Written Evidence submitted by the Noble Group (GA 80)


1. Introduction

This response is lodged by the Noble Group, a substantial collection of businesses operating in all sectors of the "bricks and mortar" gambling industry in the UK. We are best known for our expertise in the operation of gaming machines through a large chain of AGC’s located from the South coast of England to Scotland’s central belt. In addition, we operate a small number of betting premises; a small chain of bingo halls comprising both "flat floor" facilities as well as smaller converted premises; we are developing a casino under a "converted" casino licence in Blackpool and we own and operate two of the country’s largest and most visited FEC’s, Brighton Pier and Coral Island in Blackpool.

We were heavily involved in discussions with and representations to Government during the passage of the Gambling Bill. We have subsequently been involved in numerous consultations in connection with aspects of the Gambling Act with both the past and present Governments and our evidence, in the context of the consideration of the appropriate location for what was intended to be the UK’s first Regional Casino, was substantially accepted by Professor Stephen Crowe and his colleagues on the Casino Advisory Panel ("CAP").

This response gives specific answers to the questions posed by the Committee:-

· How effective has the Act been in its core objectives:-

i) Ensuring that Gambling is maintained crime free and conducted in an open and fair manner – ironically, those sectors of the British gambling industry of which we have direct experience (that does not include track betting) were probably as or more "crime free and conducted in an open and fair manner" under the Gaming Act 1968 ("the 1968 Act") than under the Gambling Act 2005 ("the 2005 Act"). The Gaming Board was, like any such institution, open to criticism, but it discharged its relatively narrow and focused remit well. Its relationship with the industry was excellent. It was transparent in its operation and it might well be said that the 1968 Act was one of the finest and most effective pieces of legislation ever passed in the social context. It cut out the criminal infiltration of the casino industry (by the Mafia, the Krays and others) at a stroke, produced an effective regulator and a regime that was surprisingly flexible in its legal application over a prolonged period. Under the 1968 Act, the cost of regulation was, by contrast with the new regime, extremely economical. The 2005 Act has increased red tape and bureaucracy exponentially. The cost of that red tape is enormous (one of our divisions had a regulatory cost of approximately £11,000 per annum prior to the implementation of the 2005 Act and that figure rose to some £800,000 in the subsequent year). As members of BACTA, we do not share all the Association’s criticisms of the Gambling Commission, but we do believe that it has the typical modern regulator’s propensity to be over-conscious of the media and to attack soft targets when resources would be better focused on hard ones. The Commission’s dealings with the Agora Group are a case in point. Directors of that Group, now in administration, are on trial for serious fraud and have been prosecuted for offences under the 2005 Act. Some associated with it are still believed to be operating behind front companies which are setting up in competition with legitimate operators in numerous venues. The Commission must of course follow "due process" and is known to be investigating the individuals concerned, but in the meantime, the viability of legitimate businesses is being put in doubt by operators who have no place in a well regulated industry, based on integrity;

ii) The protection of children and vulnerable people from the adverse affects of gambling – again, it is highly questionable whether the new regime is any more effective than the old one. Certainly, as a company, endeavouring to operate upon the basis of the highest standards, those standards are now exactly the same as those that we applied under the 1968 Act. Similarly, and long before the implementation of the 2005 Act, the AGC and FEC industry was largely responsible for the establishment of Gamcare. We now have the overly bureaucratic triad of the Responsible Gambling Strategy Board, the Responsible Gambling Fund and the GREaT Foundation, while Gamcare is reported to be in serious financial difficulty. As BACTA has made clear to the Committee, large sums drawn from an industry in a seriously depleted financial state are being dissipated on an absurdly top-heavy bureaucracy such that those limited resources are failing to reach the causes for which they are intended;

iii) The updating of the legislative framework with regards to online gambling – the Act has failed in this objective. Ironically, the 1968 Act prohibited online gambling perfectly effectively. As others will agree, the failure of the legislation and, perhaps more accurately, the failure of banking regulation to control the use of credit cards in the context of online gambling, means that the uneven treatment of "bricks and mortar" gambling in the UK, in terms of both regulatory burden and tax, should be heavily criticised by the Committee.

