Gambling

Written evidence submitted by Phillip Brear, Gibraltar Gambling Commissioner

(GA 093)

Introduction:

1. With regard to the Committee’s terms of reference, this paper addresses the UK Gambling Act objectives, remote and online gambling, and problem gambling.

2. The author is the Gambling Commissioner for Gibraltar and was Director of Operations for the UK Gambling Commission (2005-2007), and Deputy Chief Constable of West Yorkshire Police (2000-2005) with responsibility for Gaming Board liaison (2003-2005).

3. Gibraltar hosts most of Europe’s leading remote gambling providers. Only 22 operators are licensed and based in Gibraltar. Seventeen1 have direct corporate, financial, legal or regulatory associations in the UK. Most of their brands are UK ‘household names’, many are also licensed in the UK.

4. Gibraltar is a significant contributor to the development of gambling regulation, liaising with HMG on relevant UK and EU gambling policy matters, and supporting gambling regulators worldwide.

5. Gambling law internationally is complex, quickly outdated, subject to the law of unintended consequences and supported by significant legal resources. Gambling statistics can be labyrinthine.

6. Whilst there are substantive public policy issues around gambling, discussions are shaded by special interests, confused principles and moral judgements. Regulators and governments are amongst those special interests.

7. Current UK policy proposals risk rolling back the clock in terms of UK consumer protections and the choice and value of the UK market, diminishing the resilience and competitiveness of the ‘UK associated’ gambling industry, whilst the global industry is expanding but consolidating2.

8. The remote gambling industry is frequently characterised as homogenous, whereas it is highly differentiated by size, product, channel and spend. Online Gaming (casino, bingo, poker, slots, via a computer) is as different to betting on a mobile phone, as playing roulette via a TV is to betting by telephone (voice).

9. Problem gambling and gambling related harm are ever present but difficult concepts around which there is limited agreement on measurement, prevention or treatment. Problem gambling has limited association with remote or online gambling and is frequently confused with impulsive, reckless or poorly judged gambling.

10. In terms of the ‘level playing field’, online and offline gambling have the same relationship as Amazon and bookshops, and iTunes and record shops. Online gambling is pure e-commerce. The cost base of the ‘remote’ gambling industry of telephone (voice) betting and TV roulette ‘sits between’ online and offline.

11. An inadvertent effect of the UK Gambling Act was to level the playing field between online operators based in Gibraltar, Alderney and the Isle of Man, and the operators based in more distant jurisdictions.

12. This ‘UK associated’ industry has competed with and overcome those under regulated suppliers which were very active in the UK market up to 20073, providing UK consumers and beyond with a wide and competitive choice of safe, fair and responsible online facilities, to the UK’s benefit.

13. Whilst online operating costs cannot be reconciled with those of the offline industry, online access controls, consumer protections, fairness, security and record keeping do, or should, exceed those provided offline, or by TV or by telephone.

Online Gambling ‘consumption’ in the UK:

14. Gambling Commission surveys4 have repeatedly found that up to 75% of the UK adult population (c.35 million people) say they gamble occasionally or regularly. 11-13% (c.5m) say they gamble remotely (TV, telephone, mobile phone or computer). Around 0.7% (400,000) describe their gambling at the problem gambler level, with 0.3% (150,000) reaching ‘pathological gambler’.

15. The 16-24 age group has the highest rate of problem gambling5. Paradoxically, the 18-24 age group shows the lowest the level of interest in gambling6 and one of the lower levels of interest in online gambling7. Juvenile interest in gambling appears limited to ‘arcade’ style slot machines and National Lottery products.

16. There has been no proliferation of remote gambling. The increase in remote gambling in the UK between 2006 and 20118, from 7% to 12%, is accounted for by increased use of National Lottery ‘online’ facilities, rising from 2% to 6%, with the use of other remote facilities remaining stable at 5.6%.

17. Access to an electronic payment method and a suitable computer or mobile phone remain a significant barrier to online gambling. Telephones, mobile phones and TV are secondary channels for remote gambling.

18. There is limited cross spending between online and offline customers9 or between gambling products. Problem gamblers will ‘multi channel’ but have limited affinity with online gambling10.

19. In general, online gambling appears to be a focussed activity amongst a minority of the adult population, dependent on access to broadband and electronic payment methods. It is of limited appeal to those under 18, but attractive to some problem gamblers.

