Gambling

Written evidence submitted by Probability plc (GA 01)

Summary

Probability plc is a British company at the leading edge of developing gambling technology for mobile devices, and with a global audience. The company’s UK team develops and licenses gambling games and services for mobile devices (including smartphones such as the iPhone and tablets such as iPad).

Mobile services are the future of remote gambling, and are likely to eclipse the traditional PC/on-line gambling business within a few years. The UK has the potential to be a world leader in the technology and services which will drive that market – if the shape of our gambling regulation allows it to be so.

Our own success would not have been possible without the stability and flexibility provided by the 2005 Act. We believe that the Government should build on this success in updating the Act, particularly in the context of betting operators having largely left the country for tax reasons. While it will be difficult to attract the betting industry back onshore, the implementation of our suggested changes has the potential to foster software development as a UK-based industry and provide other reasons to keep investment and services here.

In our submission, we are suggesting to the Committee two cost-free improvements to the Act which would, in our view, help to foster this new industry, creating valuable, skilled and sustainable jobs in the UK for long-term competitive advantage. This includes a proposed statutory responsibility for the Gambling Commission to promote both the supply and operating sides of the UK Gambling industry as a source of jobs and income to the UK in a valuable global marketplace.

We also wish to emphasise that, in any restructuring of the current Act in relation to remote gambling, consideration should be given to the likely impact of any change on businesses which provide high-added-value technology and support to the gambling operators which create jobs, attract investment, and promote Britain abroad. The law of unintended consequences may not be one which Parliament can amend, but it can be avoided.

Submission

A. Context

1. Probability plc is listed on the London Stock Exchange and headquartered in London. The group employs 22 people in the UK and around 12 in Gibraltar. We develop all of the technology for the business in London and are registered with the Gambling Commission for this purpose. Probability Gibraltar Limited, a wholly-owned subsidiary, operates gambling services from Gibraltar under a remote gambling licence from the government of Gibraltar, using the technology developed in the UK.

2. We licence the technology globally to other gambling operators from Ireland to Mexico. There is almost noone else of any scale currently providing an equivalent system that we are aware of.

3. Probability was founded in 2004 with the intention of developing "casual" (low stakes) gambling games for the new generation of internet-enabled mobile phones. The most popular formats are simple slot games, and Bingo. Complex games, such as Poker, have been a notable failure. Consumers look to these mobile games for a short period of distraction; 83% tell us that they generally play whilst on the sofa watching TV. 80% of our registered players also tell us that they do not use online gambling services as well as our mobile services. Average spend is low compared to "hard" gambling (such as sports betting) and play sessions are typically under ten minutes long. The most successful games have a return-to-player over 95%, meaning that players get quite a lot of game-time for their money.

4. Members of the Committee are well aware of the of the smartphone’s impact in every corner of our lives, including Honorable Members’ using Twitter in the Chamber during debates. This phenomenon is still very new. The iPhone itself was only launched in mid-2007. Today, smartphones now account for the great majority of mobiles being sold. For the same price as a standard cameraphone circa. 2009, today’s consumer can choose from a range of devices complete with an always-on fast internet connection, built-in social media and web browsing, a cornucopia of Apps, GPS-powered mapping, a ton of music storage and full-screen video. These are not phones any more; they are pocket supercomputers and their purpose is not utility but lifestyle.

5. Gambling is, like most industries, shaped by technology as much as by economics and regulation, but the industry has traditionally sought to adapt recent technologies to its product-offering, rather than creating new technology itself. For example, the technology behind FOBTs (which the Committee will know have transformed LBOs in recent years) is ten years old.

6. While the UK has led the world’s betting market, [1] US businesses [2] are the most expert in slot machines and Israel has led in the technology for on-line (i.e. desktop PC-based) gambling over the past decade [3] . The Israeli technology business is generally export-led and its investors and entrepreneurs in this sector tend to think of Europe in particular as their domestic market. The prohibition on remote gaming in the US has meant that there is little or no on-line technology investment by Americans in the sector.

7. Since the passage of the Act, the UK has become a much more popular place to set up and grown a business developing gambling technology and game creation. The UK has the most developed businesses worldwide in mobile gambling with companies such as Probability and mFuse. It is also now a centre for innovation in on-line gambling game design, as well as back-office systems and analysis, as well as original content derivation and licensing. This mirrors the success of the UK in, for example, video game design. Still, this flourishing of the high-tech end of the business has largely gone unnoticed.

8. A key factor in sparking this renaissance of high-tech gambling technology investment has been, we believe, the stability and openness provided by the 2005 Act. With this legislation in place, technology firms, investors and entrepreneurs are free to harness the skills and experience of UK developers and designers - with the additional benefit of a large domestic market if they are successful. Furthermore, with the UK’s prospect of lower corporation tax rates and range of double taxation treaties which are supportive of IP based businesses, as well as our location within the EU mean that competitiveness is not a long-term issue.

