Written evidence submitted by the National Casino Industry Forum (GA 73)

1. National Casino Industry Forum – Who we are.

1.1. The National Casino Industry Forum (NCiF) is the major trade body representing the land based casino industry. NCiF represents all the major operators in the UK and a number of smaller operators who together hold around 160 of the issued 186 casino licences. Additionally, NCiF membership includes gaming lawyers, academic institutions and specialist service providers.

2. Summary of evidence

2.1. The Gambling Act 2005 ("the Act") severely damaged the land based casino industry. This has resulted in closures of casinos, job losses, reduction in capital expenditure, and an inability to attract tourists with a consequential cost to the Exchequer. NCiF has (through an Ernst & Young report appended A2) and continues to propose simple changes; achievable by Statutory Instruments that can reverse much of the unintended damage caused by the Act, (damage compounded by steep tax increases and the smoking ban). These changes also have the benefit of creating jobs, increasing capital expenditure, increasing revenue for the Exchequer and attracting tourists: all without any impact on problem gaming (appended A1). These changes address:

· Harmonisation – one simple set of rules for all casinos

· Modernisation – allowing technology legal outside casinos to be permitted inside casinos

· Portability – allow Local Authorities to decide whether they want casino gaming

· Restructuring – stake and prize mechanisms

2.2. The Act has been successful in:

· Establishing a modern regulator.

· Maintaining a crime free and socially responsible industry

2.3. The Act has failed to:

· Provide consumers with a modern and relevant gambling environment

· Allow the ‘bricks and mortar’ casino industry to compete fairly both domestically and internationally

· Recognise the casino industry as a core element of the mainstream leisure industry

· Free the casino industry from unnecessary regulation

· Establish the hierarchy of risk and control hard gambling on the high street

· Generate a commercial environment that encourages investment

· Provide a workable and effective legislative framework for on-line gaming

· Develop a proportionate response to problem gambling

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

3.1. The Act is a great disappointment to the membership of NCiF. It followed the highly regarded Budd Report (and subsequent Pre-legislative Scrutiny Committee Report) but the version of the Act which was passed has failed to produce a balance between social regulation and the commercial freedom necessary to allow the industry to be a vibrant contributor to the wider tourism and leisure sector.

3.2. The Act has had a negative financial impact on the casino industry. There is an imperfect relationship between the regulatory regime and entitlements across industry sectors. Casinos operate in the most highly regulated and controlled gambling environment, at the top of Budd’s ‘regulatory pyramid’ and therefore intended as suitable venues for harder gambling, yet thousands more higher stake and prize machines can be found in less controlled environments. Further comment is made below on machine categorisation, but access to ‘casino games’ is now widespread. For example, more than 8500 licensed betting offices (LBO) and about 600 Adult Gaming Centres offer roulette and other casino games on the high street and the seafront. In LBO’s the maximum stake permitted on a B2 machine is £100 or fifty times more than the maximum permitted on a B1 machine in even a Mayfair casino. In June 2011 the Government introduced proposals under The Gambling Act 2005 (Gaming Machines in Adult Gaming Centres and Bingo Premises) Order 2011 & The Categories of Gaming Machine (Amendment) Regulations 2011, to substantially increase the number of category B3 machines in over 600 Adult Gaming centres and almost 500 bingo clubs, and at the same time proposed an increase of the B3 stake to £2, the same stake found in the UK’s 140 or so casinos on B1 machines. This is inconsistent with the hierarchical policy philosophy proposed by Budd and intended to be an outcome of the Act.

3.3. The Act has prevented the land based casino industry from developing modern products that compete internationally, with the on-line sector or even across the wider UK sector. The Act is not flexible enough to deal with technological advancements in the industry and prevents the land based casino industry from entering a competitive market. It permits virtual roulette wheels and cards in betting shops but not in casinos!

3.4. The Budd Report based its recommendation for a fund to support work to limit the impact of problem gambling of ‘not less than £3 million for 3 years (from implementation of the Act in 2007) on the basis that the recommendations ‘...will provide the gambling industry with the opportunity to expand its operations, and consequently the potential to increase its turnover and profit.’ That hasn’t happened and yet the industry is expected to raise £6 million for the fund this year.

