Memorandum from the Office of Fair Trading
(DGB 146)
I am writing to express concern about the proposal
in the Draft Gambling Bill to impose the restriction that, in
future, all new casinos will need to have a minimum table gaming
area of 5,000 square feet[16]As
you may know, the OFT is responsible for assisting departments
with the preparation of the detailed competition assessments which
form part of the Regulatory Impact Assessments for proposed new
legislation. OFT officials have therefore been advising DCMS on
the implications of their proposals for competition. I understand
that DCMS have sent the committee a copy of the detailed competition
assessment but I am writing to draw your attention to the concerns
we have raised.
A completely free market for casinos could have
negative impacts on the welfare of society— for example
problem gambling. I understand that DCMS have concerns over these
impacts and recognise that some regulation is necessary to control
these— hence the other measures contained within the Draft
Gambling Bill. We believe, however, that the proposal for a minimum
size of 5,000 square feet will be a significant barrier to entry
for new casinos, and goes beyond what is necessary to achieve
the policy aims behind the Draft Gambling Bill.
BENEFITS FROM
NOT SETTING
A MINIMUM
SIZE
The proposed minimum table gaming area of 5,000
square feet will be a significant market entry barrier for new
casinos. I understand that 118 (94%) of the 126 casinos operating
in the UK at 31 March 2003 are smaller than 5,000 square feet.
I also understand that, of eight casinos opened since 1 January
2002, only three have had a gaming floor larger than 5,000 square
feet. This suggests that if the current regulations were relaxed
as proposed, but without the minimum size restriction, entry below
5,000 square feet would be likely to take place.
In contrast, not setting a minimum size is likely
to encourage new entry and intensify competition between casinos.
The Government has stated that "strong competition in
our domestic markets makes for strong business. It provides a
spur for firms to innovate, increase productivity and provide
a real choice for consumers. It equips them to compete in the
global market place."[17]
The OFT strongly agrees.
The existing ownership structure of casinos
is relatively concentrated.[18]
As a result, encouraging competition is particularly important
in this sector. While the proposals within the Draft Gambling
Bill will allow larger casinos (ie 5,000 square feet or more)
to be established, the OFT is concerned that there may be many
areas where such an establishment is not viable, for example due
to lower levels of demand or where planning permission may be
refused. In such areas, no new casino development will be allowed
as the minimum size threshold creates an absolute barrier to entry.
It seems likely that incumbent casino operators will support restrictions
(such as a minimum size) that keep competitors from entering the
market, even though consumers ultimately suffer.[19]
I understand that existing casinos will be allowed to continue
to operate, and thus take advantage of the deregulatory aspects
of the proposals, but with the minimum size limit preventing any
new competitive entry below 5,000 square feet.
Is increasing the minimum size restriction from
2,000 to 5,000 square feet necessary to achieve policy aims?
The Gambling Review Body recommended a minimum
size of 2,000 square feet. There are three main reasons why DCMS
believes that this limit should be increased to 5,000 square feet.
These are set out in the detailed competition assessment. Briefly,
DCMS is concerned that:
— without a limit, the Gambling Commission
could be overwhelmed in its role as regulator;
— many small casinos will be established
based around the provision of machine gambling;
— significantly increased availability
of casinos and increased competition for customers may increase
the incidence of problem gambling.
The OFT considers that it may be possible to
regulate the industry using other measures in the Draft Gambling
Bill rather than a minimum size limit. If, however, a minimum
size limit is necessary, the OFT considers that increasing the
limit from 2,000 to 5,000 square feet goes beyond what is necessary
to achieve the policy aims. Our reasons for this are set out below.
Firstly, DCMS is concerned about the proliferation
of small casinos, which might harm the ability of the Gambling
Commission to effectively regulate the sector. Those applying
for or renewing Gambling Commission licences would, however, be
charged a non-refundable licence application fee which would cover
the cost of administration, enforcement, investigation and prosecution
for the casino sector ie the Gambling Commission should be able
to recover its regulatory costs. Thus, an increased number of
casinos will increase the resources available to the Gambling
Commission. This should ensure that it is able to regulate effectively
those additional casinos without the need for imposing a minimum
size restriction. Thus, if the licence application fee is set
at an appropriate level, new casinos will not "free-ride"
on public resources.
Secondly, the Draft Gambling Bill includes the
proposal that casinos up to 10,000 square feet, or those with
less than 40 gaming tables, will be able to have a maximum of
three jackpot electronic gambling machines per gaming table.[20]
This restriction will prevent casinos from being established which
are based around the provision of machine gambling.
Thirdly, the Gambling Commission will continue
to regulate the industry (eg licensing premises, licensing staff,
and setting rules for the games). In particular, the Gambling
Commission will be able to investigate any parties investing in
casinos to establish if there are any connections to criminal
activities. Casinos also contribute to the Gambling Trust, which
will help tackle problem gambling.
To summarise, the proposals for casinos contained
within the Draft Gambling Bill present an opportunity to increase
innovation and consumer choice. By imposing a 5,000 square feet
limit some of the potential benefits will be lost. By not setting
a minimum table gaming area for new casinos, DCMS has an opportunity
to promote competition and benefit consumers. Other measures contained
within the Draft Gambling Bill should ensure that the Gambling
Commission's ability to regulate the sector is not compromised
and that consumers are protected.
Copies of this letter have been sent to Chris
Bone (DCMS), Michael Bach (ODPM), David King (DTI), and Helen
Fleming (HMT).
16 Set out at: www.culture.gov.uk/global/Press_notices/archive_2003/dcms92_2003.htm Back
17
Opportunity for all in a world of change, DTI and DfEE, paragraph
5.16. Available at www.dti.gov.uk/opportunityforall/pages/contents.html Back
18
The Annual Report for the Gaming Board for Great Britain 2002-03
indicates that of 135 licenced casinos as at 31 March 2003
Stanley Leisure owned 41 (30.4%), Rank Group 34 (25.2%), and Gala
Group 29 (21.5%). Back
19
Indeed the British casino Association appears to have told the
Gambling Review Body that it supported the continuation of some
form of demand criteria. Gambling Review Report, cm 5206,
paragraph 20.19. Back
20
Set out at www.culture.gov.uk/global/Press_notices/archive_2003/dcms92_2003.htm
and in Chapter Four of the Draft Gambling Bill Regulatory Impact
Assessment. Back
| 
