Banking for 7 billion and 7 million

GLOBAL INVESTOR 3.06 Enrichment — 50
conspiracy and fraud charges, but there might also be links to the
company that he headed, which dismissed him after the charges
were announced. In addition, the company had to shut down all its
websites following a temporary restraining order.
Gambling addiction prevention or revenue source?
Gambling restrictions in Germany and Switzerland are primarily
aimed at preventing addiction, and as a positive side effect they
sluice millions worth of additional tax revenue into the respective
countries’ government coffers. The surplus revenue from their nonprofit
gambling organizations is used to fund cultural, sporting and
charitable institutions and activities. Consequently, liberalization in
the various European countries is being pursued only haltingly
to keep this key source of revenue from drying up prematurely.
Bettors are thus flocking in droves to the gray market in cyberspace.
Gambling industry experts estimate that four out of five
bets in Germany and a whopping nine out of ten wagers in Switzerland
are placed with non-state operators. Hence, a huge proportion
of gambling is conducted in the so-called gray zone and thus evades
state control. Incidents of match fixing will probably also tend to
increase, as evidenced by the recent scandals in Germany and
Italy. Early detection of match fixing requires an active exchange
of information between gambling control authorities and betting
offices. However, since betting operators conduct their business in
the gray zone, they do not officially exist and no exchange of information
takes place. Active information sharing could facilitate
early detection of irregularities such as inordinately large wagers.
The recent scandals in Germany (Bundesliga in 2005) and Italy are
likely just the tip of the iceberg. It’s generally assumed that most of
the betting manipulation involves lower-league matches because
those largely take place away from the public eye and are thus
subject to less scrutiny.
Betting operators have different ways of calculating payout
odds. One way is with fixed odds, which barely fluctuate or do not
change at all during the betting period, regardless of the size and
volume of the wagers involved. To set odds on a match result, the
bookmaker relies on statistics based on past performance, player
lineups and so forth. The betting window closes before the match
starts. The bookmaker bears the financial risk entailed if the odds
are set incorrectly.
Another way is with flexible odds, which are determined exclusively
by the size and volume of the wagers involved and are not
affected by the actual probability of a given outcome. Under the
flexible-odds method, bets are also accepted during the match and
the betting period ends with the final whistle. The betting operator
deducts its commission and then pays out the rest of the wager
pool to the winners. It can basically be assumed that informationefficient
betting odds accurately reflect the occurrence probability
of the possible outcomes. Betting operators most likely use
a mixed method to set odds; each operator guards the effective
odds-setting method employed as a proprietary business secret.
Figure 1
Source: Global Betting and Gambling Consultants (GBGC)
Spending on gambling
European gaming volumes could quadruple over the next 10 years
if gambling becomes as liberal as it is in Australia.
In % of GDP
2.5
2
1.5
1
0.5
0
Australia
USA
Europe
Liberalization is moving along
We believe that a liberalized market will be easier to control than
a gray market and therefore anticipate a trend toward further
deregulation. Since deregulatory progress is hardly likely to be
achieved at the national level, a partial liberalization will probably be
strived for and pushed through at the European level. Setbacks like
the recent one in Germany, where the Superior Administrative