3.5. The Act has failed to achieve a sensible balance between commercial freedom and social responsibility. While the money was provided and all the mechanisms required to protect the vulnerable, through research, education and treatment were codified and have come to fruition – most of which were already funded and in place before the Act came in to force in September 2007 – the commercial environment remains inflexible, unfair and incapable of the kind of revenue generation Budd anticipated when the protection safety net was described.

3.6. The so called experiment with 16 ‘New’ casinos, i.e. to see how customers would respond to modernisation within casinos in terms of technology and availability of machines, has not yet begun. Even were it to do so immediately, the results would not be forthcoming for at least a further 3 to 4 years and would then be irrelevant to the industry as technology will have taken a further leap. From the outset the ‘experiment’ was widely recognised simply as a transparent political expedient adopted to secure the passage of a piece of troubled legislation and is now being used as an excuse for inaction on modernising the industry.

3.7. In advance of the Act, investment in the industry was significant with operators investing in their estates and developing modern leisure venues, but 10 of the new 16 casino licences have been granted in existing Permitted Areas. Evidence from the Ernst and Young report (Appended) is clear. Following the Act, investment collapsed. The Gambling Commission’s Industry Statistics 2009 / 10 (headcount) also confirms job losses.

3.8. We strongly believe that continuing any adherence to this ‘experiment’ is manifestly unfair, deters investment and does nothing to encourage responsible gambling.

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

4.1. The membership of NCiF welcomed the establishment of the Gambling Commission. Members and the trade body have constructive dialogues with the regulator on a wide range of subjects and generally find the structures of the Commission effective. Perhaps because the casino sector was previously regulated (by the Gambling Commission and its predecessor, the Gaming Board for Great Britain) and had become used to paying a fee, we do not contest that fee levels are significantly unfair or wide of the mark. That said, the industry would support any measures, consistent with government policy, to reduce red tape and the cost of regulation.

4.2. NCiF is concerned about the amount of the Commission’s resources assigned to issues around responsible gambling. Two Prevalence Studies have not revealed any statistically significant change in the incidence of problem gambling despite the exponential increase in the availability of gambling since the Act passed into law. We challenge whether the issue is as deserving of the levels of attention and intellectual and financial resource by the Commission that it currently attracts.

4.3. Notwithstanding the very significant contribution the gambling industry makes to the British economy, support for the industry from the ‘sponsoring’ government department can be best summarised as woeful indifference punctuated by reactive and ill informed statements on problem gambling. The political realities of life are not unseen or misunderstood by NCiF but the industry is frustrated that the Act’s objectives did not include any obligation – probably on the Commission - to encourage, promote or sponsor the licensed industry.

4.4. When the Bill was drafted the opportunity to include an obligation – perhaps in the following terms - was not taken.

to protect the UK’s economic base and to foster a healthy business climate, one open to competition, innovation, and future growth’ (from Nevada’s legislative philosophy).

The NAO’s Report of 2008 ‘Regulatory quality: How regulators are implementing the Hampton vision’? said

‘Regulators should recognise that a key element of their activity will be to allow, or even encourage, economic progress and only to intervene when there is a clear case for protection.’ (NCiF emphasis).

‘The Commission should work to embed a more consistent recognition of the ways in which its actions can have an economic impact, and to improve the economic modelling of the likely impacts of regulations on the sector.

NCiF believes that an entirely disproportionate emphasis and effort has been directed to responsible gambling. This is a cause of considerable frustration insomuch as the industry would contend that a) it was already conscious of its social responsibility and was working towards delivery without legislative compulsion; b) that a healthy vibrant industry is better able to add substance to its social conscience than one which is struggling to compete; and c) the protection mechanisms were to be counterbalances for economic benefits promised to the industry which have not materialised.

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 proliferation of online gambling in the UK is not in itself the problem. The on-shore industry is not so naive as to believe that, unlike dozens of other business sectors, it could remain immune from evolution of the internet as a new trading dimension. The problems for the ’bricks and mortar’ industry are twofold: the inequality of commercial freedoms and the structure of pricing and taxation.

5.2. The on-line industry enjoys virtually unrestricted commercial freedoms: only the land based casino industry is restricted by government as to where it can do business (to 53 Permitted Areas defined in the late 60’s), the products we can offer (twenty machines per casino, regardless of size), the types of machine and the technical way they operate. It also limits profitability through controls on stakes and prizes and applies a tax rate that is amongst the highest in the world, while much of our competition is not subject to UK tax at all!

