SUBMISSION 15
Memorandum submitted by International
Game Technology-UK (IGT-UK)
INTRODUCTION
IGT-UK Limited welcomes the opportunity to make
their submission to the Culture, Media and Sport Committee of
the House of Commons in respect of the Government proposals for
gambling detailed in the Government's response to the Gambling
Review Report "A Safe Bet For Success—Modernising
Britain's gambling laws". Our submission follows the
Committee's terms of reference where possible.
IGT-UK is a wholly owned subsidiary of International
Game Technology (IGT), the largest designer and manufacturer of
gaming machines in the world. IGT is the world-wide market leader
in the supply of machines and systems to casinos with an annual
turnover of approaching $2 billion. It is listed on NASDAQ and
has a market capitalisation of over $5 billion.
IGT-UK, through its divisions Barcrest UK, Barcrest
Games, Vivid Gaming, Red Gaming, Barcrest Spain and Barcrest Netherlands,
has been active in the European gaming machine market for over
30 years. We sell between approximately 35,000 jackpot, all-cash
and gaming machines per annum to UK and European customers, making
us by far the largest UK-based designer and manufacturer of these
machines. We also export casino games via our parent company to
the US market, making us the only UK designer and manufacturer
with a substantial position in the North American casino market.
BACKGROUND
The principal UK gambling legislation was framed
in the 1960s, and despite being over thirty years old, the structure
established under this legislation has, by and large, served the
UK well. One of its main objectives was to make the UK gambling
industry crime-free and the Royal Commission of 1978 declared
that this had been achieved. More recently, a report by the National
Centre for Social Research , shows the UK to have one of the lowest
rates of problem-gambling in the world. The UK Gaming Board is
internationally recognised as one of the best industry regulators
in the world; and the UK gambling industry has proven itself globally
to be capable of delivering quality products and services delivered
with integrity.
However, the business environment is changing.
New technology is creating new opportunities to gamble, making
the distinctions drawn by the present legislation difficult to
sustain. Video terminals promise to replace traditional reel-based
fruit machines, fundamentally changing the position and income
stream of the fruit machine designer/manufacturer. Most significantly,
the Internet threatens to undermine existing legislation completely
by allowing any UK citizen of any age with basic computing skills
access to unregulated gambling sites world-wide.
It is therefore necessary to review and update
the current gambling legislation while being mindful that we are
starting from a strong position and we should introduce change
with caution.
THE GOVERNMENT'S
PROPOSALS
As a long-term participant in the UK gaming
industry, IGT-UK welcomed the Gambling Review as an important
step in laying down a flexible legislative framework to serve
the UK Government and gambling community during the 21st Century,
and made our submission to the Gambling Review Body accordingly.
We believe that much of the resultant report was credible, and
subsequently submitted a number of suggestions to the Department
of Culture, Media and Sport which we considered would improve
the overall package of recommendations.
IGT-UK is pleased to note that the Government's
response is a well-balanced distillation of the original Gambling
Review Body's recommendations. The Department of Culture, Media
and Sport is to be congratulated for their carefully reasoned
review of the Gambling Review Body's recommendations, and it is
most encouraging to observe that the consultation process has
worked admirably on this occasion. It is particularly pleasing
to note that the Government's proposals appear to be consistent
with many of the suggestions made in our own response, and that
the majority of our concerns or reservations with the Gambling
Review Body's recommendations have thus been addressed.
The Government's proposals set out consistent
and workable means of allowing adults access to gambling opportunities
whilst ensuring that proper controls are in place governing all
those involved in the gambling business, that children are protected
and that social responsibility is recognised and dealt with. The
UK gambling industry has proven itself to be highly professional
and reputable, and is considered to be a world leader in terms
of integrity, so it is important that any changes do not compromise
this enviable reputation.
Throughout the consultation process, IGT-UK
have maintained a number of principles that should underpin UK
gambling regulation, and are encouraged that the Government's
proposals support the vast majority of these. Pivotal in these
principles is that that proper safeguards against criminality;
under-age gambling; and problem gambling should be in place, so
that adults should be free to choose from the full range of legitimate
gambling products available.
IGT-UK wholeheartedly agrees with the proposal
that the UK gambling industry should be governed by a single integrated
regulatory body (the Gambling Commission).
The Gambling Commission should cover all forms
of gambling, preferably including the National Lottery and spread
betting. It should be adequately resourced and empowered to effectively
control all companies and principal individuals involved in the
provision of gambling opportunities.
SUBMISSION BY
TERMS OF
REFERENCE
1. The impact of the proposals on the suppliers,
lessors and the users of gaming machines.
In general, IGT-UK welcome the Government's
proposals in respect of machines, and whilst they appear to be
reasonably neutral in the overall impact upon the gaming machine
business, this is difficult to quantify because there is much
detail yet to be finalised, and the impact upon player behaviour
cannot be determined.
