Thursday, May 03, 2007

Gong Show - Gambling



I know that a lot of people have a serious gambling problem and many other people are on the verge of having a serious problem. Gambling is an unbelievably foolish behaviour and I fail to understand why it is so attractive, yet the casinos are packed, there are lineups to buy lottery tickets, and people waste billions of dollars a year on this pastime. For today's gong show, I am gonging gambling, the gaming industry, and the government for encouraging and operating the defrauding of billions.

"Canadians lost $14.5-billion to the country's gambling industry in the last fiscal year, a new study has found. The economic report commissioned by the Canadian Gaming Association found the industry made more than $15-billion in revenue last year, including $700-million on non-gambling activities such as food and drinks.

The remaining $14.5-billion constitutes the amount Canadians spent on gambling activities — such as playing slot machines at casinos, buying lottery tickets and placing race track bets — minus the prize payouts. Profits were also found to be massive, pegged at $10.6-billion, including commissions and taxes. Roughly $7.4-billion enriches provincial coffers and $3.2-billion goes to charities.

The gaming industry includes casinos, lottery, horse racing, charitable gaming, bingo, slots and video lottery terminals. The study, conducted by HLT Advisory Inc., found that gaming revenues are on par with profit generated by spectator sports, television, movies, books, magazines and performing arts sectors combined."

To put the $14.5 billion into context, Canadian put $20 billion into mutual funds last year.

Update: Are you a compulsive gambler?


Did you ever lose time from work or school due to gambling?
Has gambling ever made your home life unhappy?
Did gambling affect your reputation?
Have you ever felt remorse after gambling?
Did you ever gamble to get money with which to pay debts or otherwise solve financial difficulties?
Did gambling cause a decrease in your ambition or efficiency?
After losing did you feel you must return as soon as possible and win back your losses?
After a win did you have a strong urge to return and win more?
Did you often gamble until your last dollar was gone?
Did you ever borrow to finance your gambling?
Have you ever sold anything to finance gambling?
Were you reluctant to use "gambling money" for normal expenditures?
Did gambling make you careless of the welfare of yourself or your family?
Did you ever gamble longer than you had planned?
Have you ever gambled to escape worry or trouble?
Have you ever committed, or considered committing, an illegal act to finance gambling?
Did gambling cause you to have difficulty in sleeping?
Do arguments, disappointments or frustrations create within you an urge to gamble?
Did you ever have an urge to celebrate any good fortune by a few hours of gambling?
Have you ever considered self destruction or suicide as a result of your gambling?

Most compulsive gamblers will answer yes to at least seven of these questions. Contact Gamblers anonymous for help.

24 comments:

freako said...

Gambling has to be viewed as entertainment. Some people enjoy a night out on the town. Some watch a hockey game. Gambling is no different. Personally, I don't like it much because I am all too aware of the negative payoffs, and I don't believe in "luck".

The problem occurs when people do not understand that the house advantage will grind them down over time. Every dollar you spin on the roulette wheel will cost you 5.26 cents (2 divided by 38). Run $1000 through the wheel in a night, and will cost you $52.60 a night in the long run.

Interesting, though, that we will forego returns to reduce risk in investing. We will pay a premium to avoid insurable risks. But we will pay a premium for EXTRA risk when we gamble. Why not start by acing the the house insurance? At least that has a positive return.

Clarke said...

In the first year of my MBA we had to take a course in statistics. The first little while we studied probability, which I really found interesting. To keep it relevant, we studied the odds on lotteries, and the various games of chance in the Casinos.

The best way to look at it is that Gambling is a tax on the stupid.

rentah said...

I tend to agree with about 98.76% of what freako usually says, but for the purpose of this thread I'll beg to differ (by a wider margin than usual).
Gambling is more than entertainment.
There may be a subgroup of those gambling who genuinely understand the odds (stacked against them) and go and have a night of fun losing money with friends.
But the majority of people genuinely believe that by skill, or magical luck, they will be blessed with good odds and big wins. They are deluded, they are 'ill' (depends on definitions). They bet and bet and bet and lose and lose.
I've previously refered to gambling losses as an 'Idiot Tax', much as clarke does above.

