The Alderney Gambling Control Commission? A sham of incompetence.

The Malta Lotteries And Gaming Authority? Actions bordering, at times, on criminal.

However, in recent weeks, two regulators have issued judgements which give hope for the future. One close to home in the UK, the other on the far-off shores of the Mohawk Indian reservation in Canada. Both, rather typically, centred around the casinos’ misuse of their bonus programmes to the disadvantage of their customers.

In the first case, sportsbook and casino Bet365 promoted a free bet in a UK television advert, with the promise of further free bets if the first one was successful. Customers claimed the bet, and those who won went on to claim again; another win, and another free bet claim. And so on and so on.

Bet365 didn’t like this, and, in time-honoured online gambling fashion, refused the bets to some customers with a variety of excuses: customers showed “unusual patterns”; customers were suspected (not proven, of course) of laying off the bet elsewhere for a guaranteed profit with the bonus, which Bet365 considered “bad business”.

Oh dear.

How despicable – customers looking for ways to win. What in the world were they thinking, trying to win money in a casino?

Anyway, some customers complained to the Advertising Standards Authority, and an Adjudication on Bet365 Group Ltd was promptly issued. Here is a part of the judgement – read it and weep, online gambling operators worldwide:

We understood that Bet365 excluded a proportion of customers who they deemed to be non-recreational players; however, we considered that without defined criteria, it appeared that Bet365 had excluded customers from the offer when they were winning or were no longer profitable.

We noted the ad did not state that customers who made each-way bets, won frequently on similar bets, or used betting exchanges would be excluded from the offer.

Although we understood that Bet365 believed the viewers were exploiting the offer, in the absence of qualification in the ad to make Bet365s limitations on the offer clear, we concluded the ad was likely to mislead.

The ASA discounted all of Bet365′s whinging and whining about “non-recreational players” who were “bad for business”, on the basis that since none of those copouts were stated in the terms of the deal, they could not be arbitrarily applied afterwards as an excuse for non-payment.

Or, if I can summarise the ASA judment in my own words: “This is what you said; this is what you did; what you did wasn’t what you said you’d do…so please go take a running jump”.

This was a perfectly thought out and articulated response from the ASA. What a refreshing change to see a regulator of some description actually doing its job and making a fair call.

Players 1 / casinos 0.

The next case was one I was involved with myself. A player contacted me, saying that he’d had a €10,000 cashout confiscated by a Microgaming casino group, on the basis of infringing the conditions of the bonus he’d received on his deposit. He had indeed, but the terms were so cleverly hidden by the casino that breaking them was almost a certainly.

To cut a long story short, the player filed a complaint with the Kahnawake Gaming Commission. The KGC has long been something of a running joke on the online gambling scene, allowing its licensees to get away with almost anything. However, I had heard that a new complaints officer had recently been appointed, and that the Commission was generally trying to get its act together and be taken seriously as a genuine regulator. But I wasn’t holding my breath.

As such, the Kahnawake judgement left me astonished – see the full complaint against UK Casino Club, of which here is an central extract:

Mr. N’s dispute centres on the argument that, at the relevant time, some additional terms and conditions that were posted on the Casino’s site regarding signup bonuses (the “Terms and Conditions – Multiple Bonus Promotion”) did not clearly incorporate the provisions of the Casino’s T&C.

However, given the fact that Mr. Niemz did accept the T&C and that his pattern of play subsequently breached Clause 13(i) of the T&C, we cannot conclude that it is reasonable to direct the Casino to reimburse Mr. Niemz for 100% of the amount of the disputed amount – 10,000 Euro.

We do accept that the Casino must bear some responsibility for failing to make it clear that the Terms and Conditions – Multiple Bonus Promotion incorporated the provisions of the Casino’s T&C.

In view of the foregoing, we hereby direct that:

1. The Casino must, on or before 8:00 p.m ET on February 18, 2010, deposit 50% of the disputed amount – i.e. 5,000 Euro – into Mr. N’s account and permit him to withdraw this amount, and

2. The Casino must immediately amend its Terms and Conditions – Multiple Bonus Promotion to clearly indicate that they incorporate the provisions of the T&C.

This was an excellent resolution, as much for its sheer unexpectedness as for the fact that it was fair. Way to go, Kahnawake.

Players 2 / casinos 0.

I’ve commented on both these cases in more detail in my Kahnawake Gaming Commission and Bet365 posts.

