Pub Companies - Business, Innovation and Skills Committee Contents


Written evidence submitted by the British Association of Pool Table Operators (BAPTO)

BAPTO is a long established (1975) trade association representing suppliers of coin operated Pool Tables, Juke Boxes, AWP Machines etc.

We have given written evidence to the Pubco inquiries in 2004, 2009 and 2010.

We are making this submission on the assumption the committees purpose is to look into what action has been taken by Pubcos following the recommendations made by the T&ISC in 2004 and the BESC in 2009 we therefore feel there is no reason to re-run the arguments that led to the committee's recommendations, the recommendations that are of concern to us are 19 (paragraph 129) of the T&ISC 2004, and 103 of the BESC 2009 they read as follows:

19 (Paragraph 129) The machine tie improves tenants' takings from amusement with prizes machines (AWP). However, as free of machine tie tenants retain 100% of these takings as income, while tied tenants by PUBCOS own admission receive an average 50% of these takings, it appears from the information the PUBCOS themselves submitted that in many cases free of tie tenants make more money from their second tier machines than tied tenants do from their more up-to-date models, In our opinion, PUBCOS do not add sufficient extra value from their deals to justify their claims to 50% of takings from AWP machines. We remain unconvinced that the benefits of the AWP machine tie outweigh the income tenants forego and we recommend the AWP tie be removed.

(103) in 2004 the Trade and Industry Committee concluded that "in our opinion Pubcos do not add sufficient extra value from their deals to justify their claims to 50% of the takings from AWP machines. We remain unconvinced that the benefits of the AWP machine tie outweigh the income tenants forgo and we recommend that the AWP tie be removed". That conclusion remains valid.

We are however alarmed that under the heading topics to be considered by your inquiry is "if AWP machines are now being treated more fairly and tenants are being given genuinely free of tie option" This makes us fear the Pubcos are succeeding in moving the argument from the validity of the tie to the terms of the tie this is far from the recommendations of both committees that are totally unambiguous "that the machine tie be removed".

We give you the following details to support our case:

1.  TENTANTS AND LESSEES ARE STILL PAYING HIGHER RENTS FOR THE LATEST AWP'S

To prove this is the case we enclose the latest rent lists of Punch Taverns[7] and Enterprise Inns[8] also the rent list from "What Amusement Machine"[9] the magazine for pub landlords showing them what rents they should be paying for their AWP machines this shows that for the latest machines:

—  (a)  Punch Taverns tenants are paying on average £24.62 more per week for their latest machines and in some cases as much as £35.98 per week more.

—  (b)  Enterprise Inns Tenants are paying £8.25 per week for their latest machines.

This after Enterprise Inns has supposedly stopped charging a royalty fee of £24.00 per week per AWP machine in January this year. They now charge an administration charge of £3.50 for each amusement product sited plus a 49 pence promotional charge on Pool Tables so a pub with two AWP's, one Pool Table, one SWP and one Juke Box will be paying £17.99 per week to Enterprise Inns in administration charges.

These facts alone must prove that while the machine tie exists Pubcos will always find ways to take advantage of their tenants it is pointless giving them more time the only answer is to make the removal of the machine tie mandatory.

2.  Are Pubcos Giving Tenants a Genuinely Free of Tie Option?

The answer to this question is categorically no. The cost of a free of tie lease and the rent are much higher than a tied lease. The Pubcos build into the cost of the lease and rent the amount the pubco think they would lose by not having the tie, which goes completely against the recommendation by the Bisc 2010 page 39 (102)

(102) The pubcos have suggested that if the tie had been removed, following the Trade and Industry Committee 2004 recommendation, their lessees would have suffered more by the economic downturn and the resulting fall in machine earning. They argued that they have shared the loss of earnings which would not have happened with fixed rent. Enterprise said:

Had ETI accepted the 2004 Committee's "lost" income with a supplemental fixed charge, it is clear that ETI licensees would now be worse-off, having exchanged a declining source of income for a fixed cost. No mechanism currently exists by which any such supplemental fixed charge might be reviewed to reflect changing circumstances.

This rests on the assumption that pubcos would have been compensated by an ongoing fixed charge. Pubcos already have income from dry rent and wet rent. We do not believe that it would be appropriate to impose a fixed charge in return for removing a tie from which lessees received no benefit. What the Pubcos are doing is applying a "fixed Charge" anyway?

3.  Tenant and Pubco a Partnership ?

I enclose a copy of the section of a tenancy agreement (more a dictat than an agreement) covering amusement equipment.[10] This is from a current Punch Taverns agreement and I think it sums up the whole attitude of Pubcos to their tenants when it come Amusement Equipment, they feel that they are in control and will do as they like to satisfy their greed, Irrespective what anyone else thinks or does. The Pubcos attitude is worse now than it was before the Trade and Industry Select Committee decision in 2004 (seven years ago) and I fear it will never change until the machine tie is removed by statutory regulation.

4.  BBPA CODE NOT TO RENTALISE MACHINE INCOME

The only concession the Pubcos have made to the previous Pubco inquiries recommending that the machine tie be removed is to say they will no longer rentalise machine income this should be a simple thing to accomplish if approached with goodwill, I attach an article[11] in which the British Institute of Innkeepers illustrates how the Pubcos are already taking different views on this issue. What chance has an inexperience potential tenant got in dealing with these people.

