chapter  6
Measuring displacement effects across gaming products: a study of Australian gambling markets
ByLisa Farrell, David Forrest
Pages 10

The market place for gaming products is an

innovative environment. Increasing knowledge of

players’ tastes and changing technology has lead to

increasing product diversity and many jurisdictions

across the world have permitted or are considering

legalizing casinos and high prize machine gaming for

the first time. This article will examine the impact of

these new forms of gaming on one particular product

in the gambling sector, namely lotto. That is, we seek

to establish the extent of displacement effects on lotto

games from new entrants into the gaming market,

utilizing data from a panel of Australian states. Lotto

is our focus because in many jurisdictions it has

a special status in that it funds important causes, for

example, student scholarships in Florida and sports

and arts provision in the United Kingdom. To date, a number of studies have looked at policy

changes, such as the introduction of a new product

into the market, to assess the severity of displacement

effects on existing gaming products. However, simple

before and after comparisons are invalid. One needs

to know what the appropriate counterfactual would

have been in the absence of the policy change – which by its very nature is unobservable. The alternative is to look at identical populations exposed to different regimes. Australia represents such a natural experiment. In Australia, betting and gaming legislation is determined at the state level giving rise to some interesting differentials across states within a single country. Australia provides an ideal setting within which to

investigate issues relating to displacement effects given the range of different products introduced at different times by different state governments. It is clear that multiculturalism and diversity exists within Australia which makes direct policy prescriptions difficult; but this does not necessarily imply that countries cannot learn from each others’ experiences –commonalities also exist which can be exploited in order to draw sensible policy recommendations. In many respects, Australia is the perfect ‘laboratory’ for work on this topic – the complexity of gaming regulation, variation in the social acceptance of gambling and socio-economic diversity across Australia create the necessary ‘ripples’ that are important for this kind of analysis. In addition, Australia has a richness of data regarding betting and gaming revenue to surpass most other countries. The Australian case is particularly relevant to the

ongoing debate on the reform of gambling law in Britain, in particular to controversy over the extent to which modern casino style gaming should be permitted. Until now, Britain’s casinos have borne little similarity to the international model. They are members’ clubs focused on table games with only 10 gaming machines permitted and with these limited to offering a maximum prize of only £2000. Following the liberal recommendations in the Budd Report (DCMS, 2001), the Government introduced an only slightly less radical Gambling Bill into Parliament in 2003. This proposed that unlimited prize electronic gaming machines (EGMs) would be permitted in a new generation of ‘regional’, ‘large’ and ‘small’ casinos. ‘Regional’ casinos would have no limit on the number of devices and could offer multiple styles of gambling such as bingo and betting; ‘large’ casinos, defined by a minimum square footage designed to encourage their location in town centres rather than residential neighbourhoods, would also have no restraints on the number of machines; ‘small’ casinos were defined by a minimum space requirement and the number of machines were limited by a maximum ratio of machines to table games on offer. At this stage, no limit on the number of new casinos was envisioned: the market would decide. Commentators expected several regional resort-style casinos to be built, with

a network of perhaps 200 ‘large’ venues providing more local facilities. In the event, fierce opposition from lobbyists acting

on behalf of existing gaming interests and antigambling organizations forced a substantial dilution of the proposals by the time the Bill became an Act in April, 2005. Only 17 new casino licences are now authorized to be issued, 1 for a regional casino and 8 each in the large and small categories. Further, only the single regional casino will be permitted to offer the largest pay-out (Category A) machines. This is unlikely to be the final outcome, however, since a future review of the law is proposed in light of experience of the new-style casinos. Debate on the merits of providing destination resort casinos and EGMs in casinos serving more local markets is therefore, ongoing in Britain. Australia offers an equivalent to ‘regional’ casinos

in 13 casinos spread across the country. Further, most states permit casino-style EGMs in designated areas of ‘hotels’ (pubs and bars) and clubs and these often provide 100-200 machines. Such venues are roughly equivalent to the ‘large’ casinos in the British legislation. Crucially for our purpose, separate data are available for turnover, player losses, etc. in these two sectors, labelled ‘casinos and ‘EGMs’ in the data set available to us. Australia therefore, offers the possibility of analysing the impact of both supercasinos (access to which will necessarily involve significant travel for most of the population) and a network of more local machine gaming venues. The close relevance of the Australian experience to proposals for Britain has been recognized in the debate on the link between machine gaming and problem gambling (Dodgson et al. 2004) but here we exploit it to inform the question of whether either super-casinos or a network of local EGM venues draw expenditure from state on-line lotteries. The question is of some general interest. It is clear

that in a world of budget constraints, the introduction of a new product will necessarily lead to resources being diverted from the purchase of other products. Thus, as the portfolio of gambling products expands, it is interesting to ask whether the displacement comes from within the gambling sector or from elsewhere. The cannibalization of existing products by new forms of gambling would limit the extent to which product innovation would lead to growth of gambling in total. The alternative is that product innovation here shifts resources from other sectors of the economy. So it may be the case that the observed product innovation is a result of players quickly becoming bored of games and needing constant stimulation in order that the sector can retain its revenue positions; or such

innovations may be leading to actual growth of total gambling activity through external displacement effects.