Examination of Witnesses (Questions 702
- 719)
THURSDAY 22 JANUARY 2004
MR ANDREW
TOTTENHAM, MR
RICHARD FLINT,
MR BILL
HAYGARTH, MR
JOHN O'REILLY,
MR PAUL
JAMES AND
MR CLIVE
HAWKSWOOD
Q702 Chairman: Good morning, everyone.
Today we move on to take evidence in respect to issues related
to interactive gambling and betting exchanges. Can I begin by
welcoming our first group of witnesses, Andrew Tottenham, who
appeared before the Committee this time last week representing
Caesar's Entertainment and is now appearing as the Chairman of
iGGBA. We are very glad to see that you survived; this will be
an encouragement to others that it is not that difficult a process!
Richard Flint is with you from iGGBA. Bill Haygarth and John O'Reilly
are from the Association of British Bookmakers and Paul James
is from the Mobile Broadband Group. You are all very welcome.
Can I ask you, please, to note that Clive Hawkswood from the Bill
Team is present at the meeting on a speak-if-spoken-to basis if
we get into any technical difficulties over Clauses, and that
a transcript of the meeting will be produced and placed on the
internet within about a week. Can I ask you also to note that
a full declaration of interests was made at the beginning of the
first meeting, and that information for the public and a note
of members' interests is available. I think that only one of our
members has a Betfair account and, sadly, he is not with us today.
Can I also remind witnesses and the members of the Committee to
speak up as these rooms do not have particularly good acoustics
and also, given that there are five of you now and there will
be four or five more witnesses in the second session who are already
present, that you are not all obliged to answer every question,
but do catch my eye or butt in if you can add something to the
answer that has already been given. Gentlemen, could I perhaps
begin by asking a general question to you which we put to all
the other witnesses involved in providing gambling products: do
the existing Clauses of the draft Bill and the Government's policy
statement give you a clear enough picture of the proposed regime
for the regulation of remote gambling and, if not, what key information
are you lacking?
Mr Tottenham: I would just like
to say that the wounds from last week are healing! On the Government's
policy statements and the Clauses for the draft Bill, first of
all, iGGBA's position is that it welcomes the draft Bill and does
not find very much wrong with what is there. What we would like
to see is a little bit more clarity and for the remaining Clauses
to be published as soon as possible. Advertising is one area which
obviously we do not know very much about which is fairly critical
to the remote industry and also inducements and inducements to
play, what will be allowed and what will not be allowed. Tax is
very important, I think critical. We need some clarity around
the definitions, what is gaming, what is betting, and what licences
might be required and, finally, in terms of technology providers
and service providers, at what level will licences be required.
For example, would BSkyB who are a platform provider and not necessarily
an operator require a licence if they control access? There needs
to be more clarity.
Mr Haygarth: I would like to start
by thanking the Committee for the opportunity for ABB to respond
to its questions on remote gambling. ABB is well qualified to
comment in the area as it counts all the major betting operators
in its membership and has a significant number of members that
operate remote betting and casino gaming services. As far as the
first question is concerned, the picture is far from clear particularly
as around a third of the Bill has yet to be published. With regard
to the main issues, the Committee heard evidence from us on Tuesday
that the uncertainty surrounding definitions between betting and
gaming does need to be clarified. We are also concerned that telephone
and on-line betting operators will be burdened with a costly and
onerous regulation regime designed with casino gaming in mind.
Lastly, there is a concern that the considerable delegated powers
to the Gambling Commission, together with the lack of detail on
regulation and taxation, make it impossible at the present time
to assess the impact that the Bill will have on operators.
Chairman: Thank you. We have noted that.
We understand your point that some Clauses still have to be published:
some more will be published in a couple of weeks' time and we
will pursue those points.
Q703 Lord Brooke of Sutton Mandeville:
I have a series of questions about the economic contribution
of the industry. What impact in terms of inward investment and
employment would you expect the remote gambling licence to have?
Mr Tottenham: It is very difficult
to assess because it very much depends on the burden of regulation
and the tax regime. If the Government gets that right it could
mean 3,000 jobs plus. If it gets it wrong, then it would mean
that no companies, or very few, would relocate here. In terms
of potential taxes, there are two forms of tax; obviously the
gaming tax and corporate income tax, and corporate income tax
and gaming tax together could be £30 million plus, £40
or £50 million or of that order. It again depends very much
on how many companies are enticed to come here.
