Gambling

Written evidence submitted by William Hill (GA 22)

We welcome the Culture, Media and Sport Committee’s inquiry into gambling, and in particular the implementation and operation of the Gambling Act 2005. We look forward to working with the Committee in this important and timely inquiry.

Executive Summary

· The implementation of the Gambling Act introduced significant levels of dual regulation (via the Gambling Commission and local authorities) for the betting industry and regulatory costs rose significantly.

· The idea that the Gambling Act was liberalising legislation is a fallacy. There was some market liberalisation which was balanced by the highly intrusive operating licence process, but overall a restrictive regime was created which has adopted the precautionary approach of the legislation it replaced (in other words we have more regulation, but little or no liberalisation).

· The failure to attract remote operators to the UK was not a failure of regulation, but a failure to recognise the global nature of remote gambling and to introduce proportionate levels of tax to attract online operators to the UK.

· We urge the Government to encourage the liberalisation of the EU and wider gambling market. The alternative option of a "walled garden" approach for online gambling is unworkable in today’s E- business environment and will inevitably damage UK businesses

· Government should take account of the distorting effect that betting exchanges have had on the betting market (tax and levy leakage) and the additional risks they pose to the integrity of sport (laying to lose).

· Problem gambling is an important issue, but it should not dominate or inform the whole debate around gambling. The Government should give greater weight to policy based on a real assessment of the harm done by problem gambling and its limited scale.

· There is still an opportunity to develop policy based on the far sighted report by Sir Alan Budd which unfortunately was not properly carried through into the Gambling Act with over emphasis on the precautionary principle.

· The changing nature of betting/gaming needs to be recognised with customer preference at the heart of the debate

· In the spirit of Budd, the gambling industry should be treated like any other, and regulated and taxed accordingly. Where people have moral objections to gambling their point of view should be respected, but other issues, such as liberalisation and problem gambling, should not be used as a disguise for fundamental opposition to gambling as an activity.

· Instead gambling should be recognised for what it is; a discretionary leisure activity pursued by many millions of people who derive pleasure and other benefits from it.

· On the evidence there is no reason why further liberalisation should not be considered

· The betting industry business model needs to be more fully understood by Government and its tax and wider economic contribution (not least jobs) needs to be recognised. The needs of investors and the stability of the betting industry need to be considered.

· Government and sport cannot treat the private sector industry as if it were the National Lottery; continually looking to tax it excessively or to salami slice its profits to finance a variety of projects for which grant in aid can no longer be afforded.

· There is no direct link between bookmakers and grass roots sport and sport should not be allowed to use the important issue of integrity in sports betting as a Trojan horse to try and secure additional revenue streams from bookmakers

1. Introduction

1.1 In the course of a month, William Hill’s betting shops accept around 30 million betting slips, at an average stake of £8. The average gaming machine stake across B2/B3 content is £6.50. Our online site processes around 10 to 12 million bets per month across some 10,000 pre-event and "in play" markets with an average bet size of around £13.50.

1.2 All but a handful of these wagers are settled without problem. Only a tiny proportion  show any evidence of suspicious betting patterns, of under-age gambling, or of problem gambling. And we have thorough procedures in place to identify and tackle all of those issues. In our experience- and we have been in the business for over 70 years- the UK gambling industry is the cleanest it has ever been. And, broadly speaking, it remains what it has always been: a pleasurable recreational activity that millions of Britons take part in and enjoy. We are a positive part of the UK social and community scene and are proud of what we provide our customers.

1.3 That has nothing to do with the regulatory system, the Act, or the Gambling Commission. It has everything to do with the concern of the UK gambling industry to protect its own reputation and play a socially responsible role.

1.4 Yet, despite this obvious truth – not to mention the advantages to HM Treasury of the £700 million tax revenues our industry generates – politicians, regulators and the media persist in treating gambling as a dangerous and socially harmful activity per se, rather than in line with the real risks to individuals, which are genuine but very limited.

1.5 We invite the Committee to spend time in our business and with our employees to see the reality of British bookmaking, and we look forward to its recommendations.

2. About William Hill

2.1 William Hill is the UK’s largest betting operators with 2350 betting shops and one of the best known brands in the UK. Only the Post Office has more retail premises on the UK high street.

