Memorandum submitted by the Independent Committee for the Supervision of Standards of Telephone Information Services (ICSTIS)
1. ICSTIS AND ITS INTEREST IN A REVIEW OF GAMBLING LEGISLATION
ICSTIS, the Independent Committee for the Supervision of Standards of Telephone Information Services, is the independent regulatory body for premium rate telecommunications services that are accessible in the UK. ICSTIS has statutory backing through a backstop power enforceable by Oftel. ICSTIS's primary task is to set standards for the content and advertising of premium rate services. I attach at Appendix 1 copies of ICSTIS's latest Activity Report for the year 2001 (not printed).
"Premium rate" is a term which describes a particular way of paying for information or entertainment services, especially competitions delivered via a telephone network. The call charge is billed to the customer by the network operator, on behalf of the service provider who provides the content. Call charges appear on the customer's ordinary telephone bill. The call revenue from the service is shared between the network operator and the service provider at a previously agreed rate. Increasingly, these content-rich services are being delivered on a variety of platforms beyond conventional telephony. Services are now being accessed on mobile SMS platforms, on the Internet and, more recently, on interactive television.
I enclose at Appendix 2 further details about the ICSTIS model of regulation. I would draw the Committee's particular attention to the range of sanction powers at ICSTIS's disposal in cases where ICSTIS's Code is breached by a provider of such services described above. At Appendix 3 is a copy of the ICSTIS Code of Practice. I would draw the Committee's attention to the section on Competitions (section 5.2).
2. HOW MANY CHANGES IN GAMBLING LEGISLATION AFFECT ICSTIS?
The Gambling Review (Budd Report) set out (in Chapter 28) proposals for changes to gambling legislation that would impact on the provision of prize competitions including those utilising premium rate. In ICSTIS's view the conclusions reached in this Chapter were not wholly consistent and the problems more complex than suggested by the recommendations made. If approved, as recommended by Sir Alan Budd they would have a dramatic impact on consumers' ability to take part in, for the most part, generally harmless competitions and would have a detrimental impact on a host of media companies and network providers who make a legitimate business out of offering such services. We welcomed, therefore the Government's announcement in the White Paper"A Safe Bet for Success"that prize competitions was an area that will be subject to further review. This is now underway through a DCMS consultation paper and ICSTIS will be responding in due course.
3. WHAT DOES ICSTIS SEE AS THE WAY FORWARD TO LEGISLATING IN THIS AREA?
ICSTIS believes, in line with government policy, that non-statutory regulatory arrangements are preferable to statutory solutions wherever possible. ICSTIS has a Code of Practice which contains general clauses designed to protect consumers. It also contains specific conditions relating to the proper conduct of prize competitions. ICSTIS has effective sanctions to enforce this Code and does use these powers where it becomes necessary to do so in order to protect the consumer's interest. In one serious case a competition service provider was fined £100,000 by ICSTIS. The same provider was subsequently barred by ICSTIS from running direct mail competitions for three years. Unless there is evidence that the regulation of this area provided by ICSTIS, on behalf of the telecommunications industry has, or is failing, ICSTIS would see no reason why these services need be regulated by a future Gambling Commission.
ICSTIS is of the view that the current law with regards to the definition of a lottery is a mess. We believe that the law is in urgent need of improvement and we therefore welcome the Government's plans for reform. The reform, however, must lead to improvement through greater clarity both for the consumer and for the provider. If the change does not meet this test then it would seem pointless making any change.
The UK premium rate industry is worth over £600 million per annum and is both the largest and the most stable in the world. The stability is a result of ICSTIS's effective regulation of this area. This was recognised in the Government's Communications White Paper where ICSTIS was identified as an effective example of non-statutory regulation in practice. A substantial (but unquantifiable) amount of this £600 million relates to services which offer entertainment value such as competitions (Who Wants to be a Millionaire? being a very well-known example). We note that the Government's position is that Commercial Lotteries should be prohibited. This raises the difficult question of quite how the Government plan to define "commercial lotteries". Depending on a definition put forward many media groups and companies who rely, or are dependent, on such prize promotions for their livelihoods may suffer as such relatively harmless services are outlawed. The consequences for this go further if one looks a little way ahead to the roll-out of new technologies such as 3G on mobile where it is undoubtedly the case that business models are being constructed in part on the assumption that these services will incorporate forms of entertainment offerings including competitions.
