Brazil Misses Out on World-Cup Betting. What’s India’s Wager?

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The gambling world’s biggest bet right now is Brazil: Will President-elect Luiz Inacio Lula da Silva end the country’s decade-long ban on gambling? If it does, Brazil could overtake Italy to become the world’s second-largest betting nation by number of machines, behind the United States.

Or so Martin Storm, CEO of BMM Testlabs told us. BMM and its rival Gaming Laboratories International, or GLI, test more than 80% of gambling products worldwide, helping to keep the industry on the straight and narrow. But Storm isn’t talking to us from Sao Paulo or Rio de Janeiro, which are missing out on about 3 billion reais ($560 million) because they didn’t legislate on sports betting in time for this year’s FIFA World Cup.

We catch the Melbourne native – via Zoom – in India. An Australian in the upper echelons of global gambling is no surprise: a nation with less than half a percent of the world’s population has 20% of its slot machines. But what is Storm doing in a country where only three of 29 states allow casinos and most of the real market – betting on cricket matches, historically – is underground?

Storm is there to inject some ‘Made in India’ into the certification that regulators insist on before allowing consumers near a slot machine or online game. This is what drives the testing market, apart from the checks carried out by casino operators for internal controls. “There’s nothing worse than players losing confidence in the market,” says Storm. Of the 474 regulated gambling jurisdictions, about 120 have unique requirements. Taxes make it a high-stakes sport. “No one is more addicted to gambling than governments,” he adds.

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However, only a few jurisdictions have their own laboratories; most rely on US-based BMM and GLI, which sometimes require 100 submissions before approving a product. People and skill intensive work is what brought Storm to India. It helps that Aristocrat Leisure Ltd., a fellow Australian firm and creator of such big hits as Queen of the Nile, is nearby in the same New Delhi suburb where Storm has opened its 14th facility worldwide. He wants to eventually hire between 500 and 1,000 employees in India to service the global market from there.

The maker and the checker seem to be looking for the same thing: a slice of India’s 5 million-strong outsourcing talent pool. The computer code that runs the game must be scrutinized for elements of predictability that hide behind the promise of randomness. Profit rates must be analyzed to ensure that the results are not rigged. Things were simpler in the old days, when one-armed thugs sat in a casino or the local pub. Being online brings its own challenges, because then operators are evaluated like any financial institution that deals with money and data.

Hackers prey on games just as they try to exploit any vulnerability to get into a financial institution’s databases. Online casinos have long been targets, although many attacks go unreported. From banks to oil pipelines, victims keeping an incident secret is a knee-jerk reaction caused by shame or the risk of a tarnished reputation. For gambling websites, that threat is even more severe. Gamblers like to know they are playing a fair game and any hint that something is amiss can cause them to head elsewhere. So the sites keep the violations quiet.

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While physical machines and online casinos are subject to rigorous checks on how they function internally, a huge weakness lies in the lack of network security standards. The software and hardware may be secure and functioning fairly well, but that doesn’t mean malicious actors are prevented from getting in and causing problems.

In 2019, a hacker group targeted betting companies in Southeast Asia as well as Europe and the Middle East, according to Taipei-based teams at security firm Talent-Jump Technologies Inc. and Trend Micro Inc. Instead of stealing money, digital thieves took databases and source code. The goal, researchers surmised, was cyber espionage. With access to the underlying code, a savvy group could, in theory, understand the win-loss calculation algorithms, develop strategies to beat the casino, or simply sell that information on the dark web.

Countries have a deep-rooted cultural response to gambling. Lee Kuan Yew, the founder of modern Singapore, opposed casinos because his father was a problem gambler. But in the 2000s, the Asian financial hub decided to let two integrated resorts jazz up its nightlife — and add plenty of taxes to its kitty. Outgoing Brazilian President Jair Bolsonaro has cooled on pending sports betting regulation because he doesn’t want to lose the evangelical vote. Lula is not a fan of gambling. But after promising a fiscally responsible government, he may not want to lose budgetary resources that appear to be free, even though they usually come with significant social costs. Betting sites think the law is coming: they are prominent sponsors of Brazil’s top division soccer teams.

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Eventually, India will also realize that resistance is counterproductive. It is ludicrous to cede revenue from cricket, the national craze, to mafia-dominated illegal betting. A well-regulated domestic gambling industry, which is likely to be virtual, will allow the country to offer more innovative solutions to the world. And in making games, and checking them out.

More from Bloomberg Opinion:

• Global Gambling Party in Qatar: Lionel Laurent

• Don’t bet money on World Cup winner: Eduardo Porter

• Cybersecurity Needs Its Own Sarbanes-Oxley: Tim Kalpan

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, Straits Times and Bloomberg News.

Tim Kalpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.

More stories like this one are available at bloomberg.com/opinion

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