Gambling

Written evidence submitted by Jerry Hosea (GA 44)

1. Jerry Hosea

I am a gaming consultant to the casino industry and teach Gambling Operations at the London Gaming College. I am a holder of a Personal Management Licence and have held various management positions in the UK casino industry from when I started in 1971. Since the 2005 Gambling Act I have been a member of the National Occupational Standards Review Group, a member on the Gambling Commission LCCP Review Working Group and a member of the Gambling Commission Prevalence Study Advisory Group.

2. Summary of evidence

· Casinos sit at the top of the gambling product hierarchy. They are the more strictly regulated than any other industry sector and therefore are rightly regarded as the most appropriate venues for hard gambling products as the Gambling Review Body (Budd Report) suggested.

· Clearly the tax structure does not accord with the gambling hierarchy. Although casinos do pay the highest rates of taxation harder gambling products are available in LBOs and online gambling sites.

· The Gambling Commission does have a robust regime in place to monitor gaming in the UK and has allowed the casino industry some flexibility within their remit to be innovative. However the Gambling Commission has to advise the Government on gambling issues and should take a more forceful position when advising on the inequalities extant across the gambling landscape.

· The on-line (remote) gaming industry is based in low tax jurisdictions and is free to offer and advertise their gambling products in direct competition with land based (non remote) casinos in the UK. Many of these on-line gambling companies benefit from the ‘white listing’ status. It is very unsatisfactory that off-shore remote gambling operators are able to promote their unregulated gambling products with unlimited stake and prize levels, to the same customers who would frequent the land based casinos in the UK, which are not able to compete with the same products and limits. Clearly the Government must find a mechanism to level the playing field.

· The process of application and grant of the licences set down in the Casinos National Policy statement and subsequent Gambling (Inviting Competing Applications for Large and Small Casino Premises Licences) Regulations is complicated. The first of the new casino licences has been awarded in Newham and this is now being challenged at Judicial Review. It would appear that the costs of such applications and possible appeals and inherent gaming machine restrictions make the prospect of many of these 16 New casino licences actually being taken up very unlikely.

· Some casinos with 1968 licences (Converted casinos) have larger gaming areas than those set down for the New casinos (750 square metres for Small and 1,500 square meters for Large). Serious consideration should be given to allowing a 5:1 gaming machine to table ratio in all existing casinos licensed by the Gambling Commission.

· Given the high level of regulation and supervision both by the Gambling Commission and by staff, casinos should be allowed a harder form of gambling machine than is currently allowed (Category B1). Online casinos can offer unlimited stake gaming machines in a less controlled environment than land based casinos and it would seem appropriate for all UK casinos licensed by the Gambling Commission to offer unlimited stake and unlimited prize gaming machines. These are already categorised and permitted in the Gambling act as Category A gaming machines allowed in Regional Casinos – of which there are none.

· There was evidence of an increase in problem gambling as identified in the 2010 British Gambling Prevalence Survey. However there was no evidence to show that there was an increase in problem gambling associated with land based casinos which have robust controls in place to mitigate problem gambling.

3. The financial impact of the act on the UK gambling industry

3.1. Casinos sit at the top of the gambling product hierarchy. They are the more strictly regulated than any other industry sector and therefore are rightly regarded as the most appropriate venues for hard gambling products as the Gambling Review Body (Budd Report) suggested.

3.2. The taxation regime bears this out with casinos paying from 15% to 50% in gross gaming yield.

3.3. Bingo with its traditional offering and gaming machines with the same stake as casino gaming machines pay 20%.duty.

3.4. Licensed Betting Offices traditionally offering across the counter betting on horse races introduced Fixed Odds Betting Terminals (FOBTs, now categorised as B2 gaming machines) in 2001. These allowed casino games to be played in lightly regulated high street premises with no door controls. Even though the revenue generated from B2s which offer faster harder gaming products than casinos, exceeds traditional over-the-counter gambling; only 15% tax is levied on LBOs.

3.5. Adult Gaming Centres now have gaming machines with the same stake as casino gaming machines and pay 20% tax.

3.6. The on-line (remote) gaming industry is based in low tax jurisdictions and is free to offer and advertise their gambling products in direct competition with land based (non remote) casinos in the UK. Many of these on-line gambling companies benefit from the ‘white listing’ status by being licensed by approved regulators, like Alderney, Antigua, The Isle of Man, Tasmania, Gibraltar and the EU and EEA countries.

3.7. Clearly the tax structure does not accord with the gambling hierarchy. Although casinos do pay the highest rates of taxation, harder casino gambling products are available in LBOs and on online gambling sites. It is very surprising that LBOs are not taxed a higher rate on their hard gaming products and that remote gambling operators are allowed to promote their unregulated no limit stake gaming products and pay no tax at all.

