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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 139 ix HOUSE OF LORDS House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE Joint Committee on Draft Gambling Bill
Tuesday 27 January 2004 MR TIM BATSTONE, MR PHIL JARROLD, MR RAY STONE, MR JOHN WIMSETT and MR FRANK FAHRENKOPF JR MR NICK HARDING, MR ANTHONY BRENNER and DR MARTIN RAWLINGS Evidence heard in Public Questions 835 - 985
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Joint Committee on the Draft Gambling Bill on Tuesday 27 January 2004 Members present: Mr John Greenway, in the Chair Memorandum submitted by Casino Machine Manufacturers Group
Examination of Witnesses
Witnesses: Mr Tim Batstone, President, Mr Phil Jarrold, Chief Executive, and Mr Ray Stone, British Amusement Catering Trades Association, and Mr John Wimsett and Mr Frank Fahrenkopf Jr, Casino Machine Manufacturers Group, examined. Q835 Chairman: Today we welcome Tim Batstone, the President of the British Amusement Catering Trades Association, Phil Jarrold, the Chief Executive, and the other witness is Mr Ray Stone; and John Wimsett and Frank Fahrenkopf from the Casino Machine Manufacturers Group. Can I ask you to note that Chris Bone from the Bill team is present at the meeting should we need to have any points clarified. A transcript of the meeting will be produced and placed on the Internet within about a week. I ask you also to note that a full declaration of interests of members of the Committee was made at the beginning of the first meeting and the information for the public and a note of members' interests is available. I think most of you have been as a witness to our session in terms of listening at the back rather than giving evidence but you will know how important it is to speak up because these rooms do not have particularly good acoustics and I remind members of the Committee the same, please. Also, gentlemen, given that there are five of you now and three witnesses in the second part of our deliberations today, it is not necessary for you all to answer the question if you have nothing to add to the answer of another member of the panel, but I will obviously give you all an opportunity to comment. Can I begin with a general question to both organisations. A number of submissions to the Committee have noted that it is difficult to comment on the draft Bill because key information is missing, for example codes of practice and guidelines. What else do you need to see in order to assess the likely impact of the Bill on your industry? Mr Batstone: I would not want you to think that we do not know what the general thrust of the Bill is going to be but, yes, we would like some more detail. We would like to know more about the codes of practice, as you were saying, and licensing guidelines. There is also the issue of grandfather rights and whether they are going to be offered in perpetuity to businesses. We are still waiting for information on the siting of machines in pubs and clubs. We are still looking for more detail on exactly how those with casinos are going to operate. It would be good to get a little more information on taxation in order that we can plan. There is a new one and that is the FOBT or FOBM. We would like to know what is going to be planned for other additional machines in order to account for those machines coming on the market, as it were. Mr Wimsett: The issue of planning is of concern to us. We would like to see greater definition on planning issues and how the guidelines might be implemented. Taxation is an issue of concern to the entire industry. We are mindful that the various government departments are addressing those issues and we note that the section on advertising remains absent from the Bill. They would be our primary concerns at this point. Q836 Chairman: You said in your memorandum to us that there are things which are currently included on the face of the draft Bill that might be better covered in secondary legislation, then more easily amendable by the Secretary of State. Would you just like to expand on that. Mr Wimsett: The principal issue of concern in that regard is the wide area progressive machines, that is the process whereby machines are linked across various properties and not just put in one property. We note at the outset that the policy positioning was that this type of product might be included within guidelines to be determined by the Commission but, in the Bill, we note that wide area progressives were prohibited and we feel strongly that is an issue that would be best left to the new Commission. Mr Batstone: For us, it is almost the reverse. We have a concern that too much of the future of the gaming industry is dependent on decisions taken by the Secretary of State and the Gambling Commission and we would like to see more of the principles of the regime enshrined in primary legislation. For example, we think something like the issue of whether Category D machines should be available for family entertainment is far too important an issue to be prey to, if you like, the vagaries of secondary legislation and decisions by the Gambling Commission. It is too important. Q837 Viscount Falkland: We believe that BACTA is currently funding an independent study on the social and economic impacts of the draft Bill. Could you articulate for us how it came about that you felt it necessary to invest in this kind of study and could you give us some idea of what you would expect its conclusions to be. Mr Batstone: We felt that there was a dearth of really independent and thorough study on the totality of the impact of this Bill and we felt it was important, certainly for our members, for that to come out into the open and that is why we set about commissioning this and we have done that with the Henley set-up and in fact the results have just come out, hot off the press, and we apologise that we were not able to get something to you before today's session. We do have summaries of the document with us - and we understand that it is not ideal for you to not be able to see them in advance - but they are available. We have Ray Stone here who is from the Henley Centre and, in terms of what we are expecting, we now know what the outline conclusions are and I would like to ask Mr Stone to speak. Q838 Chairman: Please, Mr Stone, tell us. Mr Stone: I think one of the fundamental aspects of the approach that we took was to try and understand the difference between the impact of the Bill or the possible impact of the Bill and those sorts of changes that were occurring from current general trends because there is an awful lot going out there anyway with FOBMs, the Internet and so on. Our approach, if I can just spend one or two minutes on that, was to develop a set of three scenarios. First of all, we wanted to understand the current gambling state of play and we used 2002 as a base. We then used time series modelling to try and understand from those current trends and in overlaying the impact of FOBMs, Internet playing and so on, what life might be like in the betting and gambling industry in this country by about the year 2010. We chose that year in order to be able to assess for our third scenario what the impact of the proposed Bill might be in a reasonable amount of time that will allow the Bill to settle in, for the industry to respond to that Bill and for consumers to respond to that Bill as well. Those three scenarios were the basis of our approach. As I say, the second scenario was developed using time series modelling. The third scenario was much more difficult because obviously the Gambling Bill is not there yet, so for that we did an awful lot of research. We carried out in the region of about 25 to 30 interviews with experienced people around the betting and gambling industry. A sister company, Brand Driver, carried out a large amount of consumer research - they carried out well over 1,000 interviews by focus groups and also interviewed about five GamCare counsellors as well. What we wanted to do through that was to try and understand from those people experienced in the industry what they would do with the new Gambling Bill if it came about, what sort of changes they would make to their venues, to their offers and so on, but also we wanted to understand how consumers would actually respond to that and we felt that that side of things had been missed in prior studies. We wanted to understand how many people went to different venues now, why they went there, what sort of things they enjoyed whilst going there, who they went with, how often they went and how much they spent when they went there. We really wanted to dig down into why they went. We then asked them lots of questions around, if circumstances changed, ie the new Gambling Bill came about and the new offers, what aspects of those new offers would they like, which ones would they take up and, more importantly, which things they would give up. As I say, we did a vast amount of research; we studied virtually every other report that had been produced - KPMG, Ernst & Young and so on. We did about 25 interviews and so on. It is probably one of the most thorough studies that we have done in this area and we have worked in this area for over ten years now. In terms of our overall conclusions ... I am sorry, I am taking up a lot of time. Q839 Chairman: No, this is very interesting. Mr Stone: If you start from the base of 2002 when the gambling industry was worth about £8.5 billion in terms of consumers' net spend and we focus primarily on net spend because that is the amount of money that consumers part with - gross spend is a higher level number which means different things to different people - our view is, in scenario two, that taking into account the growth of FOBMs in 2003/04 and the growth of Internet betting and the growth of Broadband etc, and current trends in terms of people's incomes and so on, the natural growth and those other issues would take us to about £9.5 billion. So, a £1 billion growth. We feel that the impact of the new legislation by the year 2010 would actually increase that by about £1.1 billion. So, we would be at about £2.6 billion. That is made up of a lot of growth and a lot of losses. So, particularly if I focus on the gap, the difference between scenario two and scenario three of £1.1 billion, that is actually made up of about £2.1 billion of growth, largely from casinos and a bit more from Internet gambling. That has been funded, as it were, by about £1 billion worth of cannibalisation from existing gambling and about £1 billion from general leisure spend. 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 CO 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. Los 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 Los 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. Q860 Chairman: I always thought the third of your list was "the cheque is in the post"! I am fascinated by this answer that you have given, Mr Wimsett, and supported by Mr Fahrenkopf, about the size of these casinos and the number of machines. In these casinos in America, what square footage would be devoted to table gaming? I appreciate your answer earlier that the percentage of income from machines varies from one place to another, but one of the things we have to grapple with is, at what point should the amount of gaming space trigger access to unlimited machines? It is one of the key questions that this Committee will have to try and solve. You seem to be implying that the 10,000 square foot of gaming space is tiny in comparison to what happens in the United States. Mr Wimsett: Putting that in context, the number of casinos that might be in the order that I suggested would be very limited, perhaps ten was suggested by the CIBC very recently. There will be room for casinos that are what you would call a more regional offering and 10,000 square feet of table space is for tables. That is a large number of tables in a regional casino. If I might give you one example of a property that might be the vision for this country which is Christchurch Casino in my home country, which was established by an English company in 1993 and is one of the best examples of its type in the world. That casino offers its players 38 tables and 500 machines; it provides restaurants in a very well-managed and well-controlled regional property and it is embraced very much by the local community. I think you will see a lot of copies of that size. That is a casino that has about 10,000 square feet of table space. I think there will be room for that style of property, not only enormous numbers. We anticipate that the number of casinos that might emerge would be something in the region perhaps of 300 and, putting that in context, that would represent something like one casino for every 140,000 of adult population. The availability of casino-style machines in Australia is 1 to 2,500. So, if you had 300, you would have 1 to 140,000. Q861 Chairman: Five hundred machines for 38 tables is greater than the eight to one ratio that Sir Alan Budd recommended but could not be said to be unlimited to the numbers you were talking