How to fix ailing Loto-Québec
For the nine months ending Dec. 29, 2014, Loto-Québec reported a 5-per-cent drop in profits compared to the same period in 2013. With three quarters of its fiscal year done, revenues were down for all of the Crown corporation’s major types of offerings: lotteries, casinos, betting on sporting events, bingo, and video lottery terminals in bars.
Why is Quebec’s sole legal operator of games of chance doing so poorly? In short, because as Quebec’s sole legal operator of games of chance, it is slow to adapt to a changing market.
Loto-Québec was founded in 1969 by the Quebec government in order to manage and develop lotteries in Quebec and to transfer the dividends collected from gambling activities to the government’s consolidated fund. Currently, no other entity can legally run lottery games and websites within the borders of the province of Quebec.
Yet parallel to the activities of Loto-Québec, there is an industry operating in a grey zone, being developed primarily through Internet lottery and gambling sites. These technically illicit competitors are depriving the Quebec Treasury of many millions of dollars a year — and are furthermore not bound by the same ethical and fiscal rules as the Crown corporation.
Regulatory repression, in this case as in many others, has not worked and will not work. Knowing this, why not let the market economy flourish in this sector as it does in so many others?
Rather than Loto-Québec itself developing, operating and managing online games of chance, it could give out licenses to several different companies that would then be responsible for developing, operating and managing online lotteries. These specialized, entrepreneurial companies would be more dynamic than the government monopoly with its bureaucratic approach, and more likely to offer games and services that actually meet the demands of consumers. These companies could then pay dividends to the government, as Loto-Québec now does, thereby generating revenues for the benefit of society as a whole.
The same logic holds for the monopoly’s other offerings. The Montreal Casino, for instance, made less money in the first three quarters of this fiscal year than during the same period the previous year when renovations were in full swing — renovations that cost over $300 million. Why not let private entrepreneurs run casinos, and manage them like the businesses they are? You can bet they would compete and innovate to find new ways of fulfilling the evolving needs of their clienteles. And again, the deal could be that they would pay dividends to the government.
As things stand right now, the government is both a purveyor of “sin” and a preacher of abstinence. If the Quebec government got out of the gambling monopoly business, it could focus on its other, contradictory role of discouraging excessive gambling. It would probably do a better job of preventing problem gambling with its right hand if it weren’t at the very same time promoting games of chance with its left.
That the gambling industry needs a proper regulatory framework in which to operate, no one is contesting. A lot of people enjoy the thrill of laying some money on the line and can do so without losing control, but there are legitimate concerns about those who do lose control. There are legitimate concerns, too, about other issues like the involvement of organized crime and conflicts of interest in sports-related gambling.
But these concerns could be addressed just as well, if not better, by a government that was not itself involved in the provision and promotion of gambling products and services. Furthermore, those products and services would benefit from the creative forces of the market, evolving to provide more enjoyment to gamblers, and hence potentially providing governments with more revenue than they currently receive, not less. If the market is allowed to do what it does best, everybody comes out a winner.
Jasmin Guénette is Vice President of the Montreal Economic Institute. The views reflected in this column are his own.