NOT TOO LATE FOR A WINNING BET: The need to redraft the Gambling Bill

By Sudaraka Ariyaratne

Originally appeared on the Morning

After weeks of discussion, the Committee on Public Finance (COPF) approved the Gambling Regulatory Authority (GRA) Bill last Wednesday (13).

While the Bill faces its second reading in Parliament tomorrow (19), its many deficiencies remain helping create a regulator not worth its salt.

Gaming encompasses both gambling; games of pure chance like casinos and lotteries and betting, which mixes chance with skill, such as horseracing.

Despite moral arguments against gaming, a blanket ban is unlikely to be effective. Singapore learned this the hard way and legalised gaming under strict regulation in 2005.

A legal, well-regulated gaming industry mitigates the social ills of gambling more effectively than a blanket ban that allows the ills to multiply in the confines of the shadow economy.

Moreover, a legal, well-regulated gaming industry can also promote tourism, boost growth, generate revenues, and protect consumers.

Sri Lanka’s gaming industry – comprising casinos, betting centres, and lotteries – has operated for decades without a proper regulatory framework.

The recent opening of Melco’s City of Dreams casino in Colombo introduces the integrated resort model and an international investor for the first time, revolutionising the industry.

Melco arrives at a crucial time for the industry, which relies mainly on patrons from India, China, and the Middle East.

As the only regional country west of Southeast Asia with legalised casinos, Sri Lanka has faced little competition so far, but with the UAE and Thailand planning new casinos with international partners, it can no longer delay introducing a proper regulator and the rubber stamp of integrity that comes with it.

As Colombo Port City courts investors for its integrated resort, a robust regulatory framework is essential to attract a global player like Melco, which is an internationally listed corporation.

Such investors signal not only industry growth but also that Sri Lanka is business-friendly. Yet Melco already laments regulatory uncertainty; ‘Although we have obtained the Sri Lanka License, there is considerable uncertainty about how the legal and regulatory environment may change,’ notes its 2024 annual report.

Without clear regulation, new international investors are unlikely to enter soon.

The GRA Bill was thus a welcome move, but its many deficiencies make it unlikely to position Sri Lanka as a competitive regional player. Instead, it risks creating an ineffective regulator, mirroring Cambodia’s struggling, poorly-regulated gaming industry.

First, the GRA Bill targets mostly casinos, exempting lotteries and largely ignoring the growing betting sector, making the misnomer of the gaming regulator as a gambling regulator in the Bill seem intentional.

While amendments to include lotteries under the regulator are said to be on the way, little light has been shed on the negligence of the betting industry in the Bill – particularly the many international online betting platforms frequented by local patrons, including online prediction markets for sports and elections.

The moment calls for a true Gaming Regulatory Authority, not merely a Gambling Regulatory Authority.

The Bill gives the Minister of Finance excessive power, making the regulator an executor of the Minister’s will rather than an independent body. The Minister can appoint board members and the Director General, make regulations, issue binding directives, and control the authority’s funding through budget allocations.

A truly independent, incorruptible regulatory body requires that the Constitutional Council has a say in the appointment of its board members, that the Director General is appointed through a competitive process, that the authority is granted more independent rules-making power, that the Minister does not have the power to issue binding directives on its activities, and that it is funded through license/regulation fees as opposed to budgetary allocations.

This last point is crucial as a lucrative industry requires competent, well-paid regulators, which weak funding cannot support.

The Bill also neglects the tourism-gaming link, failing to grant the tourism sector ex-officio board representation or stipulate industry experience as a qualification for board appointments.

In contrast, with Sri Lanka Tourism Development Authority having ex-officio representation on the board, and experience in hospitality being recognised when appointing board members, the regulatory authority could be better geared towards tourism development.

Given the higher entry barriers for local patrons – locals are levied an entry fee of $ 50 to enter casinos in Sri Lanka under Casino Business (Regulation) Act of 2010 – tourists are the target consumer base of most casino operators in Sri Lanka, and as such, the tourism sector deserves a greater say in the regulation of the industry.

When it comes to local patronisation of gambling, however, lotteries cannot be ignored. Low-income Sri Lankans participate in the industry via lotteries, which are extremely regressive, given that the government uses lotteries to redistribute revenues that it collects from low-income groups back to them.

Given that the inefficiencies and corruption at the lottery boards result in the redistribution of less than 20% of their revenues back to the public, their inclusion under the purview of the gaming regulator is paramount.

The GRA Bill is weak on online gaming, only licensing local operators, which does little to curb youth addiction to international platforms. Singapore’s new online gaming law shows that stronger measures are needed to protect the youth from addiction to online gaming than the Bill currently provides for.

The Bill also neglects the regulator’s role in information collection, which is the lifeblood of effective regulation.

While electronic gaming equipment and slot machines record transactions automatically, the regulator should be able to trace every table game transaction. The regulator should ensure that all transactions are properly recorded with the help of AI, CCTV, and supervisory oversight.

Such information is crucial for monitoring odds and thus protecting consumers. It can also help the Inland Revenue Department with revenue assurance, and would even allow Sri Lanka to tax operators on gross gaming revenue rather than self-reported profits – a global norm in an industry prone to profit manipulation, especially via the shifting of overheads to a highly taxed part of the business – such as gaming – as a form of tax optimisation, particularly in a wholly-owned integrated resort environment.

The Bill’s penalties are also grossly inadequate for a billion-rupee industry. Most offences carry fines of Rs. 100,000 and/or two years’ imprisonment, which will not deter violations. These penalties should be raised to match international norms to ensure real deterrence.

The GRA Bill, as it stands, is woefully inadequate for establishing a robust regulatory framework. Its many deficiencies risk creating an ineffective regulator that maintains the status quo at best, or a Frankenstein whose dangers are yet unknown at worst.

Truthfully, Sri Lanka lacks the domestic expertise to build a strong gaming regulator alone. The government must therefore seek international expertise – particularly from Singapore, the Philippines, and Macau – to redraft the Bill rather than pass it in unjustified haste.

As this is Sri Lanka’s first attempt at gaming regulation, it is far easier to get it right now than to amend entrenched laws later, when vested interests will have multiplied. By passing the Bill in its current form, the NPP government – elected to fight corruption – risks a major gamble, increasing both corruption risks and rent-seeking vulnerabilities.

Macau aims for $ 30 billion in gross gaming revenues in 2025, with Singapore and the Philippines targeting around $ 7 billion each. Sri Lanka’s gaming industry could reach $ 1 billion in a decade, but achieving this – and its broader economic benefits – requires a robust regulatory framework, which demands an improved Bill.

(The writer is a Research Consultant at Adcovata Institute and a doctoral candidate at Rice University.)