Examination of Witnesses (Questions 840
- 859)
TUESDAY 27 JANUARY 2004
MR TIM
BATSTONE,MR
PHIL JARROLD,
MR RAY
STONE, MR
JOHN WIMSETT
AND MR
FRANK FAHRENKOPF
JR
Q840 Chairman: Who are the losers
in the £1 billion?
Mr Stone: Everyone loses a bit,
some more than others. The biggest losers are the bingo industry,
the adult entertainment centres and family entertainment
centres. Pubs lose a bit, National Lottery loses a bit, betting
loses some and so on. Probably the biggest losers are the amusement
machine industry and the bingo industry. Some of that is redefinition
because obviously some bingo will be played in the new casinos,
so a bit of it is redefinition. In pure numbers, those are the
figures.
Q841 Viscount Falkland: Would you
expect specifically the emergence of casinos with unlimited numbers
of gaming machines which had unlimited prizes to impact on the
existing market sector?
Mr Stone: Yes.
Q842 Viscount Falkland: To what extent
would you expect that?
Mr Stone: It is hard to say individually.
The way we are trying to do it is to try and put the existing
casino base and try to look into how many of those would convert
to new casinos and how many would go out of business; how many
of, say, existing bingo clubs might convert to casinos and then
how many new new casinos there would be; and then how many resort
casinos there would be. We have done it on the bottom/up approach.
In terms of the new casinos taking business from existing, it
would really depend on which one of those they were. If they were
a converted bingo club casino type, then one would imagine that
they would try and do it in such a way that they would carry a
lot of the bingo players with them whilst also having a more casino-style
offer. If they were one of the very large new ones, then they
would probably carry some of the bingo offer with them, probably
just Mecca actually but they are focusing much more on the unlimited
slots and takings and so on. Again, I do not have the specific
numbers with me but that is the way our members are built up.
Q843 Lord Mancroft: What sort of
effect is that going to have on pubs?
Mr Stone: Pubs are slightly
different. There are 55,000/60,000 in the country and most of
them have machines. So, all of them will lose a bit. For some,
it will be more important than others. We have put a stake in
the ground saying that in the region of about 1,000 pubs will
close and the rest will all lose a percentage, but really it depends
on where the new casinos are. You can talk about averages but
really the local impact . . . If you are one of these pubs that
is placed within 100 yards of one of the new casinos, then you
will be a lot more impacted by one that is not. Averages, in this
sense, are not as important in actually trying to understand the—
Q844 Lord Mancroft: Would it be affected
by the fact that the casino was acting as a draw so that some
of the people coming in and coming out would go to the pub or
are you always going to take the people away from it? It could
be a major advantage or absolutely catastrophic. It cannot be
both.
Mr Stone: Our top line view is
that most people will be going to an area to go to that new venue
and, if that venue is part of a much bigger venue that has other
offerings, obviously all of those offerings would benefit. If
it is a stand-alone casino with several pubs in the area, then
our feeling is that the net impact on those pubs will be bad.
Q845 Lord Brooke of Sutton Mandeville:
Can you remind us how many pubs there are in the country.
Mr Stone: There are differing
views. There are between 55,000 and 60,000.
Q846 Lord Donoughue of Ashton: This
is in particular to the Casino Machine Manufacturers relating
to overseas investment in the UK. Are unlimited numbers of unlimited
prize gaming machines necessary if overseas casino operators are
to be persuaded to invest in resort-style casinos in the United
Kingdom?
Mr Wimsett: Yes. This is a question
that is probably best put to the operators themselves. Having
said that, however, I would say that I feel their view would be
definitely "yes". Gaming machines are mainstream leisure
product within the casino offering; they do form a very important
part of the mix and I think it would be doubtful that international
operators would inwardly invest if the opportunity to provide
their product to their customers was not available to them.
Q847 Lord Donoughue of Ashton: Would
anyone else like to comment?
Mr Fahrenkopf: I would like to
add to that. My name is Frank Fahrenkopf and I am the President
and CEO of the American Gaming Association which is the Washington
DC trade organisation for the commercial casino industry in the
United States. Most of our members are the large publicly-held
companies in the United States listed on the New York and NASDAQ
exchanges, many of whom have entered into partnerships or working
relationships with companies here in England. Slot machines have
changed the dynamic of gaming in the United States over the last
50 years. When I was a young man growing up in Reno*, Nevada,
which is my home, slot machines were jokingly but quite seriously
in many cases referred to as something—and this is a little
sexist in a way—for the women to do while their husbands
were playing at the tables. That is really how they were originally
put in. Today, they are the driving force of major American casino
companies and it depends very much on the market and business
plan of each company as to what the mix must be. I can tell you,
for example, that, in some of what we call the new jurisdictions
in the United States, otherwise known as the riverboat jurisdictions,
mid west and southern states that, in the early nineties, adopted
casino gaming, slot machine revenue makes up about 85 per cent
of the total gaming revenue in those jurisdictions. Atlantic City
is a little different; it is a mature market. The first casinos
opened there in 1978 and slot machine revenue there makes up about
75 per cent of gaming revenue. Las Vegas and Nevada are totally
different—the industry has been in existence there since
the early thirties—and it makes up about two thirds of the
revenue and, in some Las Vegas major hotel casinos, makes up just
a little over half of total gaming revenue because there are so
many other amenities that are offered in these giant facilities.
