The growth of gambling in America: subverting Capitalism

No poker tonight, but LondonFroggy’s blog got me thinking about gambling, capitalism, and the poker boom. I figured I’d give a shot at an explanation, since my Google search didn’t seem to produce much. Warning: philosophical and cultural content to follow.

First off, lets look at the numbers. Is gambling really booming?

“In 2002, commercial gaming revenue nationwide rose a modest 3.5 percent to $25.5 billion, according to Analysis Group, a Los Angeles economic consulting firm. During the same period, Indian gaming revenue increased almost 11 percent to $14.1 billion.”

These numbers suggest that while Brick and Mortar casinos are increasing revenue, there is no evidence to suggest a “boom.” But what about online gambling?

“‘In 2000, Internet gambling brought forth an estimated $2.2 billion in
worldwide revenues… [and] could reach $100 billion a year by 2006′ (Hammer, 2001).
Americans wagered the majority of the $2.2 billion (Sinclair, 2001). Recent market
research estimates that consumers spent from $6.5 billion to $8 billion on Internet
gambling in 2002 (M2: Presswire, 2003). This represents significant revenue growth
from just $300 million in 1997 and $651 million in 1998 (NGISC, 1999).”

Aha! These figures fit the “boom” label, suggesting that online gambling is growing at an exponential rate. It’s difficult to collect accurate data on online casino revenue, since most online casinos are not based in America. The numbers here are outdated, and probably underestimate the actual revenue figures.

The internet has brought gambling to our living rooms: riches are only a mouse click away. But if the medium was available 10 years ago, would we have seen the same growth? Or is there something unique about the time, something about 2003 that has increased the number of people who want to gamble?

I believe that if gambling had been convenient in the past (imagine blackjack tables at the local bar), people would have gambled then as they do now. It’s difficult to separate gambling as a social activity from gambling as a “hobby”. The new Strip and the dying of Fremont Street suggests that the real gamblers (the non-social ones) are far outnumbered. But the internet suggests otherwise.

Back to the central question. What is attracting Americans to online gambling (note: these conclusions may hold for other countries, but as an American, I can only speak from an American perspective)? I think the answer lies in an underlying disgust with capitalism.

Robert Nozick, a contemporary philosopher, defines a capitalistic society as one in which “the market distributes to those who satisfy the perceived market-expressed demands of others, and how much it so distributes depends on how much is demanded and how great the alternative supply is.” So members of a capitalistic society receive money based on the demand that exist for the product or service that they supply.

Gambling represents a subversion of capitalism: the gambler receives money not for a product or service, but for either (a) their skill in estimating the expected value of various events, or (b) luck in guessing an event with a negative expectation. Most gamblers clearly fit into category (b), but we can think of poker players, card counters, and roulette sharps who would fit into category (a).

A positive expectation gambler uses his knowledge to create situations where he has an advantage over his opponent(s). Is it a failure of capitalism when a brilliant mind chooses gambling as a profession over another career which large amount of demand exists? I say it is– the system’s inability to capture the potential good or service of the brilliant gambler has caused him to seek a career where he can use his brilliance to gain a higher profit.

The positive expectation player need not deal with organizational charts and bureacracies that may impede his ability to generate useful products. In gambling, the player’s income and reward is based solely on his level of skill and knowledge. This directly proportional relationship between personal performance and income rarely exists in traditional capitalistic careers, where income depends greatly on the performance of co-workers and bureacrats that the employee has little or no influence on.

I argue that the failure of capitalism– the failure of the employee’s ability to control the good that he produces– is responsible for the growth in online gaming. Speaking from a personal perspective, gambling is the only arena in my life in which my performance has a direct and visible effect on my well-being. I think the future will bring more “professional” gamblers, and skill games such as poker will see enormous growth as casinos eliminate skill games such as blackjack. Vegas has already seen a proliferation of 6:5 single deck blackjack, which offers the house a nearly insurmountable 1.5% edge (vs. .5% with traditional blackjack rules).

What does this mean for poker players? The good news is that there will be a constant supply of new players who are trying to develop their skills. These will provide skilled players many opportunities for positive expectation plays. The bad news is that the poker “industry” will be able to support a much larger number of professionals, and the ocean will be filled with a greater number of sharks.

For those unsatisfied with American capitalism, the convenience of online gambling has created an opportunity for knowledgeable and skillful gamblers to make a large amount of income. The “rugged individualism” of old America is returning in the waters of the internet gambling, a place where income is solely dependent on one’s knowledge of the game and the ability to recognize positive expectation gambles. Come on in, the water’s nice!

I welcome comments and disagreements– the thoughts you see here are in their infancy, and represent only my humble opinion.

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