Select Committee on Culture, Media and Sport Minutes of Evidence


Memorandum submitted by the Bingo Association

"The whole field of gaming is now totally inconsistent and upside down because of the National Lottery...It is very difficult for people in the industry to live with the problem and the Board are very aware of that". Graham White, Chief Inspector of the Gaming Board


1.  INTRODUCTION

  1.1  The Bingo Association represents 111 operators with 540 clubs, accounting for 74 per cent of the industry as a whole. Our members come from across the spectrum, from the very large operators with over 100 clubs to many single site businesses. Bingo in our clubs is licensed, that is to say played under Part II of the Gaming Act 1968. It is subject to stringent regulation by the Gaming Board for Great Britain, and liable for duty (currently 10 per cent of money staked).

  1.2  Licensed bingo has seen significant change in the past decade. The industry invested heavily in new clubs and technology to keep bingo at the heart of a modern leisure market. The introduction of the National Lottery had a significant impact on the gaming market as a whole, and bingo in particular. The industry supported a Lottery in principle, but argued at the time that it should be regulated along the same principles as other gaming activities. It regarded the Government's argument that the Lottery was not gaming, and should therefore be treated separately, as bogus. That remains our view, and we consider that events since its introduction have proved this to be the case.

  1.3  Extensive debate took place during the passage of the National Lottery Act on the likely impact of the Lottery on other gaming, and the need for what was termed a "level playing field". We do not intend to repeat these points here, but to put forward the case for correcting some of the obvious errors in legislation, and draw attention to the most serious issues raised by the current system of regulation.

2.  REGULATION VERSUS OPERATION

  2.1  The Committee will be aware that a wide-ranging review of gambling legislation is currently taking place. It was announced in December 1999, with a remit to report in summer 2001. The bingo industry welcomes this review because it believes that new legislation is essential for the future health and success of the gaming sector in this country. However, it is disappointed to note that in determining the remit of the Review Body, the Government has failed to include the National Lottery.

  2.2  Indeed, the remit set out by the Home Secretary serves to highlight two fundamental flaws in the current structure and extent of existing regulation. The Government, in excluding the Lottery from its review, has sought to maintain the case that the Lottery is not gaming. It has also reminded the Review Body of the need to maintain funds for good causes, and so take into account the likely impact of any changes in gaming legislation on the level of funds raised. This bias towards maintaining a legislative, and therefore competitive, advantage for the Lottery is undesirable, and we would argue, improper.

  2.3  Whilst the Lottery is primarily concerned with raising funds for good causes, it is nevertheless a commercial activity. It competes with other leisure activities, including gaming, to attract players. The desire to raise money must be balanced against the need for fair and effective regulation. It is no longer tenable to make the argument that the National Lottery is not gambling. It is the largest single gaming activity in this country and has fundamentally altered the gambling and leisure environment. The principle of unstimulated demand, which had underpinned all gaming legislation to that point, was ignored in Lottery regulation, leading to a sea change in policy on other gaming activities. Indeed, much of the recent amendment to existing gaming legislation has been to address issues raised by the Lottery, or to redress a regulatory imbalance between it and other gaming activities. The Gambling Review should have included the National Lottery.

  2.4  The Bingo Association believes that the fundamental principle of gaming legislation should be regulation, not commercial necessity. The Lottery is gaming and should be regulated accordingly. Gaming policy should not be undermined in order to achieve commercial objectives, which is the situation at present. That the Lottery raises funds for good causes is not in itself justification for ignoring or bypassing existing policy on gaming regulation.

  2.5  Indeed, it could be argued that the Lottery no longer only benefits good causes. There was considerable debate during the passage of the Lottery Act over the principle of additionality: that Lottery funding should not be used as a substitute for Government spending. At the time, assurances were given that all money raised would be used in addition to funds committed by Government. This is clearly not always the case now, with money increasingly being allocated to projects which before its inception would have been funded by Government.

