INTERNET GAMBLING IN CANADA

The Fallacies of Internet Gambling Prohibition in Canada: Do the Foregone Economic Benefits Outweigh the Negative Externalities? Dustin Miller University of Victoria

INTERNET GAMBLING IN CANADA

Abstract

The Criminal Code of Canada prohibits the operation of online games of chance and sports betting. However, prohibition has proven to be ineffective at curtailing the demand for online gaming.This paper will explain why the benefits of regulating and taxing the online gaming industry far outweigh the negative externalities. I will examine the effects of problem gambling, how current government run and regulated lottery websites model an ideal gambling environment, and why regulation and taxation of this industry in Canada is a better alternative to prohibition.

Keywords: online gambling, Canadian gambling, gambling prohibition

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Introduction Canada has always been a nation of gamblers. Patriotic hockey rivalries and traditions like the Stanley Cup enshrined sports betting as part of our culture and for most people, playing the weekly LottoMax is not a costly pleasure. Mainstream media has also picked up on Canadians interest in gambling and has increasingly been airing series and live competitions related to casino gambling, most commonly poker. The expansion of the Internet and televised poker tournaments have contributed to the surge in poker popularity, spawning a new generation of Internet gamblers (Ormand, 2004). Online gambling in the US, Canada, and Australia has been prohibited by governments, psychologists, and analysts because of foreseen social externalities such as gambling addiction, underaged gambling, and money laundering. However, this paper will demonstrate that online gambling should be permitted, regulated, and taxed in Canada. Dissolving online gambling prohibition in Canada will incontestably provide significant economic benefits, but at what cost and to whom? Economic growth also tends to come with costs, and good policy should balance those costs and benefits. Literature Review In Window of Opportunity? Internet Gambling in Canada, Rex and Jackson (2009) investigate the legal status of online gambling in Canada, evaluate online gamings future status in public policy, and explore the logistics of gambling sites hosted on the Kahnawake Mohawk Reserve, located just across the St. Lawrence River from Montreal, and British Columbias provincially run online casino, Playnow.com. I use this information to prove that Canadian regulated gambling websites can be socially responsible and economically viable.

INTERNET GAMBLING IN CANADA

In Internet Gambling: Innocent Activity or Cybercrime? Fidelie (2009) discuses the social, economic, and political difficulties associated with the regulation and taxation of the online gaming industry. Fidelie also examines and proposes solutions to the criminal externalities and costs to social welfare that the industry imposes. I will use this information to support my argument that regulation of online gambling in Canada will be far more effective than prohibition. In Pirates of the Caribbean: Offshore Internet Gambling Sites cursed by the Unlawful Internet Gambling Enforcement Act, Sprehichet (2007) said that American anti-gambling laws are impractical in the new age of the Internet. I use Sprehichets findings to support my argument that allowing and regulating online gaming in Canada will safeguard consumers from illegitimate operations overseas and create a fair, secure, and revenue generating industry domestically. Problem Gambling Gambling is big business in Canada. Net revenue from government-run lotteries, video lottery terminals, casinos and slot machines reached CAD$13.75 billion in 2009 (Statistics Canada, 2010), which is about double that compared to BCs mining industry which generated $7.9 billion in revenue (PricewaterhouseCoopers, 2010, p. 6). However, a relatively small number of Canadians gamble online. A survey of 1,294 Ontario adults suggests that only 5.3% had gambled online in the past year (MacKay, 2004). Opponents of Internet gambling argue that the asocial nature of the Internet makes it far more dangerous than gambling in offline settings and will exacerbate the risk of problematic and pathological gambling. This may be true, but neglects to recognize those with pre existing gambling addictions and the technological

INTERNET GAMBLING IN CANADA

resources available to the online gaming industry that can be used to prevent gambling addictions. Just like in physical casinos, responsible gaming and addictions help initiatives can also be made available online. Currently, online casinos and sports betting websites in the UK offer the ability to permanently disable your account, offer 24/7 help lines for problem gamblers, and have technological tools such as built-in reality checks, restrictions on rapidity of play, and built-in pause to encourage people to gamble responsibly and stay within their limits. It is also possible for operators and governments to track the gambling behaviors of users online and apply restrictions or suspend problematic accounts. I believe these technological tools and safeguards are far more effective than addictions initiatives available offline. It is in the best interest of both governments and market participants to prevent problem gambling. Gambling addiction, whether offline or online, legal or illegal, is a reality and should not prevent Canada from pursuing the economic and technological benefits the online gaming industry can generate. PROVINCIAL GOVERNMENTS & THE KANHAWAKE MOHAWK NATION British Columbia became the first jurisdiction in North America to offer legal, casino-style gaming online to its residents when it launched Playnow.com in July, 2010. The Criminal Code of Canada permits provinces to operate lottery schemes on, or through a computer (Rex, 2009). The Atlantic Lottery Corporation joined forces with the British Columbia Lottery Corporation to offer online casino games in the Atlantic provinces. Qubec also decided to launch its own online gambling site, Espacejeux, in December 2010. These provincially run gambling sites are fair, secure, and promote responsible gambling habits providing a great example of

