Gambling

Written evidence submitted by the Casino Network (GA 40)

I am writing to you on behalf of the Casino Network, which is a forum of the 16 local authorities permitted by Parliament under the Gambling Act 2005 to grant premises licences for large and small casinos as detailed below. It is not, however, a decision making body for those authorities.

Our primary concern relates to the Question in the committee’s terms of reference "Why the Act has not resulted in any new licences for casinos or "super casinos".

A. INTRODUCTION

1. This submission is made on behalf of the 16 licensing authorities authorised by the Gambling (Geographical Distribution of Large and Small Casino Premises Licences) Order 2008 to issue large and small casino premises licences under the Act. The submission is by the Casino Network, which is a forum of licensing and legal officers from the 16 authorities. The Network itself has no formal legal status but was established to share knowledge, good practice and expertise.

2. The submission focuses on the fifth area of the inquiry, namely "why the Act has not resulted in any new licences for casinos or ‘super’ casinos." At the outset, it is pointed out that Parliament has not passed secondary legislation to enable any regional casinos, which were commonly known as "super casinos", to be licensed. This submission therefore deals with large and small casinos.

3. The submission will be ordered as follows. First, we shall deal briefly with the history of casino licensing, both law and policy. Second, we shall outline the progress of the large and small casino licensing process. Third, we shall deal with a proposal by the National Casino Industry Forum to enable a large number of dormant casino licences to be transferred and operated in other local authority areas.

B. THE HISTORY OF CASINO LICENSING

4. In 1968, Parliament passed the Gaming Act, which created 53 permitted areas in which casino licences might be granted. These were the former County Boroughs with populations exceeding 125,000, together with a number of seaside towns. Before a licence could be granted, it was necessary to obtain a Certificate of Consent from the former Gaming Board, which considered whether the applicant was likely to operate the premises in a compliant manner, to which end it was under a duty to take into account the character, reputation and financial standing of the applicant and the managers and beneficiaries of the business. The gaming licence was granted by the justices, who had a discretion to refuse a licence where there was not a substantial unmet demand, and also on grounds including the fitness of the premises and the applicant.

5. The process of evolution to the current law and policy was lengthy and detailed. In 2001, the Gambling Review Body established by the Department of Culture Media and Sport and chaired by Sir Alan Budd, published the Gambling Review Report (Cm 5206: 2001). This was followed by the Department for Culture, Media and Sport’s policy paper A Safe Bet for Success (Cm 5397, March 2002); the Culture, Media and Sport Committee’s report The Government’s Proposals for Gambling: Nothing to Lose? (2002); the publication of a draft Gambling Bill in July 2003 under the title Modernising Britain’s Gambling Laws (Cm 5878: 2003); the Report of the Joint Committee on the Draft Gambling Bill in 2004 (HL 63-I; HC 139-I), and the Government response to that report (Cm 6253: 2004).

6. The Gambling Bill was introduced to the House in October 2004. As originally drafted, the Bill did not contemplate a numerical cap on casino gambling, although it did contemplate the possibility of local authorities passing "no casino resolutions".

7. There followed public, political and press disquiet regarding the perceived liberalisation of casino gambling. Therefore, in December 2004, the Government published Casinos: Statement of National Policy. The material provisions are set out below (with emphasis added):

4. The Government recognises, however, that the casino proposals in the Bill represent a significant change and we need to take a cautious approach in order to assess whether their introduction leads to an increase in problem gambling. The Government has taken the view that the risk of an increase in problem gambling will be reduced if a limit is imposed on the number of casinos. We have therefore decided to set an initial limit on the number of Regional, Large and Small casinos of 8 each. The identification of operators and locations for the new casinos will be subject to broadly the same arrangements in each case.

5. The Government believes that, in order properly to assess the impact of these new casinos, there needs to be a sufficient number of casinos in each category to allow the impacts to be assessed in a range of areas and types of location that might be suitable (including, for example, urban centres and seaside resorts across different parts of the Britain). A limit on Regional, Large and Small casinos of 8 each is consistent with this aim while at the same time ensuring that any risk of problem gambling is minimised. The Government has decided to appoint an independent Advisory Panel to recommend the areas for the Regional, Large and Small casinos. Following the Panel's advice the Government will decide the areas where each of the new casinos may be licensed.

6. Once an assessment has been made of the impact on problem gambling of the limited number of new casinos, it will be easier to judge the continuing need for a limit. No earlier than three years after the award of the first premises licence, the Government will ask the Gambling Commission to advise on whether the introduction of the new types of casinos has led to an increase in problem gambling or is increasing that risk. We believe such a period is necessary to ensure a full assessment can be made of the impact of the new casinos. If the Government, on the basis of the Gambling Commission's advice decides to propose that more casinos may be licensed then the Order providing for this will need to be approved by Parliament. We will also want to assess, with the help of regional bodies, what the regeneration and other economic outcomes have been.

7. This policy statement sets out our policy on casinos in more detail below, including the role of the Advisory Panel in recommending areas for the new casinos and arrangements for casinos which already have a licence under the Gaming Act 1968. The proposals for casinos outlined here are for England, Scotland and Wales. Responsibility for the planning system in Scotland and Wales is for their respective devolved administrations. None of the proposals here will affect the ability of local authorities to refuse to have a new casino of any size category in their area.

The Advisory Panel on new casino locations

8. The Secretary of State for Culture, Media and Sport will appoint an independent Advisory Panel to advise her on the areas in which the new casinos should be located. The Panel will collectively have knowledge and expertise in a range of matters including planning, securing regeneration, tourism and addressing the social impacts of gambling. Clearly, all Panel members must be able to demonstrate independence from any potential interested parties and must have an appreciation of the need for impartiality.