about before, Mr Fahrenkopf, of 2,000 or 3,000 machines. So, would you feel that those kinds of casinos ought not to have unlimited machine numbers but a sensible ratio? Mr Wimsett: The concept of a ratio is one that we considered as perhaps having a little logic to it. Perhaps the only reason might be to help define what government thinks a casino should look like. I think commercial issues carry some kind of weight in this regard. Having said that a casino will be 10,000 square feet in space and having created guidelines that perhaps left local authorities to find the associated amenities that must be provided, the casino that you people, as government, envisage I think is going to appear. I am not sure that that answers the question in the way that --- Q862 Chairman: Did you say "appear" or "appeal"? Mr Wimsett: They would both appear and appeal! Q863 Lord Faulkner of Worcester: Mr Wimsett, following the logic of what you are saying, if this is all driven by commercial considerations - and you have indicated that what is most popular is the machines - why do you think it is sensible or perhaps you do not think it is sensible to have any linkage between the number of tables to the machines? Is the answer just to get rid of the tables and fill them with machines? Mr Wimsett: If there was not a requirement that major international casino operators would still provide tables because they are the product of choice as well ... In Los Vegas, I can tell you that 24 per cent of the available gaming positions on the Strip are provided at tables with no requirement for operators to do so. Q864 Lord Mancroft: Looking at the other end of the scale, if you take somewhere like Foxwood, how many machines do they have? Mr Wimsett: Six thousand five hundred. Q865 Lord Mancroft: Six thousand machines in how much square footage? Mr Wimsett: Maybe we are talking 300,000. Q866 Lord Mancroft: That is undoubtedly impacting on the New York State Lottery for people in New York which is an hour and a half away, so they say. Mr Wimsett: Connecticut is an interesting state. There is material that supports the contention that the Connecticut State Lottery has year-on-year improved since the introduction of the Mohican Sun and Foxwood Casinos in that state and that is in addition to the material that we can make available to the Committee. Q867 Lord Mancroft: How big is Mohican Sun? Mr Wimsett: They are both about the same size. Q868 Lord Mancroft: Three hundred thousand? Mr Wimsett: Please do not quote me on that. Q869 Lord Mancroft: My understanding is that the Foxwood market is New York, not Connecticut. Mr Wimsett: Yes. Well ... Mr Fahrenkopf: Also Massachusetts, Connecticut, Rhode Island, Maine. The Mashantucket Pequot Tribe has a very unique location. Q870 Lord Mancroft: What you are saying is that they are not affecting people on their doorsteps, they are pulling in people from the three big cities. Mr Fahrenkopf: Absolutely. Q871 Lord Mancroft: All of which are having their state lotteries ... The Massachusetts Lottery that you were talking about is the most successful lottery in the United States. Mr Fahrenkopf: It is. Q872 Lord Mancroft: And that has been affected by these casinos. Mr Fahrenkopf: Again, the Connecticut Lottery has gone up. It depends on your lottery director, your marketing and coming up with new games to attract and compete with. It is competition. Q873 Mr Page: I would just like to clarify to fill one of the many gaps in my ignorance that you were stating that the operators choose to have a ratio of 24 table space per machine. Is there anything in the legislation that covers that or is it purely up to them? Mr Wimsett: Not in the State of Nevada, it is purely up to them. Chairman: Lord Mancroft wants to start asking questions about regulation. Q874 Lord Mancroft: This is particularly to BACTA because I think BACTA has described the proposed regulatory regime as "an inordinate unwarranted and costly bureaucracy" which sounds pretty horrifying. Would you expand on that and explain what you mean. Mr Batstone: In the context of our evidence, we said that we feared that it would be. There is a lack of clarity on the numbers of personal licences and the complexity of that and how many licences you are going to need and that kind of bureaucracy. I think the general point is that the current regime maintained by the Gaming Board has created a very well-regulated environment with one of the lowest levels of problem gambling in the world, millions of satisfied customers with all of the economic cost, and the fear of our members is that the bill for the new regime, which is going to cost a lot more, is going to fall to a large degree on the existing industry for whom there is not a lot of benefit in this new Bill. Q875 Lord Mancroft: How much do you think percentage-wise the cost will increase by? Mr Batstone: I think it is a 200 to 300 per cent increase in the cost of the Gambling Commission - I am not exactly clear on how much extra this is going to cost - and then there is the local authority licensing costs as well. Mr Fahrenkopf: It is our experience that, in order to have any gaming that has any integrity, you must have strict rigorous regulation with law enforcement oversight. You have to have it, particularly with large casino gaming operations. It is my understanding now that here in Great Britain there is a staff complement of around 90 people, something of that nature, that provides regulatory oversight. If in fact you go forward with this legislation and you attract the change in the dynamics of gambling in this country, you must make the commitment, whatever it costs, to make sure that there are properly trained regulators in place. The commitment of revenue has to be made. It has to be paid for by the industry across the board, but it is so essential or you cannot have effective industry. Q876 Chairman: Could I just ask the BACTA witnesses whether they would like to express a view on the effect on regulation that this has in terms of the numbers and types of machines, express a view on the taxation regime, whether a gross profit tax on machines is workable or whether your preference is to stick to amusement machine duty. Mr Batstone: Our preference is to stick with the existing AMLD system. We think the gross profit tax for us creates too many losers. It is a blunt instrument for an industry that is so varied with machines in so many locations and we would be looking for basically tweaking the existing system and making that more efficient so it can move on to a self-licensing system. If you want to bring the cost down for the Government, you are going to need a system that works very well. Q877 Lord Wade of Chorlton: What is the size of the regulatory teams that exist in the States relative to the size in this country? I would like to understand from your answer what size of regulatory group you would need in this country in the event of this gambling change going through. Mr Fahrenkopf: Again, each stage jealously guards how they are going to do it but I can tell you my recollection and I will provide the Committee with the exact number. In New Jersey, there are over 600 regulators involved in regulating the industry which, as you know, exists only in Atlantic City and I believe there are 12 properties - I think that is right. In Nevada, I think it is a little less than that. Again, it is when you go from jurisdiction to jurisdiction and it is the type of regulatory structure that you set up and the trained people that you implement and how you apply them. So, it depends really on what your final structure is going to look like to make the determination, but what I will do is provide the Committee with the number of states in the United States indicating the mix that exists with those economies and what kind of regulatory structure they have. Lord Wade of Chorlton: That would be very helpful. Q878 Chairman: Seeing that we are not going to be able to afford either the time or money to go and see it for ourselves, it would be very helpful if you could do precisely that. Our own Gaming Board initially thought that they would need a staff of around 200 but, in a letter from the Chairman, he is now revising that and thinks he is going to need more. Is your experience that that certainly will be the case? Mr Fahrenkopf: If I were a betting man, I would say you would need more than 200. Q879 Lord Mancroft: Am I right in saying that the model regulatory procedures are in the Nevada State gaming machines? Mr Fahrenkopf: I would add New Jersey also. You must realise that Nevada has been at it since the early thirties; in Atlantic City, the New Jersey regulatory system has been at it since 1978 and I think that most of the mean jurisdictions that are in the United States that have brought on gaming have taken a mix from those two in adapting their own. Q880 Lord Mancroft: But have there been some problems where new casinos arrived and there has to virtually be a new set-up of new regulations? Mr Fahrenkopf: Yes, particularly the new jurisdictions that started in the nineties, they were starting from scratch. Q881 Lord Mancroft: Is there any way that we could get information about the problems that were encountered because there were problems, were there not? Mr Fahrenkopf: I will provide that. There are six states that started in the early nineties: Iowa, Illinois, Indiana, Missouri, Louisiana and Mississippi and I will try and get you some information. Q882 Baroness Golding: Mr Wimsett, in your submission, you note that strict minimum standards are normally applied to the design, manufacture and performance of gambling equipment. What might these require and should they apply equally to all categories of gaming machines? Mr Wimsett: The machines must be secure, they must be reliable and the software contained within them must be of the highest integrity. Particularly, they should be random in nature and fair to the player. Our regulators typically play a large role in defining these standards and they work closely with the industry in doing so. The standards, which typically regulators like and in Nevada are imposed, are fast becoming accepted internationally and they are subscribed to willingly by all of the leading manufacturers. In answer to the second part of your question, yes, we do believe that the strict controls should apply to all forms of machines that are placed on casinos. If a machine is on a casino floor we believe the player is entitled to assume that it has gone through the same rigorous testing process. Q883 Baroness Golding: Are we testing the way these machines are tested? Are they different in other jurisdictions? Mr Wimsett: They do vary jurisdiction by jurisdiction, but they are becoming more an international standard. The testing is done by agencies independent of the operators and the manufacturers, who are typically commissioned by the regulators. Q884 Baroness Golding: Do you think it is a good thing that you should have a standard way of testing machines across the world? Mr Wimsett: Yes, we do. We subscribe to the concept. It is very costly to subscribe to it, I might add, but we subscribe to it. Mr Jarrold: I could answer that by saying US-style slot machines Category A, as we are calling them in this country, are generally well known as random, and the amount of player interaction is limited. They are simple machines in many ways with a very high jackpot level which, in itself, makes them attractive. That randomness can be measured mathematically, no doubt about it. Indeed, we would support that in casinos Category A machines are going to need something similar to that form of testing. UK machines, we currently call them cash machines, tend to be somewhat more complex, in that they are either entertaining with a lot of player interaction, and the reason for that is that the actual prize level on offer in UK machines today is not nearly as attractive as some of the much higher ones. Q885 Chairman: Does that apply to Category B and C machines? Mr Jarrold: Yes, broadly speaking I would say so. It is difficult to model mathematically in tests UK machines because of the fact that they do have these entertaining and substantial player features that go with them. Relating to the second part of the question, the majority of locations in the UK have a small number of permitted machines, sometimes it is two, three, four and sometimes more but we know there are certain outlets where the numbers are low. If you are a player on those machines you do expect to be offered new games on a regular basis, or you stop playing - and I would define that as being eight to 12 weeks. Pub players expect to see new games about either eight to 12 weeks. UK manufacturers meet that demand by releasing lots of new games and about one in three are successful; but a lot of games come into the UK market. About half of the gaming machines that come into the UK market end up in pubs, for instance. By its very nature the testing of US-style slot machines would impede the whole process of bringing products to market because of the timescales involved. What has happened in the UK, and