Imagine you are trying to craft a sensible gambling policy for the nation. You don’t want to outright ban all forms of gambling, but you want to minimise overall losses and understand that some people will find the risk-taking somewhat addictive, leading to bad outcomes for them and their families.

What do you do? If I were tasked with this problem, I would consider each type of gambling in terms of its effort-to-loss ratio, whether casinos and their various games, lotteries, poker machines, or sports betting.

Low-effort gambling games with a risk of high losses would be more tightly regulated and relatively inaccessible. On the flip side, high-effort types of gambling with lower risks of high losses would be more loosely regulated and accessible.

Australia seems to have it backwards. Low-effort poker machines are widely available and accessible throughout our cities and towns. High-effort card games, like online poker, are banned. And in between we have casinos, sports betting and racing, all widely available.

The result is that Australians have the highest gambling losses in the world, with the best estimates of around $20 billion lost in 2019. For perspective, South Australia’s total state budget in 2019-20 was $20 billion.

The distribution of gambling losses is enormously skewed, meaning there is a small cohort of adults losing thousands per year in poker machines alone.

How can we make sense of this situation?

The bizarre politics of gambling

Consider current political conversations. We are looking to ban children from accessing social media because their toxic algorithms are “like pokies for kids”.

We are also considering banning or limiting gambling advertising. That sounds like we care about the social problem of widespread gambling, right?

Yet at the same time, prime real estate in our capital cities is devoted to casinos that only stay in business because their main product is laundering dirty money from across Asia. The New South Wales and Queensland governments both orchestrated real estate deals to get major casinos on their most prime city waterfront real estate and exempted them from lock-out laws.

There is now a weird sideshow of an inquiry in New South Wales about the “suitability” of Star Casino to operate. But surely it is no secret that any company running a casino will end up laundering money at the edges of regulatory oversight. Perhaps these companies themselves are the product of laundered money — they certainly seem incapable of running what should be a lucrative business.

A constant battle with casino operators was what state governments signed up for when they orchestrated the development of these casinos. Let’s not kids ourselves. Worse than the few casinos on prime real estate is that Australian suburbs are filled with over 190,000 poker machines costing us billions per year in gambling losses, or nearly $500 per adult lost on poker machines alone.

Then there are Australian sports. Easy mobile access is available to bet on all sorts of sports, and betting agencies now sponsor major sports codes. But hey, don’t forget to “gamble responsibly”!

Each Australian state has a minister for racing and gambling (though the word “gambling” is now often replaced by “gaming” in a stroke of genius propaganda) to ensure the continued operation of the horse and dog racing industry.

I’m not against racing horses, dogs, ostriches, humans or any other animal. I’m not against people betting on these races. Yet here we are, banning playing poker online and considering banning gambling advertising, but promoting the addictive gambling activities in casinos and allowing poker machines in clubs across our suburbs, while protecting the ongoing existence of the horse and dog-racing industries.

How can we explain what looks like a completely inconsistent policy — one where we seem to worry furiously about gambling yet fundamentally support it with policy and spending decisions?

The social logic of gambling policy

Many parts of Australia’s political apparatus are captured by mates.

I wrote a book about this phenomenon called Rigged: How networks of powerful mates rip off everyday Australians (originally Game of Mates). The audiobook is being released here with a new chapter delivered each week to paid subscribers to my blog, Fresh Economic Thinking.

The only consistency I find with Australian gambling policy is that vested interests and their political mates always seem well looked after. If you want to bet on future gambling policy changes, keep this in mind. Here’s why.

Australia’s $20 billion per year in gambling losses are the incomes of owners of gambling establishments. For the racing and gambling industry to succeed, for example, requires more punters to lose money gambling. The less we lose, the more the industry suffers.

The important part is that only selected mates are allowed to profit from gambling losses. Sometimes those mates are casino owners, sometimes they are pubs and clubs. But they aren’t other online poker players or international online poker operators, nor are they international social media companies.

You can glimpse the social game at play via the rotation of personnel and political donations. As I explain in my book Rigged, donations are used as a costly signal of social loyalties, while revolving doors provide opportunities for back-scratching within a group.

In terms of state-level political donations, hotels, clubs and gambling firms have been major contributors, far exceeding even property developers. They are trying to burn money to give a costly signal that politicians and groups that look after their interests will be rewarded in the future. They want to show their credit is good and participate in the hidden favour exchange game.