5.  JUKE BOXES, POOL TABLES, S.W.P.'S (QUIZ) - (NON AWP EQUIPMENT)

Pubcos sole argument in defence of the AWP tie is that they add value to the machine takings. This argument does not apply to none gaming equipment, yet they still charge royalties and take a share of the cash box. We enclose details of how this system works. We have used £80.00 per week (gross takings) in our examples but many of these machines take much more than this. The more the machines take, the more and more disadvantaged the tied Tenant becomes. As you study these figures it will become more and more apparent that the Pubcos will do anything they can to maintain the tie (all figures we have used are verifiable).

In the examples shown below (in which we have used like for like machines) a tied Tenant would be £68.97 per week worse off than their free of tie counterpart. There is no justification for this situation to exist and even less for it to be allowed to continue.

POOL TABLE

(Pubcos charge a £5.00 per week Royalty fee on Pool Tables)
MACHINE TIED TENANT    FREE OF TIE PUBLICAN 
GROSS TAKE£80.00  GROSS TAKE£80.00
LESS £13.33 VAT£66.67  LESS £13.33 VAT £66.67
LESS £20 RENT (INC. ROYALTY FEE)£46.67  LESS £15 RENT £52.67
50% PUBCO£23.23    
50% TO TENANT£23.34  TO FREE OF TIE PUBLICAN £52.67

In this example the Pubco would also receive a £5 Royalty payment from the supplier so the Pubco share would increase to £28.33

A free of tie Publican would receive £29.33 per week more than a tied Tenant.

JUKE BOX

(Pubcos charge a £1.65 per week Royalty fee on Digi Juke Boxes)
MACHINE TIED TENANT   FREE OF TIE PUBLICAN  
GROSS TAKE£80.00  GROSS TAKE£80.00
LESS £13.33 VAT£66.67  LESS £13.33 VAT £66.67
LESS £1.47 PPL£65.20  LESS £1.47 PPL £65.20
LESS £22.96 FRONT MONEY£42.24  LESS £35 RENT £30.20
50% TO SUPPLIER£21.12   
25% TO PUBCO£10.56   
25% TO TENANT£10.56  TO FREE OF TIE PUBLICAN £30.20

In this example the Pubco would also receive a £1.65 Royalty payment from the supplier so that the Pubco share would increase to £12.21.These amounts relate to the same Juke Box.

A free of tie Publican would receive £19.64 per week more that a tied tenant.

S.W.P. (Quiz)

(Pubcos charge a £5 per week Royalty fee on S.W.P.'s)
MACHINE TIED TENANT   FREE OF TIE PUBLICAN  
GROSS TAKE£80.00 GROSS TAKE£80.00
LESS £13.33 VAT£66.67 LESS £13.33 VAT £66.67
LESS 60% TO SUPPLIER (£40.00)£26.67 LESS 50% TO SUPPLIER £33.33
20% TO PUBCO£13.33  
20% TO TENANT£13.34  50% TO FREE OF TIE PUBLICAN £33.34

In this example the Pubco would also receive a £5 Royalty payment from the supplier so that the Pubco share would increase to £18.33.

A free of tie Publican would receive £20.00 per week more than a tied Tenant.

CONCLUSION

The moves made by Pubcos in relation to the machine tie are the bare minimum they judge they can make to "get away with it".

The removal of the machine tie is no nearer now than it was seven years ago, despite three Pubcos inquiries stating "The machine tie must be removed". The Pubcos will never give up the tie until they are forced to, they have too much money to lose that rightfully belongs to their tenants. It is also a massive boost to their cash flow and gives them a mechanism to get their hands on the cash before the tenant.

The only concession the Pubcos have made is not to rentalise machine income, but as illustrated earlier there is already confusion over this issue with different Pubcos taking different views on how this can be done.

Pubcos charging "Royalties" and taking a share of the cash box from ancillary equipment (juke boxes, pool tables, SWP's etc) is a total disgrace, yet everyone ignores this issue and the Pubcos keep taking the money and don't even make a defence as to their right to do so.

A free of machine tie option for tenants will remain a dream until the removal of the tie is made mandatory, history proves that.

The removal to the machine tie would be a massive boost to tenants but it would not be catastrophic for the pub industry. I would point out that after the brewers were compelled to sell off many of their pubs these pubs were leased out on long term leases with NO machine tie and that system worked well. It was only when Pubcos started to establish themselves that the machine tie stranglehold became the norm.

The removal of the machine tie will create many jobs in the amusement machine supply industry and would breathe new life into many small companies. At the moment there are four large companies (Gamester, Sceptre Leisure, I.O.A. & Games Media) and about 50 other smaller companies supplying machines under the tied system. There are 600 potential suppliers licensed by the Gambling Commission to supply this market. If the tie were removed it would introduce transparency and competition that would lead to lower rents and better service for tenants, the only losers being the Pubcos and the small number of existing suppliers who would have to compete for the business on a level playing field.

While the mechanism of the machine tie remains, any loss suffered by the Pubcos not rentalising the tenants machine income can be more than made up for at a later date by Pubcos increasing the "Royalties" (or administration charges) they charge and increasing their percentage share of the machine takings; It is the actual mechanism of the machine tie that needs to be removed (ie So that any Gaming Board certified supplier can supply a tenant without needing the approval of the Pubco).

The Pubcos have been given long enough to sort this issue out (seven Years). The last thing that is needed now is to give them more time, they have no intention of giving up the machine tie unless compelled to do so. The only answer to this issue is to make the removal of the tie mandatory, no ifs and no buts.

The final comment can be left to the T.ISC 2004 Chairman Martin O'Neill.

Committee Chairman Martin O'Neill was sufficiently moved to say that "The issue of machine income was the last blatant example of the profiteering that had been common place amongst pub Landlord companies historically."

20 June 2011




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© Parliamentary copyright 2011
Prepared 6 October 2011