has been developed over many years, is a system of testing with the Gaming Board that sees us supplying software that replicates the machines so the compliance of those machines to the agreements we have made with the Gaming Board are checked. That system has been working very, very well for many years. What we would like to see for Categories B, C and D is the existing testing regime which allows us to bring this number of machines to market continuing. Q886 Viscount Falkland: I have a basic question on the randomness of machines. Take, for example, a roulette machine which now sits alongside people playing roulette on tables. In one casino we were shown these tables running alongside the machine. It seemed to us that the machines were more popular than the tables, probably because of the time that elapsed before a result occurred. When one is talking about randomness as it relates to a roulette wheel and a machine, what are the differences between that randomness? What are the possibilities for unscrupulous and improperly supervised operators to affect the randomness of a machine? Mr Wimsett: It is possible but most unlikely. The testing regimes that we submit ourselves to ensure that our software is of such a nature so as to limit the possibility of interference with them. This is one of the reasons why we are happy to subscribe to strict licensing regimes. We are happy to have regulators available to scrutinise and audit our product at any time, any place. Generally operators are of the same view. It is not for me to comment particularly on how a random number generator works because I am not technical. What "randomness" generally means is that every push of the button, as it were, gives the player exactly the same chance as he had on the previous push. That is probably the best definition of randomness brought down to layman's terms. Your concern about tinkering (if that is the word), no, the way we are required to construct our software does not permit it. Q887 Viscount Falkland: The obvious tinkering that occurs to me is the amount of times that "zero" came up on the machine, as opposed to what you would expect with random, which is reflected in the margin for the house, which is 2.7 per cent on a table. Is that right? Mr Wimsett: Yes, it sounds like the same degree of luck as me! Over a large window of time (and it is a very, very large window of time and it might count into the millions) you would expect statistically that the zero would appear exactly the same number of times as the eight. I do have to say, I am poorly qualified to comment on the technical nature of the product, we generally leave that to our technical people but if the Committee wishes I can have a paper prepared on this subject for you. Q888 Chairman: We have got a lot of reading to do! This randomness of the actual physical roulette wheel and the randomness of the machine, I just do not see how you could end up with one being more or less random than the other; it is just purely luck. Mr Wimsett: Random is random. Chairman: If Mr Banks was here he would be questioning the randomness of the FA Cup draw that pairs Oxford with Chelsea! Q889 Dr Pugh: In previous sessions we have had evidence from an internet gambling consortia who said that their software was so horrendously complex it was very, very difficult to examine and be subject to the same regime as you presumably have to submit to. Is that a shared industry view that there is something intrinsically more complex about software on internet servers than software within machines which you produce and manufacture? Mr Wimsett: I am probably insufficiently qualified to answer the question, but my inclination would be to suggest that there would be no reason why their software should not be subject to the same strict testing regimes. Q890 Dr Pugh: It would be useful to have a technical view. Mr Fahrenkopf: It is the view of the regulators in every jurisdiction I am aware of in the United States, and therefore the view of our organisation, that the technology does not exist as of today to properly regulate and control internet wagering. There are a number of bills now in Congress dealing with this. There are no websites located within the United States, they are all offshore. The bills that are now being pushed through the Congress deal more with the mechanism by which internet wagering takes place and the use of credit cards, transfer cards, debit cards etc. There are no jurisdictions in the United States today that feel they have a grasp of the technology and software so that they can properly regulate it. Q891 Dr Pugh: What about the ability to regulate machines in a number and variety of outlets in this country? Are existing machines in cafes, fish and chip shops and taxi-cab offices monitored properly and, if not, how could this be improved by the Bill? Mr Batstone: The answer is that the monitoring is not done consistently and the rules are not enforced consistently. We have instances of machines being seized by Customs & Excise, but that is not always the case. It is something that everybody does not seem to take seriously enough. It is a situation that is not acceptable to our members. How to rectify it? We would say, ensure that all machines supplied anywhere are only supplied by a section 27 certificate holder; and give the new Gambling Commission powers of enforcement in this area. Q892 Dr Pugh: Are you surprised that the Bill enables local authorities not to issue or renew Category D gaming machine permits for specified classes of premises, other than family entertainment centres? Mr Batstone: Yes, because experience has shown that this can lead to blanket bans, which is disastrous for businesses in the area - it could be pubs or any type of business - and it does not work. You only have to take Westminster as an example of a ban where you have a mushrooming of illegal machines popping up in all sorts of outlets, which no-one takes an interest in because they think they are not there. It is how the proper controls of these powers are applied - that is the key to it. Q893 Dr Pugh: More resources for regulators, you think? Mr Batstone: In that area, yes. Q894 Janet Anderson: Could I ask you particularly about the motorway service areas. I spend a lot of my time, as I think a lot of us do, driving up and down the motorway. It seems to me that those are not monitored at all, am I correct? Mr Batstone: I do not think so. You would normally find there would be somebody monitoring the areas which are adult only. Q895 Janet Anderson: That is not my experience. Mr Batstone: Close circuit television? Nothing? Q896 Janet Anderson: Not that I have seen. You are happy with that? Mr Batstone: Our code of practice says they should be monitored continuously. That means if it is monitored by a camera someone is going to be watching that camera all the time and taking action. Q897 Chairman: They are not all, is that a fair conclusion? If they are not all monitored in fish and chip shops and taxi-cab offices why should we be confident that they monitored more effectively in the motorway service areas? Mr Batstone: The answer is that they should be. A motorway service area has a concentration of machines, so it is effectively a designated area and it should be properly policed. Q898 Lord Faulkner of Worcester: Are all these areas owned by BACTA members? Are they all under your code of practice? Perhaps you can explain where the BACTA bit stops and where the non-members are? Mr Batstone: BACTA is probably representative of about 70-80 per cent of the industry. We certainly do not represent everyone who has machines in these outlets, but we would represent a proportion. We probably do represent the majority of motorway service station machine operators? Q899 Lord Faulkner of Worcester: And fish and chip shops and taxi-cab offices? Mr Batstone: I would not say we did represent the majority. We represent some. Those areas are important to some of our members but we obviously cannot control all of them. Q900 Lord Faulkner of Worcester: There is no way in which our code of practice - and I know BACTA have worked very hard at developing that - operates in areas like the fish and chip shop and taxi-cab offices, or motorway service stations? Mr Batstone: Motorway service stations should be easier because there are less of them and there is a concentration of machines and it should be a properly supervised business; but with thousands of fish and chip shops and taxi-cab offices it is harder for us to do. Q901 Lord Faulkner of Worcester: Would it be sensible for your code of practice to have statutory backing and be included in the Bill? Mr Batstone: We are looking to see that it is in the Bill and we are looking to see that our code is transferred. We have been asking to see what is going to be transferred. Q902 Lord Mancroft: The Gaming Board Annual Report, last year or the year before, points out that the Gaming Board have no idea how many machines there are in the UK. It is clearly unsatisfactory from their point of view, and clearly unsatisfactory from your point of view. Do you agree? That appears to be a lack of control, does it not? Mr Jarrold: I am surprised at the comment because actually the Gaming Board phoned us before putting their report together to ask what the number of machines in the UK are and, since we have a Henley Report done most years, we are usually able to give them a fairly thorough breakdown. They ask about the number of machines in the marketplace each year before they put their report together. There is nothing confidential about it. There are 411,000 gaming amusement machines, of which 210,000 are gaming machines, and we can break those down. Q903 Lord Mancroft: Is it not rather extraordinary for them to ask you? Should they not know? Mr Jarrold: You would have thought the wherewithal was there for them to be able to work it out, because obviously the vast majority of machines have amusement machine licence duty. That is part of why the amusement machine licence duty is a good thing. It actually tells people where machines are, which if you were a member of the GBT(?) they would not know. Q904 Lord Mancroft: When you say "the vast majority" the implication is that there is a significant minority that do not? Mr Jarrold: No, what I meant by that is that not all categories of the 411,000 machines are required to have AMLD. The vast majority are but some of the lower prize skill machines are not. Certainly in terms of the number of machines in the marketplace and how that has changed is available both from the work we do and, more specifically, is available one would hope from Customs & Excise. It is interesting, going to an earlier question, it is one of the reasons why we have suggested staying with the current mixture of amusement machine licence duty and VAT because it is one of the ways in which Customs & Excise, and anybody, can work out where the machines are. Q905 Lord Mancroft: How many machines of the 411,000 do you think are in pubs and clubs, in alcohol-licensed premises? Mr Jarrold: There are about 210,000 gaming machines so I would have said something like 80,000. The vast majority of gaming machines that go into the UK market go into pubs. Chairman: We will have a chance of asking witnesses about that later. We need to make some progress now. Q906 Lord Faulkner of Worcester: Why do you not like the proposal in the draft Bill for a ban on link machines? Mr Wimsett: We feel that the logic which saw the restriction imposed was flawed. The policy paper suggests that there is overseas material which supports the contingent that wide area progressive machines lead to a greater incidence of problem gambling. We, through our best endeavours and through Mr Fahrenkopf's organisation, have failed to find any such material. I think Mr Fahrenkopf can comment on material perhaps to the contrary. Mr Fahrenkopf: There is a tremendous amount of pure reviewed research that has been done in the United States, and elsewhere around the world, in the last ten years on the whole question of responsible gaming, and whether or not for example a particular type of machine is more addictive than another type of machine, or whether or not linked machines or linked lotteries promote more problem gambling. I think it is very, very clear that most experts in the United States believe today, on research done by the National Research Council of the National Academy of Sciences, and Havard Medical School's Division on Addiction, that the rate of pathological gambling in the United States is about one per cent of the adult population. That is pretty consistent actually around the world with other studies that have been done. The important thing to realise is that research also shows that the majority of that one per cent are people who suffer from what is called co-morbidity; gambling is not their only difficulty. The majority either have problems with alcohol, drugs, depression and mental instability. There is some real research going on now particularly at Harvard as to whether or not pathological gambling is a distinct problem in and of itself and not linked