Examination of Witnesses (Questions 520
- 538)
THURSDAY 15 JANUARY 2004
MR ANDREW
TOTTENHAM, MR
TOBIN PRIOR,
MR MARC
ETCHES, MR
LLOYD NATHAN
AND MR
PETER BYRNE
Q520 Mr Page: I think it was Mr Tottenham
that said that no company would be that interested and keen to
put in huge investment to contribute to regeneration and then
a few years later find themselves with a whole host of competitors
all around them, all having been given licences. Is there an industry
norm relating to how many years a casino will take to recover
this investment?
Mr Tottenham: Let me clarify it.
I was not saying that they would have competitors around them.
I want to be clear on this. If we are talking about a large resort
development which incorporates a large casino, we would have no
problem with one of our competitors building such in the same
vicinity as us. What we do see as a problem is, if we were to
take the analogy of Great Yarmouth, that there was a pilot project
there for two or three years and then within two or three years
people were able to build large casinos in Ipswich, Norwich, Cambridge,
etc, which would make the original pilot project unviable and
it would die. A five-year return on capital is not unusual in
this industry. However, as we have been saying, it is a rolling
programme. It is not just a case of, "Let us place this one-off
investment and leave it". It is a rolling programme of investment,
and over the years it does increase and it does get up to 800
million or a billion dollars and so on. What we are really saying
is you may want to freeze this thing in time for three years and
see how it goes, whereas the industry and a resort—any resort—needs
to reinvest to remain viable. It has to reinvest in the next product;
otherwise we will find that come year two there will be no further
investment because you cannot be sure that you are going to have
the capital.
Q521 Mr Page: Am I right that you feel
a period of five years would be such, but you could not be given
a free run for ever, could you?
Mr Tottenham: No.
Q522 Mr Page: So five years is the figure
you are talking about?
Mr Tottenham: It is possible,
but again, I would prefer as a company not to go down the pilot
route.
Q523 Chairman: It takes five years to
get the money back?
Mr Tottenham: It can do.
Q524 Baroness Golding: You are talking
about investing an awful lot of money. What would be the effect
of limiting the duration of operating licences to a period of
ten years?
Mr Nathan: I think that creates
uncertainty for investment. You have an unknown as to what occurs
after ten years. In our opinion the licence should have no fixed
duration, as it does in most jurisdictions, as long as there is
compliance and probity.
Mr Prior: I would agree strongly
with that. It would be a large deterrent to a major investment
if there was a finite life on the operator's licence. Returns
on major investments are calculated over a far longer period.
The mention of the five-year payback is just to get you back to
zero. If you are looking for returns on your investment you typically
are talking about 20-25 years. Returns would have to be higher
over a shorter period of time or you would have to invest less.
The impact of that would be that you would probably have lower
quality investments initially and lower quality products and you
would have a strong disincentive to invest any significant development
or maintenance capital. As I stressed earlier, a lot of the major
successful casino resorts have developed with continuous investment
over a period of time, such is the nature of the business. Under
your proposed scenario it would be very difficult to make a good
business case for any further development during the initial tenure
of the licence. Two further points I would make are that, given
that the operator's licence can be reviewed or revoked, or that
the conditions can be amended and that such licences are not currently
limited in duration, it is not clear what the motivation would
be for limiting that duration under the new regime. It is very
unusual, virtually unprecedented in my experience, to have an
operator's licence of limited duration.
Mr Byrne: The shorter a licence
tenure the less capital risk investment you are prepared to take,
resulting in less benefit to the community. The longer the licence
the more money will be invested; it is as simple as that.
Q525 Chairman: The idea that we would
have a licence only for ten years seems to suggest that in some
way this is linked to the scarcity issue that I talked about before.
Were there to be a restriction and you be invited to bid by competitive
tender, would ten years of licence then somebody else might take
over be sensible, or is it simply unworkable with the kind of
investment you would have to make, because they would be your
premises, would they not?
Mr Byrne: Take the Canadian example
where they are not your premises. In Ontario the provincial government
builds the casino and the casino operators pay a management fee,
but I do not think you would want to go down that route.
Q526 Chairman: I am not going to.
Mr Nathan: We hope that it does
not end up as a fixed duration, but if there is a fixed duration
for an operating licence of ten years I believe that the Bill
says that you cannot apply for renewal until three months before
the expiration of that. That is clearly too short a time and we
would suggest two years at the very least.
Mr Prior: The Bill says ten years
or a lesser period, which would have a greater impact.
Chairman: My Clerk is trying to find
the exact reference.
Q527 Mr Page: Mr Nathan in his evidence
to the Committee said "there should be consistency between
operating licences and premises licences". How would you
bring that about?