9. In order to ensure that the impact of the new casinos can be assessed on the basis of a broad range of information and experience, the Advisory Panel will asked to identify areas for the new casinos which will provide:

• a good range of types of areas, and

• a good geographical spread of areas across Britain.

The Panel will also want to ensure that those areas selected are willing to license a new casino. Subject to these criteria, the Panel will be asked to choose areas in need of economic development and regeneration (as measured by employment and other social deprivation factors) and likely to benefit in regeneration terms from a casino.

The premises licence

19. A local licensing authority will only be able to award a casino premises licence if one has been identified for its area. The process for awarding a premises licence will be open to all operators. It will have two stages. The first stage will be a regulatory test to ensure that all proposals satisfy the regulatory premises licensing requirements already in the Bill. The second stage will be triggered where there are more applications for casino premises licences than the local licensing authority is permitted to grant.

20. The second stage of the process will be a competition held by the local authority on the wider casino proposal. We will consult with the Local Government Association and others on how the competition should be conducted. The competition could be judged on a wide range of issues, reflecting the issues that are important in the local area, local concerns and priorities. These may include, for example, employment and regeneration potential, the design of the proposed development, financial commitments by the developer to local projects, location, range of facilities and other matters. The local authority may wish to provide an opportunity for consultation with local people. The local authority would set out its priorities and concerns in a set of objective key considerations and it will then invite operators to submit entries to the competition. The eventual winner of the competition will be eligible for a full premises licence once he has obtained planning permission and the casino has been built.

Casinos which already have a licence under the Gaming Act 1968

23. The arrangements described above for Regional, Large and Small casinos are aimed at minimising the risk of problem gambling from an increase in the number of casinos, particularly from a proliferation of high stake and high prize gaming machines. Existing casinos will be allowed to continue to operate, and to have the opportunity to compete for the new licences. But the Government does not believe it would be appropriate to allow them to have all the new casino entitlements in circumstances where a limit is imposed on the establishment of new casinos.

24. Accordingly, we propose that there will be no size requirements on existing casinos and they will not be subject to the ban on advertising and the 24-hour rule. They will, however, be restricted to their current gaming machine entitlement of 10 gaming machines of up to Category B and they will not be allowed to provide bingo or betting on real or virtual events.

25. Arrangements will be made to ensure that existing casino businesses can in the future be transferred to new owners and to new premises if the current premises for some reason become unavailable (such as end of lease or fire), so long as it is within the existing licensing area. A company operating a casino which already had a licence under the 1968 Act may apply for a Regional, Large or Small casino premises licence. If it is awarded one of them for an existing casino, then it will be able to operate it with all the new entitlements authorised by the new licence.

8. The Gambling Act was eventually passed during the Parliamentary wash in May 2005, just before the election. Pressed by shadow Ministers, the Government of the day agreed to take an even stricter view of expansion in numbers and entitlements of casinos, reducing the proposals for regional casinos from eight to one and so the number of new casinos overall from 24 to 17.

9. The scheme of the legislation for casinos was that there would be a two stage test. At stage 1, a regulatory test was to be applied, following the principles in section 153 applicable to all other forms of premises licences, namely betting offices, bingo clubs, tracks, adult gaming centres and higher order family entertainment centres. Assuming that more than one party succeeded at Stage 1, there was to be a Stage 2 competition, whereby the licence would be awarded to the party whose application, if granted, was likely to result in the greatest benefit to the area of the authority. Neither the term "benefit" nor the mode of determination was prescribed, although Schedule 9 of the Act did provide for publication of a Code of Practice, with which authorities would be bound to comply.

10. Following the passing of the Act, the Casino Advisory Panel was duly established. It described its terms of reference as follows:

"… the Advisory Panel has been asked to identify areas for the new casinos which will provide:

· a good range of types of areas; and,

· a good geographical spread of areas across Britain.

The Panel will also ensure that those areas selected are willing to license a new casino. Subject to these criteria, the Panel has been asked to choose areas in need of economic development and regeneration (as measured by employment and other social deprivation factors) and likely to benefit in regeneration terms from a casino.

11. An exhaustive procedure was thus implemented to determine the location of the 17 (now 16) casino licences. The Panel issued a call for proposals on 31 st January 2006.

12. All of the authorities within the network devoted a huge amount of resources - both human and financial - to winning through that process. The results of the process were announced by the Casino Advisory Panel on 30 th January 2007 in its report: Recommendations to the Secretary of State for Culture Media and Sport on locations for one regional, eight large and eight small casinos allowed under section 175 of the Gambling Act 2005.

13. Consequently, the Secretary of State issued a draft statutory instrument carrying forward the Panel’s recommendations, The Gambling (Geographical Distribution of Casino Premises Licences) Order 2007. However, this was narrowly defeated in the House of Lords on 28 th March 2007 (HL 28 th March 2007 Col 1693).

14. Following further consideration, the Government brought forward a further statutory instrument, in which the proposal for the regional casino was dropped but the 8 large and 8 small casinos as proposed by the Casino Advisory Panel was repeated. The successful licensing authorities were eventually named in the Gambling (Geographical Distribution of Large and Small Casino Premises Licences) Order 2008 (SI 2008/1327) which was dated 19th May 2008. On the same date, Parliament approved the Categories of Casino Regulations 2008 (SI 2008/1330) which defined the size criteria for large and small casinos.