· The financial impact of the Act on the UK gambling industry:

In this connection, the Committee will no doubt receive representations from all sectors suggesting that the impact has been prejudicial. As BACTA has advised, that is certainly so in the case of AGC’s and FEC’s, but the Committee should be wary of such representations from, in particular, the betting and casino industries. All "bricks and mortar" gambling premises were heavily affected by the Smoking Ban and continue to be so. Equally, the credit crunch followed by the recession and the continuing adverse general economic circumstances must inevitably affect all sectors. However, the impacts of the Gambling Act have not been uniform. The AGC, FEC and bingo sectors were particularly adversely affected by the loss of Section 16 and Section 21 machines. Their loss was uncalled for and has now thankfully been remedied as a result of the recent B3 review. It remains to be seen how easily the AGC, FEC and bingo sectors will recuperate from the problems of recent years as a result of this change. However, the casino industry has done extremely well. Outside London, while there are a small number of independent operators, the provincial casino industry is in effect a triopoly of Gala, Rank and Stanley. Those companies conducted an anti-competitive campaign in the closing days of the 1968 Act and successfully shut out a number of new entrants, arguing, at locations around the country that there was no demand for new casinos. As a result, while it is true that they are constrained from expanding the number of their casinos, they now enjoy an extraordinarily protected trade position (and have done so since 1 September 2007) and cannot now fairly assert that there is demand for more provision. Latterly and predictably, given their protected position insulated from competition, their commercial fortunes have seen a significant upturn. For instance, the Rank Group plc’s Trading Update for the 11 weeks to June 2011 confirmed that Grosvenor Casino’s like-for-like sales had increased by 13% (having already increased by 5% in the previous 25 weeks).

It should be remembered that the established casino industry received a doubling of both the number of machines and the permitted stakes and prizes applicable to them even before the 2005 Act was implemented.

More fundamentally, the betting industry has been "feather-bedded" against the more general adverse impacts of the smoking ban and the general state of the economy by the effective monopoly rights they have enjoyed in relation to FOBT’s/B2 gaming machines, on the high street. The last Government failed to take the opportunity to enforce the 1968 Act under which FOBT’s were illegal. Unfairly, the betting sector has been allowed to maintain its effective high street monopoly of these machines since the former Secretary of State, Tessa Jowell, put them "on probation" in 2003. Virtually, every profit announcement of the publicly quoted betting operators, since then, has attested to the growth in machine earnings based on the industry’s effective monopoly rights to B2 machines.

For instance, Ladbroke’s Interim Management Statement for the three months to 31 March 2011 confirmed that the Group’s UK retail machine gross win had increased by a further 14.9%. This announcement is consistent with similar machine earnings growth that the mainstream betting operators have enjoyed in recent years. That growth has been substantially at the expense of the AGC sector which has been denied parity in terms of FOBT/B2 machines.

Yet high street LBO’s are not subject to any greater standards of scrutiny, regulatory control or social responsibility than AGC’s. Indeed, the Scrutiny Committee in examining the provisions of the Gambling Bill, recognised that AGC’s should have equivalent rights to install FOBT’s/B2 machines, but felt that because of the controversy then (as now) surrounding B2 machines, there should be a breathing space before any more were permitted. Seven years later, the betting sector maintains its extraordinary commercial advantage.

In the meantime, the AGC and FEC sectors have suffered continuing declines in revenue and profit to the advantage of the betting operators. There have been hundreds of AGC and FEC closures and more job losses. This has had the inevitable knock-on consequence of devastating the machine manufacturing industry in the UK.

· The effectiveness of the Gambling Commission since its establishment and whether it represents good value for money – we refer to our comments in answer to the first question above. Save that it is too big, too expensive and too keen to justify its existence to the media, we support its general objectives and believe that its executives and officers are well intentioned and in most cases, keen to assist responsible operators. Our experience is that those who joined the Commission from the Gaming Board have a far greater grasp of relevant issues than later inductees;

· The impact of the proliferation of offshore online gambling operators in the UK gambling sector and what effect the Act has had on this – again, please see above, noting that, as operators, we have no objection to "offshore" or other internet competition provided it operates on the same level playing field as the "bricks and mortar" equivalent;

· Why the Act has not resulted in any new licences for casinos or super casinos – it is not correct to say that the Act has not resulted in any new licences for casinos. Although the triopoly of Gala, Rank and Stanley, acting uncompetitively in the run-up to the implementation of the Gambling Act, successfully snuffed out the attempts of new entrants to the sector, there are of course 8 small and 8 large casinos presently going through the licensing process. The fact that not all of those licences have been taken up is testament to the fact that there is limited demand for casinos in the UK.