What peturbs me about modern day gambing is the magnitude of the wins, and the way that hope for those possible wins perverts the society.
It used to be that people gambled for penny pots at friendly poker evenings or cake lotteries at village bake sales.
Now they bet on lotteries for ginormous life-changing amounts: $20M, $50M, $100M.
This perverts a society's standards.
People literally forego saving for the certainty that they will win a jackpot.
(People sue lottery corporations because they've played for 20 years and haven't won a jackpot.)

The RE irony is that bus-backside-ads for "Hey you never know" 649 Jackpots have in recent years been replaced with photo ads of gangs of ditsy realtors. RE is the new myth regarding instant riches that everyone is telling themselves.

Gambling, for the majority, represents irrational hope: and hope is best described as "deferred disappointment".

freako said...

"The best way to look at it is that Gambling is a tax on the stupid. "

As I suggested gambling is a source of entertainment. As with most entertainment, it costs money. Are you calling anybody who derives entertainment from games of chance stupid? Or just anybody who spends money on entertainment?

"But the majority of people genuinely believe that by skill, or magical luck, they will be blessed with good odds and big wins. They are deluded, they are 'ill' (depends on definitions). They bet and bet and bet and lose and lose. "

People believe in lots of things, ranging from UFO's to left or right wing conspiracies. I am not sure how many people actually think that the casino will make them rich, and how many just act like that for something to do. I always see lots of grannies at the mall whose highlight of the day is buying a few lottery tickets and some scratch and wins. Lives can get boring, and for some people games of chance gets them out of their funk. That is not to say that the money is optionally spent. Maybe granny would be able to afford a nicer apartment, bigger TV, a cruise to Alaska if she had never hit the slots. But maybe she would handily give up all those things for stuffing quarters into those machines.

Of course, there are problems. I have an uncle who spends money he can ill afford on massive and complicated lottery "systems". He has been at it for 30 years. I swear he would have a millions if he had bough mutual funds instead. But I never see him as happy as when he sits with his big charts and his lotto tickets. Go figure.

As long as it stays in the category of entertainment, there are lots of stupid things to spend money on, some better than others.

I have probably gambled less than $100 in my life. And seeing all those people pumping money into Riverock puzzles me. I hope that those aren't kids college funds being frittered away. Something tells me that the vast vast majority of gamblers can manage their vice. What really does bother me are those Lotto 6/49 adds. It is considered such a social ill that the government runs it themselves, yet they see it fit to promote lottery buying with commercials where you get to tell the boss off. By the same logic, why doesn't the government promote tobacco use. And the addiction of municipal governments to gambling revenue is disconcerting.

freako said...

"The RE irony is that bus-backside-ads for "Hey you never know" 649 Jackpots have in recent years been replaced with photo ads of gangs of ditsy realtors. RE is the new myth regarding instant riches that everyone is telling themselves."

Yes, the gambling that concerns me is actually considered an investment, namely people stretching themselves to buy real estate.

scoop said...

Something tells me that the vast vast majority of gamblers can manage their vice.

Whatever the numbers, our governments have a huge responsibility to identify and help those who can't, and it's not being met.

RentingSucks said...

Partial reinforcement is the strongest kind of reinforcement. Pull the lever on the slot machine and sometimes you get a pellet (I mean payout :-).

Although I have to admit I'm finding poker a compelling game. Although you can actually win at poker through skill. At the casino's here simply understanding your probabilities would probably allow you to win money. You have to be ruthless and understand what your chances of winning are and how much you have to pay to see the next card versus how much is in the pot.

Anyway I mostly like games where you pay an up front fee and then get to play it as long as you like. Check out www.boardgamegeek.com or your nearest video game store for more options.

jesse said...

I assume this means you will also gong the VSX? ;)

Asun said...

Speaking of 6/49, I wonder if we can sue them based on truth in advertising. In one of their TV ads, it starts with something like "Think lightning wouldn't strike .., think again".