3.8. It is not a level playing field. Land based casino operators are expected and do provide responsible, safe, strictly controlled environments with highly trained licensed staff, who provide supervision of the gaming to ensure it is not compromised and protect their customers from excessive gambling through mechanisms like self- exclusion. Despite these not inconsiderable unique costs they pay the highest rates of tax.

3.9. Gambling needs to be highly regulated and given the online gambling operators are not based in the UK; they are not subject to the strict regulations enforced by the Gambling Commission. It is very unsatisfactory that off-shore gambling operators are able to promote their unregulated gambling products with unlimited stake and prize levels to the same customers who would frequent the land based casinos in the UK which are not able to compete with the same products and limits. Clearly the Government must find a mechanism to level the playing field.

4. The effectiveness of the Gambling Commission since its establishment, and whether it represents good value for money;

4.1. The Gambling Commission is now the regulator having replaced the Gaming Board for Great Britain. Unfortunately a great many long standing staff at the Gaming Board did not take positions in the Gambling Commission when it transferred to Birmingham and consequently a great wealth of experience was lost.

4.2. Having said that the Gambling Commission does have a robust regime in place to monitor gaming in the UK and has allowed the casino industry some flexibility within their remit to be innovative. An example of this is to allow the industry to be responsible for the games that are played in casinos.

4.3. The Gambling Commission has to advise the Government on gambling issues and should take a more forceful position when advising on the inequalities extant across the gambling landscape, and should be advising that the situation with B2 machines be revisited.

5. The impact of the proliferation of off-shore online gambling operators on the UK gambling sector and what effect the Act has had on this;

5.1. The land based casino industry is severely disadvantaged by unfair competition with the off-shore industry. Land based casinos are restrained by regulations that inhibit the products they are able to offer and have considerably higher tax rates.

5.2. Off-shore online casinos do not pay UK taxes and as they are not based in the UK, they are not subject to the strict regulation enforced by the Gambling Commission. Thus they can offer products and odds better than the land based casinos can offer.

5.3. Gambling needs to be highly regulated and it is very unsatisfactory that off-shore remote gambling operators are able to promote their unregulated gambling products with unlimited stake and prize levels, to the same customers who would frequent the highly regulated land based casinos in the UK which are not able to compete with the same products and limits. Clearly the Government must find a mechanism to level the playing field and help protect the players.

5.4. An unfortunate consequence of the proliferation of online casinos and the high tax hikes to the land based UK casino industry is that casino jobs have been lost. This is a blow to the individuals concerned and obviously not helpful to the unemployment levels in the UK.

5.5. The land based casino tax structure is not comparable to the online tax structure. Online companies are located in low tax havens but enjoy the "white listing" status which enables them to advertise and promote gambling products to UK citizens. This is patently unfair to the UK industry and does nothing for the exchequer.

6. Why the Act has not resulted in any new licences for casinos or "super" casinos;

6.1. The Budd report recommended that the restriction on the number of permitted geographical locations for casinos should be abolished. It was suggested that to avoid a sudden and rapid increase in small casinos, a minimum size of 2,000 square feet and a minimum of eight gaming tables in any new casino. A Joint Parliamentary Committee (JCDGB) was set up in 2003 to look into a new act governing gambling and separately considered "super" Regional casinos in 2004 and recommended these had to be a minimum of 5,000 square metres in area and be restricted to 1,250 unlimited stake unlimited prize gaming machines.

6.2. After an intense negative media campaign, during the passage of the Gambling Bill the government published the Casinos: Statement of National Policy, which restricted the number of new casinos to 8 regional casinos, 8 large casinos and 8 small casinos and decreed that an Advisory Panel be established to identify their location.

6.3. The National Policy also stipulated that there should be a sufficient number of casinos in each category to allow social impacts to be assessed and at the same time minimise any risk of problem gambling.

6.4. In "wash up" prior to the 2005 election the number of Regional casinos was reduced to one and in March 2007 the Gambling (Geographical Distribution of Casino Premises Licences) Order was rejected by the Lords because Manchester had been listed as the location of the Regional casino.

6.5. When Gordon Brown became Prime Minister he established a review of the Regional casino and in February 2008 declared that there would be no Regional casino.

6.6. It was not until 2008 that the Gambling (Geographical Distribution of Large and Small Casino Premises Licences) Order was laid. However 10 of the 16 New casino licences were awarded to Local Authorities which were in existing Permitted Areas.

6.7. The 2005 Gambling Act stipulated that the Large casinos were restricted to a maximum of 150 Category B1 machines against a table ratio of 5 to 1 and Small casinos restricted to a maximum of 80 Category B1 machines against a table ratio of 2 to 1. Large casinos were permitted to offer bingo and betting and Small casinos could offer betting but not bingo.

