How to Tax Gambling

Recent comments from Claire Murdoch, the director of mental health services for the NHS, have touched on an important point that I made in my last blog, so I thought I’d offer some more practical detail. I want to offer ideas and solutions, not just problems.

I completely agree that gambling firms should be paying directly to treat the issues they cause. The same goes for any company operating in an industry that is doing harm. That applies as much to cigarette companies causing lung cancer as it does to seafood companies filling our oceans with their industrial waste.

Yes, I watched Seaspiracy this week. Crap name, excellent documentary.

The voluntary amounts the gambling industry are paying are not sufficient, either to treat the problem or to penalise their behaviour. It is a superficially impressive headline sum designed to whitewash their image and throw responsible gambling lobbyists off their scent.

Murdoch and I agree on several important issues, but on this I think she has come up short. It’s a worthy sentiment and a good starting point, but it does not address the underlying issues. It is a blunt force cure that will simply incentivise unscrupulous gambling firms to push harder to cover their losses.

What is needed is precision preventative efforts; preferably ones that can be monitored and adjusted as the data shows is appropriate. There are several aspects to focus on:

The type of gambling that is taking place, because not all gambling is equally harmful or addictive. A pragmatic approach to responsible gambling recognises that fact and adjusts accordingly. Slot machines (and the FOBTs that offer them) are the worst offender. They’re causing most of the addiction problems, so they should bear the brunt of the cost.

That sounds so sensible and obvious, I don’t really feel like it needs more supportive waffle, but here goes anyway…

If profits on sports betting are taxed at the same rate as slots, then multi-product providers will just work harder to move their customers to more addictive, higher yielding products. That’s the most cost-effective way for them to cover any tax shortfall. But if less addictive and, dare I say it, more enjoyable products are taxed at a lower rate, the operator will have a disincentive to migrate customers between games.

To be clear, that type of gateway druggery is already an issue, but it will get much worse. I have a consultant friend who openly advises prospective sportsbook operators not to bother unless they have a supporting casino product. The acquisition costs for new customers are too high for a standalone sportsbook to be profitable, so the official expensive advice is “get them in on football betting, then get them on the slots”.

The second aspect that must feature in any system of taxation, is the individual gambler’s rates of play. If you have the data, it is not a challenging task to identify a problem gambler. If you have big data, it is not difficult to set general thresholds for what constitutes problem gambling. You look at how often/long they play, and how much they lose.

If a player triggers a problem gambling flag, then the profits on that player should be immediately taxable at a higher rate. There’s no reason that can’t be implemented with tiers:

  • Base tax rate (based on the game type): 25%
  • Tax rate for a player with low level gambling problems: 50%
  • Tax rate for a player with medium level gambling problems: 75%
  • Tax rate for a player with severe gambling problems: 125%

That’s right. If a player is losing a meaningful sum on a very regular basis (e.g. £100 five days a week), then the company should actually be out of pocket for enabling the behaviour. They’ll take player protection much more seriously then.

I’m sure gambling operators will be outraged at restricting players so arbitrarily, but I’m a pragmatist. I’m happy for those limits to be bypassed if due diligence shows the player can afford higher limits. And I don’t mean the sort of shonky KYC Barclaycard performed when approving my student credit card twenty years ago.

Likewise, if a customer can show they’re a profitable professional in a beatable game (poker, sports betting), they should not be subjected to frequency limits. These are easy and fair concessions to make.

I don’t care if this means customers have to jump through a few narrow hoops if they want to lose more money. It’s for their own good.

Importantly, these simply rules also protect good operators. My last piece was basically speculation that privately owned gambling firms are probably causing fewer social problems because they are not legally obliged to be profit driven. If that is true, then this type of system will benefit them.

A firm that is making £10 a week from a million customers is doing just fine and will not be much worse off. A rival company making £500 a week from twenty thousand customers is a blight that needs to be taxed into oblivion. They are making the same profit, but do not deserve to be treated the same way.

After a year, when the first results are in, publish them for all to see. Let the people know who the responsible operators are so they can make an ethical choice that they are currently denied.

Bobby’s Bets:

It’s only two days since the last blog and I haven’t done anything gambleworthy. Bring on the US Masters though, it’s looking like a really interesting field!

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