Well according to this page, odds of being struck by lightning: 576,000 to 1. Odds of winning 6/49: 13,983,816 to 1. That's a huge misrepresentation of about 24 times.

Livingsword said...

Mohican once again you are a saber cutting thru the soft underbelly of deception.

Gambling is a very serious issue in our society. When you look at the profits from gambling it becomes painfully clear that there is more than just massive “price gouging” going on, or stupidity for that matter.

People want to feel special; when they win they think the “universe” is smiling upon them. It makes up for when they feel mundane, or dreary, in their everyday life. This is the issue, why do people feel so empty, so lacking, why does the money they put into gambling not fill that hole. Why is it that spending money on other things does not fill that hole either?

They use money to feel special and it can give that illusion for a season but then it is hollow, it always comes up wanting. It cannot “kiss the soul”.

casual observer said...

What bothers me most about gambling is that if I get money by working, I am taxed on that income.

If I get money by gambling, I am NOT taxed on that income.

Even after I've paid taxes on my paycheque, if I save a little bit of money in the bank, I pay tax on the interest I earn, even though the interest isn't enought to keep up with inflation.

If I buy a house, and inflation/speculation raises the price of the home when I go to sell it, I again am NOT taxed on that increase.

Which behavior do you think the gov't is trying to encourage by this type of tax system.

Seems to me that the gov't is trying to encourage gambling and speculation with RE, and discourage working for a living and saving money.

freako said...

"They use money to feel special and it can give that illusion for a season but then it is hollow, it always comes up wanting. It cannot “kiss the soul”. "

By all means. I hardly consider myself a defender of vices, but if you are going after things that people like to spend money on and cannot "kiss the soul" you have a long long list to work through.

freako said...

"What bothers me most about gambling is that if I get money by working, I am taxed on that income.

If I get money by gambling, I am NOT taxed on that income."

Ok, but you can't tax gambling income without allowing the write off of gambling losses. Since one purpose of allowing gambling is to generate government income and the house wins on average, writeoffs would outweigh taxes.

Second, since the the odds are stacked against gamblers, you could argue that they are already taxed.

"I pay tax on the interest I earn, even though the interest isn't enought to keep up with inflation."

That I agree with. The risk free return on ANY investment should be tax exempt.

casual observer said...

"Ok, but you can't tax gambling income without allowing the write off of gambling losses. Since one purpose of allowing gambling is to generate government income and the house wins on average, writeoffs would outweigh taxes."

Gambling winnings are taxed in the U.S. but I'm not sure if they allow you to write off any losses. I guess if they did, they would probably just be able to be applied against winnings. Like capital losses can only be applied against capital gains, not other income, etc.

"The risk free return on ANY investment should be tax exempt.
"


Perhaps they could allow a person to deduct the amount of inflation from whatever interest rate they earn, as long as the inflation rate was accurately calculated.(The gov't should just calculate using a fixed basket of goods like they used to, not how it's done now with hedonic adjustments and substitutions.)

Livingsword said...

"By all means. I hardly consider myself a defender of vices, but if you are going after things that people like to spend money on and cannot "kiss the soul" you have a long long list to work through."

I would be happy to discuss other vices but I thought I should stay on topic. If you would like to have a dialogue about the long long list of vices I invite you to my blogs… vices can make for very interesting conversation…

Clarke said...

"As I suggested gambling is a source of entertainment. As with most entertainment, it costs money. Are you calling anybody who derives entertainment from games of chance stupid? Or just anybody who spends money on entertainment?"

Gambling is not my cup of tea, but individuals who spend some discretionary income on slots, tickets or at the casino are not stupid. Anyone who plays expecting to win, or spends money that they cannot afford to lose is stupid, and may very well have a problem as well.

patriotz said...

What bothers me most about gambling is that if I get money by working, I am taxed on that income.

If I get money by gambling, I am NOT taxed on that income.


Gambling proceeds are not income in an economic sense. They are neither payment for employment nor yield on capital. They are just part of a pot that someone else put money in. And part of that pot is taxed before anyone gets any proceeds.

If I buy a house, and inflation/speculation raises the price of the home when I go to sell it, I again am NOT taxed on that increase.