INTERNET GAMBLING IN CANADA

what a regulated online gaming industry would look like in Canada. However, these websites do not allow for the most popular form of online gambling, single event sports betting. Aboriginals have special constitutional rights in Canada granting them the ability to regulate everything from dog leash laws, smoking laws, and the ability to issue gaming licenses on reserves. The Kahnawake Mohawk Nation in Quebec uses their aboriginal rights to their advantage and leases server space to Internet gambling operators, including Canadian owned Bodog.com. The Kahnawake Mohawk Nation has become one of the worlds largest hosts to Internet gambling operators, reinforcing the fact that strong demand for online gambling infrastructure exists in Canada. The hosting of gambling sites on the Kahnawake Mohawk Nation has also lead Montreal technology firms to become world leaders in online gaming development, design, security, and infrastructure.

FOREGONE ECONOMIC BENEFITS & RISKS Currently, there are around 2,000 online gambling sites around the world, many of which are operating in small countries such as Antigua and Barbuda (537 sites) and Costa Rica (437 sites) (Rex & Jackson, 2009, p. 222). There is great concern over the loss of government revenues to offshore companies, often run by American or Canadian citizens, compounded with the possibility of forfeiting revenues of domestic casinos to online casinos. Furthermore, Internet gambling presents a risk for potential fraud because players have no guarantee that games are not rigged or whether their winnings will be paid out (Sprehichet, 2007, p. 142) posing a danger to Canadians who do gamble online. Allowing the online

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gaming industry to operate in Canada would provide Canadians with a safe, fair, and socially responsible environment to gamble compared to sites operating in countries where enforcement is minimal or non-existent. The Internet is a medium where market participants interact regardless of geographic location. Much like drug and prostitution markets, economic theory states that if demand exists, supply will also exist

regardless of the goods

legality. It is fact that Canadians participate in online gambling not provided by their province, and with the industry showing no signs of slowing down it is prudent that Canada recognize the need for consumer education and regulation. CONCLUSION Since Internet technology renders prohibition futile, (MacKay, 2004, p. 4) the Canadian government should allow online gambling and subject businesses to regulation and taxation to maximize both economic and social welfare. Effective legislation would inform consumers, and safeguard them against the risks of online gambling including fraudulent sites, identity theft, and most importantly, gambling addiction. Unfortunately, online gambling will continue to be of little importance on the Canadian political agenda until it becomes a prevalent social problem.

Word Count: 1,217

INTERNET GAMBLING IN CANADA

References Fidelie, L. (2009). Internet gambling: Innocent activity or cybercrime? International Journal of Cyber Criminology, 3(1), 476-491. Retrieved February 21, 2012. from http://cybercrimejournal.com/laurajan2009.htm MacKay, T. (2004). Internet gambling in Canada waits in legal purgatory. CCSA National Policy Working Group: Policy Discussion Document. Retrieved February 21, 2012 from http://www.ccsa.ca/2004%20ccsa%20documents/ ccsa-011128-2004.pdf Ormand, S. (2004). Pending U.S. legislation to prohibit offshore Internet gambling may proliferate money laundering. Law and Business Review of the Americas, 10(2), 447-454. Retrieved February 22, 2012. PricewaterhouseCoopers (2010). BC Mining Survey 2010. Retrieved March 30, 2012 from http://www.pwc.com/ca/en/mining/publications/bc-mining-2011-en.pdf Rex, J., & Jackson, D. (2009). Window of opportunity? Internet gambling in Canada. Canadian Public Policy, 35(1), 121-137. Retrieved February 21, 2012 from http://www.jstor.org/stable/40213404 Sprehichet, B. (2007). Pirates of the Caribbean: Offshore Internet gambling sites cursed by the unlawful Internet gambling enforcement act. Hastings Communications and Entertainment Law Journal, 30(1), 139-177. Retrieved Feb 19, 2012. Statistics Canada (2010). Perspectives on labour and income: Gambling. Retrieved

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Feb 21, 2012 from http://www.statcan.gc.ca/pub/75-001-x/topicssujets/pdf/topics-sujets/gambling-jeuxdehasard-2009-eng.pdf