Internet Gambling: Consumers, Industry, And Regulation Business Management

Final Year Project

Online gambling is a large and growing industry. Estimates from an industry consulting group indicate that as many as 2,000 firms worldwide are involved in offering a number of different types of online gambling, resulting in an estimated $25.4 billion in winnings and as much as twenty times that in revenue. Why is online gambling so popular, and what does this imply for society? This research was aimed at exploring the scope of internet gambling industry, the methods of internet gambling, as well as current state of regulation towards gambling industry. The author then considered implications for the industry as a whole. Findings of the research indicate that there are a wide range of people involved in online gambling, and that online gambling's ease of access plays a significant role in the industry. This is a significant problem because this allows for easier access for problem and potential gamblers, who are at significant risk from online gambling and who make up a large portion of its customers. The online gambling industry is structured primarily as small firms, and is spread thinly around the world. Regulatory approaches vary widely, ranging from attempts at prohibition in the United States to legalization and regulation in the European Union. Another factor in the industry's impact is the ongoing conflict between online gambling and traditional forms of gambling such as land-based casinos, which has resulted in significant industry pressure group focus on the online gambling industry. In the end, prohibition approaches tend not to be highly effective due to the structure of the Internet, allowing growth of the industry despite attempts to regulate This indicates that online gambling is likely to continue to be problematic in terms of increasing access to gambling for problem gamblers, but that there is no clear way to regulate this problem and thus the industry is likely to continue to grow in popularity.

Table of Contents

Abstract 2

Chapter- I Introduction 5

Background 5

Problem Statement 6

Purpose of the Study 7

Chapter-II Current Status of Online Gambling Industry 8

History 8

Industry Structure 8

Competition and Strategy 10

Marketing in the Online Gambling Industry 14

Intra-Industry Conflict and Its Effects 16

Chapter-III-Why Online Gambling is becoming Popular 17

Reasons People Gamble Online 17

Why Online Gambling is appealing to consumers? 19

How Individuals gamble online? 21

Chapter-IV Impacts of Gambling Popularity & Regulatory Approaches 23

Effects of Online Gambling on the Individual 23

Regulation of Online Gambling 24

Why Regulate? 25

Prohibition 26

The Regulatory Approach 27

Responsible Gambling and Harm Minimization 28

Chapter-IV Conclusion and Recommendation 30

Implications of Online Gambling for Society 30

Conclusion 32

Bibliography 34

Chapter- I Introduction

Background

Within the past two decades, gambling accessibility and availability have increased considerably (Gupta & Derevensky, 2008). Various gambling outlets including casinos, slot machines, lotteries and internet gambling have become increasingly more popular. Similarly, the legalization of many gambling outlets has helped influenced its popularity (DiClemente, 2000)

Internet gambling is big business. Since its beginnings in 1995, the industry has grown substantially, and now includes several listed firms. A recent estimate from the American Gaming Association (2010) suggests that there are as many as 2,000 firms involved in Internet gambling and betting, including games such as bingo and casino games as well as gambling on sporting events, lotteries, and other forms of gambling. These sites are registered in at least 47 different jurisdictions (Monaghan, 2009). A broader estimate indicates that 2,316 sites are currently in operation (The Economist, 2010).

The estimated size of the industry is $25.8 billion in worldwide gross winnings as of 2009 (American Gaming Association, 2010). Estimates from the American market produced by industry sources indicate that turnover in the industry is some twenty times that of the gross winnings (H2 Gambling Capital, 2010). The legal status of the industry varies widely depending on the jurisdiction. There have been numerous attempts in American law to outlaw online gambling, although given that approximately 20% of worldwide online gambling revenues stem from the United States this cannot be considered to be a particularly successful regulatory move (American Gaming Association, 2010). However, in many other regions the practice remains entirely legal and does not face any significant barriers (McGowan, 2008). The popularity of the online gambling industry poses a particular problem for regulation of business. In particular, there is evidence that the use of online gambling is associated with higher levels of problem gambling than land-based...