2.2 We provide gaming (47% of revenues) and betting (53% of revenues) services through three channels: in shop, online and on the telephone. Around 75% of our revenues are derived from our UK based business with our international business which is based in Gibraltar providing the remainder. We pay UK corporation tax on the profits repatriated from our online business and many UK based jobs rely on our online business.

2.3 We employ around 16,900 people worldwide with around 13,000 employed in our UK retail business.

2.4 In 2010 the Group made £276 million of operating profit and paid £272 million in gaming, corporation, employment and local taxes. The majority of that that tax is paid in the UK. The reason for the tax burden almost equalling operating profit is the very high level of tax paid in the UK in terms of a gross profits tax on over the counter business, VAT and AMLD on gaming machine profits.

2.5 The betting industry in the UK as a whole pays around £400 million per year more than an equivalent sized non gambling sector [1] . The business is run on a high turnover low margin model with margins in the online business being often a half to a third lower than those in the retail business.

2.6 Betting shop numbers have not risen in the UK since the inception of the Gambling Act, in fact the number of active bookmakers has fallen (as many independents go out of business), and the Gambling Act has not led to a proliferation of betting shops.

2.7 We have been able to develop our online business and compete in the online space because we have been able to harness expertise, lower costs and invest in business development and marketing. We were forced to take our online betting business offshore because of the failure of the previous Government to level the playing field between betting exchanges and traditional sports books, and because of the high rate of UK gambling tax.

2.8 We have also had to transform a loss- making telephone business based in Yorkshire into a profitable business by moving it offshore, but also enabling us to save British call centre jobs through outsourcing arrangements: 300 jobs were retained in the UK as a result.

3. The Gambling Act 2005

3.1 As the Committee notes, the Gambling Act set out to:

- ensure that gambling is maintained crime-free and conducted in a fair and open manner

- protect children and vulnerable people from the adverse effects of gambling

- update the legislative framework with regards to online gambling.

3.2 It is true that under the Act the gambling industry in the UK remains crime free, with high levels of protection for the vulnerable. These advantages, however, predated the legislation and have always been upheld by the UK gambling industry itself.

3.3 But the Act had a broader intention which has not materialised, and we believe the Committee should ask why.

3.4 As the Committee may recall, the Act was the fruit of an influential and far-sighted report by Sir Alan Budd which argued that, subject to specific protections in respect of social responsibility, crime and customer fairness, gambling should be treated as a mainstream leisure business. That vision has not materialised. Instead policy has been driven by a confusing and unhappy mixture of maximising the tax take from the industry on the one hand, responding to alarmist media coverage of problem gambling on the other; and a strong and persistent moral objection amongst some politicians and campaigners to the Gambling Act per se which does not acknowledge the right of others to enjoy a bet. The result has been continued regulatory uncertainty which discourages investment and expansion, depresses market value and restricts job creation.

Crime: betting shops

3.5 The principal way in which crime is kept out of gambling is through the Gambling Commission licensing process. With the exception of one notable failure, the entry hurdle is high and controls on operators and individuals are effective. Gambling in the UK and particularly betting is not owned or controlled by criminals, but by well run and responsible companies who value their operating licences and exhibit good levels of corporate governance and social responsibility. One only has to examine the Gambling Commission’s regulatory sanctions register to realise what a compliant industry the betting industry is.

3.6 Because of the need to protect the licence, betting shops are generally run with staff rightly being intolerant of anti -social behaviour, use of alcohol or smoking. Betting shop staff enforce self -exclusion, prevent banned customers from remaining on premises and enforce "think 21" procedures to prevent underage gambling.

3.7 Betting shop customers are a cross section of the community in which they are located and generally there are far fewer incidents in betting shops than other public establishments within the area. For example a recent enquiry by Haringey Council was informed by the Metropolitan Police that there had been fewer incidents in all betting shops in Haringey than in one local fast food restaurant.

3.8 As for the criminal damage point, gaming machines use touch screen technology and damage can result fairly easily. Operators rightly report damage to police to deter offenders who either deliberately or recklessly damage gaming machines, but this has had an adverse effect on police criminal damage statistics. The industry is focussed on reducing these incidents.

