When it comes to gambling, competition is not always good
James Packer's Crown was victorious in the battle to win a second casino licence in NSW, but the rationale employed by the expert panel that advised Premier Barry O'Farrell does not sit so neatly with the wealth of opinion available from bodies like the National Competition Council and the Productivity Commission.
Competition provides consumers with cheaper access to goods and services and improves availability. But there are certain goods or services that while legal are considered to contain adverse social and economic consequences and more competition could become a net disbenefit for the community. Gambling can fall into this category.
Former Australian Competition and Consumer Commission head Graeme Samuel noted that "when it comes to gambling, competition is not always a desirable process because competition raises incentives to undertake activities, such as attracting more people to use your product, which may not be consistent with public interest considerations".
The Productivity Commission's report on the subject provides parameters. "The two objectives providing the strongest rationale for specialist gambling policies are to ensure probity and to reduce the adverse social impacts. The overarching goal should be to maximise the welfare of the community as a whole."
While it also concluded that exclusivity did not reduce problem gambling, the decision to allow a second casino licence in NSW does raise questions about whether it was appropriate for the O'Farrell government to rely so heavily on competition as its rationale for granting approval.
The net benefit to the state was fundamental to the decision to give Crown a casino licence - more tax and more tourism. The government's insurance against the negative social consequences was to introduce a cooling-off period for those who sought membership to the proposed casino. It was also convinced the market that Crown would tap into would be either VIP punters who could afford to lose money or interstate or international players - presumably whose interests were not of concern in the NSW jurisdiction.
Crown's proposal does assume a hefty increase in offshore patrons over time but it also relies heavily on local patrons. If these are simply cannibalised from Star then in theory there is no social disbenefit from increasing gaming tables in NSW. But realistically Crown will be looking to increase the size of the local, interstate and international markets to achieve its financial objectives of getting a respectable return on the $1.3 billion it plans to invest in Sydney's Barangaroo development.
Meanwhile, Packer made a surprising comment this week saying the development at Barangaroo will be measured in terms of the halo effect of having it in the stable of Crown's casino offerings (which include Melbourne, Perth and Macau).
Under this scenario it appears Barangaroo is being set up as something of a loss leader in much the same way as television networks buy expensive sport programs like the Olympics, the NRL and AFL (which don't pay for themselves in advertising revenue) but support the network brand.