  2.6  The Gaming Board for Great Britain has regulated the gaming industry since the 1968 Act and has proved to be a vigilant enforcer of its principles. Its remit includes advising the Government on changes required to update legislation, and in recent years it has taken account of the need for change where this was possible. As a body independent of commercial influence, it has balanced the needs of the gaming industry against its regulatory obligations. This separation of operational and regulatory imperatives, however, is not evident in the regulation of the National Lottery. The National Lottery Commission has a fundamental conflict of interest in meeting its obligation to maximise funds for good causes and acting as regulator. The result has been that commercial considerations have tended to outweigh regulatory concerns, with no effective regulatory control over new lottery games being brought online.

  2.7  The Association has raised these concerns with officials at the Department for Culture, Media and Sport. In particular, the fact that the history of lottery development elsewhere suggested that turnover would only be sustained by the introduction of new games with a more aggressive marketing push. The current process for scrutiny and approval of new games is not sufficiently robust to counteract this trend towards harder games. The National Lottery Commission has no remit to consult outside bodies when considering requests for approval of new games from the Lottery operator. In addition, it has fairly narrow criteria on which to judge any game put forward, and does not do so from the perspective of a body concerned with preventing excessive participation.

  2.8  Indeed, from a gaming policy perspective, the Lottery is not expected to withstand the same tests or meet the same criteria as other gaming sectors. Games such as Pronto, which were deemed by the Home Office and the Gaming Board as undesirable because of the encouragement of rapid play would not be subject to the same scrutiny if they were put forward by the Lottery operator. The National Lottery Commision's obligation to maximise funds for good causes is not always compatible wth preventing excessive participation. In such cases, maximising funds is its overriding concern. Indeed, there does not seem to be any clear picture of what "excessive" would be defined as in any such deliberations.

  2.9  Press speculation over future proposals from The People's Lottery confirms the trend towards more aggressive games and marketing. There has been the suggestion that scratchcards will be paying a £1 million guaranteed prize, linked to a TV quiz-style game, to revive flagging sales. Scratchcards are hard gambling and should be regulated as such. The introduction of a significantly higher prize will undoubtedly encourage excessive participation and target the more vulnerable sectors of the market. There are no safeguards in place to prevent excessive play, but the NLC seems to regard such concerns as secondary. All these issues were debated at length during the passage of the National Lottery Act, in particular the aggressive nature of scratchcard development. Warnings were given about the likely pattern then, and are being borne out now.

  2.10  The bingo industry believes that the conflict of interest inherent in the National Lottery Commission's remit should be corrected. We consider that a single regulatory body, governing all gaming including the national and other lotteries, should be established. This could be the Gaming Board with a widened remit, or a new body. Monitoring of the commercial activities and obligations of the lottery operator could remain with the National Lottery Commission or with a government department. To ensure consistency, this body should report to a single government department.

3.  THE IMPACT OF THE NATIONAL LOTTERY

Background

3.1  Bingo works on a similar principle to the National Lottery: the accumulation of small amounts of stake from large numbers of people in order to generate a main prize. The top prize in bingo is currently £200,000 (Sundays on the National Game), with daily prizes of £100,000. The National Game is currently played once per session, with a total of eight games per week. Normal house prizes in a licensed club range between £10 and £700, depending on the size of the club.

  3.2  The Gaming Act 1968 separated hard and soft gaming. As a result, the emphasis in licensed bingo was on soft gaming, with a growing social emphasis. Bingo clubs now are viewed as safe and comfortable places to go, particularly for women. Companionship and the chance to make and meet friends are cited as reasons why people play, often in priority over the chance to win money. Research conducted by Talbot and Dixey in 1982[3] showed the clear social benefits provided by licensed bingo clubs across the country. Clubs were seen as a valuable social amenity, providing one of the few leisure activities in which someone, regardless of age or sex, could participate. This was reinforced by research in 1997,[4] which confirmed that despite new style clubs and higher prizes, the social emphasis of bingo remained. Under 4 per cent of those surveyed cited financial aspects as the primary reason for attending their local club, with over 96 per cent giving one of a variety of social reasons.