3.9 Betting shop robbery and violence in the workplace are risks that operators recognise affect the industry, albeit as in many betting operator related matters, perception and reality differ markedly. The industry has actively participated for some time now in a multi agency stakeholder group (reporting back to DWP ministers) which has developed a voluntary industry code to combat robbery and violence in the workplace. Most operators have now adopted the principles of this code which is known as "the Safebet Alliance". Betting shop robbery had risen in the period 2007 to 2009, but in the last year betting shop robbery reduced significantly in London and nationally. The effects of the Safebet Alliance appear to be tipping through. It needs to be remembered that operators and betting shop staff are victims in incidents of robbery and violence in the workplace, but health and safety responsibilities are taken very seriously.

3.10 Metropolitan Police Flying Squad Crime Prevention Coordinator DC Mark Beale recently informed the SBA stakeholder group that during the 12 months from April 2010 to March 2011 there had been reduction of 46% in commercial betting shop robbery compared with the previous period. The number of attacks on London’s LBOs had increased in each of the 5 years from 2006-7 to 2009-10, from 248 to 403. However 2010-11 had seen a dramatic reversal in that long-term upward trend. The detection rate for LBO robberies during 2010-11 was 55%, compared with 50% for all commercial robbery. DC Beale made it clear that the bookmakers’ adoption of the security measures and procedures - including staff training - recommended in the Voluntary Code was a major factor in explaining the fall in attacks and rise in the detection rate.

3.11 DC Beale stated: "Quite simply, bookmakers who follow the Voluntary Code are much less likely to lose significant cash in the event of an attack."

3.12 We suggest that the Committee refers to Gambling Commission regulatory return information on the number of incidents that occur in betting shops where police are called, but keep in mind that the majority of these calls are from staff looking for assistance to carry out their regulatory responsibilities or relate to incidents of minor criminal damage or anti- social behaviour. This evidence also needs to be weighed against transaction levels and customer numbers.

3.13 One of the key tensions that exist between local authorities and the betting industry is the inclination of some local authorities to object to all new betting shop licenses and to seek to impose onerous conditions under the guise of reducing crime. In most cases disproportionate local authority decisions have been overturned on appeal and this has fuelled the myth that local authorities have insufficient powers in this area.

Crime: sports integrity

3.14 Despite newspaper comment, levels of suspicious activity connected with sports betting (including horse-racing) in the UK are very low. Since bookmakers as the immediate victims of such activity, we have a vested interest in tackling incidents. We do so with vigour.

3.15 As we are generally the victims of match fixing and betting scams, we spend considerable resources on identifying unusual transactions and making value judgements on the basis of extensive experience, whether or not "unusual" transactions fall into the category of "suspicious" and are therefore reportable to the Gambling Commission and Sports Governing Bodies.

3.16 As there has been some comment about the possibility of integrity issues arising on the London Olympics, the Committee should note that the games will be of little or no importance to UK licensed operators as a betting medium. Betting operators like William Hill will only make a limited numbers of markets on the event and turnover and gross profits will be small. UK bookmakers already have clear reporting obligations in respect of suspicious betting transactions and if there are betting risks around the Olympics it will be in countries where there are unregulated and therefore extensive illegal markets. There has been no evidence of problems with betting in previous Olympics, and we expect that to be the same in London 2012.

3.17 Some, including the current Sports Minister, have remarked the integrity in sports betting and doping are the two biggest threats to sport. To couple these two issues is misleading. We refer the Committee to the report by the Remote Gambling Association which compares the numbers of doping and betting incidents. It is clear that doping is a considerably greater threat to sport, but that does not mean that the betting industry is complacent about integrity issues. We want the sports we make markets on to be clean and we are fully supportive of the integrity infrastructure that exists in the UK.

3.18 One area in which the Gambling Commission should be complimented is for implementing the recommendations of the Parry report and establishing the Sports Betting Integrity Unit (SBIU). It is now proactively engaged in this area to the benefit of both sport and gambling operators.

3.19 It still needs to be more robust in its application of its power to void bets and associated betting markets, but it has started to develop expertise in this area.

3.20 One growing area of integrity concern is however the operation of betting exchanges. We note the recent comments of the Director of Integrity of the British Horseracing Authority who indicated that there had been over 100 BHA enquiries into integrity issues which have resulted from individuals laying to lose on betting exchanges. Betting exchanges continue to pose the main threat in the area of betting integrity and some countries, realising the risk they pose, have denied access to them when liberalising the market. Recent developments relating to exchanges show that it is the exchange model rather than traditional bookmakers that continue to provide the biggest threat to the integrity of racing and other sports.