Mr Haygarth: In considering this
question it is important to distinguish between betting and gaming.
The licensing regime currently for betting has been in place for
over forty years, and the current gross profits tax was introduced
in October 2001. Since the introduction of the GPT regime there
have been a number of betting operators who have set themselves
up in the United Kingdom, but as there are no new incentives in
the proposed Bill to encourage remote betting operators to set
up in the United Kingdom we would not expect for there to be a
rush of applications when the Bill comes into force. Remote casino
gamings are a different matter altogether because clearly that
is a new activity for the United Kingdom, and I agree with Andrew
in the sense that until really the regulatory and taxation regime
is known it is very difficult, if not impossible, to assess the
level of investment there might be.
Mr James: We are coming at it
from a different angle. We are a network provider of the mobile
services.
Q704 Baroness Golding: You do not
seem very optimistic about people relocating to this country as
a result of this Bill. Could you enlarge on the combination of
regulation and taxation which you think would be sufficient to
tempt them here?
Mr Haygarth: Appropriate regulation
needs to be put into place and that would cover safeguards for
the consumer, protection for children and the vulnerable and,
of course, game fairness in respect of remote casino gaming. ABB
has produced a draft code of conduct and a social responsibility
code which set out a regime within which ABB members would be
content to operate. It was included as an annexe to our written
submission to the Committee. As far as licensing and taxation
are concerned, which are the other two key areas, these need to
be set at competitive levels.
Mr Tottenham: I would tend to
agree on the betting side as to why a remote betting company would
want to relocate here if they have not done so already, but on
the gaming side I do think there are companies that will relocate
here and we are quite optimistic that, if the level of regulation
and taxation is right, companies would come to the United Kingdom.
The question is in terms of what economic benefits there might
be. The benefits for jobs might not necessarily be that high because,
as we are seeing in other industries, the labour intensive components
of those businesses tend to be offshore such as call centres and
so on, but the jobs that would relocate here are the high tech,
skilled jobs. So why would people come here? I think you would
have to look at the example of the Isle of Man. The Isle of Man
did pass legislation and issued six licences of which five became
operational, so they were successful and though they only wanted
six licences they had many more applications. They were successful
in attracting some of the largest brands to the Isle of Man so
in that sense it was a success, so I think if the United Kingdom
was to do it they would see similar success.
Q705 Lord Wade of Chorlton: Given
that remote gambling businesses are highly mobile and are already
using this to argue for lower taxes and licence fees, will remote
gambling really be a good source of revenue for the United Kingdom?
Mr Tottenham: I believe so, yes.
What we are talking about is an industry which exists already,
and there are different studies as to the size of it. It could
be a four billion dollar industry or a six billion dollar industry
today, and the majority of that sits offshore because it is not
allowed to be in the United Kingdom and to site the services in
the United Kingdom. There is a sub-set of those operators who
want to be regulated who would come to the United Kingdom if there
was a regulatory regime here so taxes and licence fees have to
be competitive, but there are additional benefits to the economy
in terms corporate income tax, income taxes, jobs and so on. You
would find people relocating to the United Kingdom because they
wanted to be here, but not everybody will want to be here.
Mr O'Reilly: We would be slightly
less optimistic than that. We would probably say the answer is
no, or at least in the short term. The only way to attract operators
to the United Kingdom would be with the appropriate regulation
which means the right balance between protection for the consumer
and the commercial requirements of the operating company. However,
if there is an appropriate regulatory and tax environment in the
United Kingdom, we think the United Kingdom can become a global
hub for well regulated on-line betting and gaming operators, and
we think that is particularly important for the consumer who needs
to have access to an appropriately regulated provision of service
here within the United Kingdom from the United Kingdom licensed
operators, otherwise what will happen over time is more and more
consumers' money will continue to move offshore, and at the end
of the day this is a growing market. So I think we should want
that money to stay within the United Kingdom but the tax environment
and the very important regulatory environment needs to be right
to encourage operators into the United Kingdom.
Q706 Lord Wade of Chorlton: Where
are the main remote gambling operators on a worldwide basis now
and, of those that will come here, where are they likely to come
from?