  3.3  Bingo club numbers peaked in 1974, when there were over 1,800 clubs licensed.[5] During the 80s numbers gradually declined and by 1989, club numbers had dropped to just over 1,000.[6] Gaming Board figures show that at 31 March 2000 there were 727 bingo clubs licensed and operating, a decrease of 24 clubs (3.2 per cent) on the previous year. This means that there has been a 15 per cent drop in the number of clubs over the past five years.

The impact of the National Lottery

3.4  Figure 1 shows National Game ticket sales, often a barometer of general industry performance, during the 1990s. The direct impact of the National Lottery is clearly visible: ticket sales dropped markedly on the introduction of the main Lottery game in November 1994, and then fell again with the introduction of scratchcards in April 1995. Bingo was particularly badly affected for several reasons: the similarity of the games; a propensity of bingo players to spend more than the average on the National Lottery; and the use of pocket cash for the purchase of scratchcards, affecting the spend in bingo clubs. Because the industry is geographically disparate, it has found it difficult to quantify the impact for bingo. In recent years it has commissioned the Henley Centre to provide detailed analysis on industry performance in order to rectify this problem.


The Henley Centre study

  3.5  The Henley Centre has been providing data and analysis now since 1996, providing a more accurate picture of trends within the sector, and also more detailed breakdown of financial information. It looks at various elements which are indicators of industry performance, including admissions, turnover and profitability.

Admissions

  3.6  Admissions are crucial for the success of bingo: a downward trend in admissions means less money staked and lower prize levels, leading to a less attractive product. The decline in admissions has been a critical factor in the fortunes of many bingo clubs in the past decade. Despite considerable investment, the total aggregate number of admissions has not increased. Latest figures for 1999 show an estimated total market of around 95 million admissions, with a continued overall decline.

Turnover and profitability

  3.7  The past five years have seen a steady decline in the total number of clubs licensed and operating. The critical factor for many licensed clubs has been a question of profitability: even where total turnover has increased, profitability for clubs has declined. This means that loss-making clubs inevitably close, even where total money staked (the amount on which duty is levied) has increased.

  3.8  Figure 2 below gives a summary of profitability for 1996-98. It shows that between 1996 and 1997, profitability dropped overall from £78.9 million to £69 million. As a result, the industry saw further consolidation and cost-cutting, which, combined with loss making units closing, led to an overall rise in overall profitability.

Figure 2 OVERALL PROFITABILITY OF THE BINGO INDUSTRY 1996-98 INDUSTRY REVENUES AND COSTS 1996-98 (£ MILLION)


19961997 1998

Revenues
Main stage bingo par fee
129.9
102.3
105.1
Other gaming revenues
334.5
404.8
423.5
Food and drink
88.5
95.8
95.6
Admissions (box office)
43.7
45.9
45.6
Other revenues/incomes
3.8
4.8
7.2
TOTAL
600.5
653.7
676.9

Costs
Licences
11.6
10.8
13.7
Added prize money
29.8
34.5
37.5
Advertising and promotions
32.6
51.6
46.0
Property costs
70.0
74.6
86.3
Total staff costs
182.2
202.1
188.0
Other costs
195.4
211.1
225.2
TOTAL
521.6
564.7
596.6
NET PROFIT
78.9
69.0
80.4


  Source: Henley Centre.

  3.9  The Henley Centre analysis enables the industry to identify those sectors within it which are most at risk of closure. A full industry summary by category for the past three years is given as an Annex. The survey confirms that one of the most vulnerable sectors is that including smaller traditional clubs. These neighbourhood clubs form 29 per cent of the industry total, and over half of them are single site operators; many of them are family businesses with everything invested in one club. Obviously, companies of this size cannot sustain continued losses, however small, on an ongoing basis.

