Online Gaming - Australian Productivity Commission Final Report on Gambling (June 2010) - What does it mean for the online gaming sector?
By Jamie Nettleton, Partner and Andrew Dawson, Special Counsel
23 June 2010
Introduction
Earlier today (23 June 2010), the Australian Productivity Commission (Commission) released its Final Report on Gambling[1]. The Report represents a significant milestone in Australian gambling regulation and follows on from the Draft Report the Commission published in October 2009.[2]
The Productivity Commission was requested by the Australian Government to report on various matters relating to the gambling industry including:
- the implications of new technologies (such as the Internet), including the effect on traditional government controls on the gambling industries; and
- the effectiveness and success of harm minimisation measures.
This review represents the second inquiry conducted by the Commission, the first being in 1999. The 2010 report makes a number of recommendations concerning Australia's gambling industries, including several specific to online gaming.
Key Findings and Recommendations
- Research suggests that, although online gaming has benefits, the potential impact of consumption of online gaming services by problem gamblers poses a significant social cost. Accordingly, online gaming should be subject to appropriate regulation.
- The Interactive Gambling Act 2001 (Cth) (IGA) (which currently prohibits online gaming) has had limited effectiveness in reducing demand for online gaming services and its effectiveness is likely to decline over time.
- The IGA discriminates against potential online gaming providers by effectively ensuring that the Australian market (which is growing) for online gaming is catered for by offshore providers who operate under different regulatory regimes.
- The most appropriate form of regulation is gradual managed liberalisation of online gaming with strict licensing criteria and harm minimisation requirements.
- Such liberalisation should commence with the liberalisation of online poker which is likely the safest form of online gambling and, subject to the effect of this liberalisation, extend to other forms of online gambling.
The Commission's Findings
The IGA prohibits the provision of online gaming (but not online wagering on races or sports betting) to Australian residents.
The Commission examined whether the IGA had achieved its objectives which included:
- limiting the development of the online gaming industry and, thereby, minimising the scope for problem gambling amongst Australians; and
- balancing the protection of Australians with a sensible and enforceable regulatory regime.
The Productivity Commission reached the view that, although it is probable that the IGA has had the desired effect of reducing demand for online gaming and, therefore, the development of the online gaming industry, it is not clear that the effect has been large. In fact, consumption by Australians of online gaming services offered by international sites has grown considerably and will continue to grow. The IGA has, therefore, had limited effectiveness and that effectiveness will decline over time.
This means that Australians participating in online gaming do so using offshore online gaming sites which may not have appropriate harm minimisation processes in place and may operate with unscrupulous business practices. In other words, there is no means for an Australian wishing to engage in online gaming activity to participate through a service licensed by an Australian jurisdiction having regard to Australian harm minimisation principles.
Although the Commission's conclusions (as discussed in more detail below) apply predominantly to online gaming, they are equally relevant to gaming that can be conducted using other technologies under Commonwealth government control such as mobile phones and broadcasting.
The Commission's Conclusions
Online gaming offers unique benefits and also carries with it risks. Although the risks have often been overstated, the relatively high proportion of problem gamblers that surveys and data suggest use online gaming services is a cause for concern. These and other potential harms associated with online gaming indicate that appropriate regulation of online gaming is needed to protect consumers.
However, in respect to the current prohibitions in the IGA:
- the prohibitions have had limited effectiveness in preventing growth in consumption of online gaming services by Australians;
- the effectiveness of those prohibitions is likely to decline over time;
- the prohibitions amount to discriminatory deregulation which ensures that the Australian online gaming market is exclusively catered to by offshore providers who operate under various different regulatory regimes;
- the prohibitions provide inadequate protection for Australian online gamblers; and
- the scope of the problem of inadequate protection is likely to rise as consumption by Australians of online gaming services increases.
Accordingly, the IGA in its current form does not represent the best regulatory option for Australia. The two broad regulatory options available are:
- strengthening the IGA to make it more effective; or
- amending the IGA to realise the benefits of online gaming while minimising its potential harms.
Although it is questionable whether strengthening the IGA through the imposition of effective internet filter/blocking mechanisms is possible (which are discussed), the costs of strengthening the IGA and continuing the prohibition of online gaming are not warranted by the apparent level of harm of online gaming.
Accordingly, the amendment of the IGA to permit gradual managed liberalisation of online gaming is preferable. This gradual liberalisation should commence with online poker because it appears to be the least risky and, therefore, safest form of online gambling.
Any regulation in Australia of online gaming should be national. If possible, it should be consistent with regulation in similarly liberalised countries (such as the UK) - this will enable Australian licensed operators to compete internationally.
The Commission's Recommendations
The Australian Government should amend the IGA to permit the supply of online poker games.
Online poker, along with other gambling forms currently exempted from the IGA, should be subject to a regulatory regime that mandates:
- strict probity standards; and
- high standards of harm minimisation including:
- - the prominent display of information on account activity and information on problem gambling and links to problem gambling resources;
- - the ability of players to pre-commit to a certain level of gambling expenditure;
- - the ability of players to self-exclude; and
- - the display of automated self warnings arising from potentially harmful patterns of play.
The Australian Government should monitor the effectiveness of:
- harm minimisation standards applying to licensed online gaming; and
- the performance of the regulator in overseeing a national regulatory regime.
The Australian Government should also evaluate whether:
- the provision of online poker should continue to be permitted; and
- liberalisation should be extended to other online gambling forms.
Differences from the Draft Report
The key difference in the Final Report from the Draft Report relates to the suggestion of gradual liberalisation of online gaming with the licensing of online poker occurring first.
The Australian Government's Response
The Australian Government issued a press release after the release of the Final Report stating:
- the Australian Government does not support the liberalisation of online gaming (including online poker) as recommended by the Commission;
- the current prohibitions under the IGA will continue to apply;
- the Australian Government will examine the regulatory approach of other countries with similar regimes in relation to online gaming (such as the United Stated of America); and
- the Australian Government will work with other countries to investigate the possibility of a more effective multilateral regulatory regime to address online gaming, its social impacts and its impact on the Australian gambling industry.
Way forward
The Final Report of the Commission indicates that the prohibitionist approach in the IGA has not been effective and that a more appropriate way of regulating online gaming is through a policy of managed liberalisation. Clearly, the Government does not accept this approach - however, we anticipate that considerable debate will continue on this topic, and the appropriate means in which online gaining should be regulated in Australia.
[1] See http://www.pc.gov.au/projects/inquiry/gambling-2009
[2] See http://www.pc.gov.au/projects/inquiry/gambling-2009/draft and Addisons FocusPaper entitled "Productivity Commission Draft Report on Gambling (October 2009) - What does this mean for the online gaming sector?".