Mr O'Reilly: There is a whole
bunch of operators in the Caribbean largely targeting the US market
which remains the biggest global remote betting and gaming market
in the world. But then there is a number of United Kingdom operators,
United Kingdom companies, that are currently licensing gaming
operations in other parts of the world because they cannot license
here in the United Kingdom. They are the brand names that the
United Kingdom consumer knows, understands and trusts, and more
of that money would be in the United Kingdom if there was an appropriate
regulation and tax environment here.
Q707 Lord Faulkner of Worcester: It
is the case that United States' citizens are prevented by their
own Federal law from taking part in offshore gambling, is it not?
Mr O'Reilly: It is indeed, but
that does not stop operators in the Caribbean from taking enormous
sums of money from an American operator or, indeed, most bars
in America having a bookmaker, albeit an illegal one.
Q708 Lord Faulkner of Worcester: If
your members are intending to be offering remote gambling, are
you proposing to respect the laws of the country where those gamblers
are located?
Mr O'Reilly: I think that is a
decision for each individual operating company and each individual
operating company would tend to have a different view. It would
depend upon the risk profile that that company wanted to adopt,
and the breadth of that company's interests.
Q709 Lord Faulkner of Worcester: Is
it not the job of a responsible trade association to set standards
and demand compliance? We have had evidence, for example, from
the embassies of Scandinavian countries anxious to avoid their
citizens taking part.
Mr O'Reilly: That is difficult
to answer. From our perspective the transaction takes place in
the United Kingdom. Taking the example of Sweden, gambling is
promoted very widely in Sweden by the state operator, so it is
not a social issue in Sweden.
Q710 Lord Faulkner of Worcester: It
is a domestic issue.
Mr O'Reilly: Yes. Sweden wants
to protect its own revenues but, as a result, the Swedish consumer
gets a pretty poor service from the state monopoly, and under
the EU we would take the view that there should be freedom of
services across the borders and there is no reason why the Swedish
consumer should not choose to go on-line and bet with a company
operating wherever they choose.
Q711 Lord Faulkner of Worcester: There
is an opinion that gambling is not something that is covered by
the single market. Is what you are saying to the Committee that
your members will only be interested in coming onshore to Britain
to offer on-line gambling if you get treatment in terms of regulation
and taxation that is more favourable than that which the conventional
domestic betting and bookmaking industries are offering?
Mr O'Reilly: I think that it is
sufficiently favourable to enable us to compete in what is a global
market place.
Q712 Lord Faulkner of Worcester: But
what about competing in the domestic market? Do you want favourable
treatment compared with the domestic market?
Mr O'Reilly: Currently as an operator
we do very well operating within the domestic market place and
we think we need regulation and taxation position that enables
us to perform and compete adequately within the United Kingdom
market.
Q713 Lord Faulkner of Worcester: But
more favourably? I am sorry to press you on this but it is important.
Mr O'Reilly: Our competition is
with other remote gambling operators.
Mr Tottenham: Going back to the
point about the US, first of all, the Wire Act applies to betting
and not necessarily to gaming and that is unclear. The legislation
as it is currently drafted proposes that the Secretary of State
has powers to proscribe taking bets from a certain blacklist and
obviously our members would abide by the laws of the United Kingdom.
If you take the EU Sweden's position, there are recent court cases
that say that potentially governments that promote gambling cannot
restrict the cross-border provision of gambling services because
what it seemed to be doing was protecting local monopolies and
protecting taxes and that is against European law. On top of that
the European Commission is very interested in this area and is
currently investigating the remote gambling industry, and if you
look at the most recent e-Services Directive there is a carve-out
for e-remote gambling. However, if no decision is taken by 2010,
then the EU Directive will apply which means that if that activity
is legal in that jurisdiction then it is allowed to be supplied
to all other Member States. The European Commission's view is
that the carve-out will probably not survive because the court
cases that are going through the European courts will tend to
reinforce the position of the most recent one which is the Gambelli
case, so it uses a protectionist measure rather than a social
one.
Q714 Chairman: To what extent do
you think punters round the world would feel reassured by the
fact that whatever interactive gaming or gambling or betting product
they were accessing was regulated here in the United Kingdom?
Is there real value, in your judgment, to that?
Mr Tottenham: I think the value
is on the other side. The consumer does not really care too much
because currently they will gamble with services sited in Antigua,
Panama, Curacao as well as Gibraltar, Alderney and Isle of Man.
