Gambling

Written evidence submitted by Mark Davies (GA 53)

Summary

· This response is written in a personal capacity, although at the time that the Gambling Act passed, and in the two years of its scrutiny, I was responsible for Betfair’s public positioning, having been part of the company’s founder-management team.

· In my view, the Gambling Act had the right core objectives, but the unfortunate result of the Government’s failure to tally the legislative framework of the Act with a sensible fiscal policy was that, ultimately, the Act missed its point by some way.

· The legislation was designed to protect people and keep out crime; but the first requirement to enable either to be achieved must surely be that companies in the gambling industry sit under the jurisdiction of the Act. Because onerous taxation makes companies based in the UK uncompetitive with what is now a global market, very few do.

· In fact, so few companies currently do sit under the jurisdiction of UK law that the Act could say just about anything. Its provisions aren’t relevant to most of the companies that offer gambling services to the UK.

· So while the Act itself is sensible, it is also a white elephant. Unless the Government creates a fiscal framework that dovetails with it, it will end up with good legislation which effectively exists in a parallel universe.

· In the event that the Committee is interested, I would be happy to appear before it for examination.

1. How effective has the Act been in its core objectives to:

· Ensure that gambling is maintained crime-free and conducted in an open and fair manner?

· Protect children and vulnerable people from the adverse effects of gambling?

· Update the legislative framework with regards to online gambling?

1.1 The Act has been effective as regards UK operators: its provisions clearly do all of the above. The problem with it is that online, there aren’t any operators which have to adhere to it. So it has been effective only inasmuch as it set a standard which other jurisdictions have, broadly, followed. As far as protecting UK citizens is concerned, it therefore serves only to protect those that bet with UK-based companies; and while it may be argued that this is an inevitable outcome, in my opinion the fiscal framework which sits alongside the Act serves actively to reduce the number of operators which fall into that category. In my experience, companies are not scared of the requirements of regulation, but they do wish to remain competitive.

1.2 It is often argued that this simply makes a case that results in a ‘race to the bottom’, with every jurisdiction trying to undercut every other in its tax rates. I would dispute that. The problem is that operators based in the UK get nothing back in exchange for the taxes that they pay.

1.3 For example, when I was with Betfair, we initiated court proceedings against the Netherlands which ended up in the ECJ. 25 Member States wrote in support of the Dutch, but the British Government declined to write in support of its own legislation. The result was that two (at the time) UK-based operators , Betfair and Ladbrokes, had to fight their own battle.

1.4 The Government did not even need to cite either company in writing to support its own legislation. It could merely have written in the following terms: "We understand that a case before the ECJ posits that a monopoly system of gambling licensing protects citizens more than a licensed system. Our view is that the licensed system we have developed as a result of passing the Gambling Act 2005 protects our systems as well as, if not better than, a monopoly system which drives consumers towards the greater choice offered in the Black Market." It failed to do that, begging the question: "if you licence and tax an industry, why don’t you in turn support that industry?" In my view, the Government plays a double game of wanting to collect money in tax but also being rather embarrassed by the "sinfulness" of the product. It should defend those who pay it, and it doesn’t.

1.5 In summary, in my view the effectiveness of the Act is undermined by the fact that the tax system makes UK operators uncompetitive, without in turn doing anything which delivers a return for them for the additional money they pay. The result, inevitably, is that they move away from being under the jurisdiction of the Act, rendering the Act a lame duck.

2. What has been the financial impact of the Act on the UK gambling industry?

2.1 The financial impact of the tax system that was introduced alongside the Act has been to make online operators fundamentally uncompetitive if they are based in the UK. As discussed above, the result is that almost no-one has hung around.

3. What has been the effectiveness of the Gambling Commission since its establishment, and does it represent good value for money?

3.1 I think the Gambling Commission has done a good job in difficult circumstances. It certainly doesn’t deserve the brickbats that get thrown its way by some. But the basic problem they have is that most gambling sites accessed by consumers do not fall under their remit.

4. What has been 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?

4.1 The ‘proliferation’ of offshore online operators suggests that they are springing up all over the world in bandit jurisdictions. In fact, most of the new operators – at least those that anyone has ever heard of – are listed in London and see themselves as predominantly UK companies. They are offshore only because the fiscal position in the UK makes it difficult for them to be otherwise, while at the same time remaining competitive. So the answer to the question is that the impact on the UK gambling sector has been that anyone who can go offshore, has.

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

5.1 I am no expert on casinos.

6. What is the effectiveness of the classification and regulation of gaming machines under the Act?

6.1 Ditto.

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

7.1 The natural assumption is that more gambling must mean more problem gambling. I have seen no evidence to support this proposition, and believe that it is more likely that the significantly-enhanced safeguards in today’s gambling product make it safer than it has been in the past. Just because there are more cars on the road, it doesn’t mean there are more accidents – as the figures prove. Likewise, in gambling, I believe that the numbers support the proposition that the prevalence of Problem Gambling in the UK is lower than that in most European countries, despite the fact that there are more operators free to target UK citizens.

7.2 The Act itself has not been the driver of progress, except inasmuch as the UK system allows competition among operators. This is key, because competition in turn allows innovation. The law itself has not been the driver, since very few operators sit under the UK’s jurisdiction, but it has been an enabler , by not taking the counteractive approach adopted in other European jurisdictions of limiting the number of companies that can target the company – a strategy which inevitably leads to a growth in the Black Market.

7.3 Despite my view that competition has driven the industry to standards that were unheard of in the 20 th Century, I believe that the industry could do more than it has. Earlier this year I judged the eGaming Review Awards, and the entries for Social Responsible Operator of the Year had not moved a great deal since about 2004 (although as an aside I would note that the means of testing the prevalence of problem gambling have themselves not kept up with technological developments which could measure the phenomenon more accurately).

7.4 Legislation in this area, however, is hopeless if, as repeated often above, operators do not sit under the Gambling Commission’s remit; and that will only be achieved if the fiscal and regulatory playing fields are consistent, and level. In my view, the Gambling Act 2005 palpably failed to achieve that.

July 2011

Prepared 1st August 2011