Born In The USA

A couple of bits of news from Smarkets - the first is the announcement that their commission rate will be down to 2% in 2012, and the second is a (mostly) good article about the attitude of Americans to gambling. (I say mostly because I buy car insurance since the law mandates it, not because I'm betting I'll have a car accident).

After listening to your feedback on our proposed commission structures, we have decided to reduce the commission of all users to a flat rate of 2% in 2012. This new commission will take effect from the 9th of January, making Smarkets the exchange with the lowest base-commission in the industry.

And why gambling can be good for you:

In 2006, a law making it illegal to gamble online passed in the United States. This law meant that I had to relocate to the UK in order to set up Smarkets, the betting exchange I co-founded with my colleague and fellow American, Hunter Morris. It is unfortunate that we were put in this position, as we now operate a thriving business in a depressed economy and have been creating jobs, rather than cutting them. According to the Congressional Committee on Taxation, legalizing online gambling in the United States could generate $42bn in tax revenue. As it stands, countless Americans engage in illegal online betting with offshore operators, proving that even if you pass a law, people will find a way around it.

No matter how you do it, gambling permeates our everyday existence – and that’s not necessarily a bad thing. Dr. Patrick Basham, director of the Democracy Institute (a public policy think tank based in Washington and London) asserts in a book he co-authored earlier this year, Gambling: A Healthy Bet, that gambling can be good for you. Basham says gambling can add to human happiness because it is a “net contributor to public health, economic life and an important component of a liberal society.” Furthermore, he argues that gambling can help train people to manage real-life risk. While addiction is a concern, less than 1 per cent of people who gamble are said to be addicts. I think the benefits of gambling outweigh the risks.

Buy a cereal box and you might find a lucky ticket inside entitling you to a free trip to DisneyWorld. Search engine giant Google sports an ‘I’m Feeling Lucky’ button below the search box on their homepage. Users who click it after typing in their query are taken directly to the first search result. Google can’t promise it will be the page you’re looking for – but you’ll take a chance on it. If you’ve ever bought car insurance, you’re a gambler. Disagree? Let’s think about it logically. By purchasing car insurance you are essentially betting on the fact that you will get into a car accident.

W.I Thomas, an American sociologist, argues that humans were born to gamble and that an appetite for risk is inherent in all of us. History appears to back him up on this. In Ancient Rome, citizens were allowed to gamble during the annual Saturnalia festival. So popular were the festivities that when emperors Augustus and Caligula tried to shorten the celebration, it caused an uproar. Russian author Fyodor Dostoevsky allegedly wrote Crime and Punishment in a hurry because he was in need of an advance from his publisher to help pay off his gambling debts.

Gambling is ingrained in our culture. When the British government elected to reinstate the National Lottery in 1994 after a 168 year hiatus, the surge in popularity was massive. An estimated 70 per cent of the adult population in Britain gambles in some form, be it on fruit machines, at a roulette table, or on the Grand National. In other words, people are going to bet on the outcome of events, whether you want them to or not.

People gamble for a variety of reasons. From a social point of view, people bet because it’s seen as a form of recreation and entertainment. An outing to a bingo hall, for example, acts as a social vehicle. In psychological terms, people gamble because they think they stand a chance to beat the odds and make money. French psychologist Clemens France argued that gambling and faith are analogous in that they both express a desire for order, salvation and reassurance. In the same way that people turn to faith in times of uncertainty, humans are naturally inclined to place irrational bets on the outcome of events because it gives them a sense of hope. There is something comforting about putting your faith in the unknown.

The financial benefits of gambling to society are hard to ignore. In a study published in 2010, Deloitte estimated that the UK betting industry was worth approximately £6bn. Of that, an estimated £700 million was generated in taxes annually from the retail betting industry alone. A breakdown of the way Camelot Group (the company that owns the National Lottery) divvies up funds reveals that for every pound spent, 50p is put into the actual prize fund. 28p is donated to good causes. A further 12p is given to the government and 5p to retail commission costs. Camelot Group only gets 5p for every pound it earns and of that, 4.5p is used to cover operating costs.

Gambling suffers from a less than savoury reputation, but evidence suggests that we aren’t doing anything wrong. Aside from the financial and social benefits, to engage in gambling is to partake in an entertainment activity that we are naturally inclined to do. There are few highs greater than flashing a royal flush at your opponents. And if you’re unlucky today, your chances are just as good tomorrow. As Chico Marx famously said “If I lose today, I can look forward to winning tomorrow, and if I win today, I can expect to lose tomorrow. A sure thing is no fun.”

The United States should repeal this silly, unnecessary law.