with others. There has been a tremendous amount of research also done by various states and countries as to whether or not the increased availability of gambling (which is something you should be looking at if you are talking about expanding here) will automatically lead to increased incidences of problem or pathological gambling in Great Britain, should you go forward here. We would be willing to provide you with copies of studies done in Connecticut, Louisiana, South Dakota, Michigan, Minnesota, Oregon, Texas, Washington, New Zealand, British Columbia and South Africa, that show clearly (and this is peer review research) that prevalence remains stable or decreases despite an influx of more gaming availability. Q907 Lord Faulkner of Worcester: One country you did not offer was Australia, where the incidence of gambling is two or three times what it is here on the stated figures? Mr Fahrenkopf: Absolutely. The Australia report stands alone, when you compare it with New Zealand and other countries. I have my own reasons about why that happens. Q908 Lord Faulkner of Worcester: The Australians will tell us it is because of the huge explosion in gambling machines, particularly in bars and clubs? Mr Fahrenkopf: The system they have over there is so distinct from anywhere else in the world. They call the bars "hotels", I think. With the hotels and club system over there the concentration and penetration is all over. It is very, very different from anywhere else. Maybe that is the reason. Q909 Viscount Falkland: You make the distinction between problem and pathological gambling, which I think is a sophisticated distinction which we have not yet arrived at. The figure you give of one per cent, that is pathological? Mr Fahrenkopf: Yes. Q910 Viscount Falkland: Could you give us a view about problem gambling as opposed to pathological? Mr Fahrenkopf: When Lord McIntosh visited us in the United States we suggested that the person they really should consult, and you should get the benefit of his wisdom, is Professor Howard Shaffer of the Division on Addictions of Harvard Medical School who has done more work in this area than anyone in the world, and I think it is recognised now by even the anti-gaming people that the work and research they have done is the best that there is. There may be another two to three per cent whom you would categorise as problem gambling. These are people who may have a number of traits that could possibly lead them to become pathological gamblers. Dr Shaffer and his research people of Harvard would tell you there is just as much likelihood that they will go the other way and will not have a problem. There has been some suggestion that we might get Dr Shaffer to do a paper in the area where he is clearly the world leader, and would be happy to assist in that request. Q911 Viscount Falkland: Would Dr Shaffer's work tell us - with the problem gambler who may go one way or the other as you have described it - during the period that he or she is a problem gambler, what effect that might have on their close family, their efficiency at work and that kind of thing? Mr Fahrenkopf: Most of the evidence and studies show that you really do not get into the disruptions that involve perhaps committing a crime to finance a gambling habit, bankruptcy, financial difficulties, destruction of the marriage itself until you move into the pathological area - there these people cannot control what they do. Q912 Chairman: Would you care to tell us whether you think the Category C, £25 on cash machines, are less effective than £500 or unlimited prize machines? Is the pathological addiction all the greater the more monetary prizes the machine can offer? Mr Fahrenkopf: The evidence is to the contrary. There is no question if there is a bigger prize available that people will want to play for the bigger prize; but neither, in lotteries nor in linked machine instances, is there any evidence, because they want to play for the bigger prize, that prevalence of pathological gambling rises because of their existence. Q913 Mr Wright: In the context of machines with non-cash prizes, you state that "it is illogical to allow the stake to remain at the same level (30p) but reduce the prize from £8 to £5". Why should non-monetary prize machines have higher stakes and prizes than cash-only machines and what limits would you suggest? Mr Batstone: I have to declare a particular interest here, in that I am a third generation seaside amusement operator, a business started by my grandfather in 1928. We are talking here about machines that have been amusing families for generations. All we are asking to do is to keep them. I have children and I want them to be able to play these types of machines, and for their children to play them. We are talking primarily about machines paying out things like teddy bears; and we are talking about something that is now; and we are talking about the levels which exist now. There is already a distinction between the prize level for cash machines, the £5, and the prize level for the non-monetary prize machines of £8. We are saying, let us maintain that distinction. We do not want to deprive customers of value which they are used to. We surveyed a thousand people and 93 per cent said they did not want the prize to go down, which is not really surprising either. The DCMS is now recognising the importance of maintaining a stake of 30p in terms of the crane machine, and we are saying the prize is equally important and we need to maintain our product and our livelihoods and our future, otherwise that industry is going to go. Q914 Mr Wright: I represent seaside constituents and I think most seaside MPs have been lobbied specifically on this particular issue. With family entertainment centres, as we like to call them, they consider these (formerly a large proportion, in terms of the non-cash machines) a part of that family entertainment. We were shown an example in Blackpool where there was a machine with very large furry elephants and they said that would cost an awful lot of money to purchase and would probably price themselves out. Do you think that would probably decimate the whole of that particular industry and ruin the family centre image in that particular respect? Mr Batstone: Yes, I would have to agree with you. If you are going to undermine the product then people are not going to come. If they do not come the product will gradually wither and centres will disappear over time. Q915 Mr Wright: Do you consider that the customers, the users, get value for money for the current levels of play? Mr Batstone: They do at the moment. The danger is if you reduce the size of the prize then they will not. Q916 Jeff Ennis: My question is also directed towards our BACTA witnesses. How did your members react to the FOBTs deal? Mr Jarrold: It is probably fair to say that they were annoyed and felt a bit misled and mystified by it all. Q917 Chairman: Do not mince your words! Mr Jarrold: At the macro level, the government for some time said to us, and indeed the Gaming Board, that such high stake and such high prize machines were only ever going to be allowed in casinos (and this was a consistent line we were told for a long time). Indeed, at our convention in November 2002 the then Chairman of the Gaming Board publicly asked our members to do nothing to proliferate these type of machines, which basically meant that our machine suppliers, other than those who already had existing contracts, were asked to take no new contracts at all. Indeed, in the spirit of the request, that is exactly what happened, and lots of new contracts went to overseas suppliers because of that. The deal that has been put together to put a brake on proliferation and public policy interest on the matter, in our opinion, will do exactly the opposite. It is our informed opinion that by the end of this year there will be about 20,000 machines in the marketplace, which is approximately double the amount there were at the beginning of this year. As you can imagine, the reaction has not been good. The effect on membership has been quite dramatic. Traditional high street locations (and by that I am essentially talking about adult gaming centres, possibly bingo halls and indeed some pubs) would quote if they happen to be within a quarter of a mile of bookmakers where these machines (which are very popular) are in existence, they have probably lost 15-30 per cent of their turnover; and indeed, following the deal, are now seriously considering the viability of many of those businesses. If you are a machine supplier your reward for not supplying these machines, as requested, is that you are right now withdrawing hundreds, if not thousands, of AWP or cash machines for bookmakers to make a space for FOBTs. If you are a manufacturer you are probably forecasting that you are going to be making about ten per cent less machines this year. All of that obviously has left a difficulty with the situation we have to live with; and what we would hope, looking forward, is that in the short-term when we come to the forthcoming round of review of stakes and prizes that what has happened is taken into account, so there is a more level playing field out there on the high street than currently now exists. In the longer term, which is where we really need to turn our attention, the original White Paper, A Safe Bet, indicated that adult gaming centres, bingo halls and bookies would all have the same number and type of Category B machines, and that is what we would like to see occur. If these machines are to be allowed in over-18 premises on the high street there are other over-18 premises equally well regulated on the high street which we feel should be allowed to offer these machines. If they are not to be allowed then, fair enough, none of them should be allowed. Q918 Jeff Ennis: Do you think the effect on turnover of the AGCs within a quarter (say it is between 15-20 per cent effect on turnover) would be even greater over the passage of time? Mr Jarrold: I think in the passage of time it would be interesting to see, but if you are losing turnover at those sorts of levels (and some are quoting as high as 30 per cent) I do not think there will be any businesses to make that judgment. Chairman: We need to explore some questions on social implications. Some of these questions you have touched on already in some of your answers. Q919 Viscount Falkland: In your submission you cite as one reason you cannot "fully support the Bill" the fact that "it fails to achieve the necessary balance of safeguards anticipated by the publication A Safe Bet for Success". In what way does it fail in achieving a balance of safeguards? Mr Jarrold: The balance of safeguards, as outlined in the White Paper and the Bill as we understand them, basically say we are looking for a balance between a safe, crime-free, fair and protected environment, on the one hand, and a successful and British gambling and leisure industry responding to technology and customer needs on the other. That is what we understand by "balance". That balance, in our view, has gone wrong, in that the traditionally predominantly UK-based businesses, in the main, have an extra control imposed upon them, whether that be machine numbers, reductions in stakes and prizes or whatever, while most of the commercial opportunities in this new Bill are tending to fall into what I would call the "new gambling areas", which would be new style casinos, remote etc. It is the existing traditional sector of the UK that has helped to build and maintain what I think is a reputation that is envied around the world in the way we manage our gambling industry. I think it is the new sector which should probably receive the greatest level of control. We would also argue that we are in favour of sensible deregulation. We are not against the Bill. We are in favour of sensible deregulation, but we would like to see the controls and opportunities equally balanced between the existing traditional markets and the new opportunity markets. At the moment we do not believe that balance is there. Q920 Viscount Falkland: If I could construe what you say it is that you fear there could be an over-regulation as a result of changes brought by the extension of gambling through the new proposed legislation? Mr Jarrold: I think, quite understandably, when considering expanding the UK gambling market, we have to look at how that is going to need to be regulated and we are in favour of that. What we feel is that at the moment most of that new regulation and control has been directed towards the traditional sectors that, after all, have got us one of the lowest rates of problem gambling in the world - 0.6-0.8 per cent. If it grows, and most people have said it will grow, it will not grow because of the traditional markets doing something different - in fact, if anything it could go down because of the controls being put in; it will grow because of the new areas. We would like to see the balance, in terms of controls and opportunities between the two, more even. Q921 Lord Faulkner of Worcester: Mr Jarrold, you presumably accept that Professor Budd