The market maker knows the odds and is incentivized to be honest with the customer, to keep their trust and get as many people to play as possible as it 'wins' only in the aggregate as more and more people play. [1]
But the point is that there isn't another, let's call it 'evil', branch of the casino, separate from the market maker. Where this 'evil' branch can bet against each gambler.
So now, instead of making 2% off a gambler, you can now make massive sums betting against any gambler you lure into horrible odds.
So the incentives have been thrown out of balance. Pulling in astute gamblers and making 2% becomes an inefficient strategy. Reeling in unsophisticated gamblers, luring them into games with terrible odds and then betting against them, becomes an optimal strategy.
And down that road, almost inevitably, comes distortion and outright fraud.
[1] Slot machines only earn something like 2% for the casino. It's more in their interest to be very transparent about those odds and get more people to play, than to be shady and try to squeeze out 3%. Because you'll lose more gamblers than you can get with a 'tighter' slot.
EDIT: to be clear, I only used 'evil' because the 'gambling against' branch was housed with and colluding with the market maker in this example. I have no problem with the analogous financial services. The argument is simply that you can't do both. It's bad for the market as a whole.
The market maker knows the odds and is incentivized to be honest with the customer, to keep their trust and get as many people to play as possible as it 'wins' only in the aggregate as more and more people play. [1]
But the point is that there isn't another, let's call it 'evil', branch of the casino, separate from the market maker. Where this 'evil' branch can bet against each gambler.
So now, instead of making 2% off a gambler, you can now make massive sums betting against any gambler you lure into horrible odds.
So the incentives have been thrown out of balance. Pulling in astute gamblers and making 2% becomes an inefficient strategy. Reeling in unsophisticated gamblers, luring them into games with terrible odds and then betting against them, becomes an optimal strategy.
And down that road, almost inevitably, comes distortion and outright fraud.
[1] Slot machines only earn something like 2% for the casino. It's more in their interest to be very transparent about those odds and get more people to play, than to be shady and try to squeeze out 3%. Because you'll lose more gamblers than you can get with a 'tighter' slot.
EDIT: to be clear, I only used 'evil' because the 'gambling against' branch was housed with and colluding with the market maker in this example. I have no problem with the analogous financial services. The argument is simply that you can't do both. It's bad for the market as a whole.