It is expected that the number of machines sold
per annum will reduce because a number of All-Cash (Category C)
machines will be replaced by jackpot (Category B) machines, which
have a longer life before renewal. It is not believed that this
impact will be dramatic.
The introduction of unlimited stake and prize
casino slot machines will increase the number of machines sold
per annum.
We often hear it said that UK manufacturers
have little experience with casino machine designs, so that the
majority of the initial casino machine sales will be from overseas
manufacturers. This is not true. Firstly, it should be recognised
that all the major gaming machine manufacturers in UK market are
already to some extent foreign-owned (by companies from the USA,
Germany, Japan and Australia). Secondly, we must understand the
likely position of IGT-UK in a liberalised UK casino market.
IGT-UK has extensive experience in designing
casino games for the highly competitive North American market
and presently supplies some of the top-performing casino machines
in that market. Indeed, IGT's decision to purchase IGT-UK from
Bass in 1998 was heavily influenced by the strong casino-game
design skills in the business. IGT-UK has a dedicated gaming machine
manufacturing plant in Ashton-under-Lyne, Lancashire employing
over 400 staff that already assembles product for IGT's European
casino machine business and supplies key machine components into
the North American casino machine market. IGT's share of compliant
European casino machine markets is approximately 30 per cent and
its share of compliant North American casino machine markets is
approximately 70 per cent.
It is therefore likely that there will be a
direct and positive benefit to UK business and employment resulting
from the liberalisation of the UK casino market
We set out below a number of detailed points
which we believe should be considered:
1.1 Methods of Payment
We welcome the Government's intention to adopt
the deregulation proposals detailed in "Gaming Machines:
Methods of Payment" to allow banknotes to be used and to
allow winnings to be replayed, and urge that this be effected
at the earliest possible time.
1.2 The impact of annual reviews of the
number of machines permitted by Local Authorities to be given
careful consideration.
Businesses need to be able to invest in their
future with some degree of confidence, and frequent reviews of
fundamental aspects of their operation would create uncertainty.
Once a Local Authority has established the number of machines
permitted for a premise, unless some fundamental aspect of the
business has changed, it is highly unlikely that a review of this
number would be necessary.
In addition, we must be mindful of the limited
resources available to the Local Authorities, and if there is
no need for an annual review, then it makes good sense to minimise
the number of applications submitted.
We therefore suggest that the number of machines
permitted by the Local Authority should remain extant until a
substantive change in the premises or operation takes place; and
that grandfather rights should apply to the number of machines
already established for premises so as to allow these businesses
to protect their past investments.
1.3 A number of Category C to be machines
permitted in a pub as an adjunct to the liquor licence together
with additional machines at the discretion of the Local Authority
is a welcome principal, but the details should be reviewed.
It is envisaged that the proposed number of
two machines adjunct to the liquor licence would generate a large
number of applications to the Local Authorities for additional
machines, significantly adding to the burden on these offices.
In order to both protect the Local Authorities
from such an increase in burden, and to allow existing businesses
to sustain their business plans, we suggest that the number of
Category C machines permitted as an adjunct to the liquor licence
to be revised upwards to three.
1.4 The proposals regarding fixed-odds betting
terminals in Licensed Betting Offices require clarification.
We note the proposal to limit the maximum prize
available on a fixed-odds betting terminal sited in a Licensed
Betting Offices to £500.
Whilst the Government argues that such machines
involve gaming, these terminals are not fundamentally gaming machines
and should not contribute to the maximum of four x Category B
or C machines to be permitted in Licensed Betting Offices.
1.5 IGT-UK welcomes the proposal for a Category
D non-gaming machine with trivial stake and prize.
It is desirable to retain children's games with
prizes. The size of the stake and prize must be trivial, and a
maximum stake of 10p and a maximum prize of £5 cash (or tokens/prizes
to the value of £5) would appear reasonable.
However, the proposal to fix the stake and prize
levels without mechanism for review requires reconsideration.
It is not reasonable to assume that such values would be appropriate
for ever, and at the very least would require review if and when
the UK adopts the Euro. It makes sense to incorporate a review
mechanism even if it has no effect for some years.
1.6 IGT-UK welcomes the proposal that all
licensed participants in the gambling industry should be free
to negotiate commercial terms subject to the usual constraints
of Competition Law
The present rules prohibiting developers of
game software, manufacturers and operators from sharing in the
gaming machine revenue prevent the industry adapting to changing
technology.
Gaming machine manufacturers currently generate
their income by selling machines to operators, who rent them to
site owners. However, future gaming machines are likely to become
video-based with an open platform, sold once by the manufacturer
and then updated using games supplied from a host of design companies,
probably downloaded to the video machine via the Internet.