proposed a balance of safeguards which is rather different from that proposed by the Government, in that they made it perfectly clear that all under-18s would be barred from amusement arcades. I realise this is bad news for Mr Batstone. They took a view that the balance needed to go further in a way of protecting young people and vulnerable people. Do you feel that, by pushing at the balance of safeguards in the White Paper, you should also look at the recommendations concerning children? Mr Jarrold: In terms of children, the Government rejected those recommendations you are talking about; but in terms of children, BACTA's position on social responsibility I think is quite well known. We are one of the major contributors to GICT. We were probably one of the first people to arrive at a code of practice that actually helped control those very sorts of areas with the Gaming Board. We are probably one of the only people to double the resource put against compliance both of regulation and the code of practice; probably one of the only people to have done it in the last year. We have taken very positive steps and taken very seriously the protection of children, and we think the Government had arrived at exactly the right answer when it actually said (and all the research we had to back it up would suggest) that in the main the sorts of the machines Budd was looking to ban are what we would call "amusement and entertainment", machines that are in the main played by children on holiday with their parents twice a year over three or four days. We think the Government have exactly the right viewpoint, but that does not mean we do not take our social responsibility as something we want to spend money and resources against, which we have demonstrated in the last year, I think. Q922 Lord Walpole: How do you respond to the claims that "the available research suggests that the proposed Category A machines will be the most addictive yet", and will be almost entirely responsible for any increase in problem gambling levels? Mr Batstone: I am not entirely sure what research is being alluded to there, but you are right the generally held wisdom is these USPMs are going to be a very potent, very attractive product and, when concentrated in large numbers together, will be a very powerful magnet to attract people. I think it is a slight oversimplification of problem gambling, because they are not going to be the only cause or major cause, but there is the FOBM situation, and there is the remote gambling which is going to increase anyway. There are market forces other than just these USPMs. The study we have done with Henley shows an overall increase of 67 per cent in problem gambling up to 2010, about 40 per cent of which is due to the new-build. Q923 Chairman: "Due to the new-build" in respect of what gambling opportunities? Mr Fahrenkopf, in answer to an earlier question, said he did not think, on the American experience, that there was any difference in the addictive nature of machines that paid out cash however much they paid out? Mr Batstone: The beauty of the study that Henley have done is that it looks at existing market forces, like the influence of FOBMs and remotes, and that is going to increase problem gambling by 21 per cent by 2010 anyway, but there is another 40 per cent which is due in the main to these casinos. That is clear from the research they have done. That is precisely why BACTA are saying, "Take a cautious approach. Yes, have the new product but take a cautious approach to rolling it out. Try it. See what happens. Don't just let it all hang out straight away". Q924 Lord Wade of Chorlton: In the submission we had from the casino machine manufacturers you comment that you are "working towards developing [your] own codes of practice". Could you explain who you are actually working with to produce these codes and what does this process involve? Mr Wimsett: Our consultation is, firstly, internal to the membership. We each work in strictly regulated environments all around the world, where we have no choice but to do so. In addition, we are now working closely with the American Gaming Association. This code is now recognised as one of the best that there is. That consultation will continue. We require, of course, further definition of some legislative issues until the code can be completed but, by default, we are working with very strict codes around the world. Q925 Lord Wade of Chorlton: That means your members are already working in other jurisdictions with existing codes of practice. Do they vary, or are there standardisations taking place? Mr Wimsett: As this industry matures they are becoming more and more similar across the world. Certainly we subscribe to the American Gaming Association code. We also support the Australian Gaming Machine Manufacturers' Association code. Copies of those we would be happy to make available to the Committee. Q926 Lord Wade of Chorlton: Are any of these codes embedded in legislation? Mr Wimsett: No, not embedded as such, but legislation by its very nature in a lot of jurisdictions becomes the code. It is very definitive about the way we must conduct our business. Mr Fahrenkopf: Our code, of which we will leave you copies, covers a number of areas. This applies not only to our operators in the United States but manufacturers, to the AGA. It covers responsible gaming; preventing under-age gambling or unattended minors in and around casinos. To gamble in a casino in the United States you must be 21 years of age, not 18. It covers serving alcoholic beverages; it covers advertising; so it covers a large spectrum of things which I think would be of interest and concern to you and we will provide you with those copies. Q927 Lord Wade of Chorlton: You are referring there to the situation in America. If the gambling proposals were passed would that make the UK a much freer gambling nation than the states in the United States? How would it compare generally to the freedom of gambling? You have mentioned already the age limit in the United States is greater than here. Mr Fahrenkopf: Clearly if you go forward with internet wagering that would be an expansion far beyond the United States. To answer your question, remember that we have 50 separate jurisdictions. There are only two states in the United States, Utah (for obvious reasons) and Hawaii that have no problem with legalised gambling. In every state there is a different mix, and that mix depends upon the social mores, the customs of the people who settle in those states. Q928 Mr Page: My question is really in two parts. First of all, how do your members contribute - and the mechanism of the contribution would be interesting? Mr Stone made a comment and spoke of areas, such as bingo, lottery etc, losing out and the rest of you gentlemen seem to be violently disagreeing; so the second part of my question is: should those who are going to benefit more from this legislation pay more to the GICT, or not? Mr Jarrold: BACTA has supported the GICT since day one, and in the financial year that ends March 31 this year we will pay £225,000. At our convention in November 2002 we made contribution to the GICT a condition of membership. The answer to the second part of your question is that the original formula, indeed the suggested formula back in the Budd Report, was broadly based on the gross profit contribution of the various sectors of the gambling market. In our view, that had a couple of fairly major shortcomings. One is that it made no mention whatsoever of the National Lottery, which does make a gross contribution; and, secondly, it also took no account of the market growth that might take place in some of the new emerging sectors we have been talking about today. Simply basing it on what the world was like back at the date of the report was a strange way of arriving at it. Our view would be, we will continue to contribute our fair share - whether that be based on revenue, gross profits or, indeed, the level of problem gambling that can be associated with any given sector. I think it is quite difficult to measure some of those things, but I think it is something the industry needs to agree between itself and, on that basis, I have little doubt that the industry will be able to produce the amount of money that is being requested by the GICT. We have certainly played our very full part thus far. Q929 Mr Page: You mentioned that you make a contribution of £225,000. What is that as a percentage of the gross profit of your members? Is condition of membership a pro rata rate across the range, and you will give whatever per cent, or what? Mr Jarrold: The first part I cannot honestly answer, and I will see if I can go through research, because obviously I do not have access to the gross profit of each and every one of our members. I will come back to you with some indication from some of the assumptions we make. Q930 Mr Page: How it is built up. Mr Jarrold: We represent people who manufacture machines, people who distribute machines and people who retail them, be it at the seaside or gaming centres. The formula differs depending on which sector we are talking about. If you are somebody at the seaside or inland it tends to be based on the number of machines, which could be one way of looking at it - because we do not have access to the turnover figures of our members. If it is a manufacturing division we will say to that division, "We would like you to raise X amount" and they will determine between themselves how they will arrive at that mount. It really does vary. If you are a supplier it is how many machines you supply. Because we represent a very broad church we have had to put together a different formula that appeared to work within the industry, depending on the very margins it made. I have to say, the percentage of the total we paid last year was marginally more than that which we committed to pay. It is complex and it is not easy, I have to agree, but it works. Q931 Mr Page: You, as a trade association, are the people that get money together and pay it over, having drawn it from your members? Mr Jarrold: That is right, yes. Q932 Chairman: You will remember I told your conference a year or two ago that you ought to pay this money - that would be my advice - have they responded? Mr Jarrold: I am pleased to say that the vast majority have. Q933 Lord Faulkner of Worcester: Did I understand you correctly you believe that the contribution that the industry should pay to the Trust should be based not just on the turnover of the company concerned but the contribution they make to problem gambling, as it were? If so, you presumably accept that a substantial proportion of the problem certainly that GamCare have experienced have been the people who have had difficulties with arcades? Mr Jarrold: The answer is that we would look at either or both of those if that was thought to be a fair scenario. It would be extremely difficult to measure anything that is based on anything other than something related to commercial aspects of the business, but it may be possible. We look forward in determining where the problems are likely to come from. Whatever proportion machines need to pick up they will pick up. You will see with the sixth or seventh area of greater prevalence - not necessarily in terms of the numbers of people but the greatest prevalence with any given market., the proportion of people who have a problem, - one of the issues we have (and we have supported people like GamCare from day one and we do put up their leaflets and posters in our outlets) is that simply looking at the number of phone calls and reported rate of problem within GamCare can be a bit of a self-fulfilling prophesy for us, because we put these posters up and there are lots of parties to gambling who do not put them up. When you break that down to the numbers, the numbers you are talking about are in hundreds rather than thousands when you are talking about GamCare. We would need to find a better methodology but, in principle, we should be prepared to look at both. Q934 Lord Faulkner of Worcester: GamCare tell us that 46 per cent of all first-time callers to their hotline are people with problems with slot machines. Mr Jarrold: My point is, it might be 46 per cent because we are one of the people who most predominantly advertise GamCare. Q935 Lord Walpole: Do you think that slot machines ought to be labelled like cigarette packets? Mr Jarrold: "This can kill" on the front! Mr Wimsett: The Casino Machine Manufacturers Group supports the Trust and supports its commitment to research, treatment and education. We make the point we feel it should be funded in a fair and equitable manner, and one that is proportionate to the level of gross profits that are extracted by operator groups. Additionally, we make the point that none of our members are operators. Notwithstanding that, we have pledged £50,000 to the Gambling Industry Charitable Trust, and we will continue to work with them to support their initiatives. Q936 Mr Page: As a former minister responsible for trade associations I am all for powerful trade associations representing a sector so that government will listen and bodies will listen to them. What percentage of the people in your sector are not members of your Association? How do you know that your rather interesting, cobbled together, method of drawing money is in fact a fair reflection of what that sector should be contributing to help the GICT? Mr Jarrold: The proportion of the market we represent differs, I am afraid, by sector, so it is not a straightforward, "Here's a number". In the retail sector it is probably in the 60 per cent to two-thirds so there will be one-third who are outside. In the manufacturing and operating sectors it is probably between 80-90 per cent or higher. Q937 Mr Page: You can see the next question coming. Those people outside, should they be contributing to the GICT, or are your members quite happy to carry the load? Mr Jarrold: We would be very pleased, and have on a number of occasions suggested, that part of the fit and proper test conducted by both the Gambling Commission and the local authorities should contain the question, "Have you made a contribution to the GICT?" Whether it is via us or direct we do not really care. The answer is that we would prefer them to be drawn into the net in some way. Chairman: Right at the death we have unearthed another subject! Can I thank you all very much for the quality of your answers this morning. It has been a very fascinating and helpful session to us. Thank you. Memoranda submitted by the Adult Gaming Centres, British Association of Leisure Parks, Piers & Attractions Limited, and the British Beer & Pub Association Examination of Witnesses
