The online gambling industry: A case of unproductive entrepreneurship
Has the legalisation of the online gambling market in 2021 been a success? No, the government simply underestimated the drive for profits of online gambling companies.
People like to gamble, but this unfortunately has a dark side
Although individuals are supposed to be risk averse in economic theory, people like to gamble, even if they lose on average. People choose to play voluntarily, so what’s the problem? It’s just a transaction – like buying goods or a service. But, gambling is a phenomenon – like smoking or alcohol – and people can become addicted to it. Addiction has negative consequences and can cause financial, relational, and psychological problems. This kind of market failure (not internalising the cost of gambling addiction to society) is a signal for governments to interfere. Like markets and firms, however, governments can fail because of unforeseen and/or unintended consequences of their policies. A report by the Dutch National Rapporteur on Addictions sketches a form of unproductive entrepreneurship which has been created by the government’s failure to successfully legalise the online gambling market.
From illegal to legal online gambling: the debate
Online gambling has higher risks for gambling addiction in contrast to gambling on location. Online, players can gamble effortlessly, quickly, continuously, and anonymously. In the last decade, growing demands were voiced to legalise the online gambling market – until October 2021, online gambling had been illegal, but tolerated. Dutch MPs were bombarded by lobbyists with arguments, visits and offers, even by former MPs who had switched camp. Lobbyists even severely interfered in the legislative process. The result was a regulated online gambling market where suppliers could only get a licence if their business fulfilled a number of duty of care obligations, such as monitoring the behaviour of gamblers and preventing risks of gambling addiction and gambling debts, as well as prudency in attracting new gamblers. These requirements were formulated in rather vague terms. The implicit hope or assumption was that the group of former illegal online gamblers could be redirected towards the new legal online gambling suppliers.
Unforeseen and/or unintended consequences of legalising online gambling
So, has the legalisation of online gambling lived up to its promise? Were new online gambling suppliers prudent in their advertisements? The answer is no. The amount spent so far on advertising (€271 million between October 2021 and July 2023) is outrageous. What purpose did this excessive amount of adverts – supported by Dutch ‘celebrities’ – serve? Redirecting the former illegal online gamblers, or attracting a new potential target audience?
Studies point to a growing market following the legalisation. The total gambling market rose from €2 billion in 2021 to €3.4 billion in 2022, but the problem is that the extent of the illegal online market was unknown. In numbers: studies show that the new online gambling opportunities attracted new players in particular, not (only) players already making use of the former illegal option. Young adults are overrepresented in this group. The percentage of problematic gamblers – gambling addicts and players with high gambling debts – is more or less the same. The absolute number of problematic gamblers has thus risen. So the assumption of being able to redirect the illegal online gamblers turned out to be false. Legal online gambling companies were not focused on solving the problem of unmonitored gamblers – value creation – but on capturing value (i.e. realising profits), and thereby increased the issue of problematic online gamblers.
Did the new online gambling companies monitor and prevent the possibility of players becoming addicted gamblers? The answer is no. On average, these companies have been inadequate in fulfilling their duty of care. The requirements were rather abstract; the companies could set up the measures themselves. More intensive monitoring means higher costs (and possibly less revenue) for online gambling companies, and – like with fewer advertisements – could undermine their business model.
Final assessment of this government policy and entrepreneurship
Clearly, this policy has not achieved its intended effect: redirecting the former illegal online gamblers towards the regulated market. Online gambling companies have shown no prudency when attracting (new) gamblers through advertising campaigns and the monitoring of gamblers has been inadequately implemented. The licensed online gambling companies’ drive for making profits was simply too strong. This has only served to aggravate the risks and problems attached to gambling.
This situation can be labelled as an example of market and government failure, but it is also incorrect to consider this in the light of productive entrepreneurship. The better term for this profit-driven activity is unproductive entrepreneurship.