Five Recommendations How to Regulate Gambling in the Czech Republic

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Gambling in the Czech Republic has reached a state where every relevant entity agrees on the need for a new regulation. It should respond to the changes that the sector has undergone in recent years. However, forthcoming regulation should be based on a thorough analysis of the sector and respect the problems of gambling in our country with regard to its specifics. Although politicians think so, not just anyone can simply change the preferences and behavior patterns of consumers.

The efficient regulation of the gambling industry can minimize social detrimental effects, direct the development to the legal economy and optimize tax revenues due to the need of funds for internalization of negative externalities.

The Centre for Economic and Market Analyses (CETA) found out the calculation of the social cost of gambling in the Czech Republic and the actual regulatory impact assessment (RIA) suffer from obvious shortcomings. That is why these aspects become an easy target for argumentation of interest groups. Therefore, we decided to prepare five basic recommendations for the effective regulation of gambling in our country:

1. Clearly define the purpose of regulation

If the purpose of regulation is not defined, we can neither determine the most appropriate tools of regulation, effectively implement them nor evaluate the extent to which the chosen method of regulation is efficient. The goal could be either fiscal (i.e. to maximize the revenue of the state budget), it could be directed at reducing the number of gaming positions as well as at reducing the number of pathological gamblers, or it’s objective could be to eliminate negative social consequences. All these goals need different tools to implement.

2. Use only positive (objective) inputs

Biased, incomplete or inconsistent data for determining the type and method of regulation returns like a boomerang. This is an advantage for the proponents of the status quo. If the demand for regulation is caused by negative trends relevant indicators, the analysis saying so must be factually correct, diversified and impartial.

3. Perform a thorough Regulatory Impact Assessment (RIA)

Analysis of Regulatory Impact Assessment (RIA) should precede any legislative change. The goal of RIA must not be a defense of regulation, but rather the opposite – only then it makes sense to do it at all. Regulatory Impact Assessment must be separated from the author of the legislative proposal in order to ensure the maximum objectivity.

4. Hold activities on the legal market

You cannot change consumers’ preferences. Consumers will always find a way to satisfy their own needs. Alcoholics will continue drinking alcohol, drug addicts will use drugs and gamblers will keep gambling. Therefore, the supply has a high motivation to find a way how to satisfy the needs for which these people are willing to pay (in a legal or illegal manner). The government should not only follow budget revenues, but also be aware of the fact that the regulation is enforceable only on legal markets. If there arises a motivation to move demand or supply to the shadow economy, the regulation is wrong.

5. Eliminate costs where they arise

The negative social impacts of gambling should be eliminated in places where they originate – in regions where there gaming positions are located. In the tax-system, there is not any direct link between tax-revenues from gambling and social or health programs for pathological gamblers and their families. Efficient regulation of negative social costs of gambling should meet the requirements of respective municipalities and communities. A significant decentralization of decision-making and modification of regulatory measures with regard to the specific situation in individual regions should be implemented.