Mr Nathan: The consistency which
we refer to in our submission is consistency in duration, which
I have touched on, and we believe that there is an ambiguity in
the Bill between Clause 124 and 153 which states that premises
licences should be subject to a three-year duration in practice
because it is unclear what that existing premises licence will
be if a local authority's licensing policy changes after three
years. We assume that that was not intended and are seeking clarity.
As I suggested before, I do not think it should be of fixed duration.
I think that both the premises licence and the operating licence
should continue indefinitely, subject to compliance with any conditions,
probity and the payment of the fees.
Chairman: Just to clarify the point,
in the policy document it states at paragraph 3.18 that licences
will be issued for up to a maximum of 10 years' duration, although
the Commission may determine different lesser periods. We have
heard what you said about that.
Q528 Lord Faulkner of Worcester: I would
like to ask about debt. It is a question really to Mr Tottenham.
When we went to GamCare we were lucky enough to meet a number
of gamblers. One thing that they all had in common was very high
levels of debt, and in the case of one woman her partner had incurred
debts to the family which exceeded £75,000. A lot of this
debt had been incurred on credit cards and our attention was drawn
to the fact that credit cards were freely available and indeed
fresh mailings were arriving on their doorsteps daily and people
with problems were taking advantage of that and using the cards
sometimes just to obtain goods on credit for resale in order to
have cash to put into slot machines. I note that in your evidence
you are suggesting that the prohibition on credit in casinos should
be abandoned. Do you not think that rather flies in the face of
all the evidence about the problems of gambling?
Mr Tottenham: Not necessarily.
What is currently envisaged under this Bill is that for the first
time you will be able to see casino gambling, betting, bingo,
etc, under one roof. We see that there is a rather strange anomaly
in that the betting component will be allowed to issue credit
but the casino component will not, so that if you were in one
part of the facility you could get credit but in the rest of the
place you could not. The other thing to make clear is that we
are not talking about the issuance of wholesale credit as you
see with high street credit cards and store cards. We are not
talking about that at all and I do think we need to make that
point. This is something that is given on a discretionary basis.
It is pre-authorised and it is for high net worth clients only.
It is not in Caesar's interest to create a bigger problem. It
really is for us to work with the Gambling Commission on a code
of practice on the issuance of credit so that we can mitigate
that risk. Currently there is no credit in casinos, as you say.
The law is now that cheques can be accepted, people can have a
cheque cashing facility and the cheques can be accepted provided
they are banked within two banking days. What we are looking at
is some flexibility in that current arrangement so that rather
than two days maybe it is two weeks and it is a pre-arranged limit.
The other thing is that with a good social responsibility code
in place and staff training, such as Caesar's has, obviously we
would not be extending credit to people that we believed had a
problem and that would be specifically in the code and I think
that that would be part of the relationship with the regulator
and with organisations such as GamCare, that we would not be doing
that issuing of credit to people with gambling problems.
Mr Byrne: I have to dissent from
that because as a company we would not support any change in the
existing arrangements on credit. We are quite happy with those
rules and regulations that apply at the moment.
Q529 Viscount Falkland: I agree with
Mr Byrne's view there. We come back to the whole definition which
seems to be still quite unsatisfactory on what is problem gambling.
If you decided on the definition how do you identify a problem
of gambling? It seems to me that you are putting a great responsibility
on yourself if you are training people to identify those who should
not qualify for credit. A gambling problem does not necessarily
come to the surface until a stage when it has become severe. It
would be unreasonable for you to be able to identify that problem,
it seems to me. I do not know what my colleagues feel but I certainly
tend to think that the present arrangements have been very satisfactory.
It contributes to the reputation that we have of having the best
regulated casino operation in the world in many regards. The idea
of giving credit in the way that you describe seems to me interesting
but very difficult to apply. One would need to know a little bit
more about how you would train people to identify those who had
a problem. What is it you are looking for?
Mr Tottenham: This is not about
the extension of credit to anybody that just asks for it. It is
very similar to the facility that exists today in that people
are able to cash cheques in a casino in order to play but those
cheques are banked within two banking days. Effectively, although
the period is much longer in Nevada, we are looking for something
of the order of two weeks as opposed to two days. Again, it is
not about the issuance of credit to anybody that asks for it,
as you will find in casinos in London and so on. Going back to
your point, I think the training that needs to be put in place
is the training for our staff to understand. I do take your point.
It is the same with alcohol problems and so on. The last person
to know is usually the person who is the closest and it is not
foolproof but we think that with a good code of practice we can
mitigate that risk.
