Gambling

Written evidence submitted by Talarius Ltd (GA 65)

Submission from Talarius Ltd

Talarius is the United Kingdom’s largest operator of Adult Gaming Centres (AGCs). Through its brands Quicksilver, Silvers and Winners, it owns 170 venues and has c900+ staff in permanent employment. The company is a wholly owned subsidiary of the Tatts Group, one of the largest gaming companies in Australia, and is listed on the Australian Stock Exchange, where our business includes monitoring machines & collecting revenue on behalf of the Australian Government.

Like most operators in the industry, Talarius was expecting the impact of the 2005 Gambling Act to reflect the liberalisation objectives of the Budd report. However, a misunderstanding of the industry led to compromise and complexity, and created many grey areas that produced blatant disregard for the spirit of the Act. With the regulatory regime split between numerous Local Authorities and the Gambling Commission, the enforcement has also been piecemeal and very inconsistent.

The biggest problem created by the Act for Talarius, however, is the inconsistency and diverse nature of what differing sectors are allowed to offer as products to the consumer, specifically between AGC’s, Bookmakers and Bingo Clubs. We urge as part of this review that regulation is also proportionate to risk.

Our response to specific questions.

1. How effective the Act has been in its core objectives to:
- ensure that gambling is maintained crime-free and conducted in an open and fair manner,

· The landscape does not significantly differ from the position prior to the act probably reflecting the low risk in existence.

· Money laundering conditions need to be proportionate to risk, low stakes and prizes in our sector do not represent any risk and yet we are held to the same process as much higher risk sectors.


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

· The LCCP and relevant sector wide policies and procedures have we believe effectively delivered on this objective; the quality and level of compliance across the industry require regulation proportionate to risk.

- update the legislative framework with regards to online gambling;

· T he G ambling A ct has done little to promote the UK as a location to host and operate online gaming from, mainly due to the taxation levels compared with offshore locations .

· EU legislation outlines that there should be free passage of trade and goods . H owever , many jurisdictions in Europe are imposing barriers to this principle either through stringent requirements relating to local licensing coupled with excessively high fees or hosting of servers within the jurisdiction boundaries. In either instance the primary driver appears to be protection of internal jurisdiction monopolies and thereby taxation (usually lottery and extended lottery operations) rather than player protection . I ronically it is the player protection exclusions that allow jurisdictions to impose such barriers to offshore operations.

· T he UK currently extends white list status to a number of offshore EU jurisdictions and a few non EU jurisdictions.  In all cases the UK government effectively endorses the controls the offshore regulator imposes with regards to player protection and it would seem that considerations given to imposing barriers would be to follow other EU Jurisdictions in the process of going against the EU principles of free trade.

· From a commercial perspective the decision of whether to apply for a license in the UK or shut down the business would be reliant upon the taxation which is currently too high for most small to medium online businesses. Paradoxically imposition of barriers in the UK would only prompt other jurisdictions to further impose barriers and thus constrain UK based online businesses from expansion through Europe and beyond.  

· We see UK licensing as detrimental to the UK ’s o nline gaming growth . There is also no increased benefit to player protection than that which is already in place via white list status from Malta, Alderney or Gibraltar for example.

· Non-white list should not be able to advertise in the UK however we don't think that this is rigorously enforced in order to protect the UK from non regulated operators. In our view (a) advertisers to the UK should be regulated either by the UK or white listed jurisdictions and that (b) operators advertising in the UK outside of the regulatory framework of the UK or White List locations should be penalised. I do not think that operating a UK only licensing regime and thereby scrapping the benefits of white listed jurisdictions brings any other benefits than tax based benefits to the exchequer and in fact is contradictory to EU legislation on passage of goods and trade amongst EU countries.

2. The financial impact of the Act on the UK gambling industry;

The Adult Gaming Centre sector has been significantly affected by the introduction of the Gambling Act 2005. Combined with the effects of the Smoking ban and the credit crunch we have seen a downturn in Talarius revenues in access of 30% since 2006, causing over 50 venues to close and 200 jobs to be lost.

The following Table shows the financial impacts on revenues from 2001 to 2011. Whilst the trend has stabilised we have not seen any real sustainable growth in the Market.

We have also been heavily impacted by increased costs directly due to regulation post implementation of the Act.

· Premises license Costs

Permit costs per annum in 2006 were £18,700 on a like for like basis.

License costs in 2010 £224,475. This equates to a 12 fold increase in premises license costs pre/post Act.

· Operating License Costs/ Personal License Costs

Gambling Commission Operating License fees post act £81,125, pre-act Nil.

PML Costs £440 per year over 6 license holders, pre-act Nil

Gambling Commission are steering us to self regulate the Think 21 policy, this is a current cost of £17k per year.

· The requirement for internal extra administrative costs for compliance and License management has resulted in an increase in 1 full time position.

· The lack of a triennial review post-Act has also resulted in operators soaking up more cost due to AMLD/VAT and inflation increases that we are unable to pass on to the consumer.

· Whilst we are happy to contribute into research and education through the Great Foundation through the voluntary contribution we are concerned that the industry will have to pick up the shortfall due to funding cuts at the Gambling Commission (we currently contribute £50,000 to the Great Foundation)

· Parity for all Adult premises

Currently Adult Gaming Centre premises are allowed 4 Category B3 machines per individual license premises while bingo premises are allowed 8 Category B3 machines. Local betting shops are also permitted Category B2 machines. The maximum stake in an AGC is currently £1 and up to £10 on a B2 machine.