I had assumed that hell would freeze over before any official “watchdog” or “regulator” would arbitrate a conflict between player and gamnbling operation and find in the player’s favour. As such, I’m pleasantly surprised – or, to be a bit more honest, entirely gob-smacked – at the outcomes of the cases handled by the UK ASA and the Mohawk KGC.

It’s not all bad, folks.

Formal comments are due July 7 at the CFTC. Informal comments are already springing forth: see, for example, reactions by David Pennock, Chris Masse, and Chris Hibbert. Likely more to come.

My preliminary reaction is to be encouraged. Growth of the industry in the United States is frustrated by a lack of clarity over the CFTC’s role. If real money event contract markets are to become serious business in the United States, the government will have to figure out where these markets fit in the legal and regulatory world. The CFTC is taking a step toward figuring these things out. If CFTC’s conclusions turn out to be too burdensome, then appeals can by made – to the Commission itself, to courts, or to Congress. But the process has to start somewhere.

Whether their next steps are in the right direction, who knows. I think that their steps are more likely to be in the right direction if they get high quality comments filed by prediction market proponents.

(On Knowledge Problem I’ve put up a much longer post which explains the CFTC concept paper in more detail and does a little bit of sorting through the questions asked. Readers here who have already looked at the concept paper will not learn much new, but you are still welcome to take a look.)

Justin Wolfers article in the WSJ had the best summary:

Against this background, it is no exaggeration to term the result truly historic. Not that there haven’t been more dramatic upsets or come-from-behind wins that carried more significance — this was just an early primary, albeit a pivotal one. But in terms of unpredictability, or at least the failure of everyone to predict it, it may have no modern match.
…
Historical comparisons are already being drawn between the New Hampshire primary and the famous 1948 presidential race…Yet the magnitude of the Clinton surprise is arguably even greater…Thus, Sen. Clinton’s victory on Tuesday was more surprising than President Truman’s in 1948.

Given the above, were the Clinton prices on Intrade very far off? It’s not obvious that they were.

2. Pundits/Critics are NOT traders – If I believe a contract should be trading around 30 and I see it trading at 7, it would make my day. As a trader, seeing a contract that is clearly mispriced is a good thing. Traders who remember the French politician Le Pen’s strong showing in 2002 vs his polls or who read Steve Sailer’s blog should not be surprised that people are dishonest with pollsters. However, to a pundit, an isolated incident of mispricing means the entire concept of prediction markets is faulty.

Since NH results, pundits have been asking, “Are prediction markets flawed?” The traders who make and move the market don’t believe so; they are trading more than ever. In any case, there were no postings on the 7th of January about how wrong the prediction markets are, only after-the-fact postings demonstrating perfect 20/20 hindsight. Traders, not critics, will determine the success of the prediction markets.

Let us not forget that pundits have an agenda too. For some, especially political ones, they need to present themselves as being able to offer insight that no one else has. Since prediction markets allow events to be quantified in real time, the pundits have less to add. This makes critics especially eager to take some of the shine off prediction markets and make themselves look smarter by comparison.

Additionally, there is a contingent of commentators and bloggers with an anti-market bias who delight in seeing any market based tool be wrong. They will be the first to loudly smear PM errors but no where to be found when the market turns out to be right.

3. PMs are not polls – This common mistake is exemplified by this quote from the Chicago Tribune, “The New Hampshire primary was a reminder that prediction markets, where bettors are putting money on the line, can have no more value than opinion polls, where participation costs nothing.” This critic missed the point and doesn’t realize he is comparing apples and oranges.

Most commentators have focused on the accuracy of the market prices without touching on the underlying purpose of the market: speculation and hedging. Even if the polls are no more accurate than the market, they still can’t be used for trading functions.

4. Regulations have hurt the accuracy and liquidity of PMs – The inconvenience of opening a trading account at Intrade has excluded many Americans from participating. What is the cost of accuracy to the PMs? Surowiecki’s The Wisdom of Crowds lists four factors necessary for a wise crowd: diversity of opinion, independence, decentralization, and aggregation. At least two of these have been highly restricted due to regulations. Even so, the market is usually more accurate than the polls. None of the critics has pointed out that with so many potential traders cut off from trading, the market is surely excluding informed participants.

5. “Serious people who study or work with these markets are not in the ‘markets are magic’ camp” – Prediction markets are like other financial markets: fat tails, black swans, bubbles, “manipulations” etc. These are all visible in housing, equities, and fixed income markets as well and no one speculates about the end of those instruments. As Eric Zitzewitz pointed out, the “markets are magic” crowd is just a strawman and not a logical basis to attack prediction markets.

Digg Link:

http://digg.com/business_finance/Top_Five_Reasons…