So, the current commercial model is likely to
change. Machine sales will most likely fall and the operators'
main expenditure will be on the combination of software and graphics
forming a game. Such intellectual property is most naturally dealt
with by charging on a per-usage royalty or revenue-share basis
throughout the supply chain, prohibited by present legislation.
1.7 The proposal for the Gambling Commission
to be empowered to approve, or otherwise, any new machine type
developed is welcome.
The Government's support of technological innovations
is welcome. However, in order that the inventor of a new type
of machine may have certainty in planning the exploitation of
such an invention, the Gambling Commission should provide a written
certificate to the gambling industry as to the regulatory status
of any such new machine type that would be binding on the Gambling
Commission for a long period (eg 20 years).
Clearly, the Gambling Commission could revoke
such a certificate at any time if it were subsequently discovered
that the true nature of the new machine type was not fully disclosed,
or if associated conditions specified by the Gambling Commission
(as to, for example, the closeness of future machines to the original
approved machine) are not met.
1.8 The regulations governing gaming machine
development must be flexible in order to allow innovation and
evolution of the structure of the industry to accommodate technological
change
The flexibility of the present UK regulations
(based upon the integrity of participants and the working relationship
between the industry with the Gaming Board) is envied by many
in Europe. A machine testing regime developed by BACTA and the
Gaming Board has been successfully adopted by all major machine
manufacturers to submit data to the Gaming Board for each machine
produced. This has enabled the UK gaming machine industry to be
fast-moving and innovative.
This contrasts with certain European markets
(eg Germany, Norway etc.) that insist on detailed approval by
a public body or third party for non-casino machines, where these
processes have a strong tendency to be highly bureaucratic and
have a number of effects, such as:
— Slowing the rate of machine development
(UK machines are presently developed in 6-8 weeks whereas formal
type approval often takes 6 months or more)—increased time
to market raise barriers to new entrants
— Tendency to favour indigenous suppliers
who "know the system" restricting foreign competition
— Unresponsiveness to new technology
and innovation, thereby stifling the industry
Whilst formal and detailed machine approval
is totally appropriate for unlimited stake and jackpot slot-machines
found in casinos, such approval processes for non-casino machines
should not be introduced, instead retaining the machine testing
regime successfully operated by BACTA and the Gaming Board.
2. The potential contribution of casino-development
to the economy.
There is little doubt that the proposals in
respect of casinos will have an overall positive effect upon the
economy, with the attendant regeneration of local economies. As
with any change, there will be winners and loser, but international
experience suggests a substantial net increase in activity and
prosperity.
Casinos are heavily regulated, adult-only environments
and there is no evidence that problem-gambling is related to the
prevalence of casinos.
3. The prevention of criminal infiltration
of gambling.
3.1 IGT-UK welcomes the proposal that the
Gambling Commission be given significant licensing and enforcement
powers.
The Royal Commission of 1978 confirmed that,
as a result of the 1968 Gaming Act, organised crime was no longer
a problem, and this remains true today.The proposed strict licensing
regime with powers of enforcement can only enhance the integrity
of the gambling industry further, subject to the Gambling Commission
being adequately resourced to carry out its functions effectively.
3.2 All participants in the gambling industry
should be certified to ensure that they behave (and are seen to
behave) with a level of integrity that is beyond question.
IGT-UK is pleased to note that in addition to
licensing gaming machine operators and site owners, the Government
is considering licensing of game designers and manufacturers.
This is a vital component of the Gambling Commission's regulatory
powers and the Government should include such a requirement in
the final legislation.
Without wishing to add to the burden of the
Gambling Commission, IGT-UK further believes that manufacturers
and assemblers of gaming machines and equipment have different
legal responsibilities from games design companies and should
be licensed separately. Products that are manufactured or assembled
must be as the games designer or software writer intended, and
the games design software fitted must be in its originally intended
legal form. This may seem a small point but it is vitally important
that gaming machine/manufacturers/assemblers are aware of their
responsibility to ship product to market without deviation from
the high standard adopted by the game designers in accordance
with the gambling legislation.
This will safeguard the probity of the gambling
industry and a comprehensive licence structure would ensure the
integrity of all participants, allowing the Gambling Commission
to impose penalties in the event of breach of the regulations.
The Gambling Commission should issue licences according to clearly
defined and rigorously enforced criteria.
4. The social impact of the changes proposed
and the safeguarding of the young and otherwise vulnerable.
4.1 IGT-UK welcomes the principle that gambling
should be a strictly adult activity.
Gambling is an activity that we know is susceptible
to addictive behaviour. In principle, it should therefore be restricted
to adults who are capable of making an informed choice as to their
involvement.