6.8. The consequence of this is that a Small casino would need 40 gaming tables to qualify for 80 B1 machines whereas a Large casino would only need 30 gaming tables to qualify for 150 B1 machines. Consequently it is unlikely that Small casinos make economic sense.

6.9. The process of application and grant of the licences set down in the National Policy statement and subsequent Gambling (Inviting Competing Applications for Large and Small Casino Premises Licences) Regulations is complicated. The first of the new casino licences has been awarded in Newham and this is now being challenged at Judicial Review.

6.10. It would appear that the costs of such applications and possible appeals and inherent gaming machine restrictions make the prospect of many of these 16 New casino licences actually being taken up very unlikely.

6.11. Some casinos with 1968 licences (Converted casinos) have larger gaming areas than those set down for the New casinos (750 square metres for Small casinos and 1,500 square meters for Large casinos). Serious consideration should be given to allowing a 5:1 gaming machine to table ratio in all existing casinos licensed by the Gambling Commission.

7. The effectiveness of the classification and regulation of gaming machines under the Act;

7.1. The categorisation and regulation of gaming machines should be consistent with the hierarchy of gambling outlets. It follows that casinos which are more strictly regulated and better supervised and more highly taxed should have the hardest gambling products permitted. However the maximum stake permitted on a gaming machine in a casino is £2 which is the same as the shortly to be permitted in a Bingo premises or even an AGC. In a Licensed Betting Office the maximum stake permitted is £100. Clearly this is an anomaly and needs to be addressed.

7.2. What appears to be an unintended consequence of the 2005 Gambling Act has been to allow the rampant increase of LBOs on high streets offering very hard casino type games, including Roulette, Blackjack, 3 Card Poker, Stud Poker as well as Bingo games. These games can also be played at a much faster rate than those in casinos. Electronic roulette terminals in casinos are restricted to 50 games an hour whereas in an LBO, Category B2 machines can play roulette 180 times an hour.

7.3. As a consequence LBOs have increased revenues substantially since the introduction of the FOBTs and profits from them now exceed traditional over-the-counter gambling. The restriction of 4 B2 Machines per LBO has led to LBOs clustering in areas of high density which has been the subject of media interest and indeed at least one Local Authority review "Scrutiny Review - Clustering of Betting Shops" undertaken by Haringey Council in November 2010 (attached). This in turn led to an Adjournment debate tabled David Lammy (Tottenham) on the 24th November 2010.

7.4. There are no door controls in LBOs and indeed in the most recent Gambling Commission Industry Statistics document (2009/2010) (attached) it stated that in that year there were over 70,000 incidents of people who attempted to gamble or gambled and when challenged about their age were unable to prove it (there were 22,000 in 2008/2009). Contrastingly UK casinos had just 29 incidents of underage people attempting to gamble in 2009/2010 compared with 11 in the previous year.

7.5. It is remarkable that in casinos customers can wager considerable sums on a table game, in and yet those same customers can only wager a maximum stake of £2 and receive maximum prize of £4,000 on a Category B1 gaming machine in the same casino. This is the same maximum stake as to be allowed in Bingo premises and AGCs.

7.6. Given the high level of regulation and supervision both by the Gambling Commission and by staff, casinos should be allowed a harder form of gambling machine than is currently allowed (Category B1). Online casinos can offer unlimited stake gaming machines in less controlled environments than land based casinos and it would seem appropriate for all UK casinos licensed by the Gambling Commission to offer unlimited stake and unlimited prize gaming machines. These are already permitted in the Gambling act as Category A gaming machines allowed in Regional Casinos – of which there are none.

7.7. Consideration should also be given to allowing a 5:1 ratio of gaming machines to table games in all land based casinos licensed by the Gambling Commission.

8. What impact the Act has had on levels of problem gambling.

8.1. There was evidence of an increase in problem gambling as identified in the 2010 British Gambling Prevalence Survey. However there was no evidence to show that there was an increase in problem gambling associated with land based casinos which have robust controls in place to mitigate problem gambling.

8.2. The 2010 British Gambling Prevalence Survey stated that among those who had gambled in the past year, problem gambling prevalence was highest among those who had played poker at a pub/club (12.8%) followed by those who had played online slot machine style games (9.1%) fixed odds betting terminals (8.8 %) and betting on non-sporting events with a bookmaker or betting exchange (7.8%).

8.4 In a recent press release the ESRC published preliminary findings from Professor Gerda Reith’s Understanding Gambling: The Social Context of "Gambling Careers" where she asserts ": "Gambling itself is not dangerous, it is how people deal with it that can cause harm. That said, some types of gambling are more risky than others and FOBT’s seem to be one of the products most associated with harm at present. For example, we have evidence that some older betting shop customers who did not have problems with gambling in the past are more likely to develop problems when they start to use betting machines."

June 2011

Prepared 1st August 2011