15. At the same time as passing the Gambling Act 2005, Parliament implemented some "early freedoms" for the benefit of existing casinos. These consisted of an increase in gaming machine prizes for Category B1 machines from £2,000 to £4,000 and stakes from 50p to £2; an increase in the numbers of machines per casino from 10 to 20; removal of the ban on advertising and the requirement of membership; removal of cooling off requirements for new members; and the ability to trade for 24 hours per day. These significant relaxations came on top of earlier relaxations permitting entertainment in casinos, and also alcohol to be taken onto the gaming floor.

16. Parliament’s view was that those early freedoms – which were undoubtedly liberalising measures - struck the right balance between protection and regulation, but that the existing 1968 Act casinos should not enjoy all of the privileges to be accorded to the new 2005 Act casinos, and that they should not be able to transfer their licences across administrative boundaries.

17. So far as the question of portability was concerned, this was dealt with in The Gambling Act 2005 (Commencement No. 6 and Transitional Provisions) Order 2006 (SI 2006/3272), which was the main implementing provision under the new legislation. This permitted holders of casino premises licences under the Gambling Act 2005 converted from gaming licences granted under the Gaming Act 1968 to transfer those licences to other premises within the same local authority administrative area (Schedule 4, paragraph 65(12),(13)).

18. The outcome of this legislative process, which involved several years of debate, expert analysis, policy development and cross-party consensus, was that in addition to the right to offer unlimited numbers of casino games and games of equal chance:

· The 8 large casinos would be able to offer up to 150 gaming machines together with bingo and betting.

· The 8 small casinos would be able to offer up to 80 gaming machines together with betting.

The 189 licences granted under former legislation would entitle the operator to provide up to 20 gaming machines and to move within, but not beyond, local authority boundaries.

C. THE CASINO LICENSING PROCESS

19. Following the making of the Gambling (Geographical Distribution of Large and Small Casino Premises Licences) Order 2008 (SI 2008/1327) in May 2008 it was possible for the casino licensing authorities to devote resources to their own casino licensing processes. As will be explained, the processes have been rather prolonged principally but not solely due to the nature of the underlying legislation.

20. The Gambling Act and Regulations made under the Act set out in some detail the procedure to be followed by authorities at Stage 1 of the casino licensing process, the regulatory stage. But Parliament did not prescribe the procedure to be followed at Stage 2, the benefits stage. This was left to licensing authorities to devise. Some general principles were set out in the Government’s Code of Practice: Determinations under Paragraphs 4 and 5 of Schedule 9 to the Gambling Act 2005 relating to Large and Small Casinos issued by the Secretary of State for Culture, Media and Sport on 26th February 2008, but the actual procedure was not prescribed.

21. There were a number of complexities built into the process. So, for example, the Code of Practice set out confidentiality requirements in relation to bids, so that it would not be possible to have public hearings. This meant that procedures needed to be devised which resolved competing demands of confidentiality, equality and transparency.

22. The Code of Practice also indicated that a wide series of benefits might be considered by the licensing authority (paragraph 5.7). These included: provisions for protecting children and the vulnerable; provisions for preventing crime and disorder; provisions for ensuring that gambling is conducted in a fair and open way; the likely effects of an application on employment and regeneration within the authority’s area; the design and location of the development proposed in the application; the range and nature of non-gambling facilities to be offered as part of the development proposed in the application; and financial and other contributions to the licensing authority’s area.

23. It was necessary for licensing authorities to conduct internal and external consultation exercises to establish which of these considerations would be treated as material and how they would be prioritised. Given that most of these considerations are incapable of numerical assessment, it was also necessary to develop scoring and weighting mechanisms to ensure that evaluations were made as objectively as possible. In some cases, authorities have used external consultants to assist them with the development of these appraisal models, which are new in the field of licensing.

24. It was thought unlikely that a single Licensing Sub-Committee would possess the range of expertise to assess performance against criteria as diverse as employment, regeneration, design, problem gambling, business planning etc. This required consideration and resolution. In most cases, authorities have decided to select and appoint advisory panels to evaluate bids prior to submission to the Licensing Sub-Committee or Committee.

25. Section 349 of the Gambling Act itself requires that the authority publish in its statement of principles (i.e. its gambling licensing policy) the principles that it proposes to apply in making determinations at Stage 2. Therefore, it was necessary for authorities to devise, consult upon and ultimately adopt new gambling policies specifically for the casino licensing process.

26. Before accepting applications, it was necessary for authorities to comply with the Gambling (Inviting Competing Applications for Large and Small Casino Premises Licences) Regulations 2008 (SI 2008/469). This involved compiling a detailed application pack containing (amongst other things): the procedures which were to be followed; terms of reference for panels and committees; criteria and weighting matrices, and draft legal agreements for the provision of benefit etc. Given that none of this material was prescribed by legislation, it had to be devised from scratch, and considerable care needed to be taken to ensure that it was legally compliant. Some authorities have carried out a non-statutory consultation on the contents of the application packs.

27. Then, authorities had to publish an invitation for applications, which Regulation 5(2) of the Gambling (Inviting Competing Applications for Large and Small Casino Premises Licences) Regulations 2008 stated had to be on three months notice.

28. Given that the procedures and tests under this system are completely novel, it has also been necessary to train councillors and officers specifically in relation to the casino licensing regime. The officers concerned include those working in licensing, legal and democratic services departments.

