It seems like a surefire bet for a government struggling with a flood of post-recession red ink - the easy money of an online casino, tens of millions around the clock from eager gamblers.
No controversial taxes or spending cuts, just low overhead and a stream of cash, 24/7. That lure has proved irresistible to British Columbia, the first - but far from the last - Canadian province to jump into the business of online casinos.
In just 12 years, online gambling has exploded into a $20-billion industry - and millions of those dollars are coming from Canadians with high hopes and credit cards. All governments need to do is lure those gamblers with promises of a safer alternative that keeps money in the province - away from what they call "illegal" and "offshore" sites - and they'll hit the jackpot.
But that jackpot will have huge and hidden costs, warns gambling expert Robert Williams, co-ordinator of the Alberta Gambling Research Institute at the University of Lethbridge. He fears the sites will rely on people who would never have visited a private site but would be game to try a government-sanctioned one that they see as safer and more socially acceptable. And he predicts they will eventually flee to more alluring offshore sites with better odds and incentives. But the social costs of addiction will remain, outstripping any gambling revenue the province gets, he said.
"It doesn't make any economic sense, and it's going to cause serious problems."
Despite such worries, British Columbia has become the first jurisdiction in North America to roll the dice on a legal, government-run online casino, which relaunched last month after an initial security glitch. Loto-Québec is gearing up to launch an Internet gambling site this fall, and Ontario's electronic gamblers will be able to try their luck online by 2012. The Atlantic Lottery Corporation is looking to expand its East Coast offerings, and in the coming months, the Nova Scotia government will decide whether to join the rush. This week, PEI's finance minister came out in favour of making the move.
According to industry experts, the provinces' will find the venture anything but a safe bet.
"There is no way they're going to compete," says John McMullan, a criminology professor at St. Mary's University who studies online gambling, and recently completed a study of 71 randomly chosen Internet poker sites. "They're dreaming if they think they're going to take players away from those sites."
In its infancy, private online gambling was plagued by corruption and fraud, but it has evolved into a relatively well-organized, well-regulated and security-obsessed industry kept in check by watchdog sites, professional auditors and vigilant users. Sites that cheat players are quickly "rogued" - that is, exposed on player chat sites.
Most sites are offshore, but they are not illegal where they're based, including Malta, Gibraltar, the Dutch Antilles, and Britain. And there is domestic-based competition: an online gaming hub run from the Khanawake reserve in Quebec. While there at least 2,000 poker sites worldwide, just two major operators, Poker Stars and Full Tilt Poker, own more than 60 percent of the market share.
According to Mr. McMullan, the private sites lure gamblers by offering incentives that range from hefty loyalty bonuses to $300,000 cars to games with celebrity players. By comparison, British Columbia's government-run PlayNow site offers a free $10 token for signing up, a one-time gift of $100 in tokens for depositing at least the same amount, and a "bonus bar" that gives casino patrons a $5 token if they spend $5,000 on table games or $1,000 on slots.
"A $100 bonus is peanuts. Some of these sites are giving a thousand. And there is already a large number of players who have established loyalties with existing brands, so the offshore private market has the advantage," said Mr. McMullan, who adds that celebrities are also a draw on the existing sites. "I mean, you can go and play poker with Jason Alexander, or Mats Sundin. Who are you going to play with on the B.C. site - the minister?"
Mr. McMullan expects that PlayNow will also have trouble attracting and retaining one of the most lucrative groups of customers: slot machine players.
As is the case with most online sites, the odds of winning are published only as "Return to Player" percentages that reflect what will be paid out over hundreds of thousands of spins, rather than how much any individual player can expect to recoup. (For example, if a thousand players each bet $1, and one of them wins $920 while the other 999 lose everything, the return to player, or RTP, is 92 percent.)
On the new PlayNow website, the RTP levels for the slot machines mostly fall into the 92- to 94-per-cent range, which is consistent with land-based casinos, but a far cry from other online offerings.
"They are significantly worse than the standard that's out there. I would say 93 is the bottom for any online slot I have seen," said Eliot Jacobsen, a former math professor who runs Certified Fair Gambling, a California-based company that audits online gambling sites to make sure the RTP rates they advertise are accurate. "The slots that I am aware of average between 95 and 97, even up to 98. I know people who wouldn't put out a product that's less than 97."
According to Mr. Jacobson, those higher returns are necessary to attract and retain customers. Real-life casinos have high overhead costs, as well as a limited number of machines and hours, but online sites allow gamblers to play longer and more frequently. As a result, online gaming houses may not make much money from a particular patron, but they cash in on volume.
"The number of rounds online as compared to land-based casinos would knock your socks off," said Mr. Jacobson. "I have seen casinos that will get 10 million or more spins in a month on one of their online slot machines, because you can essentially have an unlimited number of people playing the games. So the volume is extraordinary, and you want to drive player loyalty a lot more."
So if provincially run sites such as PlayNow can't attract existing Internet gamblers, who will make up its clientele? Mr. Williams worries that when the overall pool of users grows, so does the number of addicts; and when those new Internet customers discover the better odds and incentives on private sites, they'll likely switch: their money leaves the province, but their problems, and the costs associated with them, stay behind.
"The same thing occurred with Internet gambling in Sweden and the U.K., who also said, 'Let's try to capture this revenue and provide a safer product,'" recounts Mr. Williams. "Those countries now have the highest rate of online gambling in the world. They have also had a huge spike in the rate of problems associated with online gambling, and there is scant evidence that they have captured the revenue."
Even if they could get the money, experts estimate that 41 per cent of provincial gambling revenues are generated by problem gamblers - and many consider online casinos the industry equivalent to crack cocaine because of their 24-hour, at-home availability and virtual feel.
PlayNow does offer responsible gambling measures, including warning customers when they have played more than 50 games and allowing them to exclude themselves from the site temporarily. Still, experts say there's little evidence that those measures work - especially with so many alternatives just a mouse click away.
"If you are effective, the addicts just go to the 2,000 other sites where they don't have any limits on their behaviour, so you're caught between a rock and a hard place," says Mr. Williams, who is especially concerned that the weekly transfer-in limit on PlayNow is $10,000 a week, which means a player could gamble away $500,000 in one year.
"Lotteries are pretty innocuous because few people get addicted, and even bingo and horse racing aren't that worrisome," continues Mr. Williams. "Land-based casinos are more problematic, and slot machines are particularly problematic. But online gambling is really indefensible in my view."
Special to The Globe and Mail