Competition will drive value in gaming

Reference is made to the article ‘WINNING TICKET – Third Lottery Licence Issued to Mahoe Gaming as Court Fight With BGLC Continues’, published in The Gleaner on Monday, July 27, 2020. The article describes an ongoing legal matter between Prime Sports, a subsidiary of Supreme Ventures Limited (SVL), and the Betting, Gaming and Lotteries Commission (BGLC). The issue surrounds the BGLC’s decision to issue a third lottery licence; SVL holds the other two licences. The BGLC is the sector regulator and is required by the Betting, Gaming and Lotteries Act to perform several functions. Among them are to regulate and control the operation of betting and gaming and the conduct of lotteries in the Island.

The article mentioned that “…Prime Sports wanted the court to order that no licence be granted unless a feasibility study be conducted on lottery operations in the country…” Please allow space for the Fair Trading Commission (FTC), Jamaica’s competition authority, to address the implication of Prime Sports’ position, if accepted.

The Betting, Gaming and Lotteries industry has three main stakeholders: consumers, business ventures and the State. Consumers (‘gamers’) who engage in betting, gaming and lotteries value the industry as, among other things, (i) an opportunity to supplement their income, (ii) a source of entertainment; and (iii) a means of demonstrating their expertise in sporting events. Based on reports from the BGLC, during the 2016/2017 reporting period gamers increased their annual ‘stake’ in the industry by 16.6% compared to the previous period. For business ventures, the industry represents the opportunity to command a share of the multi-billion dollars gamers spend each year and for the State, the industry represents a significant source of tax revenue. In particular during the 2016/2017 period, gamers spent $158 billion while the State received $5.9 billion in tax revenue.

One of the tenets of competition law and policy is that in competitive markets, excessive state intervention in commercial transactions is redundant if not counter-productive. For instance in 2019, the FTC reviewed SVL’s acquisition of 51% of a rival sports betting enterprise Post to Post Betting. Based on the tenet, the FTC decided against challenging the transaction after concluding that competition was sufficiently robust in the segments of the industry which could have been affected by the transaction. In fact, the FTC estimates that had the transaction been blocked, gamers would have been deprived of approximately $9.5 billion in foregone benefits over a two year period.

The State, through the BGLC and FTC, has been playing an important role in the developing the sector. Without gainsaying the importance of these oversight bodies, however, competition is the unsung hero driving the tremendous value observed being created by this industry. This is because competition is more effective than state authorities in making crucial decisions in a market. Key decisions such as who enters and who exits the industry, for example, should not be unduly influenced by the State as competition is best suited to make these calls.

To this point, economists recognize that some markets are natural monopolies where conditions are such that it would be feasible for only one business venture to operate profitably at any point. Even in natural monopolies, however, competition is not precluded. In these markets, rivalry takes the form of competition for the market rather than competition in the market as businesses compete to become the only profitable supplier; during this process of competitive rivalry, significant amount of surpluses would flow to gamers.

The welfare of gamers is significantly greater in markets where competition has a lead role, relative to markets where competition is subverted. In a competitively organised market, payouts are higher; there is a greater variety of products; more convenient gaming locations; and a higher rate of product innovations, relative to markets where competition is absent.

Significant consumer surpluses would therefore be lost if competition is stifled. In other words, it is in the public’s interest to allow market conditions to take a lead role in determining who enters and exits a market; the feasibility of lottery operations in Jamaica should not be a pre-condition for the BGLC to issue additional licences.


Note: This article was first published under the title “Competition will drive value in gaming” in the Gleaner on Monday, August 3, 2020 on page A5 as the ‘Letter of the day’.