Memorandum from Castle Leisure Limited
and Carlton Clubs Plc (DGB 19)
INTRODUCTION AND
BACKGROUND
1. Castle Leisure operate seven purpose-built
bingo clubs in South Wales with over 40,000 weekly member visits
from a membership base in excess of 250,000 people. Castle Leisure
is the Regional market leader in South Wales in terms of turnover
and admissions, and employs 550 people.
Carlton Clubs operate 18 traditional bingo clubs
in Scotland and the North of England, with nearly 40,000 weekly
member visits from a membership base of 250,000 people. Carlton
is the leading independent bingo operator in Scotland and employs
500 people.
2. Both Companies support moves to modernise
gambling legislation.
3. There are aspects of the Government's
proposals, which, we believe, go too far and, if implemented will
both adversely impact the competitiveness of the bingo industry
and adversely impact competition within the bingo industry. We
believe these changes will lead to a significant increase in the
incidence of problem gambling.
4. Our concerns centre on:
— Regulatory Impact Assessment for
bingo;
5. REGULATORY
IMPACT ASSESSMENT
We believe that both the Small Firms' Impact
Test and the Competition Assessment, within the RIA, have been
completed without sufficient rigour leading to flawed and erroneous
conclusions.
5.1 It is disappointing that the Bingo Association's
stated policy objection to bingo being offered in casinos was
not detailed in the Small Firms Impact Test.
5.2 The Competition Assessment states "the
two largest operators account for forty two per cent of the market".
This fundamentally understates the scale of bingo market concentration.
We note that the Guidelines for competition assessment, para.
5.26 states that policy makers should "calculate the total
size of the market, generally in £s but sometimes in terms
of units sold".
The report, para. 3.2 states the volume or admissions
of the bingo market in 2002-03 was 83 million. Gala's published
admissions for year ending September 2002 were 32.2 million, representing
a thirty nine per cent bingo market share. Mecca's calendar 2002
published admissions were 22.7 million representing a twenty seven
per cent bingo market share.
The two largest operators account therefore
for sixty six per cent of the market, which is characterised therefore
as highly concentrated. A clear duopoly exists with both operators
enjoying significantly higher operating margins than the rest
of the bingo industry due to their dominant position and market
power. To report this sixty six per cent share as forty two per
cent is a serious error of interpretation and demonstrates a fundamental
lack of understanding of the affected market.
We note that the OFT guideline para. 3.15 states
"Market share is an indicator of the existing level of competition
in a market and of the risk that regulation could lead to detrimental
effects on competition."
5.3 Para. 4.39 of The Policy states "casinos
will be able to operate bingo roll-overs" in relation to
link and multiple bingo. Link games and the National Bingo Game
are fundamental to the attractive product offer currently available
to small and regional bingo operators. The Small Firms Impact
Test and the Competition Assessment made no reference or assessment
on the adverse impact that this proposal will mean for smaller
bingo operators. We note that para. 2.44 of the RIA Guide states
that "adverse impacts on competition should be noted in the
competition section".
5.4 This proposal affords a direct commercial
incentive for the two largest bingo operators to withdraw from
the National Bingo Game and to gain commercial advantage by playing
solus corporate link games. The 30 or so casino sites each operated
by both Gala Casinos and Grosvenor Casinos will add critical mass
to the bingo corporate link games of Gala and Mecca respectively.
Remaining independent operators will, as a result,
be reduced to playing for dramatically lower link or multiple
game prizes than they currently participate in, adversely impacting
their bingo players.
This proposal will strengthen an existing duopoly
and adversely impact all other bingo operators and consumer choice.
5.5 Paragraph 3.41 of the R.I.A. states
"In summary, it appears likely that the bingo proposals (including
bingo in casinos) . . .will not erode the competitiveness of the
bingo sector as a whole." This conclusion we believe demonstrates
a lack of understanding on the current and resultant nature of
competition in the affected market. We believe it to be misleading
to all who must consider the report. The Pion report assesses
that £225 million of existing bingo revenues will be cannibalised
to casinos. All serious commentators acknowledge there will be
a serious erosion of competitiveness of the bingo sector within
the wider gaming market.
