Tuesday, 9 September 2014

Selling Monopolies

Ontario is selling off the Ontario Lottery and Gaming Corporation to combat the provincial debt. First of all, the value of this is very suspect. OLG brings in $2 billion in revenue a year and we are looking to sell it for about $1.3 billion. The math behind this is much more complicated - and much of the revenue will still be flowing after the sale - but on its face that looks stupid. You know a business is going bankrupt when it starts selling off it's profitable components to deal with debt.

But who knows, maybe the Government of Ontario employs someone who can do math and this is a good long term decision. Whether or not this increases revenues isn't the big issue here.

The big issue is that the government is planning on selling a monopoly on lotteries to a large business.

I'm not going to claim to know what to do about gambling. We can't prohibit it. I don't think we can get companies that offer gambling to identify and protect problem gamblers before the problem gets out of hand. I think services for problem gamblers are almost always going to be picking-up-the-pieces services instead of preventative ones. If we structured society to contain a great deal less misery that would probably help, but that's a pretty big task.

What I will claim is that I know at least one thing we absolutely should not do with gambling, and that is give my cable company a monopoly on it, or even on a piece of it. I don't know how to begin to address how transparently stupid this idea is.

Let's think about that another way. Suppose there was a new business. A new product or service has been developed that everyone wants. Conducting this business is extremely lucrative. So the government decides to put out an offer to sell monopoly rights to conduct that business to the highest bidder. Imagine that instead of monopoly rights to conduct lotteries the government was selling monopoly rights to bake bread. I bet Bell or Rogers would be willing to pay a billion dollars to buy the exclusive rights to bake bread in Ontario.

Lotteries are not bread, and I think someone can successfully argue that the government having a monopoly on holding lotteries is a good idea while the government having a monopoly on baking bread is a bad idea. Whatever that argument is, though, it is going to collapse completely once we change the words "the government" to the words, "a large cable company."

If the right public policy decision is to maintain a tightly controlled monopoly on gambling then keep the OLG and keep the government's role in it. If the right public policy decision is to allow private enterprises to offer gambling then lets dismantle the OLG and make the switch. But then police that industry for anti-competitive behaviour vigorously.

Odds-on favourite for the outcome of the sale of OLG will be:
  • Decrease in government revenue that offsets the sale value within just a few years
  • Increase in problem gambling
  • Big paychecks for the executives of the company that buys it
Of course if I were in government there is a chance I would be selling off the OLG as well. It's just that immediately upon selling it I would dismantle the legal framework that gave the monopoly, totally screwing whoever bought it from us. My goal in doing this would be to permanently poison the well of selling off government assets to big business. I'd be much more likely to do with with the LCBO, though.

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