The Super or Regional Casino debate was another matter. The concept of Regional Casinos in the UK is flawed. Regional or Super Casinos are viable in jurisdictions where betting and gaming is otherwise largely or completely prohibited. They require enormous capital investment (£150m to £200m) and must inevitably depend on high levels of trade. In a small, tightly developed environment, like that of the UK, the model is quite different particularly when all types of gambling are so widely available. With circa 9,500 betting offices (significantly more than before the 2005 Act), 850 AGC’s and FEC’s (significantly fewer than before the 2005 Act), 500 bingo halls and 145 casinos, Britain does not need destination gambling on the scale upon which Regional Casinos are predicated.

Indeed, as the evidence considered by the CAP, during the course of the Regional Casino debate, showed, the claims made for Regional Casinos by their proponents were heavily overstated (paragraph references below are to the CAP’s final report):

· (Para 91) "Overseas evidence [from Detroit, New Orleans and Dortmund] suggests that one casino of the size proposed in Britain in isolation may not always bring about regeneration.";

· (Paras 94-98) Much of the economic modelling presented to the Panel by Regional Casino proponents was flawed – (para 95) "Most of the proposals submitted showed a tendency to concentrate on supply side models when looking at regeneration benefits. Demand side models…were not used.";

· (Para 95) "Most [local] authorities [unreliably] assumed that since [the foreign casinos they referred to] would be profitable, British ones must be as well": yet without huge displacement of trade from other competing, gambling and leisure facilities, the proposed Regional Casinos in the UK would be unlikely to generate sufficient profit to enhance regeneration;

· On the potential generation of jobs, the CAP was sceptical, pointing out that the higher employment generated by, for instance, some American casinos, was not matched by European comparators of which the CAP had experience;

· (Para 101) Again, the CAP noted that it was important not to view potential Regional Casino development in isolation, but to compare it to other regenerative development (which might produce less displacement and thereby create greater added value);

· (Para 118) In relation, for instance, to Blackpool, the CAP concluded that "In the light of our collective experience…we are therefore unsure that the Blackpool proposal would be as viable as other proposals before us. The small local catchment may lead to a suboptimal scale of both the casino and the development of the associated hotel and hence the regeneration benefit."

Fortunately, in the case of Blackpool, and affirming the CAP’s "…scepticism about the impossibility of a "Plan B" for Blackpool" [the Council’s position], the Council, under new leadership, has indeed pursued "Plan B". As a result, the town is now enjoying levels of investment which had become a thing of the past during the many years of sterility induced by the Regional Casino debate (from 1999 to 2008). That investment includes the substantial refurbishment of Blackpool Tower and other prominent facilities in the town by Merlin, the second largest "attractions" operator in the world. It is to be hoped that the last Government’s sensible decision to shelve Regional Casinos in the UK will stand.

As the Committee will know, the primary motivation for the development of a Regional Casino would be the commensurate monopoly that the operator would enjoy in relation to Category A slot machines. Many of the other facilities offered by a Regional Casino, both in gambling and non-gambling terms, would inevitably be offered as loss-leaders. Atlantic City is a good example of the extent to which the opening of a small number of super casinos resulted in the closure of hundreds of smaller businesses in the restaurant and entertainment sectors. This pattern again reflects the concerns about displacement that so undermined the economic modelling put before the CAP by proponents of the competing bids.

· The effectiveness of the classification and regulation of gaming machines under the Act - the recently confirmed B3 gaming machine review will do much to ameliorate previous errors (provided there remains no scope for Category A machines). However, the monopoly rights of the betting sector to B2 machines on the high street remains a problem. There is simply no basis for betting premises to have B2 machines when AGC’s are not so permitted. Either such machines should be available in AGC’s or alternatively, they should be removed from betting offices. Either way a level playing field, reflecting the need for "Primary Use" to be maintained, so that betting offices cannot become arcades and vice versa, should be restored. As BACTA has argued, the reinstatement of the triennial review of stakes and prizes is imperative as a means by which to restore stability to the market-place for both the manufacture and provision of gaming machines.

· What impact the Act has had on levels of problem gambling:-


2. Conclusion

We hope the Committee finds these comments helpful.

July 2011

Prepared 1st August 2011