So, to answer your question, for American companies at least to
invest, clearly the mix or limitation on slot machines is going
to be an important determinant of whether or not they come. Secondly
will be the tax structure and the third, I think, will be the
regulatory control.
Q848 Lord Donoughue of Ashton: That
is extremely helpful. Could I just, as a follow up, ask how many
of the machines might lead typically into national-style casino
kind of—
Mr Fahrenkopf: Atlantic City,
New Jersey—somewhere between 1,700 to 4,800 machines at
a casino, depending on the size of the casino. In Las Vegas, it
runs anywhere from 1,500 to probably 3,300 machines per casino.
My guess is that the average would be about 2,000 machines in
a casino in Las Vegas.
Q849 Lord Mancroft: What size would
that casino be in square feet?
Mr Wimsett: One hundred thousand
square feet.
Q850 Chairman: One hundred thousand
square feet of gaming space?
Mr Wimsett: Yes.
Q851 Chairman: One hundred thousand
for 2,000/3,000 machines?
Mr Wimsett: Yes.
Q852 Chairman: What is the mix of
machines? Are we right to think that all the machines would not
be unlimited and that there would be a mix of other machines as
well?
Mr Wimsett: They are all machines
that you would define as Category A gaming machines. The top prize
within these machines can be as low as a few hundred dollars and
as high as millions if they are on what we would call wide area
progressive. To put that in context however, only 3.5 per cent
of the machines across the United States are connected to the
wide area progressive systems that offer the enormous prizes that
you often read about. In context, the average top prize in these
machines can be in the low thousands.
Q853 Jeff Ennis: What size would
you envisage the casino-style development in this country toe
in terms of floor space?
Mr Wimsett: I think you have set
the barrier at 5,000 square feet of table space for the small
casinos. I would envisage that you would see, subject to some
of the guidelines that we still await, resort casinos that might
be 2,000-plus machines and perhaps some analysts think that there
might only be, say, ten of those across the entire country.
Q854 Jeff Ennis: So, what sort of
floor space would be in that?
Mr Wimsett: They would be 100,000
square feet of gaming space plus.
Q855 Chairman: You seem to be implying
that 10,000 square feet, which is the figure the Government have
settled on as a large casino for unlimited machines, is far too
low.
Mr Wimsett: That is table gaming
space. That would provide 40 tables. I think that the large casinos
will be considerably larger than that.
Q856 Lord Brooke of Sutton Mandeville:
In oral evidence to this Committee, Professor Vaughan Williams
referred to evidence from the United States suggesting that, "the
expansion of slot machines was associated with a reduction in
the lottery revenues, the biggest displacement of bets being from
big-prize games." Do you agree with that?
Mr Fahrenkopf: I do not but what
you have to understand about the United States is that there is
no National Lottery. Each state gets to determine what type of
gambling is going to exist within the boundaries of their state
and how they are going to regulate it and how they are going to
tax it. As of today, 41 of the 50 states have state lotteries;
they are all different; they are regulated individually by each
state. The evidence that we have seen is that the introduction
of casino gaming into a state that has an existing lottery does
not, across the board, reduce lottery revenue. What it may do
is reduce some games that are on the lottery. If it is felt that
the casino has games that are competitive, what we have seen across
the board is that it may, in some way, suddenly decrease the gain
in increase in lottery revenues and there have been a number of
studies. You should examine the Massachusetts study that was done
about a year or so ago. By the way, I will happy to provide the
Committee with that when I get back to Washington; I will send
it to you.
Q857 Chairman: We would be very grateful
if you would.
Mr Fahrenkopf: What happens is
that, because the nature of the system, when casino gaming comes
into a jurisdiction, it depends on what kind of a lottery they
have and how effective and how competitive they are in coming
up with new games to be able to compete with the competition but,
across the board, I think you will find that every state where
casino gaming has been introduced where there has been an existing
lottery, the combined taxes going to government has increased
dramatically.
Q858 Lord Brooke of Sutton Mandeville:
I will not ask you why you think Professor Vaughan Williams
came to his conclusion which you think is incorrect but do you
think that, if there were a National Lottery, as we have here,
it would have an impact which it does not have in the United States?
Mr Fahrenkopf: That is a very
good question. I always try to answer a question like that following
the wisdom of a great British diplomat and politician, Sir Winston,
who said that there are three rules: never try to climb a wall
that is leaning towards you, never try to kiss a woman who is
leaning away from you and never try to answer a question when
you feel that the person asking it knows more about the subject
than you do! So, I do not know, but that is a distinction. Clearly,
that is the distinction from the United States.
Q859 Lord Brooke of Sutton Mandeville:
Mr Fahrenkopf, you overestimate me! Do you think that it is
an issue which the Government ought to take into account?
Mr Fahrenkopf: I think you should.
I saw the testimonial and I was quite shocked by it because the
reference was that the experience in the United States was that
lottery revenue went down. I have never seen a study that reflects
that. So, I think a proper question could be asked to that witness
to support his testimony with what is relied on.
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