All these sectors and premises have the same Adult only market and yet our sector is not able to offer the same or quantity product. This has created a very unfair competitive environment within the gambling industry. While the current B3 machine review will bring a couple of the offers in each sector closer together it will not resolve the issue. This has resulted in a significant migration of revenue moving into the LBO sector creating a proliferation of sites and machine numbers. The majority of these sales increases are at the cost of our sector and this is evident from the latest Industry Statistics that show B2 revenue at £1.288 billion.

Gross Profit from gaming Machines in 2008 / 2009

% Market Share

Gross Profit from gaming Machines in 2009 / 2010

% Market Share

AGC’s

£397.4 Million

20.25%

AGC’s

£384 Million

17.99%

LBO

£1,138 Million

58.00%

LBO

£1,288 Million

60.36%

· The Local Authority fee structure needs to be standardised, they currently work to a scale of charges that can vary from £350 to £2000 per new premises licence application dependant on how much each individual LA wish to charge, and again the annual fee can vary between £350 to £1000, a fair number of LAs automatically charge the maximum allowed without what we see as justification (£2000). When changing a premises licence some also charge the same fees for a new licence and then charge the annual fee’s again if they insist on surrender and re issue rather than a variation (no refunds given) in most cases this nearly doubles the impact and they receive fees up to double what is in the act as one year’s fee. Also under the 2005 Act we as an operator must pay the annual fee by 1st September each year, some LAs then raise invoices after we have sent payment and then chase us as an operator for the payments they have already received, which wastes our time as well as the LAs. This area urgently needs review.

· Triennial Review

The triennial review was well established pre Gambling Act 2005 and created the opportunity and investment required to support manufacturing R&D, produce innovative product and allow operators to plan investment and cover tax and inflation costs. This needs to be reintroduced as a priority, the piecemeal and protracted machine category reviews post Gambling Act implementation does not work.

· Whilst we understand the scope of this Committee’s review, we would also like to comment on taxation issues, and that our industry has faced increases (via VAT and AMLD). Until the ongoing Machines Gaming Duty process is complete we also do not have the confidence that the target of neutrality will be achieved and fair. We believe we will end up with a larger tax bill.

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

We feel the Commission spent the first year bedding in and the second trying to advise and sort out issues created by the Act itself. With the amalgamation of the National Lottery Commission we should see some cost benefits coming through, but currently we do not consider it represents good value for money.

· Processes are very bureaucratic; an example would be in completing documentation at some 20 odd pages to acquire a business when we have already been fully vetted at operator and PML (Personal Management Licence) holder level.

· Twin approach of regulation with Local Authorities is not working, they are either confused as to their role, or do not understand the Act. Gambling Commission attempts to produce numerous warnings and guidance notes that are not resolving the issues, including those on primary purpose, as well as split premises that many companies still exploit. We deal with 107 LAs and none have the same interpretation of the rules.

4. 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

· From a regulatory perspective those operators within the white list have no real differential. I.e. they have the same requirement as UK based operators.

· Operators outside the white list need to be brought into a standardised regulatory framework. We need a commercial environment that attracts operators to return, not use them as scapegoats for the current issues in the industry.

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

We have no commentary or knowledge in this area

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

· DCMS has recently pledged to raise the maximum stake on B3 machines back to £2 from £1 (this is the level we had pre the Gambling Act), and allow a number equal to 20% of total machines sited. There is demand for more machines for our customers and we do not believe there is a negative impact on problem gambling as each player can only play on one machines at a time anyway.

· We are concerned that we are losing customers to bookmakers who are able to offer far higher stake machines than AGCs, namely Fixed Odd Betting Terminals (FOBTs). We do not believe that the current landscape is a fair playing field for AGCs and hope that this is addressed by the Committee.

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

The Gambling Prevalence Study last published in February 2011 shows that levels of problem gambling in the AGC sector are very low. However, we are not convinced that the measures in the Act are responsible for this. We believe there are many areas in which deregulation would benefit our industry without posing a threat to levels of problem gambling.

Talarius would like to request that the Committee supports and recommends the following measures:

Fair regulation that clamps down on less reputable operators across the gaming sector but that does not harm well regulated and compliant firms.

AGCs should be given a level playing field to other gambling sectors, notably on regulations around category B machines. The maximum stake on B3 machines is being raised to £2 from £1, which is still a long way off the £100 stake that high street bookmakers can take on B2 machines.

The Gambling Commission and Local Authorities must take more action against firms who do not comply with regulations such as the numbers of permitted machines, rather than issue unenforced warnings. There should also be nationally applied consistent standards of enforcement, rather than policies applied inconsistently across different local authorities.

Triennial review process should be re-introduced urgently to stimulate product development & investment and allow operators to pass on tax & cost inflations.

Full review of the Gambling Commission post amalgamation to produce value for money.

The marketplace must be economically competitive but, at present, there are too many barriers to leading operators being able to have a viable and successful business model.

We welcome the review and look to a more robust and affective result than last time around.

June 2011

Prepared 1st August 2011