation is not without risks and the main arguments put forward to
retain the prohibition of online gambling are summarised below:
- legalisation increases legitimacy and availability which is
likely to increase participation and therefore problem gambling;
- a regulatory approach would serve as a stimulus to online
- marketing would reach new groups of people who may be vulnerable
to the medium;
- it would create new challenges for achieving effective probity;
- there are no venue staff observing and assisting people as with
- there may be the capacity to offer more safeguards but the
reality is that there are fewer safeguards in the online environment;
- there is no guarantee that gamblers would choose regulated
Australian sites over unregulated overseas sites, particularly if they were
cheaper/offered better odds and inducements;
- despite liberalisation, problem gamblers would be more likely to
continue to choose unregulated sites with fewer consumer protection measures;
- in Australia it would create a new domestic market which would
compete with others and advertise to bring in customers; and
if Australia had a regulated market the arguments against
consumers gambling on unregulated offshore sites would lose force.
Associate Professor Robert T Wood and Professor Robert J Williams noted
that there are many compelling arguments for the prohibition of internet
- the purpose of the law is to help shape behaviour as well as
codify societal values;
- a significant number of online gambling sites have unsatisfactory
business and responsible gambling practices;
legally-sanctioned domestic sites (with better business and
responsible gambling practices) are only patronised to the extent that they
offer a competitive advantage to the consumer which is difficult to achieve;
- a significant portion of online gambling revenue comes from
problem gamblers (27 per cent) and it is ethically problematic for revenue
generation to be disproportionately derived from a vulnerable segment of the
- legalisation increases legitimacy and availability which strongly
increases both gambling and problem gambling in the general population. In
general the prevalence of internet gambling and internet problem gambling in
each country roughly parallels its legal availability/sanctioning;
the nature of online gambling makes it inherently more
problematic than most other forms of gambling and it is common policy to
restrict access to forms of a product perceived to be more harmful than others;
- legalising online gambling and putting some of the new revenue
into treatment does not offset the harm that would be caused by legalisation.
Do the difficulties with prohibition add up to a case for liberalisation?
While the difficulties of prohibition are clear, many submitters and
witnesses argued that the deficiencies of the IGA do not mean it should be
abandoned for legalisation and regulation. Wesley Mission concluded that the
inadequacies of prohibition 'do not necessarily add up to a case for
legalisation.' It used cannabis as an analogy stating that 'the failure of
governments to prevent the widespread use of cannabis by younger Australian
adults does not mean that cannabis production and use should be legalised'.
Instead it suggested that an appropriate range of sanctions and warnings based
on a public health approach should be applied.
Wesley Mission also pointed out that by legalising online gaming in Australia, the
ability to argue against consumers gambling with unregulated offshore casinos would
Over the longer term, Wesley Mission suggested that the Australian Government
should work with the international community to develop a safe international
online gambling framework. It concluded that Australia should not 'open the
door to offshore online gambling until there are means to control the
activities of offshore gambling providers'.
The Social Issues Executive (SIE), Anglican Church, Diocese of Sydney,
said that while there is insufficient research on the manner and extent to
which online gambling contributes to problem gambling:
...it should not be presumed that liberalisation of domestic
laws is sufficiently justified by perceived increased consumer protection and
tax revenue advantages.
While agreeing about the risks posed by overseas operators, the SIE stated:
...there is neither an evidence-based case nor a compelling
normative basis for liberalising current Australian regulatory and legislative
frameworks pertaining to online gaming. Liberalisation of these frameworks, as
proposed by the Productivity Commission would send the wrong message to the
Australian community—it would be perceived as a public endorsement of online
gaming. There is also no guarantee that it would prevent fraudulent activity by
domestic online gaming sites or dissuade consumers from accessing
Most importantly though, the SIE is concerned that
liberalisation would have the effect of legalising greater integration of
online gaming with other forms of betting and wagering..
The SIE argued that 'it should not be presumed that liberalisation of
domestic laws is sufficiently justified by perceived increased consumer
protection and tax revenue advantages' and concluded:
The possible tax revenue forgone by not pursuing liberalisation
is an acceptable cost to bear to protect Australians’ social welfare from
accelerated development of further avenues for gaming.
The SIE urged the committee to pursue a cautious and careful approach:
Liberalisation of the Interactive Gambling Act risks creating
a new and hidden underclass of problem gamblers. At worst, it may entrench a widespread
gambling culture that robs us of our capacity to see events as meaningful in
themselves, apart from the winnings they accrue.