UK Online Gambling Supply (Excluding the National Lottery):

20. There is no history of online gaming being licensed within the UK. Up to 2007 it was not licensable and the gaming sites operated by UK brands were always located ‘offshore’.

21. Online and telephone betting has a more substantive history in the UK. The introduction of GPT in 2001 caused a handful of ‘offshore’ betting operators to return to the UK, but then leave for commercial (tax) reasons in 2010/2011.

22. Three online betting operations have reduced their UK based facilities since 2007 but retained a very substantial UK presence. All are plc’s.

23. Between 40% and 60% of UK customers’ online gambling takes place with Gibraltar licensed operators11. The balance of supply varies by product. Most UK online betting is based in Gibraltar, but most UK online poker is based elsewhere. The other ‘product verticals’, casino and bingo, appear about equally divided between Gibraltar and elsewhere.

24. The other significant jurisdictions are Alderney and the Isle of Man. Malta has a single substantial UK casino operator. UK based licensees provide less than 10%. Few other jurisdictions now supply the UK.

25. In 2007 DCMS reported that there were approximately 2300 online gambling sites available to UK customers. At present, there appear to be fewer than 2000 sites: 750 casino, 350 bingo, 350 betting and 500 poker12. Some of these sites have very few users; no more than 100 have the lion’s share of the market. Many sites share the same servers/platform/software, and are brands under joint control or shared ownership (white labels), a minority are bespoke to a single operator.

DCMS Consulation Paper March 2010:

26. The DCMS consultation paper of March 201013 described the nature of UK online regulation, the nature of regulation in the primary jurisdictions, and the relationship between British consumers, the Gambling Commission and the primary jurisdictions in terms many observers do not recognise.

27. The ‘Case for Change’ chapter14 set out five main concerns: Deficient testing and operating standards; lack of transparency on complaints handling; lack of communication and co-operation between regulators; the absence of suspicious activity reporting to UK authorities; and lack of contributions to GREaT. These concerns were repeated in the DCMS written evidence to this committee15.

28. None of these assertions appear to characterise the current, popular, UK facing industry, nor the experience of UK consumers, the Gambling Commission, the primary jurisdictions or GREaT. No supporting evidence was provided, the Regulatory Impact Assessment was incomplete, and none of the primary jurisdictions have endorsed these concerns as substantive issues.

29. Gibraltar offers UK consumers high online standards and open and effective complaints handling. Gibraltar also provides the Gambling Commission with swift and direct operational communications, ensures that the early provision of operators’ security, data and intelligence reports is the norm, and has sought to collaborate with the Commission. A higher proportion of Gibraltar operators contribute to GREaT than occurs within the UK16.

30. The consultation paper described the nature and scale of the online gambling industry in a way that suggested the sector was not properly understood, e.g. indicating there are now 2000-2500 available gambling sites17, but only 75 operators18 would be affected by the new policy.

31. The paper did not properly reflect the disparate and fluid IT and operational infrastructure of the industry or the acute price sensitivity of typical online gambling consumers, as evident in newly regulated EU jurisdictions, and demonstrated by the distorted UK online poker market (dominated by a high volume brand that accepted US players until blocked by an FBI/DoJ investigation19).

32. The authors also appeared to give little account to the likely response of the industry still based in ‘second and third tier’ jurisdictions, the emergence of new UK facing online suppliers elsewhere in the world, and on how the marketing mechanisms of the online gambling industry actually worked. The paper asserts that regulation, not the market, will determine customer choice, and most unlicensed and unregulated competitors will voluntarily ‘opt out’ of the UK market.

33. Many observers believed the paper would be superseded following the change of Government. It did not appear to represent a sound base or process on which to build public policy.

The Gambling Objectives: Protecting the Young and Vulnerable:

34. Gibraltar requires its operators to apply and develop all reasonable measures to ensure young people are: a) not attracted to online gambling, b) not able to register and partake if they are attracted, c) not able to withdraw any winnings if they do partake, d) are reimbursed their lost deposits when discovered or revealed.

35. The effectiveness of these measures must be assessed together. We have limited confidence in ‘Mystery Shopping’ exercises designed to test whether an adult can deceive a system into accepting a false date of birth to access low risk, low value gambling for a few days.