29. It will be clear from the above that the process devised by Parliament for the award of casino licences built in certain delays and complexities which have had to be negotiated by licensing authorities. However, there have been other factors which have contributed to the time taken to implement the casino licensing regime. Those cited by members of the Network are:

(1) the recession and the decrease in market interest;

(2) the change in the tax regime for casinos, which caused some loss of market interest;

(3) the smoking ban which also affected the confidence of casino operators;

(4) the cost to the licensing authority of running a complex process in a period of fiscal retrenchment;

(5) concern regarding the amount of officer time involved as against the potential return to the authority in the short to medium term;

(6) changes of administration;

(7) concern regarding the threat of legal challenge to the decision.

30. The recession in particular has caused concern that the amount of collateral benefit which operators may be prepared to offer to obtain the licence may be limited. However, in no case has an authority determined not to proceed with its casino project.

31. The current position is as follows:

(1) In two cases, a licence has been granted. In one of those cases, the grant is subject to an application for judicial review. Permission to bring proceeding was refused by the High Court on the grounds that the claim was not arguable. An renewed application for permission is due to be heard in July 2011.

(2) In three cases, Stage 1 has been completed and Stage 2 is underway.

(3) In one case, Stage 1 has been completed, but the Stage 1 grant is the subject of an appeal to the magistrates’ court.

(4) In two cases, Stage 1 is in process.

(5) In 7 cases, preparation of the process is underway, with the process to be launched within the next 6 - 12 months.

(6) In one case, the project is being re-evaluated pending further market analysis and a review of the project's strategic fit with the area's leisure product development plans.

32. In the light of the current position, the Network anticipates that by the end of 2011 between 6 and 8 of the 2005 Act licences will have been granted and that by the end of 2012 practically all of the remainder will have been granted.

33. In the one case in which a licence has been granted after Stage 2, the London Borough of Newham, significant benefits have been promised, including an immediate cash payment of £5m, a revenue share of at least £1m per annum or up to 5% of the net gaming revenue of the casino, employment of not less than 300 employees, £100,000 per annum to local good causes and £50,000 per annum to fund employment opportunities in the borough. Thus, the potential has been demonstrated for the legislative scheme to produce major benefits for local areas.

D. PORTABILITY OF LICENCES

34. Prior to the General Election, DCMS officials notified the Network of a dialogue between the Department for Culture Media and Sport and the National Casino Industry Forum ("NCIF"), which emerged following the demise of the British Casino Association. The Network was informed that the main topics under consideration were:

a) The harmonisation of casino entitlements, so that casinos with licences originally granted under the Gaming Act 1968 but now trading under converted casino licences would be entitled to offer the same number of gaming machines as the 2005 Act casinos, and would also be entitled to offer bingo and/or betting.

b) The ability for operators to move a converted casino licence across administrative boundaries to any other local authority area which is willing to accommodate it.

35. The matter was discussed within the Network and within the member authorities. The unanimous view was that the Network was fundamentally opposed to this suggestion, and that even to accept the suggestion in principle would be highly damaging to the 2005 Act process, and the regeneration benefits for local authorities which that process was designed to harvest. This view was communicated to departmental officials and the proposal was not taken forward.

36. Following the election, NCIF has continued both in meetings with Ministers and otherwise to seek to persuade Ministers of the merits of this case. The view of the Network authorities is unchanged. This view has been communicated to the Secretary of State.

37. NCIF has argued that the course set in relation to casinos in the Gambling Act 2005 should be changed because the legislation has not yet resulted in the construction of any casinos under the Act. Recently, Philip Davies MP proposed an amendment to the Localism Bill to enable converted casino licences to move across administrative boundaries. [1]

38. In this note, the opportunity is taken to explain why the Network authorities strongly oppose the suggested amendment. In particular, it is important that this issue is understood in the context of the history of the casino licensing regime provided for by the 2005 Act and, as importantly, the policy which underpinned the regime.

39. The matter will be approached from the following perspectives:

(1) Casino licensing policy

(2) The casino industry

(3) The network authorities

(4) The public

(1) Casino licensing policy

40. We have set out above the lengthy and detailed process which underpinned the promulgation of the Gambling Act 2005. The resultant legislation and underlying policy was the product of independent expert advice, cross-party co-operation and the joint scrutiny of both Houses.

41. As stated above, it was key to Government thinking that the regeneration benefits of local communities should be harvested and the social impacts of the legislation should be fully understood, before a further expansion in the casino market was to be contemplated.

42. During the course of 2005, there were strong representations by the industry, including a meeting between the British Casino Association and the Secretary of State, and correspondence with Lord McIntosh, during which the Government’s position was staunchly defended. In a debate in March 2005, Lord McIntosh explained why he had rejected the entreaties of the British Casino Association. He set out the rationale for the Government’s position (Hansard, 10 March 2005, Col 982) (with emphasis added):

Having said that, of course we have taken very seriously the concerns expressed by the British casino industry. We have seen members of the industry on every occasion that they have asked to see us; we have read their advertisements with great interest and increasing incredulity; and we have heard them say, as has been said today, that the Bill treats them unfairly and puts existing casinos at a competitive disadvantage. We think that those concerns have been, at the very least, overstated, but we recognise that there is an issue here which these amendments are intended to address. However, I have to say that I am unable to support them. I want to explain why and I shall go on to explain to the Committee what we see as a better approach to the issue.

   In bringing the Bill before Parliament, we have made clear from the outset our view that public protection must be a priority. In the Bill before the House, we have adopted a precautionary approach, holding back on the liberalisation of regulation until we can be sure, on the basis of practical experience, that we are not going too far too fast and that we are not letting problem gambling run out of control.