5.3. Increasingly technologically savvy, customers are enticed and driven into the online, off-shore environment by companies permitted access to the UK market where there is more choice, accessibility, the games offered are more advanced and low operating costs – including the cost of compliance - produce increased margins that allow generous incentives to be offered. The playing field is not just uneven, it’s precipitous.

5.4. The tax structure in the UK is punitive to land based casinos and is entirely unconnected with business pricing mechanisms. Casinos pay tax at between 15 and 50% (while the betting industry pays 15% and has a much lower cost base). Whilst the Treasury finds it a simple matter to increase the tax burden on the industry on an annual basis, DCMS, the ‘sponsoring department’ for the Industry which has complete control of the pricing mechanism for gaming machines – through the control of stakes and prizes – has been woeful in failing to deliver even an inflation based increase in stakes and prizes for approaching 6 years!

5.5. Next year the Treasury proposes to move to a unified Machine Gaming Duty. It will have made this major change in a little over a year. However, no such agility is perceptible in the government controlled pricing mechanisms.

5.6. To compete, the industry tries to identify unique selling points that are difficult to replicate on-line. Operators have invested in larger, smarter, premises offering other leisure and dining experiences. These facilities are demanding of capital but they provide real jobs in the sector – often with low barriers to entry - creating employment for the less well qualified in the community.

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

6.1. Before addressing this particular question in detail NCiF will comment more generally on the place of the casino industry in the wider leisure sector.

6.2. The industry was disappointed, but not wholly surprised, that the gambling sector employing over 100,000 people and contributing over £1.4 billion a year to the exchequer in gaming taxes alone, beyond the selloff of the Tote did not merit mention in the DCMS strategy published in May this year.

6.3. The following extract from the Secretary of State’s published reform policies is not reflective of the industry’s experience of the DCMS approach to the industry.

6.3.1. *‘Our vision is to help create the conditions for growth in the creative, communications, cultural, tourism and leisure economies, removing barriers to innovation and levelling the playing field. Where we judge there is a need for a particular intervention, we will provide real support and set strategy and direction. But we want our sectors and industries to drive their own agenda [1] ’.

6.4. Government needs to recognise that casino gambling is a main stream leisure pursuit. Last year, there were more than 18 million visits to the country’s 140 plus casinos. The 2010 Prevalence Study found that ‘fun’ was cited as a reason for gambling by 78% of participants In many other countries there is recognition of what a well regulated gaming industry can deliver to the tourism and leisure sector.

6.5. The industry feels excluded from strategic thinking and lacking in political sponsorship and leadership.

6.6. To be technically correct, the so called ‘super casinos’ or to give them their proper name ‘Regional Casinos’ which were to feature up to 1250 Category A (unlimited stake and prize) slot machines, of the kind discussed for Blackpool and ultimately awarded to Manchester, were abolished by Gordon Brown when he became Prime Minister. Without a new Statutory Instrument, there is no process by which a Regional or ‘super casino’ licence could be granted, even though large hotel casinos can generate visitation and leisure spend unachievable by other means.

6.7. There are numerous reasons why none of these premises have yet opened. Probably the most obvious is that, in the main, operators do not support a two speed industry based on an irrational experiment. Operators want to see a generally rising tide on which all businesses gain equal advantage.

6.8. Ten of the 16 New casino licences have been awarded to LA’s which are in existing Permitted Areas with existing casino businesses. For example, a Large licence has been awarded to Leeds City Council, where there are already five converted casino licences granted under the Gaming Act 1968 in the city. Consequently, given the locational constraints on the 1968 Act licences, which prevents operators moving away from a new casino, potential investment in the New premises is constrained and investment in existing premises, threatened by a New competitor, is high risk. NCiF has urged that all Local Authorities be given fair and equal ability to decide whether they wish to be de facto Permitted Areas for casino operations and to allow movement of casinos between those areas. This will not increase the number of licences.