1 July 2002
THE ICSTIS REGULATORY MODEL
ICSTIS is responsible for the regulation of premium rate information and entertainment services accessed and paid for by a premium rate charge to a telephone bill. Today they are also widely available on the Internet, on interactive television and on mobile telephones and include Premium SMS. ICSTIS's regulatory model has the following defining characteristics:
Independenceno member of the ICSTIS Committee can be actively involved in the industry it regulates;
regulatory underpinningICSTIS is a co-regulator in respect of premium rate services with underpinning by an Oftel Licence Condition on network operators requiring compliance with a Code of Practice;
a structured funding mechanismICSTIS funding is equitable and is based on the volume of premium rate business conducted by each of the terminating networks who fund the organisation;
published Codes and Guidelinesthe ICSTIS Code of Practice sets meaningful requirements on premium rate service providers and spell out their entitlements under our enforcement regime. ICSTIS undertakes meaningful and wide-ranging consultations whenever it considers changes to its Codes of Practice, Guidelines or other policies which may impact upon its stakeholders;
meaningful sanctionsICSTIS can, in instances of perceived widespread consumer harm, take swift and effective action to suspend services from operating pending further investigation. ICSTIS also has the ability to warn, fine (fines up to £100,000 have been set in individual cases) and bar services where necessary to give consumer protection. Adjudications are published and made widely available;
research legal, media and policy capabilityICSTIS has the resources to carry out research and policy work, manage media enquiries and ensure that its proposals are based in law;
sectoral expertisein our case ICSTIS has an expertise in regulating business and services offered nationally from single and sometimes "virtual" locations; something which Trading Standard departments and others are less familiar with and, perhaps, less comfortable in doing;
ISO Standardenquiry, licensing and complaint-handling procedureswe work to an ISO Handbook and are audited on a regular basis;
Independent AdjudicatorICSTIS provides an Independent Adjudication service to members of the public who receive high telephone bills to Live premium rate services in situations where they claim unauthorised use of their telephone;
Independent Appeals Bodyall ICSTIS decisions can be appealed to a separate independent body fully compliant with Human Rights Act requirements;
staff investmentICSTIS is IIP accredited and has a motivated and enthusiastic staff;
international regulatory connectionsICSTIS has built a network of contacts with European and other regulatory of premium rate services. We have been instrumental in bringing UK content regulators together to work on issues of shared interest.
Memorandum submitted by Atlas Property Consultants
Following detailed research of the international resort casino market, detailed discussions with international casino operators and a track record second to none in the UK for leisure development projects, Richardson Developments have devised a high quality, exciting and innovative casino based urban entertainment centre concept for the UK market. The company has begun negotiations on a small number of suitable sites in the UK's main conurbations to develop this resort casino concept.
Each proposed development scheme would provide the catalyst for the rejuvenation of the local and regional economy. It would re-generate a deprived sector of each conurbation by providing substantial sources of local employment and secure major inward investment by a major international company in partnership with Richardson Developments. Moreover, each scheme would be a major source of attraction for the national and regional tourism and conference industries, thereby enhancing tourist and business visits to each region.
In order to undertake these exciting new ventures it is considered vital that HM Customs & Excise review the current rates of Gaming duty. If resort casinos are to become established in the UK then rates need to be comparable with international practice. Discussions with the principal operators indicate that unless gaming duty is reduced to a level of no more than 20 per cent the substantial benefits associated with resort casinos outlined herein could not be achieved.
Richardson Developments would like to suggest the following key recommendations:
Future decision making regarding resort casinos is not transferred to proposed regional Assemblies.
Resort casinos are promoted by the private sector, tested against agreed criteria formulated by the Gambling Commission and accord with national, regional and local planning policies.
A flat rate gaming duty is set for casinos at no more than 20 per cent of gross gaming yield.
Atlas Property Consultants is a property development consultancy practice, which advises a number of clients on major development schemes, principally in the leisure and tourist sector. The practice made formal representations to the Gambling Review Body in July and November 2000 regarding the benefits and opportunities which resort casinos could provide to the UK economy.
Atlas Property Consultants has been retained by Richardson Developments to advise them on the potential for the development of a small number of major resort casino and entertainment venues in the UK. Richardson Developments are the UK's leading developers of leisure projects and have constructed over 1 million sq ft of leisure space within the last five years, including major urban entertainment centres in Birmingham (Star City) and the Printworks (Manchester). Star City contains Europe's largest multi screen cinema (32 screen Warner Village) and the Printworks is widely acknowledged as the premier entertainment centre in the UK. Appendix 1 [not printed] contains a corporate brochure providing more details of the company and its development track record.