Q530 Mr Wright: We have touched on the
premises licence but another part of the regulation would be that
you would be required to obtain planning permission as well. In
my experience as a local authority member there was always confusion,
for instance, that a night club would have to apply to the magistrates
for a drinks licence and to the local authority for the music
licence. On one occasion we were refusing a music licence or they
could sell alcohol at the same time as the music. In terms of
those that grant premises licences and planning permission is
this going to stifle your ability to open up establishments and,
if so, what would be your view in terms of trying to do away with
that burden?
Mr Nathan: The first point I would
make is that I fully appreciated Lord McIntosh's evidence confirming
that a potential casino operator who would need planning permission
may obtain a provisional statement from the licensing authority
that if and when they get planning permission they will get a
premises licence. I think that is one very positive step. On the
other hand there is relevant guidance in this matter that has
not been published and from our perspective to get the quickest
delivery of investment and jobs into the country we would like
to see that guidance and be able to comment on it.
Q531 Chairman: That is a very interesting
answer because the other question is, what are the risks to you
if local authorities are not obliged to follow the licensing guidance
issued by the Gambling Commission?
Mr Nathan: I can answer that.
Q532 Chairman: I can see from your face,
Mr Byrne, that it is a catastrophe.
Mr Byrne: It would be wonderful
for the lawyers because there are going to be lots of cases flying
around the country with people suing everybody.
Q533 Chairman: Have you come to any judgement
on the proposal in the Bill that members of the public should
have the opportunity to appeal against the granting of a licence?
Mr Prior: Yes, we have. We do
believe it is going to lead to frivolous opposition on many occasions
and frustrate the process. I concur with Mr Nathan on the previous
point. I think that the risk of local authorities not being obliged
to follow the Gambling Commission guidance is simply that they
do not follow it and that you get inconsistencies emerging between
authorities. Quite frankly, in the absence of seeing that guidance
it is difficult to assess exactly what the risks are, but you
could have inconsistencies across the regions.
Mr Nathan: My understanding is
that the Gambling Commission in forming that licensing guidance
will be consulting with the local authorities in the first place
and I think that it is imperative that after that consultation
process local authorities are obliged to follow that guidance.
Mr Byrne: I think there should
be an obligation by whoever proposes the casino to consult widely
with the community to head off that sort of thing. They should
be obliged to consult.
Lord Donoughue of Ashton: This is a factual
question. Could each of you tell me what is the value of each
of your companies, in other words, if it is quoted, the market
capitalisation or whatever other way you would submit the value
of your companies if you were borrowing £100 million to do
this development in Barrow-on-Furness, as we all want to do?
Chairman: I can see an application for
an airport coming up.
Q534 Lord Donoughue of Ashton: It would
help me if I knew, as a former stockbroker, what your capitalisation
was.
Mr Nathan: We have a market cap
in excess of five billion US dollars. We have a turnover in excess
of four billion US dollars and, if it helps, we have 43,000 employees
across 14 properties.
Mr Byrne: We are a baby compared
to that.
Q535 Chairman: I do not think we need
to have a beauty parade on this.
Mr Byrne: I cannot stand up to
this big boy next to me. I suppose we were worth about 500 billion
in value terms when we were a RAM(?) quoted business, so you would
have to make some adjustments.
Mr Tottenham: I would say that
our market cap is similar. Revenue is about 4.7 billion.
Q536 Chairman: Similar to which one?
Mr Tottenham: To MGM. Twenty-nine
gaming properties, five countries, 54,000 employees, 20 million
square feet of gaming space and 29,000 hotel rooms.
Mr Prior: Our market cap is somewhere
north of 1.2 billion but our enterprise value is higher than that,
depending how you want to value it.
Q537 Mr Wright: We have heard all sorts
of things being mentioned in terms of the opportunities for job
creation with both resort casinos and the large casinos In your
estimation, working on the basis of probably up to 15 resort casinos,
what would you think in valuation terms is the amount of jobs
that could be created through this Bill under present circumstances?
Mr Byrne: If I were asked to make
a guesstimate I would say probably between 20 and 30 in the UK,
and if you are working of an average of 1,000 employees each—these
are all ball park figures.
Q538 Mr Wright: You would not expect
any more than that?
Mr Nathan: Can I answer that by
saying that in isolation, without planning guidance and taxation,
I cannot give you an exact answer. What I can say is that our
properties typically employ anywhere from 3,000 upwards.
Chairman: I think that is a good point
at which to stop. I know that one or two colleagues, even at this
late stage, have been trying to catch my eye. I will permit them,
if you wish, to have a quiet word with you outside. Can I thank
all five of you, along with our earlier witnesses, for coming
today and for answering our questions so succinctly and with such
clarity. Thank you all very much.
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