Witnesses: Mr Nick Harding, Adult Gaming Centres, Mr Anthony Brenner, Chairman, British Association of Leisure Parks, Piers & Attractions Limited, and Dr Martin Rawlings, British Beer & Pub Association, examined. Q938 Chairman: Good morning. Could I welcome our second group of witnesses. Gentlemen, could I begin by asking you this: a number of submissions to the Committee, including those from the three sectors of the market that you represent, have suggested it is difficult to comment on the draft Bill as key information is missing. Would you care to expand on that, please? Mr Harding: We know that around one-third of the clauses of the Bill are still to be released. We feel there is a lot of detail, such as codes of practice, guidelines and so on, even clarification as to what the precise gaming area of a casino will consist of and how a gaming table is to be defined. It is such far-reaching proposed new legislation that it is very difficult to comment in its entirety without all the information being provide. Dr Rawlings: We would certainly echo that. In our particular case there is nothing about the pub sector on how machines will be controlled essentially through the liquor licence rather than through the Gaming Commission. We are unclear therefore what the relationship between the Gaming Commission and the pub sector is. We also need to know what the differentiation between the Commission and the local authorities will be, and hope we have a question later on about guidance, but guidance to local authorities we believe is crucially important. I would just like to echo the fear BACTA expressed of over-regulation here on what we would certainly consider the lower risk end of the market. Mr Brenner: We were surprised to see so much detail missing in the price of the cost of licences, appeal processes, grandfather rights, and the guidance to local authorities. We share the view of BCTA, and I would like to echo what my colleagues here have said. Q939 Chairman: Do you all have a worry when all of that detail emerges that it will increase the level of regulation and the cost of it that your members have to meet? Dr Rawlings: Absolutely, Chairman. That is crucial as far as we are concerned. We have heard earlier how the Commission could grow; how that cost is to be met without being clear as to what those costs are going to be. I have echoed some of the concerns in the licensing bill running through all that bill as to how much it cost, and there was a lot more information there than there certainly is in any drafting or policy instructions that have come out so far. Mr Harding: I think it would be difficult to see how the cost of licensing would be sufficiently proportionate for everybody to be paying their fair share to support this bureaucracy which would be created. Q940 Chairman: Is the uncertainty on grandfather rights impacting on decisions made by businesses in your sector? Mr Brenner: Very definitely. In relation to my own business, for instance, we are seaside piers - and I am just one example from our membership - we have had to suspend the second phase of a major regeneration project to keep up to pace with fire regulations because of the uncertainty. This has been at the cost of a whole year's turnover and therefore until this Bill is enacted we are standing still. I believe that is the case with quite a lot of seaside businesses. Dr Rawlings: If I could describe the Minister formerly in charge of the Gaming Bill, he said "uncertainty is an expensive commodity for business". We certainly would not disagree with that. Grandfather rights have been a bone of contention throughout this discussion. To go back again in history, we only found out just before publication that grandfather rights would not be allowed and only a last‑minute intervention by the Minister reversed that. That would have had very serious consequences for this industry and many others. Equally, the same applies here, that many people in their business contracts have to preserve those rights into the future and I think what we are still not certain about, even with the undertaking now, is how long those grandfather rights exist. There is a question as to whether they will come up for renewal in themselves and that to my mind is not a grandfather right, that is just a delay of execution. Q941 Chairman: We will come on to machine numbers in a moment but could I ask you this as well: is it satisfactory in your view for the four categories of gaming machine to be defined in regulations made by the Secretary of State, which can be changed without consultation with your industry and with only limited parliamentary scrutiny? It is a very leading question I know. Dr Rawlings: It is a very easy question to answer; absolutely not. It is crucial the way the machines are categorised. They are categorised for a purpose. At the moment we have got four categories. We would probably argue there should be an A* category for unlimited prize machines. I think there certainly needs to be proper consultation and there needs to be proper parliamentary scrutiny. We would not object to this necessarily in primary legislation but secondary legislation must be by positive resolution and after consultation with all interested parties, absolutely. Mr Brenner: I would echo that absolutely. Chairman: Thank you. Lord Brooke? Q942 Lord Brooke of Sutton Mandeville: This is a question for Mr Harding. You have recommended that "the Government should, before proceeding any further, undertake its own independent study of the wider economic and social impacts of the proposals." Why do you think that is necessary? Mr Harding: I think we were very concerned that initially the only research seemed to be coming from, for instance, REPILE (?) the cross‑industry group. More recently obviously we have welcomed in the current publication of BACTA the Henley Research, and whilst I would imagine that the members of BACTA probably have a vested interest, nevertheless, I think you have to recognise the fact that it is a very broad church and has as part of its membership people with casino machines, operators of pubs, people like ourselves, operators of amusements at seasides, and so on. I think the Henley Research is probably pretty objective and we would welcome that. We were concerned that again such an important piece of legislation appeared to be appearing before us and nobody really knew what the dynamics of the industry were currently and they were not able to make any reasonable predictions as to what might happen in the future. Q943 Lord Brooke of Sutton Mandeville: You also recommended a cautious approach towards any change in the gambling industry. In your view, given that we now have the majority of the draft Bill, do you think that does represent such an approach? Mr Harding: No. We feel and I feel that what is being proposed currently represents more of a big bang. I think we are very concerned about the possibility of large numbers of large casinos with unlimited numbers of machines appearing around the country. We run the risk of creating a situation from which it would be very difficult to withdraw. The gambling industry in the United Kingdom is very mature. It has sprung up over a number of years and through different pieces of legislation it has almost been "salami sliced" and that seems to work because if a new piece of legislation is introduced if it is clearly not appropriate then you can take a step back. As it is being framed currently, we have big concerns about the numbers of casinos that will appear ‑ not only the effect that it will have on the mature gaming industry in the United Kingdom but also the other corollary which we think will result which is a large increase in the number of problem gamblers as a result of those casinos. Q944 Lord Brooke of Sutton Mandeville: In recommending a step-by-step approach ‑ and I follow why you do that ‑ is there any risk of that being an example of the British disease of always thinking of reasons for not doing something? Mr Harding: No, I do not think so. I think the deregulation process has worked very well. I have worked in the industry for almost 30 years and it has served us well. We have recently received another piece of deregulation which allows us to put notices in machines for credits. It was quite a long, painstaking process but we got there, we ticked the box and we can move on. I do not think it holds us back at all. Dr Rawlings: If I could just add, certainly in the public sector we have taken that cautious approach ourselves over many years with the Gaming Board and I think that is quite a consistent approach to that. This would not be a scrutiny committee if there were not some concerns about that. One only has to look at the effect of big prize machines which has been fixed up to £20,000. We already know the effect of that on the market, which is bad. What we do not know yet is the effect on problem gamblers. That was a big bang that was not looked for, so I would certainly echo what was said. Q945 Mr Wright: I think my pile of questions has been touched on but could you give us an overview in terms of the associations that you represent as to what you expect the likely impact of the Bill as it currently stands will have on your relative industries. Mr Brenner: Yes, our main concern is the future viability of seaside businesses, parks, piers, piers especially, which are Victorian buildings and fantastically expensive to maintain. We see that these will be the major losers of this Bill if it goes ahead as drafted. I just cannot see that it is right for the trivial end of business to suffer to such a degree, ie, freezing of stakes and prizes, the threat of imposed age restrictions and actual reduction in certain prize values for redemption machines. We see that the freezing of stakes and prizes will impact heavily on profitability in the future and as we would not be able to keep pace with inflation with increased wages, especially the national minimum wage, and the ever increasing tax burden, it would seem grossly unfair to us to put us in that position. The imposition of an age restriction for Category D machines would have an enormous impact on our customer base, which is mainly in the family fun sector, and we would see a large reduction in visitor numbers who mainly attend as a family unit. Our ambition is to maintain our successful formula which has been developed over several generations of family‑owned entertainment centres. Almost 100 per cent of our coastal amusement centres are family owned. In many cases these have been able to reduce the rate of decline and play a positive role in the regeneration of the resort. They are commercially successful at the moment because of the mix of equipment. Sorry to put everything in one answer. Q946 Chairman: It is very helpful to that have publicly on the record. Dr Rawlings, did you want to add? Dr Rawlings: The Committee will see that KPMG carried out research for us and that is attached to our evidence. Their findings on that projecting through to the year 2009 - and this is a forecast not an economic study ‑ are that we would see a 20 per cent reduction in pub gaming income over that period and that is quite a substantial amount of hard money for pubs to lose. So we have not been able yet to even think about evaluating the effects of what these large resort-style casinos might do in terms of the local effects on the economy. Essentially these are huge pubs. They offer gambling, food, alcohol and entertainment, all of which is in pubs apart from