36. All allegations of underage gambling are individually investigated by the Gibraltar regulator. Any juvenile who gambles with a Gibraltar operator is entitled to a refund of his/her deposits. Only a handful of such cases emerge each year. It is our experience that few young people are attracted to online gambling and the registration and identification processes for depositing and withdrawing are strong deterrents.

37. National Lottery surveys repeatedly show 10% of UK children aged 11-15 claim to use their products20 (16-17 year olds may do so legally). There is no evidence, anecdotal or otherwise, that ‘other’ online gambling generates a fraction of this type of interest from children.

38. The full suite of consumer protection tools are offered by Gibraltar operators. These include time or deposit controls, deposit increase controls, and short and long term exclusions. Gibraltar UK operators are all members of and trained by Gamcare and all contribute to GREaT.

39. Operators found to have infringed gambling protection regulations are required to reimburse customers. Repeated or deliberate regulatory failures would trigger a review of a licence.

40. Notwithstanding these protections, some customers are impulsive, reckless or lack judgement in their spending and will use multiple tactics to try and mitigate their gambling losses, in some cases suffering and generating gambling related harm.

Keeping Crime out of gambling:

41. Gibraltar has taken a very restricted approach to licensing. Gibraltar gambling facilities are crime free in terms of supply. No Gibraltar operators are subject to the current US FBI/DoJ poker investigation.

42. Gambling is, however, subject to criminal abuse and dubious practices. These are most commonly associated with betting on specific sports (race/match/spot fixing) and poker (collusion). There are occasional examples of criminally acquired funds being used in all gambling sectors, and regular incidents of e-money/card fraud committed against operators (charge-backs and chip dumping).

43. Gibraltar applies the EU 3rd Directive on Money Laundering to all online gambling. The UK applies only a voluntary code to the betting sector and most of the UK gambling industry21. The DCMS refer to this as "strong"arrangements22.

44. Gibraltar gambling regulations provide for criminally acquired funds to be returned to the victim. This provision is unique amongst regulators.

45. Information requests submitted to Gibraltar authorities by UK authorities are processed within a few days; Gibraltar betting and gaming operators proactively provide suspicious activity reports (SARs) to the UK authorities in compliance with the 3rd Money Laundering Directive. Whilst conventional money laundering is easily identified and extremely unlikely, a number of SARs associated with the theft and loss of funds have led to UK arrests and prosecutions.

46. Despite repeated claims to the contrary, there is no known case in the gambling sector of lawfully requested information being declined, despite such requests amounting to ‘international information exchanges’ of Personal Data, governed by other legal principles and conventions.

47. There is ongoing and historical evidence that the UK sports bodies most frequently affected by corrupt or suspicious betting are unable to address their internal licensing and regulatory weaknesses in an systemic manner. All suspicious betting reports by Gibraltar operators are screened by the regulator and tracked for interventions; these are rare, and some dubious practices appear condoned and endemic.

48. The current UK policy proposals will incentivise less well regulated operators to enter the UK market and move UK online betting outside the EU Money Laundering Directive. UK consumer protections and support will be diluted to the advantage of the corrupt and the detriment of typical, vulnerable and higher value customers. The UK industry will be weakened.

49. Under-regulated sites will win customers from regulated sites by way of higher affiliate commissions, better odds and bonuses and more generous ‘free’ betting/gaming offers. These are the methods by which customers are acquired. Whilst few sites will be criminal in terms of the products offered or the protection of funds, some will be, and some will be criminally controlled or will ignore criminal activities.

Keeping gambling fair and open:

50. The UK, Gibraltar and the primary online jurisdictions apply broadly similar23 testing, technical controls and operating standards in terms of the assurance mechanisms for online products, but there are important distinctions between gaming and betting risks.

51. Gaming is a statistical competition between the operator’s equipment and the customer, nuanced by some skill and judgement. In the long run the operator should always win as it has a statistical advantage. In the interim some players will make small or spectacular wins. It is not possible for online gaming customers to cheat a product without accessing the software or an exploitable fault/bug.