Which I agree with for personal residences. You have to live somewhere. If the value of your personal residence goes up, you're not ahead unless you sell the place and live somewhere cheaper. Expenses, imputed rent and capital gains for principal residences are all outside the income tax system and should stay that way IMHO.

On the other hand, I think speculative gains on investment RE (non-person residence) should be taxed more than gains on stocks, since speculators are responsible for the ridiculous price runups which are causing hardship for prospective owner-occupiers. In fact I'd like to see 100% taxation of RE gains, which would result in prices falling to rent equivalance.

Warren said...

patriotz:
On the other hand, I think speculative gains on investment RE (non-person residence) should be taxed more than gains on stocks, since speculators are responsible for the ridiculous price runups which are causing hardship for prospective owner-occupiers.

What's the difference between speculative real estate markets and speculative stock markets? In 2000 you'd probably be arguing the other way around, with an inflated stock market way above the real estate market. What about the families hurt by the crash in Nortel and other stocks, don't you blame the dot com bubble for that? You can't have it both ways.

The bottom line is that increased taxation on these investments leads to.. guess what.. less investment, which hurts the whole economy. We have to compete with the rest of the world on this. As a younger person who is making increasingly more wage-income every year, I'm really feeling the pinch of the tax man, and I'm looking at alternative ways of making money. The low taxation rates are what encourage me to invest in the Canadian stock market, with the low tax rate on Canadian dividends for example, and the rate on which capital gains are taxed. If these taxes increase, I'll be looking elsewhere.

An interesting point was raised by freako regarding no taxation on savings accounts, that would be a nice change, and would certainly help out our national savings rate.

The Conservative government was expected to give more tax relief to capital gains tax in the last budget, but did not. The story I heard was that they would have liked to implement a system whereby capital gains could be realized and then re-invested within 6 months without taxation, but the paperwork involved would have been too complicated. Not that complications have stopped them before...

freako said...

"The bottom line is that increased taxation on these investments leads to.. guess what.. less investment, which hurts the whole economy."

Patriotz would probably argue that the direct negative externalities of RE speculation are larger (people get priced out on the way up, owners lose their shirt on the way down).

While people got hurt in the stock market, they had more choice of whether to enter the market or not. Think greed rather than fear.

Interestingly, in a roundabout way, real estate speculation actually improves affordability. The high prices lead to excessive building, which means long periods of falling prices and flat rents. Until the cycle starts all over again.

Personally, I disagree with the principal residence exemption. First of all, I think it is abused. Second, I don't see why it should be exempt. If you have gains, you can afford to pay the tax. I'd be OK with deferral for repurchase, as long as taxes are paid eventually. The government likes to encourage home ownership. I don't think that is needed (look at the latest craze) as ownership is around 70%. In the end, it works out to be a subsidy of owners at the expense of renters. And the wealthier you are, the bigger the subsidy. Reverse Robin Hood for the most part. Not that I am a fan of progressive taxation. I am just an enemy of misallocation of resources.


"An interesting point was raised by freako regarding no taxation on savings accounts, "

More specifically, I'd argue that any investment return (whether capital gain or interest) get a blanket deduction of inflation before any other taxation. It is simply wrong risk free savings have negative returns. Wrong wrong wrong. Only real returns should be taxed. This measure could be revenue neutral for all I care.

Warren said...

freako:
While people got hurt in the stock market, they had more choice of whether to enter the market or not. Think greed rather than fear.

More choice? We're talking about RE investment vs. stock investment here... I think the "choice" to invest is identical. We aren't talking about home ownership for shelter.

Personally, I disagree with the principal residence exemption. First of all, I think it is abused. Second, I don't see why it should be exempt.

I agree that it is abused. There are rules around what constitutes a personal residence, I'd like to see them tightened up. I don't know if I'd like to see it abolished, tough call. What about the deduction of mortgage interest, as the US does it? I take it you're against that as well. The more you tax the owner-occupiers, and the less you tax the investors (as their interest is tax deductible), don't you push the market towards more speculative investment, and less purchase for personal use?

freako said...