hard gaming, we are the soft gaming side. We are slightly concerned at the economic effects of this 20 per cent of £500 million net, which is quite a lot of money, and it has to be found somewhere. Q947 Chairman: Mr Harding? Mr Harding: It is difficult to predict obviously what sort of percentage drop it will be. There will undoubtedly be cannibalisation and substitution of the existing business. If we were to see the so‑called "cruise away" casinos appearing in towns and cities I think our particular sector might lose 20 per cent as a reasonable estimate, and I have to say running a business operating on a 15 per cent margin that it would close, it is as simple as that. It would be quite devastating potentially. Q948 Mr Wright: I know it is very difficult to give hard and fast figures, but we have always been told during the process of this Bill that we stand to gain many more jobs and more money for the economy. What you have given is obviously, certainly in the seaside resort of the type that I represent and obviously within the beer trade, a gloomy picture. What would you estimate that the probable job losses would be in terms of the current Bill as it stands at the moment, bearing in mind your comments? Mr Brenner: We do not really know the figures as the Bill stands at the moment but I foresee that within five years on the expected prevalence studies we would go down by half perhaps and I would have thought that by the end of ten years, listening to this Henley Report that BACTA has instigated, it is going to be almost terminal. When I came here this morning I was worried sick about the future viability of our business and now I really am prepared to offer my seaside pier for sale if anybody wants to buy it! Q949 Chairman: Substitution is what always happens when you bring new competition into any market with new products. Mr Harding: Chairman, I would not disagree with that and, of course, that is the free market and that is the commercial environment within which we work. We find it difficult. We have absolutely no doubt whatsoever that we will see a large increase in problem gamblers. If you create a situation where you get cannibalisation from the existing businesses in the United Kingdom and the United Kingdom gambling betting industry and you get cannibalisation as well which means that you do not get a large increase in tax revenues and the offshoot of that is a large number of probable gamblers that are appearing, I just do not see the sense in doing that. Q950 Lord Brooke of Sutton Mandeville: This question is addressed primarily to Mr Brenner but the others can answer if they wish. What is your view of Bill Slim's observation in World War II in 1945 that "no news is ever as good or as bad as it first appears"? Mr Brenner: We have been looking at this for some considerable time and discussing it within our associations for two years. How long does it take? Dr Rawlings: Could I come back and perhaps say for the record, Chairman, that there are just under 60,000 pubs in the country. That is a fairly round figure. There are about 80,000 machines in there. I certainly would not disagree with Lord Brooke in that observation and we are certainly quite reticent to go round screaming foul and loss of jobs, but if you look at the way the market is structured it is not unreasonable to look at the bottom end of that and 1,000 was mentioned earlier as being under real threat. Those are at the tail end of the market where the income to the publican is very low. The amount a machine could contribute to that could be relatively high in proportion. We would say the 5,000 at the bottom end ‑ and we measure that in terms of pubs that qualify for rate relief under the rate relief scheme and the rates are linked to turnover so they are a measure of their success or failure ‑ is a reasonable number to look at. If you took that 1,000 number as under serious risk that is a lot of businesses and jobs, never mind the effect of that income being lost across the market. Q951 Lord Mancroft: Could I ask you to look at that in slightly more detail. Some pubs do not have any machines at all, some have three or four. How important is this machine income for pubs as a proportion of income? What would be the effect of limiting the number of Category B machines in pubs to two by right? Dr Rawlings: It is a complicated question in a sense because it is horses for courses. Those pubs that do not have machines will be at both ends of the market. There are those public houses that are much more restaurant or entertainment based and they do not encourage or have any machines, and that is seven per cent of the market which do not have machines, and at the other end the very small pubs may not have a market at all because there is a price for entry for machines as well, so you have both of those effects. In the general terms in the middle of the market the income is very important because it is the difference between a successful business and a non successful business. Of course the larger the number of customers you have the larger the number of people you have who want to play machines. Fifteen per cent of the adult population play machines in pubs, 75 per cent of people go to pubs, or in other figures there are15 million pub visits a week, so a lot of people go in there and a lot of people enjoy playing machines. It is about entertainment at this end of the market, so they are crucial from an income point of view and from getting the product mix that is right across the board for those pubs. Q952 Lord Mancroft: You may not be able to answer this: the pub industry is very vulnerable at the moment, and I think everybody knows that, but how much income is coming into pub landlords from their machines? I am told that the turnover is about £3 billion a year machine income. Dr Rawlings: I will try and illustrate this as well as I can. If you took the average income per week of money coming in before cost it is something around £240 a week and so you can multiply the figure up. I can give you a more real example perhaps. I can recall that we wrote to the Minister some while ago about rural pubs. If we take a pub with a turnover of £100,000 it might take £6,000 on a machine, out of which it nets £3,000 as gross income. That guy running that pub would probably only take home about £10,000 a year and some pubs take quite a lot less than that, and the reason for them being there is they get accommodation and so forth or they enjoy it. £3,000 out of £10,000 is an awful lot of money to that pub and it is the difference between carrying on and not carrying on. Q953 Lord Wade of Chorlton: Just following on from that, how persuaded are you that the regulatory system over access of people under 18 to machines in pubs is controlled? Are you satisfied that is not happening or do you believe in many instances people under 18 can access machines in pubs? Dr Rawlings: This is something we have looked at very closely over the last few years. I have to say we have argued and asked the Government for a number of years for a regulation in place to ensure that under-18s are not allowed. Could I remind the Committee that it is not against the law for under-18s to play machines in public houses but we did put it in our Code some years ago. We were the first outlet Code and we asked and persuaded suppliers to put notices into machines and all cash machines now have an under 18s sticker. We are very satisfied in our own mind that under-18s do not go to pubs to play machines. Q954 Lord Wade of Chorlton: Following on from that, would you accept something in this Bill that said that only people 18 and over should have access to machines? Dr Rawlings: We would positively welcome that. Q955 Lord Wade of Chorlton: You would welcome that? Dr Rawlings: Absolutely. Q956 Lord Mancroft: Could I ask you to come back to the issue of two Category B machines by right, bearing in mind that some pubs have none and some currently have three or four. That is going to have an effect, is it not, if they can only have two? Dr Rawlings: If they were restricted to two, undoubtedly. Our estimate is that about 18 per cent of pubs have over two machines now, that is about 11,000. Those 11,000 will be at the larger end of the market so in terms of turnover of the market I have not done the sum but I think you could safely estimate that somewhere between 35 and 40 per cent of the market are dependent on the machines that they have in place to generate the income and so forth, so yes they are hugely important. Q957 Lord Mancroft: Putting aside grandfather rights, is there a number of machines by right that you would want or you would like? Dr Rawlings: We have asked the Government through the Home Office and Gaming Board for about eight years to have four machines as of right. The reason for that primarily is that nobody can actually tell us why you should not have more than two nor on what criteria do you base whether you should have more machines. We quite accept that there need to be controls on machines. We are certainly not looking for any Australian-type public experience, absolutely not. If you were to allow four machines by right you would not need to have applications, you would have no appeals, the market we reckon would probably only increase by about five per cent and that is only because it is artificially constrained at the moment by many magistrates who will not allow more than two, in fact, some will not allow more than one but on what basis we know not. Q958 Lord Walpole: Mr Brenner, I think you have answered most of the question I was going to ask you by saying that you wish to sell your pier! We have heard a great deal about the contribution which resort‑style casinos could make to seaside resorts and you have told us already the contribution that your family‑owned amusement arcades are already making and that the Bill does threaten them, but how many of your own members are looking at trying to become resort casinos and take on the competition that may come in? Mr Brenner: This is open to them obviously but I do not see that the country can support very many of these resort casinos when you look at the size and the cost. It is not in our sector's field really but I believe there is one and it is Blackpool that we are looking at because that is the one that has been suggested so far. I think our existing smaller resorts will not even manage to support a single casino but the customers will gravitate towards one in a neighbouring area. Q959 Lord Wade of Chorlton: How would you describe your experiences with the way that local authorities approach gambling matters and does this experience suggest that local authorities should be required to follow Gambling Commission guidance? Dr Rawlings, you have already referred to that in your opening question but maybe you might enlarge on that a little bit. Dr Rawlings: I would be happy to. We do not have any experience of local authorities at the moment in terms of gambling because they do not regulate us at the moment but since the new Licensing Law will be administrated by local authorities we think it is entirely logical therefore that they cover machines. What we do want to do and what we did with the Licensing Bill is to work with the LGA and LACOTS to have guidance where we all understand where we are. I think that is equally important for local authorities as it is for industry. I think it is very damaging not to have that guidance alongside the Bill. It was actually promised with the Licensing Bill and did not happen. It caused all sorts of ructions as your Lordships who were in the House know and they will know how much time that took up in the House of Lords. I would really make a strong plea that any guidance occurs in advance so that everyone can see before we get going in debating the Bill that there is a problem. Mr Harding: Our experience is that local authorities are not always objective in their approach to gambling matters. We see it first of all through the planning process. We have many experiences where local authorities will say to a planning officer who has already proposed that the planning application be approved that the planning officer should go away and find a reason why it should not be approved and then we subsequently win on appeal because we go for very objective proposals. We think that there should be strong guidance to prevent ambiguity. We think that there should be a strong judicial appeal system with all appeals held de novo to enforce consistency in the country. Mr Brenner: We are rather concerned that political and possibly personal considerations could have an adverse effect on decisions. We consider that strict Gambling Commission guidelines should be in place so that there will be a national standard. If you have a strong Gambling Commission with a strong Code which the local authorities are bound to follow it would produce a level playing field under which we could all compete. Q960 Lord Wade of Chorlton: Particularly to Dr Rawlings, why do you think that statutory national guidance needs to be developed to cover conditions in machine licences and the