52. The fairness and reliability of online gaming equipment is relatively easy to establish as the system outputs (numbers etc), must be demonstrably random and unpredictable, the control tools (nudge etc) must be consistently applied, and the recording systems (results etc) must be reliable and accessible to the regulator (and customer) for extensive periods. The quality of such programmes can be established before and during their use by customers, and the level of assurance applied is not dissimilar to banks.

53. Poker integrity is different as the players compete with each other. Moreover, poker cheating does not have any immediate financial detriment to the operator as poker revenues are a commission on turnover. Unscrupulous poker operators may be incentivised to allow any dubious turnover to continue. This has occurred on various networks.

54. The most common form of poker cheating is collusion by two or more players co-ordinating play by telephone or email. Other methods include experienced players (sharks) establishing false ‘new ’ identities to exploit inexperienced players (fish), and the use of interfaced computer programmes (bots) to masquerade as players but playing an enduring and statistically optimum game.

55. Reputable operators have highly sensitive and sophisticated monitoring systems to detect and intervene in suspicious play. Collusion/bots/false identities are expressly forbidden in their terms and conditions.

56. The trading practices some existing poker networks means they would not be able to obtain a licence were they to apply in Gibraltar. Gibraltar operators are not permitted to join certain networks, otherwise available to UK players, to pool their players. The UK does not take the same approach as Gibraltar.

57. Betting integrity is even more problematic as betting events are dependent on and/or open to corrupt interventions. The losers include bookmakers and customers who expect a fair event and ‘rational’ outcome based on the participants’ merits.

58. Very high volumes of UK sports bets are now conducted through betting exchanges, where customers may unwittingly match ‘tainted’ bets offered by other customers. There are numerous reports of matched bets where one customer is known or suspected to be associated with or a ‘connection’ of a participant in the event, and/or where the event itself is conducted in a dubious way. These reports are rarely investigated to sanction.

59. Opaque and concealed betting by participants and their connections, even where betting by participants is permitted by the sport, appears to be some distance from ‘fair and open’, contrary to AML due diligence principles and an invitation to corrupt betting. Whilst only two UK sports bodies permit betting by participants/connections, there is a level of ambivalence around managing the issue.

60. Betting corruption is difficult to prove and in general is best addressed by regulators on the balance of probabilities. However, sports’ regulators, as private bodies with conflicting interests in the events/participants, with limited powers and legal uncertainties, have been found wanting when dealing with suspicious betting incidents. Gambling regulators may rely on the sport’s regulator for analysis and advice; in the most serious cases, the police may rely on the opinions of sport and gambling regulators.

61. The customer complaints process is fundamental to gambling fairness and openness. In contrast to other regulators, Gibraltar offers customers the facility to have any unresolved complaint independently examined, by the regulator. Complaints provide a unique and timely window into the operators’ activities and culture. Well informed or well researched customer complaints are as revealing as any regulator’s calendared inspections.

62. We cannot reconcile the DCMS observations on UK online customer complaints with our own experience. Of the 175 UK customer enquiries we received in 2011, only 25 (15%) indicated they had first contacted the Gambling Commission. Thirty went on to submit substantive complaint forms. Eight of these had first approached the Gambling Commission. Most customer enquiries are expressions of regret, very few amount to substantive or founded complaints. The Gambling Commission does not investigate general public complaints and has never sought our feedback.

Conclusion:

63. UK consumers are the best served in the world in terms of the quality, choice and value in online gambling. They have one of the lowest rates of problem gambling. Local licensing in Europe has distorted markets and diverted customers to higher risk sources and payment methods. The returns to governments are considerably less than expected and arise at great cost to the operator and consumer, who experience a loss of quality, choice and value, whilst the unregulated prosper.

64. The UK associated operators are maintaining their competitive position in a global market through their use of the primary jurisdictions. They spend and invest heavily in the UK, which acts as the corporate hub through which they are able to expand into new and viable markets.

65. The competition for UK customers is between UK associated operators and the operators located in more distant places. The current arrangements allow UK operators to use their undertakings in the primary jurisdictions to win that competition.

References:

1. The 17 are: Ladbrokes, William Hill, Betfair, bwin.party, Betfred, bet365, 888, Victor Chandler, GalaCoral, Stan James, 32Red, Mansion, tombola, Probability, Gamesys, ProSpreads, IGT. 5 operators are not substantively associated with the UK: Digibet, Partouche, BetClic, St.Minver, St.Endillion.