9. The next few years will see a new and powerful wave of innovation sweep the Gambling industry as new technologies and a new regulatory paradigm in major markets. Although the 2005 Act was deemed to be future-proof, changes to it would be needed if the UK is to consolidate its position as the right home for developers and exporters of cutting-edge software and technologies.

10. Some services offered by operators licensed under the Act are already being eclipsed. In the sports betting industry, some leading operators are already achieving up to 25% of their betting volume on mobile, just months after launching the service. Probability launched its iPhone and Android games in August 2010; by March 2011, these devices represented 50% of activity. Clearly, remote gambling activity in the UK is likely to continue to move to mobile in the next few years.

11. Although the intention was to future-proof the Act, the reality is that the breed of consumer on which the remote gambling industry (like many software sectors) has been built is dying. Domestic PCs, broadband, and a sufficient attention span to play Bingo or Poker rather than watch TV are quickly becoming things of the past.

12. With two, free, changes to the Act, the UK could exploit its position as the most natural home to base a gambling technology business exploiting this opportunity. That position is founded on an advanced technology base and a gadget-crazed populous, similar to the US; and a sensible regulatory environment alongside a strong domestic and export opportunity in the EU, both of which the US lacks.

B. Proposed changes to the Act

13. The requirement for any company engaged in developing gambling software to have a licence in the UK, even if (as in our case) the company does not market that software to be operated in the UK, creates confusion amongst technology companies seeking to set up here. Such software does not need to comply in any way with UK regulations, and is not tested or verified or even reviewed by the Gambling Commission, so the permit is just to be in business. We are not aware of any other country having such a requirement. Every other sound regulatory regime approves and controls the software, not the company that builds it. We should do the same.

14. Second, the Gambling Commission operates purely as a regulator in the UK, when it could and should play a leading role in encouraging businesses to develop and promotion gambling technologies from the UK. to the Commission does not see this as being its role. In our view, a statutory responsibility to promote the British gambling industry at home and abroad would benefit everyone and should be considered. There is plenty of anecdotal evidence which suggests that the failure of the Commission to support the UK-based industry has had an impact on companies’ decisions not to base themselves in the UK, and it is notable that most other jurisdictions promote themselves actively to attract industry players.

15. We have considered what the discharge of this new responsibility might consist of in practice for the Commission. One important function might be working with other regulators in the EU, and further afield, to establish mutual recognition of technology certification or, at the very least, complementary technical standards. Certification is the result of due diligence to prove the compliance of a piece of gambling technology with a particular piece of regulation. Even where the technology meets every requirement of each jurisdiction, the testing must be done from scratch every time. It’s a waste of time and money, it is anti-competitive and counter productive. The only people guaranteed to make money are the lawyers, which is never a good thing. If the Gambling Commission were able to, more mutual recognition would mean more development in the UK and more investment here as a hub for new service creation. We are aware that the Government has been consulting on the application of the principle of cooperation between regulators, and this would be an excellent place to demonstrate the value of that principle were it to be adopted.

16. Another proactive role for the Commission might be in promoting the recognition of the gambling industry as a career option for designers, developers and as an attractive place for investors and entrepreneurs to ply their trade. There are some highly specialist skills required from mathematicians, for example, which neither colleges nor universities seem to be aware of. The Gambling Commission is the natural focal point for this kind of information sharing and education, but does not do anything like this (as far as we are aware).

17. The Commission could also play a role promoting the potential and the interests of the innovation side of the industry within government. The interests of supply-side companies, such as ours, are almost completely crowded out by the operators. However, a more rounded view of the gambling industry in the UK would realise that it consists of domestic operators and potentially global suppliers. OpenBet, for example, supplies the back office systems for most UK bookmakers, as well as the Quebec state Lottery and the French PMU. That company is as much a hero of the UK gambling industry as William Hill (which uses Playtech technology from Israel for its on-line business).

18. One of the intentions of the Government in passing the Gambling Act 2005 was to make the UK a home for the gambling industry. Because of the fiscal environment, that goal was not achieved as far as betting operators are concerned. However, the UK is a leader in technology and gambling software, and small changes to the Act would ensure that it remains so.

19. Finally, whatever consideration the Committee chooses to give to our suggestions above, we would ask the Members to consider carefully the effect of any changes to the legislation on innovation and investment in these technologies in the UK. A stable regime, such as we have had under the Act, is a pre-condition of success for companies wishing to grow in the UK.

June 2011


[1] Consider Betfair, Orbis (now OpenBet) and IG Index

[2] For example, Scientific Games, IGT and Bally

[3] For example, companies such as Playtech and 888

Prepared 29th July 2011