   It was on the basis of that precautionary principle, and recognising the concerns expressed very forcefully in another place at Second Reading, that we introduced an initial limit of eight as the number of casinos in each category allowed under the Bill. Whether and when those limits can be eased will depend in due course on an assessment of their impact by the Gambling Commission and on the agreement of both Houses of Parliament.

   Those limits will not affect the entitlements of existing casinos. They will continue to be able to trade as now. They will be able to enjoy some important benefits from the new system of regulation, including, for the first time, the freedom to advertise. I expect the casinos to take full advantage of this opportunity.

   But it is the case that those 137 casinos will not immediately be entitled to all the entitlements of new-style casinos. In particular, they will be limited to 10 gaming machines [now 20] rather than up to 80, as proposed in the amendments, and they will not be allowed to offer betting in combination with casino gaming. We think that the impact of casinos with the additional entitlements needs to be tested and carefully evaluated before the door is opened more widely.    

On the other hand, the impact of a small number of new-style casinos on the existing industry-that is, eight plus eight plus eight-should not be exaggerated. New-style large and small casinos will not be able to offer different or better kinds of machine. People who want to play a category B machine in an existing casino will be able to do so just as readily as in a new-style casino. I think it is now accepted that category A machines, which are new, should not be introduced outside regional casinos at present.

   Nor must the pudding be over-egged in terms of betting. Existing casinos already have to compete with more than 8,000 betting shops-some of them literally next door. The addition of eight or 16 new-style casinos will not change that comparison much.

   We also need to bear in mind that we are not proposing to freeze the position of existing casinos for all time. Some have suggested that the Bill is putting them in aspic. But it seems to me that aspic dissolves; I think they really mean "concrete". But that is not the case. If the initial eight/eight/eight stage is satisfactory, it will certainly be possible to extend the entitlements more widely, including to existing casinos.

   I turn to the amendments themselves. It seems to the Government that, in straining so hard to protect existing casinos, the amendments give rise to problems far worse than those they seek to address. The first and most important point to make is that they would substantially dilute the precautionary principle. I think that if we were to return to the House of Commons a Bill which was significantly less precautionary than the one which left the House of Commons, we would receive very powerful resistance-I do not know about Front-Benchers but certainly from Back-Benchers of all parties.

   Instead of testing, as we are doing, in a number of locations the impact of casinos which have a significantly increased number of machines, we would be rushing straight into allowing every casino in the country to do so, together with additional new casinos. The machines may be familiar, but the effects of concentrating them and allowing proliferation of venues are not familiar. We would, almost at a stroke, be looking at 10,000 new category B machines and potentially far more than that-I shall explain my figures in a minute-without any kind of prior test or assessment. The number of casinos allowed to have 80 category B machines each could easily double.

43.     Lord McIntosh concluded by expressing the strong view:

It would be dangerous and wrong, however, to prejudge the outcome of the testing period of the impact of the new casinos in a limited number of areas.

44. In similar vein, following the passage of the legislation, the casino industry continued to lobby for greater machine entitlements, but the Secretary of State personally rejected the proposals in correspondence dated 6th November 2005. The industry’s campaign, however, continued unabated at the time of publication of the transitional provisions orders, with the same result.

45. Having failed to persuade the Government to give the same rights to existing casinos as it proposed to give to the new casinos, the now defunct British Casino Association elected to take the Secretary of State to Court in a case reported as R (British Casino Association Limited) v Secretary of State for Culture Media and Sport [2007] EWHC 1312 (Admin). That case represented a challenge to the Secretary of State’s decision to pass a transitional provisions order restricting the rights of existing casinos in accordance with the Statement of National Policy. The challenge was roundly rejected by the High Court.

46. Langstaff J observed (with our emphasis):

8. To increase the number of licences permitted by Section 175 to include provision for those existing casinos which, as operated, currently do meet the minimum size requirements to be classed as large or small casinos (none is big enough to be equivalent in size to a regional casino) would be inconsistent with the clear intention of Parliament to impose a maximum of 17 upon the total number of such licences to be granted. This point was implicitly accepted by Mr Beloff Q.C., who presented the case for the applicants together with Mr Ward of counsel, in that he accepted that existing casinos could not expect to be granted under the 2005 Act the same privileges in terms of the numbers and classes of gaming machines permitted them, nor in their ability to provide for betting and bingo, as were the "new" casinos. An argument that they should be permitted to do so was very much a part of the original grounds of challenge to the decisions of the Secretary of State which are central in this litigation, but he was in my view entirely right to accept this. Whatever the purposes of the Act, it is plain on the face of the Statute that there is to be a limited number of "new" casinos, with differences in entitlement between the three classes of such casinos as to the number of gaming machines each could operate, their nature, and the concentration of those gaming machines in the available space, and that the 2 larger classes of casino should be able to provide bingo, but the smaller not.

 

9. The important point is thus that there is no parity between existing casinos and the categories to be licensed under the 2005 Act. The Act provides effectively for disparity.

 

47. Thus, the Secretary of State strongly argued, and the industry accepted, that it was Parliamentary policy that there should be disparity. Parliament has not resiled from that view.