2. The committee will have received many estimations of projected growth in the online sector, within and beyond the UK; in some states it is stable or in decline, in others it is growing.

3. http://www.publictechnology.net/content/10835 At the inception of the Gambling Act DCMS announced that 1000 of the 2300 sites facing the UK would be ‘closed out’ by the Act. Confusingly it then identified 1700 sites in non approved Caribbean jurisdictions.

4. http://www.gamblingcommission.gov.uk/pdf/Gambling%20Industry%20Statistics%202009%202010%20update%20-%20July%202011.pdf See p.6 reference to 2010 Prevalence Study, however these results differ slightly from the more frequent Omnibus Study quoted lower down the same page.

5. http://www.gamblingcommission.gov.uk/PDF/British%20Gambling%20Prevalence%20Survey%202010.pdf Chapter 5, esp. Pages 76/77 and Tables 5.2 and 5.3 dealing with the problem gambling rate diminishing with age.

6. http://www.gamblingcommission.gov.uk/pdf/Survey%20data%20on%20gambling%20participation%20-%20October%202011.pdf See S.4.2 Table 1, gambling prevalence, generally, increases with age.

7. As 6, see S.5.2 Table 3. Remote gambling is most popular in the 35-44 and 25-34 age bands.

8. As 4 above.

9. As 5, Chapter 2, esp. Page 21 and Table 2.1 deal with diminishing cross use of gambling products and the limited overlap between online and offline.

10. As 5, esp. Chapter 6, pages 94-95 and Table 6.4 deal with problem gamblers being users of multiple products and sources, with online gambling having limited association with problem gambling, compared to certain other sources.

11. http://www.jackpotfinder.com/gambling-news/bet365-is-still-number-1-sportsbook-according-to-independent-rankings-2478 This site refers to the well recognised ‘Oddschecker’ monthly statistics: http://www.oddschecker.com/news/nov-2011/betfair-close-the-gap-843017 from which we have derived our market share percentages. Such information sites are the primary ‘traffic drivers’ for online customers, who use them to identify best offers, best odds, bonuses etc. Much of the content is ‘advertorial’ and is easily placed beyond the reach of the ASA advertising code or UK law by locating the marketing site, an unlicensed activity, in a foreign jurisdiction.

12. There is no definitive list of online gambling sites, and sites appear and disappear on a daily basis. A useful but invariably out of date source is http://www.casinocity.com/ which does attempt to organise sites by product and jurisdiction, as well as ‘popularity’ and bonuses etc (and also acts as a traffic driver/affiliate).

13. http://culture.gov.uk/images/consultations/remotegambling_consultation.pdf

14. As 13, see Chapter 3.

15. http://www.publications.parliament.uk/pa/cm201012/cmselect/cmcumeds/writev/gambling/m79.htm Paras 22-23.

16. http://www.thegreatfoundation.org.uk/oursupporters.html Gibraltar operators feature heavily in the lists of the largest donors to the GREaT Foundation, all are GREaT contributors.

17. As 13, para 2.7.

18. http://webarchive.nationalarchives.gov.uk/20100512144753/http://www.culture.gov.uk/images/consultations/IA_remote_gambling.pdf See page 8 ‘Scale’.

19. http://www.justice.gov/usao/nys/pressreleases/April11/scheinbergetalindictmentpr.pdf Two of the three brands under investigation were the leading brands in the UK and Europe, the third was more US focussed. One brand subsequently had its licence revoked when longstanding accounting irregularities were revealed to the regulator, the two other brands continue to offer poker to UK consumers.

20. http://www.natlotcomm.gov.uk/news/underage-play-on-the-national-lottery-remains-stable

21. As 4, see page 4 Fig 1. Most UK gambling sectors are not included in the UK Anti Money Laundering Regulations 2007 due to the UK not defining them as ‘casino’ activities, despite betting facilities being a feature of most casinos in the world (except the UK) and the Directive provides for activities of equal or greater risk than those listed being included.

22. As 13, see S3.21. Effectively, only 75 UK licence holders are subject to the AML regulations, any other reporting arrangements are under a voluntary Code.

23. All online jurisdictions use a small number of accredited independent testing companies and subscribe to various agreed international technical standards.

Prepared 11th January 2012