  3.10  The balance of large and small clubs within the industry has shifted in recent years. This is in part due to bingo's inability to adapt because of legislative restrictions, and because of the impact of the National Lottery on the gaming sector in general. As a consequence, smaller community clubs have struggled and many have closed. The Association has made strong representations to government to reduce the duty burden on clubs in order to secure a better future for bingo, and in particular these clubs. Further closures will mean the loss of a valuable social amenity and a decline in government revenues.

  3.11  There is no doubt that the Lottery was a major contributory factor in the decline of many, particularly small clubs. Its introduction was heralded by a huge advertising push at a time when bingo clubs were prevented by law from similar advertisements. Its huge prizes had a significant impact on the discretionary spend available amongst bingo players, leading to a reduction in average spends per head, or a drop in the number of visits per week (or a combination of the two). It was several years before the legislative framework under which gaming activities operated was revised to take account of the Lottery, during which time it enjoyed a massive competitive advantage. Indeed, some aspects of this advantage remain, and are actively protected by the Lottery operator.

Developing the National Bingo Game

  3.12  In order to keep pace with changes prompted by the National Lottery, the National Game (NBGA) proposed changes to the legislation governing multiple bingo. These were the subject of extensive discussion with the Gaming Board and Home Office, and were designed to make the game more competitive and offer greater operational flexibility. The proposals are: no limits on stakes or prizes; the ability to retain a proportion of stake in order to generate a "rollover" effect for prizes; and no limit on the frequency of games.

  3.13  All of these proposals mirror principles already operating for the National Lottery and had the support of the Gaming Board for Great Britain. However, progress on these measures as a Deregulation Order was impeded by objections from the DCMS on the grounds that their success could affect money raised for good causes. Whilst the NBGA was flattered that the Lottery considered it to be a serious rival, in practical terms it is clear that such complaints are excessive and anti-competitive when the Lottery has such a clearly dominant position.

  3.14  The Association considers it outrageous that such action should be taken under cover of protecting funds for good causes, when it is a clear attempt to maintain the current legislative and regulatory advantage enjoyed by the Lottery operator. The Gaming Board is the responsible authority for advising government on appropriate change for licensed bingo, and following discussion it supported the proposals. The Deregulation process is designed to ensure proper parliamentary scrutiny before these proposals could become law, during which time the DCMS and/or Lottery operator would have had ample opportunity to put their case.

  3.15  However, it appears that the Lottery is not only to be exempt from proper scrutiny according to the principles of gaming regulation, but is able to gain unfair advantage by impeding the fair and proper development of other gaming activities. For the Lottery to seek to influence the proper progress of proposals which have the support of industry and the regulator is wholly inappropriate. Indeed, in general terms it might be argued that the Lottery is seeking to abuse its dominant position in the marketplace, a clear breach of competition policy.

  3.16  The Bingo Association believes that such behaviour clearly demonstrates the need for decisive action to separate the operational and regulatory functions of the National Lottery Commission, and the need for Lottery regulation to be the responsibility of a single gaming regulator. Such steps should be taken as part of the Gambling Review to ensure consistency of regulation across all gambling activities.

4.  AGE LIMITS

  4.1  The age limit for most forms of gaming is 18. One of the issues raised by the Gambling Review Body in its request for evidence is the matter of age limits and whether there should be a single age limit for all gaming.

  4.2  The bingo industry has submitted in its response that there should be a single age limit of 18 for all gaming. This includes the National and other lotteries. The recent study by GamCare into the prevalence of gaming indicated that the youngest age group (16-24) were most likely to purchase scratchcards. It also showed that the prevalence of problem gambling overall was highest among this age group.[7] This is supported by studies commissioned by the Lottery regulator in 1998 and 2000, which demonstrated a clear problem with under 16s buying scratchcards and Lottery tickets illegally.