Consumer Fairness

3.21 Customers get a good deal from fixed odds bookmakers, but our margins have been artificially squeezed by the failure of successive Governments to level the playing field between traditional bookmakers and betting exchanges. Considerable tax and levy leakage results through exchanges.

3.22 The Independent Betting Adjudication Service provides protection for consumers and operators taking a pragmatic and customer focussed approach to the application of betting rules. Betting operators want to foster goodwill and sustainable business. The requirement to appoint a third party to adjudicate on betting disputes works well.

3.23 It is concerning that the DCMS appears to be looking at policies that would result in a worse deal for customers (by floating the idea of a customer winnings tax) and will be granting an exclusive licence for horse race pool betting. It is a feature across the European gambling landscape that monopoly pools do not represent good value for the customer with the takeout being so large.

Problem Gambling

3.24 Problem gambling levels in the UK are low by international standards and despite a significant rise in gambling activity and turnover (much attributed to the National Lottery), the problem gambling rate in the UK has remained consistently low across three prevalence surveys.

3.25 The 2010 prevalence study suggested a possible small rise in problem gambling on one of the two tests, but equally was heavily qualified by both the authors NATCEN and the Gambling Commission as not being definitive.

3.26 B2 gaming machines have been at the forefront of the debate around problem gambling and research into gaming machines is a strategic priority for the Responsible Gambling Strategy Board. Gaming machines are an integral part of the offering in betting shops and contribute as much as 50% of revenues, helping to keep betting shops open and maintaining jobs.

3.27 Betting shops offer a mixture of B2/B3 and category C games in the same cabinet. They are popular with customers and for the majority of customers, who use them responsibly and safely, provide low stake, harm free entertainment.

Gaming machines are subject to technical standards which amongst other matters control the spin cycle (B2-20 seconds), allow customers to cash out large wins and provide help pages.

3.28 There is no evidence that gaming machines cause problem gambling and it is clear that problem gamblers use a variety of gambling products. On a small sample, the prevalence study showed that around 10% of problem gamblers (incidentally lower than the last prevalence study) played on B2 gaming machines, but this is not evidence of causation. To put that in context that is 10% of the 60 to 70 problem gamblers identified from a population of 7000.

3.29 Gaming machines have been in the market since 2002 and have been enshrined in statute for over three years. Unless there is overwhelming evidence of harm, there is no case to reduce numbers, lower stakes or impose additional regulatory controls on gaming machines. Indeed, given the popularity of these machines with customers, and the potential for increased Treasury receipts, there is an argument for allowing an increase in the number of machines in betting shops and for other liberalising measures such as linked jackpots.

3.30 In our view problem gambling levels should continue to be monitored, but there is no evidence of a problem that is either widespread or increasing.

Support for Research, Education and Treatment of Problem Gambling

3.31 The industry provides good support for research, education and treatment in the form of an annual donation of £5million and rising. However we are concerned at the sums being swallowed in administration and consultancy costs to the detriment of an effective and focussed research agenda.

3.32 The tripartite arrangement established by DCMS and the Gambling Commission has proved inefficient and over bureaucratic. Gamcare has served the requirements of problem gamblers well whilst maintaining its objectivity, but the relationship between the Responsible Gambling Fund and Gamcare concerns us; our perception being that there is a policy at RGF of trying to marginalise Gamcare and to reinterpret problem gambling as part of the wider public health agenda which will only serve to dilute the effectiveness of the structure and prevent effective and expert intervention.

3.33 There are strong age verification processes both online and in shop which invalidates any argument that children are at risk from gaming in either medium.

4. The Gambling Commission

4.1 The Act has been represented as facilitating the liberalisation of gambling, but for betting operators that is a fallacy, other than in one respect. The Act has allowed advertising of gambling services and there has been a degree of market liberalisation in line with the objectives of the Act.

4.2 However the quid pro quo for this liberalisation was greatly increased levels of regulation over the industry. There is now a costly dual regulatory system with the national regulator, the Gambling Commission, making a thorough assessment of the suitability of operators and key personnel and being responsible for operating licence compliance. Local authorities are responsible for granting premises and premises licence compliance.

4.3 The regulatory machinery includes:

· A highly detailed, and in the case of personal licences, intrusive operating licence approval process which assesses suitability and is designed to prevent criminals or other unsuitable persons controlling gambling businesses

· An overarching requirement to adhere to the three Licensing Objectives

· Exacting operating licensing conditions and codes of practice covering social responsibility provisions, operating processes, customer fairness etc.