We need strict measures to ensure that gambling
is an adult activity, comprising clear rules with rigorous enforcement,
in order to prevent under-age gambling. BACTA has developed a
code of practice which has been successfully introduced by many
companies to protect children from gaming machines, and this set
of rules could be adopted as the basis of a legally binding code
by the Gambling Commission.
In order to ensure that gambling is an adult-only
activity, we welcome the Government's proposals which draw a sharp
distinction between two types of locations:
4.1.1 Adult locations: locations primarily
for adults (eg casinos, adult-only arcades, bingo halls, licensed
betting offices, pubs, members' clubs). These locations are to
be licensed, conditional upon there being clear and demonstrable
controls in place to ensure that only adults can gamble in these
locations. Any breach of the adult-only rule to result in fines,
with an ultimate sanction of the complete withdrawal of the licence.
4.1.2 Public locations: locations freely
accessible to children (eg seaside arcades, cafes, fish and chip
shops). No adult gambling machines should be allowed, only trivial
games with prizes as permitted by the Local Authority.
The National Lottery is recognised as a gambling
activity, and social responsibility considerations must require
that the age limit for participation be raised to 18, in line
with all other forms of gambling.
4.2 Children may have opportunities to play
games for prizes but, in order to distinguish such activity from
gambling, these prizes should be trivial.
There is a strong tradition in the UK of children's
games with prizes. This tradition has its origins in the funfairs
and seaside arcades that have provided family entertainment for
many years. There is little or no evidence that such activity
is harmful, and without children's games for prizes, many of these
traditional businesses would cease to be viable.
4.3 Problem-gambling creates social difficulties
and so active steps should be taken to minimise problem-gambling.
While the UK is starting from a position as
one of the countries with the lowest levels of problem gambling
in the world, this should not make us complacent. The UK industry
must continue to behave in a socially responsible fashion and
work with the appropriate organisations such as Gamcare to seek
to minimise problem-gambling.
The recently established Gambling Charitable
Trust, funded by the industry, will support both the necessary
research and those companies actively involved in providing help
and advice to problem gamblers. All companies involved in gambling,
including the National Lottery and those companies specialising
in spread-betting, should accept responsibility for social problems
that gambling may cause, and as such should contribute to this
fund.
5. The potential impact on the National
Lottery of increased competition following the deregulation of
casinos, bingo, pool competitions and society lotteries.
The Government has expressed the view that the
National Lottery should not necessarily be required to compete
with other forms of gambling on an equal basis, and we accept
that the support of good causes requires the National Lottery
to be protected.
The competitive advantages that the National
Lottery enjoy, such as advertising and accessibility, will no
doubt be eroded by the Government's proposals, but it will continue
to be a privileged gambling opportunity, and we do not believe
that the proposals will impact markedly on its position.
INTERNET GAMING
Whilst we recognise that internet gambling does
not form part of the Committee's initial inquiry, we strongly
believe that this issue requires urgent consideration if the principles
of UK gambling are not to be threatened by unregulated offshore
developments.
Internet technology promises a revolution in
the gambling industry as it does throughout our society. Unregulated
offshore internet gambling threatens to: undermine the UK's successful
gambling legislation; increase problem and under-age gambling;
reduce UK tax revenues; and promote organised crime.
The BISL study reflects public concern that
Internet gambling should be properly regulated , a view that is
shared by much of the gambling industry. Whilst we are pleased
to note the proposal for the Gambling Commission to approve UK
internet gambling sites and games, and that such approved sites
are to be kite-marked, there are other important issues which
require consideration:
— The laws of other countries could
be compromised by allowing their citizens to gamble on UK Government
approved sites when internet gambling may be illegal in their
own country (such as the United States). We suggest a condition
of receiving a Gambling Commission kitemark be that Internet gambling
sites respect the laws of other countries and verify the nationality
of the gambler, presumably by sight of the player's passport.
— Internet gambling to be restricted
to adults who have been through a rigorous registration and identification
process.
— Socially responsible policies based
upon advice provided by agencies such as Gamcare on problem gambling
to be enforced.
— Payment to be by debit card/account
only, and not by credit card.
Much of this will require international co-operation
to enforce and the UK should seek to take a leading role in such
a development.
CONCLUSION
The Government's proposals fit well with the
principles we have identified as fundamental to a successful gaming
legislation, and we are continuing to work with the Department
for Culture, Media and Sport to make improvements to a number
of their proposals.
We are pleased to note the Government's intention
to create an embryonic Gambling Commission in advance of the enabling
legislation, to work in parallel with the Gaming Board etc. We
note that a great deal of detailed work is yet to be done before
the proposals can be laid before Parliament, and we have offered
to provide the Department for Culture, Media and Sport any assistance
in completing these proposals and in formulating the associated
gambling legislation.
If the Culture, Media and Sport Committee would
like clarification of any of the above matters we will be happy
to make IGT-UK representatives available.
3 May 2002
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