It is only when they have a problem, for example they do not get
paid, that they tend to worry about where potentially something
is. The other side of the coin is that it is where the operators
want to be and what protection regulation affords them, and if
the regulation is reasonable and is proportionate to the risk
then I think you will find it is the companies that want to come
here and not necessarily the consumers who say they want a United
Kingdom site.
Q715 Chairman: But it is for the
reason I have given, is it?
Mr Tottenham: No. It is about
protection of brand, I think.
Mr Flint: That is certainly true.
As well as being a council member of iGGBA I am here representing
BSkyB, and certainly the benefits for us in coming back to the
United Kingdom are about perception in the city, probity, making
sure we are well regulated and that we have one regulator to deal
with rather than several, about locating some of our operations
here without having to travel back and forth from Alderney. Those
are the reasons why I want to be here in the UK rather than because
we think customers will be reassured by us being here.
Chairman: It is amazing how often in
these deliberations an answer has led immediately to the next
question, and Lord Mancroft wants to ask specifically about probity.
Q716 Lord Mancroft: The iGGBA have
called for the regulation to focus on the probity of the operator
rather than on the underlying technology or the services provided.
Can the Gambling Commission successfully regulate remote gambling
without scrutinising the products provided and the technology
which underlies them?
Mr Tottenham: I think perhaps
there is a misunderstanding. We do not see it as an either/or.
When you look at some of the software, and it is extremely complex
because you are talking a million, a million and a half lines
of code, for somebody to go through each line of code and try
to determine what is going on is unrealistic. It is also hugely
expensive and time-consuming and that software needs to be updated
regularly, so for a regulator to look through lines of code and
try and determine what impact those lines might have is not a
sensible approach. What we feel is that if somebody has an economic
interest in the outcome of the gaming they should be regulated
by the Gambling Commission, so if it is a software provider the
software should be tested to an appropriate degree, certain parts
of that software, certain key modules, the outcomes should be
tested, but it is the probity of the software provider. If I am
a licensed operator my software provider has access to my server—it
has to have to keep it updated and to put patches on it to make
sure it is robust and protected from hacking, etc—and if
the software provider is not regulated yet they have an economic
interest in the outcome of the gaming, potentially they could
change some of that software without the operator knowing and
with no risk to them, whereas the operator would lose their licence.
As you see in many jurisdictions the analogy is slot machine manufacturers,
who are licensed and software tested to a degree.
Q717 Lord Mancroft: Following that
up, you are talking about a colossally expensive form of regulation.
Mr Tottenham: I think we are arguing
the opposite.
Q718 Lord Mancroft: Well, what you
were just describing sounds it, and certainly the current Gaming
Board could not do that, could they? You are talking about an
enormous increase in the cost of regulation to go down that route.
Mr Tottenham: No. The testing
is on certain modules of software and that could be done by an
approved independent software house, as happens in other jurisdictions.
As in Alderney, for example, changes are graded into those which
can be changed instantly, those that need the prior approval of
the Gambling Commission, and those that require a test of the
software. We are really talking about a probity test on the software
provider. There are not that many software providers and we are
talking about those that can influence the outcome of the gambling,
so not necessarily betting software. We can see that a horse won
the 3.20 at Doncaster because you can look in the newspaper and
see that, but whether or not I should get a Jack of Clubs or a
Six of Spades you cannot see unless you look at the code or the
random number generator.
Q719 Chairman: So it is not dissimilar
to machines in that sense?
Mr Tottenham: Exactly. That is
what we are looking at.
Mr O'Reilly: We believe that the
probity of the operator is of foremost importance and that is
the standpoint from which we begin. That said, inevitably we think
there is a need for, and a logic in, some form of sensible product
and technology or systems testing. The issue for us is how that
testing takes place. Source code testing in our view, which is
where the code is tested, is competitively restricting; it raises
significant issues of security for the operator; it is time-consuming,
it delays innovation and therefore, in our view, it does not serve
the customer well. Our responsibility as operator is to ensure
that the games for the customer are fair and therefore we should,
and indeed are, testing through third parties the output of all
of our games consistently over time. Our games are constantly
being tested to ensure their fairness. The role of the Commission
in our view, however, is to ensure that the testing we do ensures
the games are fair.
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