"More choice? We're talking about RE investment vs. stock investment here... I think the "choice" to invest is identical. We aren't talking about home ownership for shelter."

Maybe I wasn't clear. A non-participant is not directly affected by stock market speculation. However, a non-participant is affected by real estate speculation.

One enters the stock market by choice. And yes, so does a real estate speculator. A homeowner doesn't (thought some would argue that renting is an alternative).

"There are rules around what constitutes a personal residence, I'd like to see them tightened up. "

We have a tendency to view what is good for us personally RIGHT now as good. And we also view taxes paid by others as good for us. It is obviously not that simple

If we instead view it as if the government needs to raise x amount of dollars and we should decide how to raise it. When you remove tax burden from one, you shift it on the other. And vice versa. The personal exemption results in higher taxes on other capital gains, higher income taxes, and higher sales taxes. That part may not be obvious.

Thus the principal residence exemption is not a "gift" from the government to the people, but rather from one taxpayer to another. And partially from one taxpayer back to himself.

If it is not a "freebie", then what is is?

a) A subsidy of owners. The larger the home, the bigger the subsidy.
b) The result is an artificial stimulation of demand for ownership.

From your earlier post:

"The bottom line is that increased taxation on these investments leads to.. guess what.. less investment, "

And if we cut the principal residence exemption and used the extra revenue to reduce capital gains, income, consumption and corporate taxes, we would be further along in that regard.

One caveat is that there is such a thing as excess speculation. However, not sure that the cure for such is worse than the ill. It would have been easiest if the Fed had played this part and nipped it in the bud with rate hikes much earlier. But with the tech crash induced recession and 9/11 they erred on the side of "caution"

"What about the deduction of mortgage interest, as the US does it?"

That is a can of worms. Since we tax savings interest, why not allow deduction of borrowing in general? Of course, cost of living is not deductible other than a basic deduction. Is interest expense a justifiable cost of living?

I'd go for a flat tax, and junk a lot of the giving with one hand and taking with the other.

Whatever the rationale for mortgage interest deduction, in the current market it wouldn't help affordability one bit. It would simply result in higher prices.

patriotz said...

What's the difference between speculative real estate markets and speculative stock markets? ...

The bottom line is that increased taxation on these investments leads to.. guess what.. less investment, which hurts the whole economy


Freako put my position pretty well. Nobody needs to own any stock, but everyone needs to live somewhere, and owning should be an economically viable option (i.e. one that makes sense on fundamentals) for those who choose it. Right now RE speculation is causing immense damage to the social fabric of BC (and almost the whole US). And it's causing damage to the economy too - although most people can't see through the fog of RE cheerleading. The fog has now lifted south of the border, and it will here too.

As to your second paragraph, there is too much investment in RE right now. Inflated land costs are also causing disinvestment in business and industry in Vancouver. Punitive taxation on RE speculation would allow reduced taxation for more productive investments, and/or lower personal income taxes, both of which would stimulate truly productive economic activity.

But no government - not even the NDP - would think of such a thing, since high RE prices are in the perceived self-interest of the great majority of voters. So we must wait for Mr. Market to deliver his rough justice.

scoop said...

A speculative real estate play is considered an "adventure in the nature of trade" and gains from it are 100% taxable. So patriotz, you have your wish.

In contrast, gains on securities are usually considered capital gains (50% taxable) even if there was no serious intention to earn income from them.

The principal residence exemption is a freebie in a sense, but also recognizes that people sell their houses for lots of different reasons, and in many cases it would cause hardship to slap a big tax bill on a paper gain when the proceeds are needed to purchase a similar residence somewhere else.

patriotz said...

A speculative real estate play is considered an "adventure in the nature of trade" and gains from it are 100% taxable. So patriotz, you have your wish.

No, you misunderstood me. I didn't mean 100% of gains included in taxable income. I meant gains taxable at a rate of 100%.

And I can assure you, very very few RE speculators are being taxed on their gains as business income. You actually have to be in the business of flipping to get this treatment, not some ordinarily employed person with a condo or two on the side.