The spoils of addiction
Compulsive gamblers are swelling the profits of the UK’s gambling industry. Economist Howard Reed discovered a disturbing truth in an unusual source of statistics
To what extent is the gambling industry reliant on just a few heavy gamblers for its revenues rather than collecting a more balanced set of revenues from a larger pool of people? Finding this out is not straightforward – leisure industry companies do not publish their annual reports in forms that make such information visible. So I went to the Living Costs and Food Survey (LCF – see box opposite) to find what proportion of households in the UK spend money on gambling activities and whether richer households are more likely to gamble than poorer ones. By this route I might arrive at a plausible explanation of where industry profits originate.
The results from LCF show that in 2008-9, fifty-four percent of households made no expenditures at all on gambling in the fortnightly diary period, whereas forty-six percent of households made at least one gambling expenditure. This is a significantly lower figure for the extent of gambling than the 2010 British Gambling Prevalence Survey (BGPS), the most widely used source of gambling statistics in the UK, where seventy-three percent of adults took part in gambling in the twelve months prior to the survey.
What makes a ‘gambler’?
The difference between the LCF and BGPS results is explained by the way each survey would classify people who gamble only occasionally – and are therefore unlikely to gamble in a particular fortnight but who would have gambled at least once over the course of a whole year. BGPS classifies occasional gamblers as gamblers, whereas most of them will be classified as non-gamblers in the LCF. It is worth noting that the proportion of households who spend anything at all on gambling in the LCF has fallen substantially over the last decade. In 2001, around sixty percent of households were gamblers compared with forty-six percent in 2008-9.
A large share of gambling industry profits is accounted for by a small number of heavy-gambling households
The likelihood of being a gambler varies depending on how rich each household is. Dividing households into ten equally sized ‘deciles’ from poorest to richest in terms of disposable income (with income adjusted to take account of the number of people in each household) only a third of households in the poorest decile were gamblers, compared with over half of households in the 6th, 7th and 8th deciles.
But looking at just those households with positive gambling expenditure, households in the poorest tenth of the income distribution spend an average of four percent of their total household budget on gambling compared with an average of just one percent for households in the top third of the income distribution.
Follow the money
To take a detailed look at where revenues in the gambling industry are coming from, it is necessary to look at how much expenditure in the LCF is accounted for by the ‘heaviest’ gamblers – those households who spend the most on gambling. Gambling expenditure is highly concentrated among the heaviest-gambling households. Looking just at the households whose expenditure on gambling was positive, the ten percent of gambling households with the highest spending on gambling accounted for around fifty-eight percent of total gambling expenditure in the survey in 2008-9.
The two percent of households with the highest gambling expenditure accounted for thirty-eight percent of gambling expenditure. If the LCF is an accurate representation of gambling across the UK, this means that around 250,000 households – about one percent of the households in the UK – account for almost four in every ten pounds of gambling revenue.
Clearly, a large share of gambling industry revenue – and therefore profits – is accounted for by a small number of heavy-gambling households.
Interestingly, the heaviest gambling households are by no means all rich; rather, they are spread fairly evenly across the top four-fifths of the income distribution, although they are less likely to be in the bottom fifth of the income distribution than elsewhere.
The share of gambling expenditure accounted for by the heaviest ten percent of gambling households has risen over time. In 2001, the heaviest ten percent of gamblers accounted for forty-two percent of total gambling expenditure, while the heaviest two percent accounted for only sixteen percent of gambling expenditure. When compared to the statistics from 2008-9, it is clear that, over the last decade, heavy gamblers have been providing an ever-larger share of industry revenues.
How does this compare?
Because the LCF collects information on all household expenditures on the whole range of different goods we can use it to compare spending on gambling with spending on other addictive goods – for example, alcohol. The LCF for 2008-09 shows that gambling expenditure is more concentrated among heavy gamblers than is alcohol expenditure among heavy drinkers. The two percent of households with the highest expenditure on alcoholic drinks – including beer, wine and spirits – accounted for only eleven percent of total spending on alcohol.
There is, also, a much clearer ‘income gradient’ for alcohol spending than for gambling. The proportion of households who spend anything at all on alcohol rises from thirty-nine percent in the poorest income decile to eighty-six percent in the largest income decile.
If we compare gambling at bookmakers and casinos with lottery ticket and scratchcard purchases it is clear that the heaviest gamblers are a much larger source of revenue for the former than the latter. The highest two percent of bookmaker and casino gamblers account for sixty-seven percent of all expenditure on these forms of gambling. By contrast, the highest-spending two percent of lottery ticket and scratchcard buyers account for only thirteen percent of lottery expenditure.
The proportion of revenue from the heaviest 2% of gamblers in the LCF has risen from 16% in 2001 to 38% in 2008-9
Over the last decade the gambling industry has relied increasingly on a small number of high-spending gamblers to generate a large proportion of its revenues. This is particularly the case with revenue from bookmaking and casino gambling. In addition, heavy gambling activity is not the exclusive preserve of the rich, but involves a significant number of households on middle and low incomes.
Howard is the director of Landman Economics.
www.landman-economics.co.uk
What is the Living Costs and Food Survey?
LCF is a survey of around 6,000 households in the UK every year. Participating households fill in a diary with details of every purchase of goods or services that any household member makes over the course of a fortnight. Gambling expenditure is subdivided into categories including lottery tickets and scratchcards, bookmaker, tote and other betting stakes (including fixed odds betting terminals – FOBTs), football pools and bingo stakes.
The Fox report used LCF data from the two most recently published years – 2008 and 2009 – to benefit from an increased number of interview responses. The results from 2008-2009 were also compared with LCF data going back to 2001 to see whether gambling patterns have changed over the last decade. All our results have been re-weighted so that the reported figures correspond as closely as possible to the UK population, thus making the results more relevant to the national context.
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