  4.3  Scratchcards, are a harder form of gaming than the main Lottery. The opportunity for chasing losses and reinvesting winnings is higher than in many other activities that are more stringently regulated. It is therefore inappropriate that under 18s have access to them. The introduction of higher prizes (see paragraph 2.9) would make this situation even worse.

5.  CONCLUSION

  5.1  The Bingo Association welcomes this timely inquiry into the National Lottery's operation and regulation. It considers that firm steps are now required to ensure that the Lottery is properly and fairly regulated, and that conflicts of interest currently inherent in the National Lottery Commission's remit are resolved.

  5.2  The bingo industry believes that further steps should also be taken to redress the legislative imbalance between the Lottery and multiple bingo, without the exertion of any undue influence by the DCMS or Lottery operator.

  5.3  The current age limit of 16 for National Lottery ticket sales should be increased to 18 to bring it into line with other gaming activities. This would clarify the Lottery's status as a gaming activity, to be regulated as such.

6.  EXECUTIVE SUMMARY

  6.1  The Bingo Association represents 111 operators of bingo clubs licensed under Part II of the Gaming Act 1968. These range from large companies with over 100 clubs to many single site owners.

  6.2  The bingo industry supported the Lottery in principle, but argued at the time that it should be regulated along the same principles as other gaming activities. It considered arguments then, and now, that the Lottery is not gaming, as bogus.

  6.3  This submission does not repeat past arguments over a level playing field, but puts forward the case for correcting some of the obvious errors in legislation, and draws attention to the most serious issues raised by the current system of regulation.

  6.4  The Bingo Association welcomes the current Gambling Review, but believes that the Lottery should have been included within its remit. Its exclusion seeks to maintain a legislative, and therefore competitive, advantage for the Lottery which is undesirable, and we would argue, improper.

  6.5  Whilst the Lottery is primarily concerned with raising funds for good causes, it is nevertheless a commercial activity. It competes with other leisure activities, including gaming, to attract players. The desire to raise money must be balanced against the need for fair and effective regulation.

  6.6  The fundamental principle of gaming legislation should be regulation, not commercial necessity. The Lottery is gaming and should be regulated accordingly. Gaming policy should not be undermined in order to achieve commercial objectives, which is the situation at present. That the Lottery raises funds for good causes is not in itself justification for ignoring or bypassing existing policy on gaming regulation.

  6.7  Despite assurances given during the passage of the Lottery Act, the principal of additionality is being eroded and funds are now being allocated to projects which would previously have been funded by government.

  6.8  Unlike the rest of the gaming sector, which is regulated by the Gaming Board, there is no separation of operational and regulatory imperatives in the regulation of the National Lottery. The National Lottery Commission has a fundamental conflict of interest in meeting its obligation to maximise funds for good causes and acting as regulator. The result has been that commercial considerations have tended to outweigh regulatory concerns, with no effective regulatory control over new lottery games being brought online.

  6.9  The current process for scrutiny and approval of new games is not sufficiently robust to counteract an inevitable trend towards harder lottery games. Indeed, from a gaming policy perspective, the Lottery is not expected to withstand the same tests or meet the same criteria as other gaming sectors. Not only does the need to raise funds supersede the requirement to prevent excessive play, there is little clear picture on how "excessive" would be defined.

  6.10  Any move towards introducing significantly larger prizes for scratchcards would be detrimental. Scratchcards are hard gambling and should be regulated as such.

  6.11  The bingo industry believes that the conflict of interest inherent in the National Lottery Commission's remit should be corrected. We consider that a single regulatory body, governing all gaming including the National and other lotteries, should be established. This could be the Gaming Board with a widened remit, or a new body. Monitoring of the commercial activities and obligations of the Lottery operator could remain with the National Lottery Commission or with a government department. To ensure consistency, this body should report to a single government department.