Richardson Developments has undertaken a detailed analysis of the UK casino and leisure market and, after detailed dialogue with a number of major international resort casino operators, devised an appropriate concept for a gaming based entertainment centre in the UK (See Appendix 2 [not printed]). Anchored by a resort casino and hotel, schemes would also incorporate complementary retail, nightclub, health spa, cinema, music/comedy club, entertainment/performance venues, together with a wide range of bars and restaurants. Such schemes would be enclosed and located within the main UK conurbations, comprise over 450,000 sq ft of space with an investment in the local economy of at least £100 million. Richardson Developments believe that such a concept would be highly suited to the UK market, a view shared by a number of international resort casino operators, and could be considered as second generation urban entertainment centres following on from successful developments at Star City and the Printworks.
As part of the development of this new gaming based entertainment concept Richardson Developments have welcomed the report of the Gambling Review Body and the Government's response in March 2002. Both these reports have acknowledged the view that resort casinos could assist the rejuvenation of local economies and help promote tourism. However, there remains one area which currently acts as a deterrent to the development of resort casinos in the UK; the relatively high levels of Gaming duty in the UK. The purpose of this submission to the DCMS is to provide further information regarding the potential regeneration benefits of the resort casino based entertainment centre being promoted by Richardson Developments and to look at rates of Gaming Tax on a global basis and its impact on their development.
RE -GENERATIOn ASPECTs Of RESORt CASINOs
Atlas Property Consultants made a formal submission to the Gambling Review Body in November 2000 which principally outlined the benefits from the development of a small number of resort casinos in terms of the re-generation of depressed local economies. The concept outlined in that paper has now been refined, following further research and discussions with potential international Resort Casino operators and Appendix 2 [not printed] contains the latest proposed concept suggested and currently being promoted by Richardson Developments.
Taking an international perspective there are several areas of the world where major Resort Casinos have been developed or planned, including the USA, Canada, Australia, New Zealand, Macau and South Africa. Notably, nothing in Europe of any scale. If the UK Government wishes to promote the concept then it would have wider tourism and taxation advantages over any other European country, in addition to rejuvenation of areas of existing urban areas.
Many areas of the USA have seen the benefits of Resort Casinos. The re-generation of both Atlantic City and Las Vegas have been well documented and provide the most established examples of resort casinos and associated tourism and leisure development. However, there are better examples upon which to assess the benefits of the concept to the UK market.
South Africa is an area of the world where the development of the casino industry is being utilised to aid re-generation, post apartheid. Gambling legislation was approved by central government in 1996 and the first casino was opened in 1998. The main result of this legislation has been the trend for the development of resort casinos within the main urban areas of principal cities. This was the prime aim of the legislation to re-generate run down and depressed areas.
Similarly, the city authorities in Detroit, USA have granted three temporary licences to major international casino operators. All three have proved successful and permanent licenses will be awarded once sites have been secured within the main urban area, as a means to revitalise the local economy.
A further good example, which demonstrates how a resort casino has delivered significant regeneration benefits and new sources of employment, is Melbourne, Australia. The Crown Casino now operates a very large resort casino fronting the Yarra River in the city. This has proved to be a major catalyst in the wider rejuvenation of the Melbourne waterfront with retail, bars, clubs, restaurants and a 5 star hotel attracting local and international visitors to the city. A major new convention facility is now planned for an adjoining site.
Richardson Developments believe that the key is to maximise the benefits, which such complexes offer. They must be located within areas in need of re-generation and provide new sources of skilled and semi-skilled work to the local economy. They need to offer a wider economic benefit beyond the casino itself; for example the potential for other leisure and tourist investment (hotels, cinemas, theatres, shopping, bars, nightclubs, restaurants etc). Moreover, it should assist in attracting business spending through convention, exhibition and seminar space and accommodation. In short, a wider package of benefits needs to be on offer. Essentially, a resort casino, if properly located, can act as a catalyst for urban re-generation and renewal. Moreover, such projects can enhance the competitiveness of the UK economy by increasing tourist numbers and spending and offering a boost to the British conference industry. At this point in time there is nothing of any scale or quality within Europe and therefore an opportunity exists to provide facilities comparable to best practice elsewhere in other regions of the world, notably the USA, South Africa and the Far East/Australia.
