Regulating online gaming could be a winner for Ireland - The Irish Times - Mon, Aug 13, 2012

Regulating online gaming could be a winner for Ireland - The Irish Times - Mon, Aug 13, 2012

BARRY O'HALLORAN

BUSINESS OPINION: Our State has missed a trick. Online gambling is a growth industry, with potential to create jobs and boost taxes

BINGO, THAT one-time staple of fundraisers, might seem as far removed from the cutting edge of social media as one can get, but it is about to become Facebook’s latest revenue-raising wheeze. Just days ago, the company launched a new application that will allow users in the UK to play the game for money.

Flying under the flag of Bingo Friendzy, it has the fluffiest branding possible, while Facebook is making all the right noises about responsibility and regulation and is stressing it is introducing the application only in a jurisdiction where it is legal. However, there is no getting away from the fact the social network wants at least some of its customers to part with their cash in a game of chance.

Gambling is the disreputable relative in the internet family. Players such as Facebook are not keen to acknowledge him in public but privately they would all like a share of his revenue. That revenue is thought to be big but it’s hard to say just how big. PricewaterhouseCoopers’ last report on the sector pointed out that it consists of regulated and unregulated areas across the globe, making it hard to come up with a realistic estimate.

In 2010 the American Gaming Association estimated total revenue in jurisdictions where gaming is legal was $30 billion. In an Irish context, the recent Indecon review of the racing industry estimated €1.7 billion was wagered online in the Republic last year. That is in a country that accounts for less than 1 per cent of the EU population.

The key, though, is not so much current as future revenue. Many observers believe the US will lift its restrictions on internet betting. When it does, the sky could well be the limit for any social media that have an established gaming brand. One report last week suggested that, when the US opens the gates, Facebook stands to earn $100 billion a year, driven by online gambling.

That estimate may be stretching it but it’s easy to see why the company is in a “friendzy” about gambling: it’s a guaranteed earner and, with a little tweaking, existing products such as bingo fit its brand neatly.

Not surprisingly Facebook took some flak for its move but anyone who bought shares in its public offering should be pleased. The company has added another revenue string to its bow, and a potentially strong one at that, even if $100 billion a year is a long shot.

And the day when the US liberalises its current regime may not be far away. Individual states are already looking at limited ways of legalising internet gambling as a means of boosting their coffers. Maryland is the latest.

Our State, however, has missed a trick. One way or another, this a growth industry, with the potential to create jobs and boost taxes. In 2008, economic consultants DKM produced a report for the Gaming and Leisure Association of Ireland that calculated that by 2020 land-based and online casinos could create 13,000 new jobs and deliver €280 million a year to the exchequer.

The crux of that report was that the sector would have to be properly regulated. The process of doing this began with a government review initiated in 2006. It found there was a “window of opportunity” for the Republic in online gambling. Many of the companies involved were operating offshore in locations with limited skills and poor infrastructure. They would have regarded the Republic as an attractive location if it had transparent regulation.

That did not happen. The Full Tilt Poker debacle was one result of this failure. The group’s former chief executive, Ray Bitar, was recently charged with fraud in the US. Its two main Irish companies were named in an action, now settled, brought by the federal government claiming the group had siphoned off $440 million from clients’ funds.

Clear regulation, backed by adequate enforcement, would avoid embarrassing situations such as this. They could also attract legitimate operators who would provide employment and boost taxes.

There would be extras for the State in the shape of licence fees and the possible extension of the proposed 1 per cent levy on internet betting.

Given the potential for growth, particularly since social media companies are waking up to the potential of games of chance, it’s time the Government added online gambling as a friend.