· Gaming machine technical standards

· A plethora of complex guidance documents

· Extensive reporting obligations

· Premises licence conditions )mainly brought forward from the 1963 Act

· A clear process based around the three Licensing objectives for objections to premises licences

· Criminal and regulatory sanctions

· Compliance visits from Gambling Commission and local authority enforcement officers

· Thematic visits e.g. age verification (including covert testing)

4.4 The Committee’s attention is drawn to the to the BRE report on the Gambling Commission published in April 2009. That report made a number of recommendations to the Commission and a road map for it to improve its regulatory approach. Importantly it highlighted the fact that its risk-based approach to regulation was largely theoretical and it needed to put that theory into demonstrable action.

4.5 We have a sense that migration to that risk-based approach has been slow with the Commission still engaged in routine compliance visiting, not using the regulatory return information it receives effectively to assist risk assessment and not having a full appreciation of the economic concerns or the needs of the industry.

4.6 It has too higher an overhead in terms of policy and administration staff and is saddled with a great deal of public sector bureaucracy as an NDPB sponsored by DCMS. It has often seems reluctant to exercise its independence and has a rather old fashioned regulatory approach to its work.

4.7 Our view is that the Gambling Commission needs to remain, but it also needs to introduce efficiency savings to become leaner whilst retaining important expertise.

4.8 Our suggestions would be:

· Make more effective use of regulatory return information to target resources

· Make more use of audit to verify operator self- assessment

· Cut down the number of routine visits to operators in all sectors

· Reduce numbers of compliance staff and the administration overhead

· Retain fewer, but more highly skilled and experienced staff

· Look carefully at the senior management headcount and overhead

· Reduce license fees which are essentially founded on effort (compliance visit) assumptions

5. Offshore o n-line gambling

5.1 The structure of the Gambling Act cannot be held responsible for the UK’s failure to attract remote gambling operators to the UK. This failure is the direct result of a rate of remote gaming and betting duty at 15%. Remote gambling operators need to be competitive in a challenging world market and cannot compete on price when there is no level playing field with betting exchanges and the UK gambling tax regime mitigates against growth.

5.2 There is little or no evidence that the offshore operators based primarily in Malta and Gibraltar pose any public protection risk to UK Citizens.

5.3 The recent DCMS consultation document on the future regulation of remote gambling failed to prove the case for any regulatory change and appeared to have been motivated by a desire to secure tax revenues through regulatory intervention:

· It failed to identify areas of public protection that are unaddressed by the existing regime.

· It proposed change without evidence as to why a change is necessary.

· It proposed the imposition of unnecessary costs and regulatory burdens on otherwise compliant operators on the basis of theoretical risk

· It failed to provide evidence why the proposed solutions would have any impact on the achievement of the licensing objectives under the Gambling Act

5.4 We are very disappointed in that instead of supporting the industry in Europe in its effort to achieve a liberalised gambling market, DCMS is now reverting to a regressive approach to remote gambling . It is our view that this is driven b y concerns about levels of tax yield, rather than the regulatory issues covered by the DCMS consultation paper. This is not a good way to develop public policy, and it will have a damaging effect on inwards investment and company value.

6. Conclusions

6.1 Whilst the operation of the Act and the Gambling Commission could be improved, as we have indicated, the main failing in UK gambling policy has been the inability of politicians of all parties to follow the lead set in the Budd Report.

6.2 That would require gambling to be treated as an industry much like any other: requiring proportionate regulation; encouragement to grow; a settled policy approach which is not driven by alarmist headlines; and an understanding that for the vast majority of our customers, a visit to a betting shop or an online betting site is a recreational activity from which they derive a great deal of harmless pleasure.

6.3 What the industry needs is commercial stability, the opportunity to grow and a proper risk based approach informed by evidence; not the disproportionate and over politicised approach to the gambling industry that we currently suffer.

6.4 The Gambling Act has failed to change polarised attitudes to gambling, despite evidence that the industry is primarily controlled by socially responsible companies with good levels of governance who pay high levels of tax.

6.5 The industry and its relationship with Government is now at a cross roads. Government can either create the right conditions for economic survival and growth or introduce policies which damage the industry and ultimately result in fewer jobs, less vibrant high streets, and a falling tax yield.

July 2011


[1] ABB economic modelling

Prepared 29th July 2011