Wednesday, 15 April 2009

Gambling Britain

I have never really understood this Government's fascination with gambling and all hours drinking. For some odd reason we had all the plans for mega-casinos and the developers behind it wooing people to influence them. Luckily some have them have not gone ahead but online gambling and betting generally seems to be very much on the rise.
There is little doubt that even if the advertising online is not aiming directly at under 18 year olds, then it is tuned nicely to make sure that as soon as they become of age they are hooked. My sister's firm celebrated their 20 years in existence with a really nice party at what I thought was a swish casino in Swansea. We all got dressed up, had a lovely meal and then were given a few chips to have a bet. What got to me immediately was the average age of the individuals was far lower then I expected.

At one point, seated at the Blackjack table and doing reasonably well, I was joined by a young man and his friend, neither of who could have been more than 18. They both bet with stakes far greater than mine, seemed to understand the game far better than me and, having lost a considerable sum of money, just went over to the cashier and bought a pile more chips.

I shudder to think how much the gambling and gaming industry is now turning over but with the propensity of online gambling, the market seems to be accelerating, fuelled by a younger generation of quite hardened gamblers.
Spread Betting

Perhaps one of the most complex and potentially damaging forms of gambling is spread betting. It is not a new idea but it's a huge growth business. For instance, the whizz kids in the City can pit their questionable skills against the City Indices and try to guess where the markets will end up not just at the end of the day but at several points in the day and with more complex additional items thrown in for many cases.

The concept of spread betting is simple on the face of it but complex in the potential outcomes. Spread Betting is volatile intentionally to give a wide range of possible outcomes that the Spread Firm can more readily judge than the average punter. The art is to be better than the average punter. Most of the time the results will be sensible but just occasionally they will be extreme outcomes. Few gamblers consider the extreme case when betting and can easily burst their limits.

Before I give a two penny explanation of spread betting, participating does not happen by wandering up to a betting shop, paying for a bet and receiving a slip. You have to open an account, populate that account with money and receive a credit limit. You see, the vagaries of spread betting mean that you can lose far more than your stake.

Here's some examples:

The Single Index

The simplest form of spread betting is the Single Index. What defines this type of Index is the fact that it is independent of all other scores and events. Let us take for example a cricket innings score. England are playing India in a test match and Hussain is quoted at 85-90 for his two innings combined run total. The final result (make-up) of this index will be his real combined two innings total.

Here's a working example: You think he is strong and likely to score more than 90 so you Buy at 90 for £2. Lets look at two cases:-
(1) Hussain scores 52 in the 1st innings and 78 in the 2nd innings. His total (the make-up) is 78+52 = 130. Your result here is (130-90) x £2 or another way of saying you win £80.
(2) Hussain scores 37 in the 1st innings and 0 in the 2nd innings. His total (the make-up) is 37. Your result here is a loss because he scored less than 90 and so is (90-37) x £2 or another way of saying you lost £106.

So your stake is linked to the £2 but variable in outcome dependent on how far away you are from the spread. It is easy to see why you have to 'cover your bets' with real money up front. Usually you are given a credit limit but these can be easily beaten

Heads-Up Index

With the Single Index, the make-up was determined by the actual result in real life. With two player indices the Spread Betting Firms often (not always) like to spice things up by awarding points for a particular result.

For an example lets examine an 18-Hole match-up between two golfers in a tournament. This is an index that is resolved in one day. Its Mickelson vs. Els in The Open on the first day. A spread firm quotes Mickelson/Els 0-3 and the rules are 10 points for a win and 3pts per stroke advantage in the actual score result. So if Mickelson beats Els by 3 strokes the make-up will be 10+(3x3) = 19. But if Els wins by 3 then the make-up will be-10 - (3x3) = -19. Its negative because Mickelson is first quoted due to being deemed favourite by the firm. (You have to get used to negative numbers in Heads-Up events). If you made a Buy at 3 for £5 (thinking Mickelson would win) and he won by 3, your win would be (19-3) x £5 or £80. If he lost by 3 strokes your loss would be the difference between 3 (the Buy price) and -19 (the make-up). So you lose 22 x £5, or -£110. (Mathematically its 3 - (-19) = 22)

Suddenly you see more complexity and more volatility.


This week, I hear via a source that a large Spread Firm in the City of London, specialising in betting on financial indices has been issuing record numbers of bankruptcy notices on customers who have literally broken themselves on this complex form of betting. In fact, the odds were so stacked against them, that for this particular firm, 80% of all bets placed lost. While you had more chance of winning than the lottery, the problem was that the volatility in the markets themselves made picking winning numbers a virtual nightmare. Also, this particular form of gambling is very addictive, particularly for the high-rolling, bonus-rich City types who actually believed their own bull. Not satisfied with losing £billions at their companies and having public money rescue them, they seemed to be equally inept at betting.

I have never seen the attraction beyond the odd bet at the Grand National which is a family tradition, and this year I actually made a small profit to offset the years of losses. I also play the lottery online with my weekly numbers derived from family birthdays and I haven't won much on that either. I even tried to put a large tax bill into Premium Bonds until it was due to be paid and won nothing. I am hopeless at picking shares and don't bother anymore.

But I'm lucky. I have the ability to not participate. Some don't see it the same way and the earlier in life they see the attraction and glamour of betting, the sooner they get hooked. There is a simple reason why gambling companies, casinos, lotteries and all the likes exist and that is because most people who bet lose and there are vast profits to be made from that.

I have never seen a better argument for restrictions being placed on gambling rather than allowing the industry to grow. At a time when people need to be more cautious with their money, giving them more reason to throw it away for no return seems to be dumb beyond belief.

Then again, the officials may not be gamblers, but they sure do like their cowboy outfits. Whatever floats your boat really.

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