This article had been published in Italian on LexGiochi on December 3rd, 2013. See the full article in Italian here:
https://www.egla.eu/w/portfolio-view/storia-ed-attualita-del-gioco-a-distanza-italiano/#sthash.KifwfDbO.dpbs
3. The parameter for the measurement of gaming trends
The amount of money consumers collectively spend on gambling and that, consequently, is taken from other expenditures, is equal to the difference between the amount bet and the amount returned to players in winnings. The amount bet is defined as “turnover” or “collection”.
The size of the market in Italy had been measured, historically and up until a few years ago, using the turnover parameter. Nevertheless this parameter was satisfactory for monitoring trends in the past when the product range was limited, invariant and composed of games characterised by relatively small and uniform rates of return to player. More recently however, because of the introduction of new games, the use of this parameter has created distortions and confusion.
Recently introduced games are not only new but also different. The historic games, such as the Totocalcio football pools and Lotto and Superenalotto lotteries, which are available with the same rules both on the physical channel and on the online one, are characterised by low repetition (the bet is performed a few times a week), high potential winnings and low return to player. The purchase motivation, irrespective of the channel used to play, is the hope of a major or huge win.
The games most recently introduced, especially those with remote participation, are basically entertainment. These are mainly characterised by high frequency of repetition (the bet is repeated many times during a game session), high frequency of winning and high return to player. Winnings often are limited amounts but accomplished more easily and repeatedly, while relevant winnings are also possible. Most of the bet amount is returned to players in winnings.
On the basis of data provided by the ADM [9] payout is around 89% for tournament poker, around 97.5% for cash poker and around 96.5% for casino games on average. The correspondent edge for the concessionaire, before gambling tax, is respectively: 11%, 2.5% and 3.5%, i.e. a very small portion of the whole amount collected. In the new games, in relation to the high payout and with reference to quite a long series of bets, the player “pays” a limited or very limited portion of the total amount wagered in exchange for the entertainment provided through the operator systems and organisation.
In high repetition games to change the payout, for example in order to introduce a higher level of taxation, it is not only equivalent to increase the price of the entertainment, insofar as the portion returned to player is reduced, but can also lead to a substantial change of the product, in other words of the gambling experience and its associated gratification, from the point of view of the player.
For example, in the case of cash poker, the player in each “hand” bets real money that goes to the winner, except for a share equal to 2.5% in average, which is the commission for the house. A cap is applied to each hand. The 2.5% represents a fair price for the service provided by the operator [10]. It is quite obvious that should the house retain a high portion, e.g. 10% or 20%, during a gaming session, which may consist of tens or even hundreds of hands, with normal alternation of winning by the various players at the table, all the players’ money were be quickly and inexorably drained by the house. No player would participate in such unfair conditions with the practical impossibility of winning. The game would not be competitive when compared with the possible alternatives offered by illegal gambling, and, given the characteristics of the Internet medium, it would be illusory to think the illegal offer can be mostly defeated by contrast measures [11].
In 2012, on average, online gambling returned to the player more than 95% of the wagered amount and retained less than 5% for the operators and the State. While the turnover (i.e. the amount wagered) in legal online gambling can be estimated at € 15.4 billion, the consumer spending, that is the figure really matters because it is the portion of income taken up from other expenditures, amounted to only € 749 million, over twenty times less [12]. We can now understand how the adoption of the turnover parameter is deeply distorting the representation of events now taking place in the gambling industry.
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[9] Until August 2012 in the monthly report regarding trends of Italian remote gambling, published by the Remote Gambling Office of the ADM till March 2013 and still available on the ADM’s website, it had been reported the payout of Skill games (including tournament poker), of non-tournament card games among players (in other words cash poker) and of fixed odds games of chance and non-tournament card games in solitaire (in other words, casino games). With reference to the last monthly data available (August 2012), payouts regarding the three different game typologies were: 88.58%, 97.45%, 97.03%. Payout data are also provided by yearly report processed on behalf of the ADM by the Remote Gambling Observatory of the Politecnico di Milano, on the basis of data provided by the ADM itself. The edge of the concessionaire, before tax, is equal to 1 – payout %.
[10] For a better understanding of frequent overestimation of revenues, and then earnings, of remote gambling operators it should also taken into account that players are generally rewarded with bonuses and incentives, non-cashable, usable to play and subject to gambling tax. Bonus is equivalent to discount from an accounting point of view. For poker the portion of revenues before gambling tax given back in bonuses to the player is often equal to 30% – 40% on average. Assignment of bonuses and incentives is a well-established practice in the market to which in any case the legal offer must go along with, to be competitive towards the illegal offer. With reference to cash poker in order to calculate the net revenues there should be subtracted from the 2.5% figure of revenues before gambling tax both the gambling tax itself, that is equal to 20% i.e. 0.5 percentage point out of 2.5, and bonuses amount that is equal to 30% – 40% of gross revenues in previous assumption i.e. at least 0.8 percentage point out of 2.5. Net revenues are consequently reduced to: 2.5% – 0.5% – 0.8% = 1.2%. By such net revenues the concessionaire must pay costs for marketing activity, including advertising (for a product provided through the Internet advertising is imperative to make the market aware of the offer), customer support, product development, IT systems, and operations. The remaining amount only represents the concessionaire’s earnings, and is subject to direct taxation and to contributions charges, as for whatever company. Several concessionaires do not make any earnings. Some of them are investing for a pursued future solid market position. Many minor operators are giving up the business because they have lost money since entering the market and are now aware it will not be possible to be profitable in the near future neither.
[11] As it had been stated by the European Commission, it is illusory to fight the illegal online gambling offer without a competitive legal alternative offer. Italy was the first to adopt this model and has been considered to be the example progressively imitated by many other countries in Europe and beyond.
[12] Data for spending of Italian remote gambling is available on the report published by the ADM with reference to December 2012. The ADM ceased to publish data regarding turnover on August 2012. Data for turnover reported on this article as equal to 15.4 billion euros had been estimated on the basis of turnover of the first eight months for each game typology, that had been provided by the ADM, increasing it proportionally by the ratio of spending of the whole year to that of the first eight months, that are provided by the ADM also, in order to estimate the turnover of the whole year for each single game typology, and then summing-up such estimates to calculate the total turnover.