48. The Government’s position was supported by a detailed statement of David Fitzgerald, the Head of the Gaming and Lotteries Branch at the Department for Culture, Media and Sport. His views were recorded by Langstaff J as follows:

36. Economic models suggested that limiting the number of regional casinos to eight would significantly increase the number of large and small casinos which were opened. This risked an increase in problem gambling. Thus, for reasons set out in Mr Fitzgerald’s witness statement at paragraphs 84 to 86, it was decided to limit large and small casinos to eight in each case, in the first phase. The Government wished to test the impact of higher concentrations of gaming machines in single premises. This could not be achieved if the gaming machine entitlements of those large and small new casinos were to be reduced from the high concentrations then anticipated. Yet the precautionary principle which had been adopted sought to ensure that only a few casinos should have such concentrations of gaming machines available for use.

49. Thus, it is clear that a central part of the rationale for the bifurcated position as between old and new casinos was to control problem gambling and to enable a controlled test to be undertaken of the impact of larger numbers of machines being allowed in premises.

50. Langstaff J, urged by the Government, went on to give judicial approval to the Government’s position:

41. It is apparent, at least from an historical perspective, that the need to limit the number of new casino licences was linked to the considerably expanded entitlement that each was to have to provide gaming machines, bingo and betting, and the logic of restricting the number was in order to take a careful and cautious look to see if there was any adverse effects from this marked expansion within individual premises. In the light of the policy (and later statutory) objectives this implied that it was unlikely that existing casinos would be permitted to expand to the same extent. To permit this in the case of any casino which otherwise met the requirements to be a "small" casino would be to license an eightfold increase in the number of permitted gaming machines, section 21 machines apart, in addition to betting and possibly bingo. From such a perspective it could not have been surprising, therefore, that in paragraphs 23 to 25 of the statement expression was given to that very implication.

51. It is possible to summarise recent national policy so far as casinos are concerned in this way:

(1) The 16 new large and small casinos are intended to produce regeneration benefits for communities. This is a quid pro quo for the greater entitlements accorded to these new casinos in terms of machine gambling and the right to offer betting and bingo under the same roof.

(2) The number of new casinos – 16 – was chosen very carefully and only after lengthy political consideration and debate. It represents a cautious approach, because the social impacts of these new casinos, particularly with their significantly greater machines entitlements, has yet to be assessed. (Indeed both the Government and the Network is commissioning research to analyse social impacts.)

(3) The existing land-based casinos, while granted a number of significant early freedoms, would not be permitted these much greater entitlements, nor to move across local authority boundaries because a) that would risk public protection at a time when the social impacts of the new casinos are unknown; and b) that would threaten the very regeneration benefits upon which the new casino structure was founded.

52. The Network is not aware that, outside the casino industry itself, there has been any clamour for a further liberalisation in the approach to casino gambling. Nor is the Network aware that public understanding of the effects of casino gambling has developed so significantly that a new, or newly relaxed, approach to public protection is called for. Nor was there any commitment in the Party Manifestos or the Coalition Agreement arguing not only for a relaxation but for a wholesale departure from the position settled on by Parliament in the interests of community protection.

53. Furthermore, given that none of the 16 casino licences permitted by the 2005 Act has yet been developed, it is difficult to understand what justification there could be for a change of policy now.

(2) The casino industry

54. According to the Gambling Commission, as at 31st March 2010, there were approximately 141 operating casinos achieving a "drop" (that is, cash exchanged for gaming chips) of just under £4.5bn and gaming machine profit of £137m. In addition, there are 30 casinos which are licensed but not operating, and a further 19 which are licensed but closed. [1] These have tended to be much smaller, old-style casinos, particularly in areas where larger new casinos have opened. However, there have been outright failures in the recent past, such as Casino Red in Huddersfield and the Beacon Casino in Northampton, which proved unviable within a short time of opening.

55. Between March 2010 and February 2011 the number of casino licences operating in Great Britain increased from 141 to 150. According to Rank (Annual Report, 2010) the increase has been due in part to the development of small electronic casinos. These venues offer a limited range of electronic roulette and gaming machines rather than the full range of table games, card rooms, bars and restaurants provided by full-scale casinos. The Report stated that these electronic venues have grown up as a consequence of changes to casino gaming duty introduced in 2007, which rendered many small traditional casinos uneconomic.

56. The current picture of no fewer than 40 dormant casino licences demonstrates that casino operators took advantage of the window of opportunity afforded to them by Government in the final days of the Gaming Act 1968 regime to bank licences which they had little or no immediate intention of using and for which there was no or inadequate local demand.

57. The current lobbying by industry appears to have two objectives: first, to extract economic benefit from uneconomic licences by increasing machine entitlements; and second to extract economic benefit from those licences in areas other than those in which they were granted.

58. There can be no doubt at all that, given the opportunity, operators will move some of their banked dormant licences to places where they perceive that there is profit to be had. These will not all necessarily be to the same places as the 16 new casino licences, but they are likely to fall within their catchments. This is because the rights to grant new casino licences were not allocated according to the wealth of the local population but according to the need for regeneration of the local area. Thus, it is likely that operators will seek to move their banked licences into the centre of wealthier populations so discouraging such customers from travelling to the Gambling Act 2005 casinos to enjoy the facilities they offer. This will reduce the potential profit, and therefore regeneration benefits, of the new casino licences.

59. The 2005 Act casino licences, established as they will be in areas needing regeneration, will depend for their success on bringing in trade from a wide catchment. The establishment of new casinos in nearby areas will diminish the potential profitability of the licences to be granted under the Gambling Act 2005 competition.