6.9. NCiF believe that another reason why no new casino licences have yet to open is that the machines to table ratios do not make sense. The 8 Large casinos are permitted 150 category B1 slot machines, against a table ratio of 1 to 5. The 8 Small casinos are permitted a maximum of 80 machines against a table ratio of 1 to 2. A Large casino needs 30 tables to maximise its machine allowance, whilst a Small casino needs 40 tables! Consequently, the gaming floor in a Small casino has to be larger than that required in a Large casino. (Large casinos are also permitted to offer bingo and betting and Small casinos are permitted to offer betting.) NCiF has repeatedly urged that there should be a simple uniform ratio of 5 machines to 1 table capped at 150.

6.10. The products available to all land based casinos are no longer competitive in terms of stake, prize, mode and variety with gaming products available outside a casino, eroding the business case for investment. With the expansion of mobile communication technology, the ‘added value’ of being able to offer a betting product in a Large or Small casino – when any casino customer can use their own telephone or computer to call a bookmaker or place a bet - is largely irrelevant. NCiF has urged that the government review stakes and prizes and the method by which they are established.

6.11. The Act does not allow the casino industry to offer modern and innovative gaming technology that is readily and widely available outside casino premises. For example the use of virtual cards or dice is severely limited and whilst it is lawful to use a personal laptop computer or PDA to game almost anywhere – including in Parliament – it is illegal for a casino operator to offer on-line gaming as part of a commercial arrangement in a casino or even advertise that computers are available for play. NCiF has urged that the government allow the use of equipment which is lawful outside a casino to be permitted inside a casino.

6.12. The process of application and grant of the licences is complex and costly. NCiF understands that the granting of the Large licence in the London Borough of Newham has cost the local authority (LA) in excess of £1 million. The process is now being challenged at Judicial Review. Costs of this magnitude are a disincentive to LA’s. Where the process is proceeding, the economic benefits sought by the LA’s from operators are unsustainable by the operations.

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

7.1. The classification and regulation of machines is ineffective. There is inconsistency in the moral and philosophical approach to automated or electronic gambling.

7.2. Though the Act makes provision for Category A (Unlimited stake and prize machines) to be made available in Regional casinos, there are no such premises permitted in the UK so there are no Category A machines either. However it shows that the principle of Category A machines is accepted in the highly regulated casinos.

7.3. Casinos, at the top of the regulatory pyramid are permitted only Category B1 machines with a maximum £2 stake. Of the 144,110 licensed slot machines in the UK, only 2400 or 1.6% are in casinos while there are over 32000 B2 machines in 8500+ high street betting shops offering £100 stakes on a game that plays every 20 seconds and nearly 12000 B3 machines in bingo clubs and seafront arcades also with a proposed £2 stake.

7.4. In many casinos, where the law permits players very high stakes table gaming, B1 machines are simply not relevant to the market. The current law even prevents slot machines being linked to provide larger jackpots for lower stakes players. This is also an unnecessary restriction.

7.5. We recognise that wagering large amounts can be troubling to some observers, but the reality of the international casino market place - where stakes of the equivalent of £100 and prizes of a £1 million on machines are not uncommon - is that there are people who can afford to gamble at these levels and enjoy doing so. If the UK doesn’t provide these facilities they will take their money - and the consequent benefit to the UK economy generated by a 50% tax rate - elsewhere. UK plc should not lose out in this market.

7.6. The technical and stake and prize regimes need to be restructured and higher numbers of Gaming machines including Category A should be permitted in any licensed casino.

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

8.1. There has been no evidence of any increase in problem gambling in casinos over the course of the two prevalence studies.

8.2. Following implementation of the Act the industry agreed to the establishment of the tri-partite mechanism of the RGSB, the RGF and GREaT to raise and distribute funds for Research Education and Treatment [RET]. It is perceived as cumbersome, inefficient and, most importantly, intended to provide a safety net to an industry of a style and size that has not been permitted to emerge. Consequently, it is not well regarded by the industry as either being value for money or adding value to the process.

8.3. Beyond the RET structures the Act has been successful in ensuring through the LCCP, that operators understand the importance of responsible gaming policies.

8.4. We have deliberately restrained our comments on responsible gambling because we feel this not where the problems with the Act lay and more than sufficient focus has already been given to this issue.

June 2011

[1] DCMS Business Plan 2011 – 2015, Jeremy Hunt Secretary of State


Prepared 1st August 2011