  6.12  Bingo clubs have a strong social emphasis, and are regarded as the soft end of the gaming spectrum. The number of clubs has declined since a peak in 1974 when there were over 1800 clubs. Gaming Board figures show that at 31 March 2000 there were 727 bingo clubs licensed and operating, a decrease of 24 clubs (3.2 per cent) on the previous year (and a 15 per cent drop in the past five years).

  6.13  The direct impact of the National Lottery is clearly visible on ticket sales for the National Bingo Game (a good barometer for the industry as a whole): ticket sales dropped markedly on the introduction of the main Lottery game in November 1994, and then fell again with the introduction of scratchcards in April 1995.

  6.14  Admissions are crucial for the success of bingo: a downward trend in admissions means less money staked and lower prize levels, leading to a less attractive product. The decline in admissions has been a critical factor in the fortunes of many bingo clubs in the past decade. Despite considerable investment, the total aggregate number of admissions has not increased. Latest figures of 1999 show an estimated total market of around 95 million admissions, with a continued overall decline.

  6.15  The critical factor for many licensed clubs has been a question of profitability: even where total turnover has increased, profitability for clubs has declined. This means that loss-making clubs inevitably close, even where total money staked (the amount on which duty is levied) has increased.

  6.16  Smaller traditional clubs have been most vulnerable. These neighbourhood clubs form 29 per cent of the industry total, and over half of them are single site operators: many of them are family businesses with everything invested in one club. Obviously, companies of this size cannot sustain continued losses, however small, on an ongoing basis.

  6.17  There is no doubt that the National Lottery was a major contributory factor in the decline of many, particularly small, clubs. The Association has made strong representations to government to reduce the duty burden on clubs in order to secure a better future for bingo, and in particular these clubs. Further closures will mean the loss of a valuable social amenity and a decline in government revenues.

  6.18  In order to keep pace with changes prompted by the National Lottery, the National Game proposed changes to the legislation governing multiple bingo: no limits on stakes or prizes; the ability to retain a proportion of stake in order to generate a "rollover" effect for prizes; and no limit on the frequency of games.

  6.19  All of these proposals mirror principles already operating for the National Lottery. All had the approval and support of the Gaming Board for Great Britain. However, objections from the DCMS on the grounds that their success could affect money raised for good causes prevented them being proposed as a Deregulation Order. Such complaints are anti-competitive when the Lottery has such a clearly dominant position.

  6.20  The Association is outraged by such a clear attempt to maintain the current legislative and regulatory advantage enjoyed by the Lottery operator, thereby bypassing proper parliamentary scrutiny of the proposals. For the Lottery to seek to influence the proper progress of proposals which have the support of industry and the regulator is wholly inappropriate. Indeed, it might be argued that the Lottery is seeking to abuse its dominant position in the marketplace, a clear breach of competition policy.

  6.21  Such behaviour clearly demonstrates the need for decisive action to separate the operational and regulatory functions of the National Lottery Commission, and the need for Lottery regulation to be the responsibility of a single gaming regulator. Such steps should be taken as part of the Gambling Review to ensure consistency of regulation across all gambling activities.

  6.22  The age limit for most forms of gaming is 18. The bingo industry has submitted it to the Gambling Review that there should be a single age limit of 18 for all gaming. This includes the National and other lotteries.

  6.23  Recent research shows that the 16-24 age group are most likely to purchase scratchcards and also has the highest prevalence of problem gambling. Studies by the Lottery regulator also show a clear problem with under-age playing of scratchcards and the Lottery. A consistent age limit of 18 would be more appropriate.


3   Women, Leisure and Bingo, Margaret Talbot and Rachael Dixey, Trinity and All Saints' College, 1982. Back

4   The Four Towns Study, Faith Freestone, Worcester College, 1997. Back

5   Report of the Gaming Board for Great Britain, 1975. Back

6   Report of the Gaming Board for Great Britain, 1990. Back

7   Gambling Behaviour in Britain: Results from the British Gambling Prevalence Survey, Sprotson, Erens & Orford, 2000, Back


 
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