The PC also acknowledged that the shortcomings of the IGA do not
indicate a policy failure:
The evidence reveals that Australians continue to access
online gaming services (through non-Australian based sites) that are prohibited
under the IGA. However, this does not necessarily indicate policy failure. Very
few prohibitions completely prevent the consumption of a product, yet they may
still be considered to be justified if they can reduce the consumption of a
harmful product (below what it would have been without the prohibition).
Support for the IGA
Submissions acknowledged the difficulty of legislating in an area
involving the internet and a worldwide market, but many were supportive of the
IGA and urged the committee to retain and strengthen it rather than support
liberalisation. The Victorian Interchurch Gambling Taskforce expressed support
for the intent of the IGA:
In terms of the actual banning of online gambling full stop,
we support that position in the Interactive Gambling Act as a general position.
We note that the level of problem gambling among people who do gamble online is
very high in comparison to other forms of gambling, but, fortunately, the
current participation in online gambling by Australians is very low. All the
research we could find suggests it is at most one per cent, but it is a growing
market. There is therefore an opportunity for parliament to nip this in the bud
before it grows into being an industry. Once it achieves that status, it then
claims that it provides a whole lot of jobs and revenue and therefore you
cannot possibly regulate it now because that will cost jobs. This is an
opportunity to get in early and provide decent protection against these kinds
of activities, activities which are causing significant levels of harm among
those who do gamble online.
Dr Mark Zirnsak of the Victorian InterChurch Gambling Taskforce outlined
Our view would be that, if you liberalise and legalise it,
you are indeed normalising it. We suspect that would then mean you grow the
customer base of people actually using this form of gambling.
Dr Zirnsak added that although enforcement of the IGA is problematic,
the message it sends is important:
Nevertheless, the signal being sent to people is that this is
not an activity for people to be involved with. Even the Productivity
Commission admitted that the current Interactive Gambling Act, with its
prohibition on online casino gambling and things outside of wagering, kept the
size of the market down. So you have actually reduced harm by keeping the market
small. As soon as you liberalise, unless you are going to regulate very
heavily, you will open up a whole lot of marketing opportunities for the online
gambling providers and they will grow their market. So you will have a much
larger base of people gambling. Even if you put in place protection measures,
the probability in our view will be you will end up with a larger pool of
people with gambling problems because there will be more people gambling. Even
if you provide some level of protection, the fact that you have so many more
people gambling means you will still end up with more people with gambling
Because of the difficulty of liberalising the market and then trying to
regulate it, Dr Zirnsak advocated doing what is possible to minimise the
market. He acknowledged that this would be an imperfect solution but that it
would result in a limited market and limited accessibility.
He said the existing prohibition appears to be the best way to minimise access
to online gambling and that it should be further strengthened. Acknowledging
that it is an imperfect ban, he added that the public health approach of
informing consumers about the risks of an activity and ensuring there are
support services should still apply.
The Australian Racing Board also supported the intent of the IGA:
The IGA is a valuable attempt to address important social
issues. We believe that it should not be watered down. In particular, we do not
believe that the ban on on-line poker should be relaxed.
Views of states and territories
While the committee did not receive submissions from all state and territory
governments, those that did submit were not in agreement on this issue.
New South Wales
The NSW Government stated that it did not support the PC's
recommendation to liberalise the regulation of online gambling. Instead it
supports measures to 'tighten the regulatory framework' provided for by the IGA
and pointed out regulatory approaches overseas.
The Tasmanian Government submitted that a strong regulatory framework is
required to address the risks presented by the growth of interactive and online
This would include 'pre-commitment and other consumer-protection oriented
safeguards. This could extend to game design in a similar way the national EGM
reforms address the probably harms of 'high intensity' play'.
It suggested that a sound regulatory framework requires a combination of the
- good models for consumer protection/harm minimisation;
- mandated consumer protection and harm minimisation for Australian
sites and the means of bringing pressure to bear on offshore sites for these
- restrictions on advertising, inducements and loyalty schemes that
promote high risk online gambling products;
- online counselling in addition to face to face and telephone
- the promotion of player education and information to meet the
growing interest in online options – onshore or offshore.
The position of the Western Australian Government is that more should be
done to support the intent of the IGA 'by exploring ways to improve its
effectiveness in relation to controlling the access of offshore gaming
operators to Australian customers'. It then added that if no practical way to
improve the effectiveness of the IGA was found, provided individual
jurisdictions such as Western Australia could 'opt out', it would 'support
consideration of a model for regulating online gaming to Australians subject to
strict conditions about probity and integrity; advertising; bet types; and harm
prevention and minimisation'.
The committee understands that people will take different views on this
issue depending on their definition of success in this area, just as the
committee members have done later in the report. Committee members' views on
the liberalisation or prohibition of online interactive gambling services are contained
in chapter seven and in additional comments which follow this report.
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