60. Is there an economic imperative underpinning the industry’s lobbying? The statistics published by the Gambling Commission suggest that the industry has grown at an acceptable level. For example, there were 118 casinos trading in 2001 compared to 141 now. Over the last 4 years the attendance at casinos has risen from 13.9m to 17.1 m and the "drop" has increased, despite the recession, from £4.2bn to £4.5bn. Thus, the Network is unaware of evidence to suggest that the needs of the casino industry should supersede the public protection and regeneration objectives of the Gambling Act 2005, or national policy carefully developed and articulated over the last 10 years.

61. Furthermore, the position seems to assume that the industry which would benefit from a change in government policy is somehow separate from the industry which is intended to benefit from the 2005 casino licensing regime. In fact, these are the same operators, with equal entitlements to apply for new licences. So, for example, in the recently competition in Newham, no fewer than three of the five applicants were existing casino operators – Grosvenor, Genting and Aspers, all of whom have banked licences in other parts of the country. Naturally it would be very much to their commercial advantage if they could establish new casinos in un-served parts of the country by transferring existing, dormant licences without having to offer the regeneration benefits which they will need to offer in order to win the competitions for the new Gambling Act 2005 licences.

62. The Network is seriously concerned that permitting operators to move existing licences across boundaries will not only compete with 2005 Act casinos, but will provide a major disincentive to such operators to compete for the new licences, where to win the licence they will need to promise to provide benefits to the area of the licensing authority. Furthermore, the Network is concerned that the prospect of competition from portable licences will reduce the amount of benefit which competitors are prepared to offer in order to win the 2005 Act licensing competition. Even if operators decide not to compete with 2005 Act licences with substantial casinos, they may decide to operate low-cost, low-staff, highly mechanised e-casinos, producing little benefit for the area but reducing the potential profitability of 2005 Act casinos, and therefore the benefits which competitors for those licences can offer.

63. The Network understands that it has been suggested that the economic difficulties of existing operators may justify a relaxation in Parliamentary policy. However, the Network has not seen any evidential justification for that. Indeed, the Gambling Commission’s own figures suggest that the casino sector is performing at least adequately

64. Gala’s most recent annual report (2009) states:

The casino business had an excellent year, delivering 27.8% pre-exceptionals growth to £30.3m. The division showed strong like-for-like admissions growth in the year, and good growth in new members. A year-on-year reduction in cash drop per customer was experienced, believed to be due to a combination of the weak economy and our focus on a high volume, low stakes model. Despite this reduction in cash drop per head, an improvement in the gaming gross win percentage resulted in profitability per customer increasing over the period.

65. The Rank Group plc’s Annual Report for 2010 stated:

Grosvenor Casinos produced a strong performance during 2010, finishing the year as the Group’s largest business in terms of revenue and operating profit. Revenue of £238.6m was up 8.5% on the prior year, driven by estate expansion and a 5.0% like-for-like improvement. Operating profit increased by 16.5% to £36.0m as a result of sustained growth across the year.

66. The position regarding Genting is more difficult to ascertain because it is part of the multinational conglomerate Genting Berhard. However, the group returned EBITDA of £7.1 bn MR (about £1.4 bn) in 2009/2010 (annual report 2010) so there is no strong evidence that as a company it is struggling.

67. In the circumstances it is wholly rejected that the needs of the industry should be accorded precedence over the needs of the network authorities fully to realise the objectives in pursuit of which they entered the casino licensing competition.

(3) The network authorities

68. We now turn to a consideration of the position of the Network authorities. We believe that it would be helpful to explain why, from our perspective, even the potential that casinos could be allowed to move across local authority boundaries and that machine entitlements could be harmonised would be so damaging to the benefits they are seeking to obtain from the casino licensing competition.

69. Schedule 9 of the Gambling Act 2005 provides that in each area the winner of the casino licensing competition will be the applicant whose scheme offers the greatest benefit to the area of the authority. For most if not all of our members, the entire rationale for seeking the right to grant casino licences was the prospect of regeneration benefits. These will arise principally from the promises given to local authorities by those operators competing for the right to run the new casinos. Those promises are to be secured by written agreements under Schedule 9 of the Gambling Act 2005 and by licence conditions imposed under Part 8. The benefits sought range from capital or income payments to regeneration initiatives, percentages of profits, payments in kind, the running of services and so on. Operators will only offer such promises if they anticipate making significant profits from their operations which go beyond profits they would normally expect to earn. In other words, the regeneration benefits for communities depend on the new casinos making a high level of profit.

70. For casino operators, entering local competitions for casino licences is an expensive and time consuming process, which they will only engage in if they believe that there are significant profits to be had from the exercise, which they cannot earn by other means. Further, casino operators are only likely to make promises of future commitments if they are confident of making high levels of future profit. From this, the following flows:

· If casino operators believe that there is a prospect of other operators being able to enter the market other than through the casino licensing competition, this is bound to affect their estimate of future profits and the level of risk they will be prepared to undertake in making profits.

· In certain areas, the prospect of uncertain future competition will deter operators from entering the competition at all. This may result in either no operators applying, or a single operator applying, in which case there will be no competition and no right for the authority to demand benefits from the operator.

· Even if the local authority itself is given a measure of control as to how many licences enter the area, there would be nothing to prevent an operator establishing a casino in a (wealthier) neighbouring district, which may seriously undermine the viability and profitability of the 2005 Act casino. All of this will affect the calculation of risk which operators will undertake before offering benefits as the price of a licence.

· In all cases, the prospect that existing land-based casino operators will obtain the same gaming machine entitlement will have a severe effect on the level of profit anticipated by casino operators, and therefore the amount of benefit they will be prepared to offer. The main difference between the old and new style casinos is the extent of machine gaming which can be offered. Were Government now to hold out the prospect of harmonisation, this would fundamentally undermine the process, for operators will see no significant added advantage in having the new licence, and a serious prospect that their profitability will be decimated by conferment of the same privileges on other operators.