5.6 Para. 3.39 of the RIA states that "removal
of the demand test would reduce barriers to entry". Bingo
operators will also have more flexibility to permit unlimited
stakes and prizes, multiple bingo games and roll-overs. The proposals
to allow casinos to offer bingo coupled with the above will achieve
the exact opposite. Only the existing duopolists will be able
to benefit from these elements of deregulation. They will benefit
from significantly enlarged outlet numbers provided by their existing
casino estates. The effect will be to increase the link prizes
offered by the two strongest operators and reduce dramatically
the link prizes offered by all other operators. The existing scale
operating margin advantage currently enjoyed by the two duopolists
will further strengthen and will allow marketing and advertising
spend scale advantage to further and rapidly concentrate the market
from the current sixty six per cent enjoyed by Gala and Mecca.
No significant new market entrants will emerge in a market with
two operators enjoying such market power.
5.7 We believe that the Government has failed
to follow its own guidelines in preparing the RIA on bingo. This
we consider a serious error and means that the full and real competition
impact has not been properly evaluated. The competition filter
test as completed in Annex A, P53 of the RIA for casinos, would
result in at least six "yes" answers when completed
for bingo. This indicates that there is potential for significant
competition impacts. The Guide to RIA states that therefore "a
detailed analysis of the competition effects for the (bingo) market
together with a detailed assessment in the RIA" should have
been progressed.
We note that Q3 of the competition filter as
completed for casinos does not follow the Guidelines for competition
assessment issued by the OFT which states "in the market(s)
affected by the new regulation, do the largest three firms together
have at least fifty per cent market share?" The competition
filter question three in the RIA substitutes "does any firm"
instead of "three firms together." If this question
was asked in line with OFT guidelines the answer would be "yes"
and not the "no" reported. It would also be "yes"
for bingo.
5.8 We believe the simple competition assessment
undertaken demonstrates a fundamental lack of understanding of
the bingo market. We believe that similar to casinos, the full
impact of the Government's proposals on licensed bingo cannot
be properly evaluated and considered without the information which
needs to be provided by a detailed analysis of the competition
effects together with a detailed assessment in the RIA.
5.9 The guidelines for competition assessment
indicate that wider markets should be considered where products
clearly compete. The "Pion" Gambling Deregulation Impact
Study states that "We have . . . assumed that ten per cent
of spend by new customers in post deregulation casinos is attracted
from bingo". This displacement and cannibalisation of spend
from bingo to casinos will have a scale adverse impact on the
bingo market and lead to substantive decline. The RIA we believe
needs to address the wider issues of gambling sector cannibalisation
of spends from bingo and other soft gaming to the hard gaming
casino sector.
BINGO IN
CASINOS
6. The 1968 Gaming Act intended to separate
hard and soft gaming and not to facilitate the interaction of
the two in single premises. The Government has offered no rationale
for changing this cardinal tenet of gaming policy. Bingo customers,
who are overwhelmingly from socio-economic groups C2, D and E
will, in many cases, be exposed to hard gaming by default as their
bingo clubs change to casinos with bingo.
This is evidenced by Mecca having announced
that they are developing hybrid casino and bingo centres that
will initially operate separately on each side of a dividing wall,
which will be removed when regulation allows. This confirms that
bingo players will be presented directly with hard gaming activities
when their visit intention was to play bingo.
The Cabinet Office guide to RIA states at 2.24
under Equity and Fairness ". . .ensure your chosen option
does not inadvertently create new groups of vulnerable people."
We believe it an omission that this probability is not referred
to under Equity and Fairness in the recommended option 3.
7. The removal of bingo from casinos would
have no impact on the overall attractiveness of the casino offer.
If progressed, we believe that bingo will be used by casinos to
encourage C2, D and E bingo customers to trial casinos to upscale
them to harder gaming options.
8. The Henley Centre has assessed that the
inclusion of bingo in casinos is likely to directly result in
the closure of bingo clubs and the social amenities they provide
with further bingo clubs converting to casinos, representing a
step decrease in the size of the bingo industry. The Pion Report
supports such estimates and assesses that £225 million of
existing bingo revenues will be cannibalised to casinos. The BISL
report "A Winning Hand" also concludes that the growth
of casinos may be at the expense of other sectors such as bingo
and the National Lottery.
9. Allowing bingo in casinos will lead to
an adverse change in the competitive process within the bingo
market. Competition within the Bingo Industry will resultingly
reduce as market concentration becomes even more dominant than
the existing sixty six per cent share of the two largest operators,
further increasing their market power. We note that the OFT guideline
para. 3.12 states "when a regulation impacts on a market
where one or two firms dominate there will be greater risk of
detrimental effect on competition".