As a guide Richardson Developments believe that any resort casino proposal should be tested against its ability to fulfil the following key criteria:
They should be located in areas where they have the potential to attract national and international tourism. This could include London as the tourist capital, as well as the main regional centres (Glasgow, Edinburgh, Newcastle, Leeds, Manchester, Birmingham, Bristol and Cardiff). In addition, there may be a case for the main seaside towns (Blackpool, Brighton and Southend).
Major national facilities could be enhanced on the international stage if associated with a resort casino (London Excel and Earls Court, Birmingham NEC, Manchester GMEX, Glasgow SECC). There could also be potential for a new significant conference/exhibition scheme in association with a resort casino project.
The resort casino should act as a tool for the rejuvenation of the local and regional economy. Accordingly, its location within or close to areas of depravation is important in order to maximise its potential to provide local employment in an area of need. Similarly, the ability to provide a major driver to the regional economy is fundamental to such schemes.
A resort casino and hotel should only be part of the development package. Any scheme proposed needs to include a wider range of facilities than the core gaming product. For example, retail, nightclub, theatre, cinema, health spa, and music venue, together with bars and restaurants.
In terms of the granting of licenses and planning consents for such schemes, Richardson Developments wishes to state their firm support for the market-based approach adopted by the Gambling Review Body in its report. Having significant expertise of private sector retail and leisure development projects in the UK, identifying and securing appropriate sites to meet the type of criteria set out above and satisfying the balance between operator requirements and stringent planning policy controls, it is unlikely that a market based approach would lead to an over-provision of resort casinos in the UK.
It is suggested that the Gambling Commission be charged with the task of developing criteria upon which to test the suitability of resort casino operations, based upon a size threshold. The list outlined briefly above provides a flavour of the features and aims in this regard. If a private sector developer or operator is able to demonstrate to the Gambling Commission that it is able to satisfy this criteria, procure local authority support and meet the requirements of public planning policy then this should be sufficient to secure an approval to develop a resort casino. Richardson Developments do not believe that this kind of approach would lead to over-proliferation of schemes, or market saturation.
Richardson Developments understands that some thought is currently being given to the vesting of decision-making for resort casinos to future regional assemblies. There are a number of disadvantages to this approach:
Politicians and civil servants are not best placed to decide upon the number, size, content or locations of what are essentially private sector developments, which satisfy a consumer demand.
There are already sufficient controls within the planning process ie PPG6, 13, Regional Planning Guidance etc upon which to base effective decision making.
The future of regional assemblies is too uncertain. Any enabling legislation is beyond 2005-06 (after implementation of new gaming laws) and, thereafter, subject to an election process which may decide against the setting up of an assembly. To base future decision-making on what could turn out to be a vacuum is dangerous.
Decision-making could be very uneven. Separate government structures exist for Scotland, Wales and Northern Ireland and, presumably following a new gaming act, each of these countries would be free to promote Resort Casinos. Similarly, as each region elects or fails to elect a regional assembly resort casinos could be developed mainly on a "first come, first served" basis. Any region failing to elect an assembly or coming along towards the end of the process might be unable to benefit from the concept in what might be areas of greatest need for regeneration and/or most attractive market demand.
TAXATION ASPECTS OF RESORT CASINOS
In the submission to the Gambling Review Body by Atlas Property Consultants (November 2000) a key component of the case for resort casinos was that internationally comparable rates of tax would be required if the concept is to take off in the UK.
There is clear evidence that if tax rates are set too high then resort casino development will not take place. All the main international players operate in a global market and are only prepared to make the very substantial investment in resort casinos if tax rates are set on a comparable basis with regions of the world which already have these facilities. This has been confirmed to Richardson Developments by all the operators with whom discussions have been held and it is understood that a number of potential operators keen to enter the UK have confirmed this position to the DCMS.
At present, Gaming Duty is a premises based tax with graduated rates of 2.5 per cent, 12.5 per cent, 20 per cent, 30 per cent and a top rate of 40 per cent; a system which is punitive towards resort casinos, the bulk of which would be taxed at the higher rate. Clearly, there is scope to simplify this duty, especially as future casinos could have the ability to offer sports betting and bingo (both with different duty rates). It would be very beneficial to adopt a flat rate of duty to ease calculation and collection. More importantly, these rates do not compare favourable on the international stage. A number of gaming tax rates are set out below:
Graduated tax rate with a maximum rate of 6.25 per cent on Gross Gaming Revenue.