· If machine gaming rights are in fact harmonised, so that instead of only 16 casinos being able to offer more than 20 gaming machines, nearly 200 casinos could do so, we believe that in a number of areas this would result in an outright failure of the competition through lack of interest.

· There is currently little interest in these licences from abroad, principally due to the Government’s fiscal treatment of casinos (with gaming duty now running on a sliding scale from 15-50%, which tends to affect the larger casinos disproportionately) but also because the regime is not as liberal as was first indicated by Government in the period 2001-2004. To signal to operators, and particularly operators who hold dormant licences, that the Government has an eye to harmonisation will deter them from entering the new competitions, and will certainly deter them from making strong commitments to local communities, because they will be safe in the knowledge that they will be able to use their banked licences to achieve profitability in any event and without having to promise collateral benefits.

71. The Network authorities have devoted very substantial resources to the winning of the competition to be designated casino authorities. Whether to participate in the competition was for most authorities a balanced decision. They elected to participate on the assurance that the number of licences would be strictly rationed, so that regeneration benefits (which were the foundation of the 2005 Act regime so far as casinos were concerned) would flow for the benefit of the communities they served.

72. The Network doubts very much whether its member authorities would have pursued the right to licence casinos had they believed that Government might signal its intention to dismantle the very pillars on which the casino legislation was founded before casinos were built, let alone before the licensing competitions were completed. Furthermore, for some of the member authorities, there was a fine balance of political considerations in play, and certainly a spectrum of views among local communities. Were there to be any momentum towards legislative change, this may lead to a need to re-evaluate the commitment of some authorities to this process at all, which would add further expenditure of resources, and the possibility that all that has been expended so far would have been wasted.

73. Moreover, for those authorities for whom the benefits are already marginal, had they appreciated that they might not need to win the competition in order to obtain the right to licence casinos, but that they could simply invite existing operators to re-locate licences into their areas, it is hard to see why they would have expended their limited resources in participating in the competition. Moreover, the regeneration benefits upon which their bids were predicated clearly depended on the goalposts not being moved by allowing the supply side of the equation to increase around them, whether numerically or in terms of the product which could be offered, respectively, in existing land-based casinos and in the new casinos.

74. It is fair to point out that local authorities and local communities have suffered during the recession, and that tightening fiscal restraint is likely to lead to more difficulty in the years to come. It would appear therefore to be untimely and illogical to revisit the balance between converted and 2005 Act casino licences, which would lead to a transference of economic benefits towards casino companies and away from local communities.

75. The Network is therefore deeply concerned at the prospect of approximately 40 dormant licences being able to relocate, and 189 licences being able to offer the same facilities as the 16 to which Parliament accorded special privileges, particularly if the 189 do not need to offer the same benefits as the 16 – which have to win a "local benefits" test in order to establish themselves at all. The harmonisation proposal, if implemented, would change the entire balance of the market, and would give the 189 an unfair competitive edge over the 16 – the precise reversal of the position intended by the 2005 legislation.

76. In summary:

· Any indication to the industry that these proposed changes are seriously contemplated will damage the 2005 Act casino licensing process before it has begun.

· It would reduce the benefits generated for communities.

· It would not be justified by any evidence.

· It would be wholly contrary to the purpose and objectives of the 2005 legislation.

· It would neuter the careful process of control and evaluation approved by Parliament.

· It would be unfair on the authorities who won the casino licensing process to find neighbouring authorities, who did not, able to offer a berth for casinos enjoying the same benefits.

· It would create a damaging political situation for the local authorities who have devoted much resource to the 2005 Act exercise.

(4) Public concern

77. Deregulation of the casino industry is a matter which gives rise to significant public concern whenever the topic is raised. Deregulation without going through the careful process which underpinned the Gambling Act 2005, let alone the research into impacts contemplated in relation to the new casino licences, is most unlikely, we suggest, to garner public support.

78. Furthermore, any attempt at harmonisation through secondary legislation may cause concern with the Joint Committee for Statutory Instruments, and may lead to the need for a debate in Parliament at a time when the Government is occupied with more pressing agendas. It should not and cannot be contemplated without a change to primary legislation.

E. CONCLUSION

79. The drafting of the Gambling Act 2005 built in an element of complexity and therefore delay into the casino licensing process. In some authority areas, economic and political factors also delayed progress to some extent, with the recession causing concern that operators may find themselves unable to offer significant collateral benefit as the price of obtaining the licence. However, the competition is now underway in 8 of the 16 areas, and in no case has an authority determined not to proceed with the competition.

80. The Network authorities remain seriously concerned at the suggestion of harmonisation of entitlement between converted casino licences and the 16 Gambling Act 2005 licences, and also the suggestion that the former licences should be portable across administrative boundaries. This would represent an illogical and unjustified reversal of well-established policy, would be detrimental to the communities which the authorities represent, politically and economically damaging for the authorities themselves and unwise in terms of public protection. While the Network certainly does not criticise casino operators for attempting to rebalance the regulatory climate, this is certainly not an imperative, and the arguments which led to the balance being struck as it has apply just as strongly now as before.

81. The Network would be glad to elucidate or expand upon this submission in oral submissions to the Committee.

June 2011


[1] See House of Commons Debates 17 May 2011 Col 285.

[1] Gambling Commission – Industry Statistics 2009/10.

Prepared 1st August 2011