The dichotomy for our companies, is that whilst
our Boards and our customers would wish us to remain wholly in
soft gaming, if bingo is allowed in casinos, we believe the process
of structural change will be so substantive and detrimental to
bingo, that we will be compelled to follow the market into hard
gaming.
10. The existing core bingo attraction of
independent operators, the National Bingo Game, is likely to be
dramatically diminuted by the implementation of bingo in casinos
as detailed in 5.4 above. The regulation will therefore have restricted
the dimensions on which smaller and regional operators are able
to compete.
11. We believe that the proposal to allow
bingo in casinos will quickly lead to not greater but less choice.
It will initiate a spiral of smaller club closures, enhanced concentration,
and remove the element of choice from a large number of existing
bingo players who would either be forced to play bingo in a casino
or stop playing.
PLAYER PROTECTION
12. We believe that bingo players used to
playing in a soft gaming environment of modern bingo clubs will
be adversely affected by the hard gaming environment of casinos.
By progressing this proposal the government, we believe, will
inadvertently be creating new groups of vulnerable people. Research
detailed in 13 below supports this view.
13. Beaufort Market Research undertook research
in September 2002 into the attitudes of bingo players across South
Wales. They found bingo players do not want to play in a casino.
Seventy one per cent of respondents stated they wanted to make
a positive decision to go to a casino rather than because it was
a place that offered bingo.
Sixty three per cent agreed strongly that "my
choice of where to go would be restricted if this bingo club changed
to a casino and bingo club." Fifty four per cent said they
would not continue to play bingo in a casino.
Seventy five per cent of respondents felt that
if bingo was played in casinos it would result in more problem
gambling, of which fifty four per cent said it would result in
much more problem gambling.
The Research concluded that "It is apparent
that a number of substantive public interest issues arise from
the research."
It is evident from the conclusions that bingo
players themselves do not feel that bingo's inclusions in casinos
either widens or improves consumer choice.
14. The Pion Impact Study suggests that
up to £800 million of the growth in casino gross gaming yield
will come from overseas visitors. The BISL report is more conservative.
We believe that casino operators will commit capital expenditure
on the higher forecasts. If the volumes do not materialise, casino
operators will seek to increase individual visit spends per head
to meet financial targets. This will increase the danger of consumers
spending beyond their means, or developing a problem with gambling,
particularly where they are new to hard gambling products.
The Pion report concluded "we would expect
a large proportion of the new spending in (casinos) to be financed
by reductions in spending on other forms of gambling and reductions
in expenditure on both other leisure and non-leisure goods and
services. This switching of expenditure reflects a positive benefit;
it occurs as consumers enhance their economic welfare by purchasing
products and services that serve their needs better than those
displaced." The effect of this conclusion is that the Government's
deregulation will encourage consumers to use their savings and
switch existing spend patterns to gamble in hard gaming products.
This does not sit well with the Government's recent statement
that raising revenue was one of its objectives in reforming gambling
legislation.
15. We believe the Government is planning
to deregulate too extensively, too quickly, without proper evaluation
and assessment of the consequential effects both in terms of cannibalisation
of soft gaming spend to casinos and in terms of resultant adverse
problem gambling consequences. The November 2003 Nera, National
Economic Research Associates, report has concluded that the Government's
proposals will create one million problem gamblers in the UK.
This represents a fourfold increase from the existing levels.
There is a clear danger with gambling deregulation that the sensible
balance necessary in social policy will become subsidiary to revenue
generation from casinos.
16. The dramatic increase in both the numbers
and scale of casinos anticipated, we believe, should be targeted
at potential customers who are aware of the risks of a hard gaming
product offer.
Casino operators will of course target existing
C2, D, E bingo customers by cross marketing to their extensive
bingo member databases.
We believe it to be quite wrong to facilitate
this process by allowing, for the first time, bingo in casinos.
CONCLUSION
Castle Leisure and Carlton Clubs continue to
support the broad objectives of updating gaming legislation. We
believe that aspects of the proposed regulations will have a significant
detrimental effect on competition within the bingo industry and
on the competitiveness of the bingo industry as a whole.
We believe that similar to casinos, a detailed
assessment of the competition effects for the licensed bingo market
together with a detailed assessment of the government's proposals
including in relation to allowing bingo in casinos, should be
progressed.
We believe that by progressing the proposal
to allow bingo to be played in casinos the Government will inadvertently
be creating new groups of vulnerable people.
Castle Leisure and Carlton Clubs welcome the
opportunity to offer our views to the committee directly.
December 2003
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