Has Tom Waterhouse won the “prisoners’ dilemma”?

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So advertising live odds in sporting events is now banned on television. This censorship (to use the term from Crikey) was largely driven by Tom Waterhouse going over-the-top to compete. Some numbers are provided by the Australian. And while the gambling industry is also blamed by Crikey, the fact is that Waterhouse pushed the issue over the edge with his aggressive marketing.

Of course, Waterhouse was just competing. But what he “appears” to have misjudged is the public reaction to his wall-to-wall gambling promotion. Normally, his type of aggressive competition is good for customers. But gambling is an emotive area and some of his customers are ‘gambling addicts’. So the gambling industry needs to be careful in how it promotes itself. Otherwise, it is opening itself up to government intervention.

In the case of Waterhouse, the signs were there. The opposition had agreed to act:

Earlier this month, The Sunday Telegraph revealed Tony Abbott’s pledge to ban advertising promoting live betting during live sporting events if the TV industry failed to act.

And his competitors could see it coming.

So how do we analyse Waterhouse’s behaviour?

One approach is that he was playing a version of the prisoners’ dilemma. This is a simple one-shot game where each player has two strategies. One is a dominant strategy but, if all players play that strategy, they all end up worse off than if they had played the alternative strategy. The dominant strategy in the case of Waterhouse was ‘compete hard’. He did that. And now both he and his competitors are facing new restrictions on their activities.

Why didn’t Waterhouse’s rivals also compete hard? Probably because they realised that the gambling game is not one-shot. If they push the market too hard today, not only do they all undercut each others’ profit margin but they also risk the type of intervention that has now been introduced. So Waterhouse’s rivals were playing a repeated prisoners’ dilemma and avoiding ‘excessive’ competition. And when Waterhouse became a threat they immediately agreed to voluntarily limit his (and their) activities.

Michael Sullivan, chief executive of Sportingbet, said he would support a full ban for the good of the industry, and accused Tom Waterhouse of ”acting irresponsibly”.

So on this reading of the events, Waterhouse has been an over zealous youngster who has brought the wrath of government down on the gambling industry.

Perhaps.

But let’s face it; who even knew of Tom Waterhouse six months ago? Now he is front page news, and the only people who do not know about his on-line betting company live in caves. The last six months have been a masterclass in self-promotion from Mr Waterhouse. So while all the other gambling companies have been playing ‘softly softly’ to avoid government intervention, Waterhouse has played hardball. Yes, the industry is now constrained. But Waterhouse is a winner. He has taken his business from zero to a profile that his competitors can only dream of.

So Waterhouse has played the prisoners’ dilemma. He has gone from nowhere to having a viable business, riding on the fact that his rivals couldn’t afford to copy his aggressive conduct. Unlike them, Waterhouse had nothing to lose. But now he has a business. He now has an incentive to join his rivals and play ‘softly softly’ going forward. So if he knows what he is doing, expect to see a muted and responsible Tom Waterhouse in the future. But Waterhouse has played the prisoners’ dilemma over the past six months. And he won – at least until the next aggressive young entrant pulls the same stunt and draws the regulatory constraints even tighter over the gambling industry.

 

 

7 Responses to "Has Tom Waterhouse won the “prisoners’ dilemma”?"
  1. Stephen, another interpretation of Michael Sullivan’s stance:

    “Yes, I would support no longer having to spend millions of dollars each year on advertising. Furthermore, none of my competitors should be able to erode my market share, so please ban all advertising.”

    The speedy concession by the gambling industry to the bans, although predictable given what they were up against, was very limp and listless. Perhaps it’s not so bad for them after all?

    Or am I too cynical?

  2. He’s made a substantial majority of the population hate him with a fiery passion. However, the people who hate him are the people who would never use an online sports betting facility.

  3. I am not convinced tha the analogy is correct, but never mind.

    Briefly “The Prisoners’ Dilemma” is:

    “You and a friend have committed a crime and have been caught. You are being held in separate cells so that you cannot communicate with each other. You are both offered a deal by the police and you have to decide what to do independently. Essentially the deal is this.

    If you confess and your partner denies taking part in the crime, you go free and your partner goes to prison for ten years.
    If your partner confesses and you deny participating in the crime, you go to prison for ten years and your partner goes free.
    If you both confess you will serve six years each.
    If you both deny taking part in the crime, you both go to prison for six months.
    What will you do?”

    The best response for both parties is to remain silent.

    But I enjoyed the article.

  4. What Tom Waterhouse did effectively was the Prisoners’ Dilemma though. Both (or all) parties have access to an option that can get them maximum benefit (i.e. released free) while their competitor/partner/accomplice loses substantially (i.e. 10 years prison). But if they both opt for the maximum gain for themselves, everyone is penalised more than they would have been had they played more conservatively. That’s entirely consistent with what happened in the online gambling advertising situation.

    • I read what you said, but I beg to differ. The conditions of the first paragraph of my outline were never met. The parties were not isolated from communicating with each other. The competitors to Tom chose to remain silent, as did Tom. That conforms. But Tom’s business model has been massively undermined by the Government’s (reluctant) intervention. As a consequence Tom has lost an advantage which he had purchased at great expense. He has not won.

      By remaining silent his competitors were never going to lose.

  5. I agree that Tom Waterhouse won this game. Advertising restrictions almost entirely benefit the incumbents. I wonder why the rest of the gambling industry doesn’t challenge the restrictions on the basis of ‘freedom of speech.’ I think they would have a pretty strong argument. What incentives do the other gambling companies have to not challenge this in court?

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