Atlantic City, USA
8 per cent on Gross Gaming Revenue, plus a community investment of 1.25 per cent or a 2.5 per cent investment alternative.
Gauteng, South Africa
A 9 per cent Provincial Gambling Tax on Gross Gaming Revenue.
18 per cent on Gross Gaming Revenue, plus a municipal service fee of 1.25 per cent or $4 million per annum, whichever is the higher.
21.25 per cent on Gross Gaming Revenue, plus a 1 per cent community benefit (also impose an additional special "high rollers" rate of 9 per cent on Gross Gaming Revenue, plus 1 per cent community benefit).
Evidence to demonstrate that high rates of tax act as a deterrent to the development of resort casinos is best collected from within Europe. The French government instituted a major piece of gaming legislation in the late 1980's. This led to a substantial increase in gaming revenue as the casino industry expanded. Despite the expansion of the casino industry resort casinos were not established due to too high tax rates. Consequently, French casinos are not particularly well located and do not normally have additional comprehensive facilities (shops, leisure, bars, conference facilities etc) which have been achieved with the development of international standard resort casinos elsewhere. In short, the French government failed to capitalise on the potential re-generative and taxation benefits of resort casinos because the tax rates are too high and the major international players sought not to enter the market.
In more recent times, Switzerland has introduced new gaming legislation with a further aim of introducing major resort casinos to stimulate local economies. Unfortunately, this initiative has not been successful as tax rates are too high to attract the big international casino groups. Consequently, there has been very patchy take up of several casino licenses, which were recently put up for tender.
Upon detailed discussion with a very wide range of major international casino operators there appears to be a rough rule of thumb regarding the impact of tax rates:
At rates of up to 20 per cent it becomes a feasible proposition (subject to other technical and market considerations) to invest in resort casinos.
At rates of between 20-40 per cent most private sector casino operations can achieve profitability (subject to technical and market considerations). However, the product offered is much more limited as the return on investment dictates a far inferior product with little spin off in complementary development (hotels, theatres, conference venues and the mix of retail, leisure, bars and restaurants).
At rates in excess of 40 per cent then most private investment is not possible and public or quasi-public private facilities of a very limited and poor quality standard tend to be available.
Richardson Developments has been encouraged by the Government's response to betting duty and the threat posed by offshore telephone and Internet betting. The abolition of the 9 per cent betting duty and replacement with the 15 per cent tax on gross profits in March 2001 has demonstrated that HM Customs & Excise and the Government are prepared to look internationally and institute a competitive tax regime in order to promote the domestic gaming industry. Similarly, the flat rate bingo duty of 10 per cent is a welcome sign of the approach to the gaming industry in general.
The Government's response to the Gambling Review Body also gives some cause for optimism (Section 8, 8.1) :
"HM Customs & Excise are addressing the implications of the reforms proposed in this document for the management and administration of the gambling duty regimes."
Richardson Developments would urge the DCMS and HM Customs & Excise to fully consider the impact of gaming duty on the likely development of resort casinos in the UK. If the concept does have the support of Government then it needs to consider a simplified revision of present Gaming Duty rates to provide a level, which compares favourable with international rates.
RECOMMENDATIONS TO THE DCMS
Richardson Developments urges the DCMS to be supportive of the resort casino concept in the UK. In this respect, full account needs to be taken of the potential benefits of these schemes to the UK and regional economy and to the important tourist and leisure industries. If properly developed a resort casino can act as a catalyst for wider economic and urban re-generation, enhance the national and international tourist market and contribute significant funds through gaming duty.
There are a number of key issues which need to be fully considered if resort casinos are to be allowed to develop and flourish in the UK and to maximise the important benefits which they could provide:
Future decision making regarding resort casinos is not transferred to proposed regional assemblies.
Resort casinos are promoted by the private sector, tested against agreed criteria formulated by the Gambling Commission and accord with national, regional and local planning policies.
A flat rate gaming duty is set for casinos at no more than 20 per cent of Gross Gaming Yield.
Richardson Developments respectfully request that the DCMS fully considers these key issues when formulating the new gaming legislation.