The revolving door tells us more, and we can observe senators and senior party officials rotating into positions in the gambling industry with great regularity. These jobs provide a glimpse into the favour exchange game, as they often are a way to reward people with what looks like legitimate employment income.

We catch a glimpse when we see major gambling firms entrenching themselves in political activities. As Paul Sakkal writes in The Sydney Morning Herald:

Betting giant Sportsbet has paid for a $110,000-a-year ‘platinum’ membership that gives it access to Labor’s fundraising forum, whose major gathering, which started on Wednesday night and finishes on Friday, is attended by the prime minister and his cabinet.

There is also a strong economic alliance between the usual gambling suspects of clubs, casinos, and sports betting, and the media itself. After all, selling advertising for gambling activities is a lucrative business, and any attempt to ban or limit gambling advertising will cut off that revenue stream.

Gambling and the state

This state’s interests add complexity to the social logic of gambling policy.

Lotteries have long been a way for governments to raise money, ever since their successful introduction by famous Italian playboy Giacomo Casanova as a funding source for the French Treasury in the 1750s.

In Queensland, Golden Casket lotteries and scratchies funded health services for returned soldiers, and after the state took over the lottery in the 1920s, it raised the money to build the Royal Brisbane Women’s Hospital. Profits from scratchies still fund many medical services and research today. Charities, schools, and all sorts of organisations also use gambling in the form of raffles as a source of revenue.

Today, states impose special taxes on poker machines and casinos, raising over $9 billion in 2022-23 (a jump from the 2015-19 level of around $6 billion per year). About a quarter of gambling losses end up in public hands via various special taxes.

What changes would be positive?

Before I consider how change might come about, I want to make sure you are convinced that change is desirable.

Imagine that private gambling was banned but a public agency operated poker machines and casinos that raised $20 billion per year in revenue. This would seem unscrupulous and unfair. A tax on stupidity you might say.

If you agree, then it makes sense to apply that logic to private gambling operators too. But banning all gambling seems likely to fail. Few nations ban all gambling and generally do so for religious reasons and hence have the backing of religious institutions to foster a culture that avoids gambling.

On the flip side, allowing gambling to occur completely unregulated seems likely to have poor social and economic outcomes on the whole.

Is there a way to navigate the interests of states and mates in gambling in Australia to get substantial change that would reduce gambling losses by $10 billion per year to get us closer to global norms?

We do see small wins occasionally, such as carded play. That’s positive. But check out the effect of this policy change.

The introduction of mandatory carded gaming at Star’s casinos in response to money-laundering concerns also was expected to hit the company’s bottom line. With carded play, punters set gambling limits they can’t change for 24 hours and get an email each month stating how much they have lost.

‘Carded play is having a bigger impact than expected,’ [analyst Angus Hewitt] said. ‘Since its limited introduction in Sydney on August 19, daily average revenue is down 11% for mandatory carded play and $5,000 cash limits compared with the four weeks prior’.

The economic reality is that limiting losses for gamblers means limiting profits for casinos.

Maybe we can look abroad. The United States shows the range of different approaches that states can take when it comes to gambling. Many US states do not allow casinos or many forms of gambling at all (usually a state lottery is allowed). Some allow casinos on Indian reservations, which is another form of revenue raising for the government apparatus of these communities.

National laws in 1992 effectively banned sport-betting in many states, but a 2018 Supreme Court decision overruled this and led to an explosion in online sports betting in many states (this is why the 2016 data in the above chart showed very little betting losses in the United States).

Maybe Australian states could experiment a little? Banning gambling advertising seems sensible to reduce the take-up of sports betting. Ensuring that horse and dog racing pays for itself and is not supported by real estate deals makes sense too.

A cap and trade licensing system could limit poker machines. Rather than 190,000 of them, we could cap it at 50,000 (a quarter of the current number) and require those who want to operate a machine to bid for a state license to operate. Any way to limit daily spending at all venues seems sensible, though I expect some experimentation is needed.

Like every country today that allows gambling, we will muddle through.

What we must be fully aware of is that effective gambling policy change in Australia to get us closer to global norms means about $10 billion in revenue forgone from gambling companies, who are politically entrenched mates, and about $3 billion in lost public revenue from special taxes on gambling. It means that the gambling industry will shrink by half, knocking out many existing businesses. Lobbyists will cry about job losses.

Change will occur only when there is a strong electoral risk to not acting on gambling policy.

This piece first appeared in Fresh Economic Thinking.

How can governments strike the right balance when it comes to gambling reform? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.