Thus, there is the real potential for harm to customers, even though the industry offers ample opportunity for gain. Why is Internet gambling so popular, and how does this popularity affect the ability to mitigate potential harm? This paper discusses online gambling and considers issues such as who uses online gambling, the business structure of the online gambling industry, and the effects of online gambling in an attempt to find a balance between corporate and social needs.
Problem Statement

Gambling traditionally has been defined in research as "wagering of money on the outcome of a game or event, with the hopes of winning larger sums of money" (Gupta & Derevensky, 2008, p. 207). Newer definitions of gambling however are broader and include any valuable, to convey that gambling does not necessarily have to involve the wagering of money, but rather, can include the wagering of other items that hold value to the individual (Ontarion Problem Gambling Research Centre, 2007). Consistent with the definition provided by the Ontarion Problem Gambling Research Centre (2007), the present study broadly defined gambling as the betting or wagering of money or valuable on games or events with uncertain outcomes to capture a comprehensive representation of gambling.

The problem with Internet gambling is not in finding something to talk about, but to determine what issues are truly relevant. Internet gambling touches on so many areas, including psychology and mental health, cultural norms and values, morality, business values, and conflicts between industries, that it proved to be difficult to identify key issues in identifying why Internet gambling is so popular as well as what implications this had for the development of industry regulation. There is also a significant problem of conflict between online gambling and traditional gambling industries, such as land-based casinos and betting parlours, that has clouded the issue due to control of research and media sources by these existing industries. However, a number of key issues have been identified in the question of gambling popularity. These issues are:

Who is gambling online, and how?

What are the impacts of online gambling at the personal level?

How is the online gambling industry structured?

What forms of marketing and other practices are used to bring new customers into online gambling?

How does intra-industry conflict between online and traditional gambling affect regulation, research, and other ways of understanding the impact of online gambling?

What regulatory approaches have been taken to online gambling?

What does the popularity of online gambling imply for society as a whole?

Purpose of the Study

The purpose of this study is to explore the reasons why internet gambling is being popular and how this popularity impacts the society. For this purpose the author used a variety of sources, including peer-reviewed journals, industry and government reports, and news sources. An inductive approach has been taken to determine what the underlying causes of internet gambling popularity are, moving backward from observations to a firm understanding of the underlying causes (Trochim, 2006). However, it should be noted that given the multiplicity of jurisdictions, generalizations regarding regulatory approaches and other issues cannot truly be made; as a worldwide phenomenon, online gambling has had a range of different impacts and implications, and as such it can be extremely difficult to generalize. This difficulty is noted where it has been encountered.

Chapter-II Current Status of Online Gambling Industry

History

The online gambling industry has experienced slow but steady growth over the past ten years. Estimates of industry revenues were around $12 billion in 2005 (McGowan, 2008). By 2009, the industry had approximately doubled in size to $25.4 billion in revenues (American Gaming Association, 2010). Thus, there is a significant (though not explosive) growth rate to be seen within this industry. What has been driving this industry growth and how can it be addressed in terms of the industry structure and business aspect? This section explores the structure of the online gambling industry and the impacts of marketing and intra-industry conflict on the industry. It also discusses approaches to regulation that have been taken in order to compare the overall outcomes of these regulatory approaches.

Industry Structure

As noted above, the online gaming industry is a globalized and widespread industry, with some 2,000 firms operating in 47 jurisdictions (American Gaming Association, 2010; Monaghan, 2009). In absolute terms, the online segment of the global gambling industry is around 8% of the total (The Economist, 2010). The current revenues of $26 billion are expected to rise to $36 billion by 2012, continuing a trajectory of 13% growth from the past several years (The Economist, 2010). This is significantly faster than the growth in the remainder of the industry, which has stagnated during the economic downturn (The Economist,…