determination of machine numbers? Can this not be left to local authorities to judge? Dr Rawlings: A comment I would make on this, as I said earlier, is that the numbers have been left to the discretion of magistrates now and it really does not work. Some years ago, it has changed a bit now, if you went to Sheffield it did not matter what business you had you were only allowed one machine because that was their policy, but if you went over the border you could have two or more. If you are going to have a national system to regulate, it seems that there must be a sensible reason to have two machines or more. It does not seem too difficult to us to actually decide what that guidance might be. What you are saying is that the nature of that premises is somewhat different to what one would regard as a pub therefore you can make the case out for having four machines or not. Without that guidance how do you know, how do you plan for a business to say, "I am going to refurbish that pub but I do not know how many machines I am going to get before I get there." That is not very helpful. Q961 Lord Wade of Chorlton: Do you not think it is appropriate for particular communities to be able to decide through their local authority the sort of standards and ranges and quality and services they may require, which could differ from one community to another? Dr Rawlings: I think in general terms I would agree with that principle and say this Bill will be tagged on to the Licensing Act and do just that. I think it is a question of where you draw the lines in the sand. If you say this is what you have as of right, what you allow for is local objections if things go wrong, and it would be quite reasonable if local residents were upset because they saw streams of young kids going into pubs that they could do something about it. That is quite right. But I do not see that local residents would even have a view, frankly, as to whether you should have three or four machines in a particular pub. Why would they? Our research shows that people are not bothered by them. Q962 Lord Brooke of Sutton Mandeville: The foreign witnesses who appeared before us immediately before yourselves emphasised how important good regulation was to the health of the industry. In the case of the Licensing Bill it is not only the guidance that has not arrived, there continues to be angst among local authorities about whether they are going to be able to cover their expenses in terms of their responsibilities within the Licensing Bill. How serious is it from the point of view of the members of your associations if in fact local authority licensing capability is diminished because they cannot get their expenses covered? Dr Rawlings: It is very important. It is debatable how much money that is, as you know, but I think we certainly need to know what the cost is going to be before we go through this Bill and the local authorities I am sure will be desperate to know, one, how much they are going to get to do and, two, how much money they are going to get to do it, absolutely. Chairman: We have got the Local Government Association on Thursday so we will see what they have to say. Q963 Lord Walpole: I was just wondering whether Dr Rawlings thinks that the local authorities are going to be able to cope anyway because they have been given so many extra things to do. Dr Rawlings: As the Chairman says, they can answer for themselves and perhaps I should not. Chairman: Thank you for that. Q964 Baroness Golding: In the submissions we have had from BBPA and AGC you have argued for the maximum stake and prize levels for machines to be increased and for Category B, C and D machines to be able to be linked within premises. Could you explain these requests and why do you think it would be helpful to your members? How would it work? Dr Rawlings: Just to make it clear that we are certainly not looking for linking the machines in pubs, that is the first thing I should make clear. I go back to my earlier answer, we have argued consistently for a prize level of £50 since 1997 and the reason for that date is the Gaming Board asked us and everybody at that time to take a look into the future and have a vision of the future of where we thought machines should go, in our case where they should go in pubs in terms of stakes and prizes. We did research at that time with MORI which we repeated the following year under the following review and what we discovered was our customers' expectation of prizes on machines was 70 pence (at that time it was 10p) and we said to the Gaming Board that seems to be a reasonable expectation. We wanted to move to over £50 over three biennial reviews. That is a cautious approach to increasing the stakes and prizes to what people were expecting them to be in the market. One of the things then was the introduction of the National Lottery and everyone would agree that had an effect on the market. We argued that we thought it right to tell the Committee in submitting our evidence here that is what we think should happen. Q965 Baroness Golding: That is not linking the machines? Dr Rawlings: Not linking the machines. Mr Harding: That was our submission. First of all, we feel that £50 prizes would be more appropriate. We see ourselves, the adult gaming centres, as providing for a female audience whilst betting offices provide for a male audience on the high street. LBOs, betting offices have a £500 prize and we would like a £50 prize starting at even a tenth of what they are paying out. In addition, an LBO has a number of different products in betting sport and we have a very homogenous product with a limited stock. We feel if we could link some of the machines together within a small unit it would provide something more interesting for some of the customers. We have seen manufacturers over the last couple of years provide games where you have four or five machines linked together anyway and we would like to extend that. Q966 Baroness Golding: How many machines would you think of being linked together and what kind of premises? Mr Harding: I think a ratio, if the top prize becomes £500 for four machines in an adult gaming centre, and the rest of the machines can pay out at the moment £25 or £50, possibly multiplying ten times £50 to have a £500 prize for all the people linked in one game. We find that it introduces an element of competition. They all sit down together and it is quite a social thing. Q967 Lord Wade of Chorlton: May I just ask how easy is it for an under-age gambler to get into your facilities? Mr Harding: The companies that I represent have licences under Section 34 of the Gaming Act which means under‑18s are precluded from playing machines, which means we are breaking the law if they come in. We regard it as gross misconduct certainly if a member of staff knowingly allows somebody under 18 to play a machine they are dismissed. We have a CitizenCard which means if somebody is borderline they are sent away with a CitizenCard to fill in and told to bring it back when it is validated. Q968 Lord Wade of Chorlton: Are you satisfied that it is pretty well controlled? Mr Harding: Absolutely, no question. Q969 Lord Faulkner of Worcester: Could I ask Dr Rawlings you said very strongly a few minutes ago that you had no interest in your machines in pubs being played by under-18s. How do you intend to operate within the provisions of the Licensing Act which permits children to come into pubs, presumably into areas where there are machines, unless you are proposing to segregate machines from children? Dr Rawlings: We are certainly not proposing to segregate machines. I have to say that would send out exactly the wrong message to what we would regard as low risk usage anyway. A pub by its nature has a number of products in there which are age-related not least of which is alcohol. We have many children coming into pubs and it is very clear the law say you do not sell alcohol to under 18s. We certainly support age cards and we are a member of CitizenCard which helped nationalise that scheme. It is a question of management more than anything else. Our members argue that you manage a pub by walking about, you do not manage it by hiding away and you do not manage it by having green lines on the floors or barriers around machines or sticking them into a separate area, all of which I think are laughable ways of dealing with the problem, if there is a problem. I have to say I do not think there is a problem at all but if there is we certainly believe we can control it. All we are saying is why does the Government not reinforce that with the law because that is the best deterrent that anybody knows? Q970 Lord Faulkner of Worcester: Can I ask Mr Brenner, you cater for children on your pier, I am sure, until you sell it. What do you say to the evidence that we have been gathering (and a lot of insistent evidence) from different people which is along the lines of the earlier you start gambling the more problems you have when you become an adult? Mr Brenner: We do not hold with that. Chairman: Perhaps you would like to come back in a moment. Q971 Baroness Golding: I was delighted with what you said about proof of age cards. I chair the CitizenCard so I know quite a bit about the work they have been doing. Could I ask about the number of Category A machines in large casinos. Do you think they should be limited? Mr Harding: Absolutely. I find it really difficult to understand why it should be suggested there should be a ratio of three to one until you get to 40 tables and it suddenly becomes unlimited. The man on the Clapham omnibus, as they say, would struggle with that. I honestly do not see how any casino is going to be built with 30 tables. They are all going to have 41 tables and have unlimited machines. I think there should be a ratio of three to one and it should continue through and whether you have ten tables or 60 tables, it should not matter Q972 Chairman: Should any casino have unlimited jackpot machines? I do not know if you heard the evidence we had earlier about 100,000 square feet of games with 2,000 or 3,000 machines. Dr Rawlings: We do not see how you can regulate something if you do not have a regulation and if it is unlimited there is no regulation. If we are talking about proliferation, we are here talking about two £25 machines in public houses and we are talking about 2,000 or 3,000 unlimited machines in a casino. Surely, there needs to be some regulation on it? Q973 Chairman: Did you find your answer? Mr Brenner: I would agree with that. I think that regulation is absolutely imperative. We have provided at the seaside and theme parks and amusement parks the form of entertainment that we are currently running for the past 40 years or more, the life of the existing Bill, without any hard evidence that problems have been caused to the absolute millions of families who have patronised our operations over those years. Chairman: Thank you for that. Social implications, Lord Donoughue? Q974 Lord Donoughue of Ashton: Can I ask you a question on addiction, whether pathological or problem gambling. Earlier one of our witnesses, an American witness, was quite reassuring from his particular position in the industry in his references to the relationship between machine gambling and problem gambling, but Professor Orford has told the Committee that "first year psychology undergraduates learning the laws of how people will acquire habits which are difficult to break are often shown a picture of a gambling machine because it is an almost perfect mechanism for creating a habit which is difficult to break." Do you agree with the view that gaming machines are "inherently" - this is another quote - "more addictive than other forms of gambling" and what are you all doing to address that problem? Mr Harding: Anyone who is being honest would admit that machines are potentially addictive. That is the absolute bottom line. The degree of addiction and the harm it can cause is totally dependent on the prizes offered and the stakes. The prevalence study we have done has shown that with the low stake and prize levels we have in the United Kingdom currently the number of people harmed by them is relatively low but we are mindful of that number. Certainly AGCs have been in the vanguard of support for GamCare for a number of years long before the GICT was ever thought of. Our staff follow the "Back to GamCare" regime in terms of social responsibility training. I would say to you that is something which is relatively easy to do in the small, fairly intimate businesses that we have where there may be 40 or 50 machines in one location, and I think it becomes infinitely harder if you have an awful lot of machines in the same place to provide support for. We have customers who have problems. I cannot sit here and say we do not. We do what we can when that happens to direct them to GamCare and counselling. We offer self‑exclusion notices, which means someone fills in a form which says "I do not want to be allowed back in here for six months" and that is adhered to quite vigorously. I think it would be harder to do that with larger numbers of machines. Dr Rawlings: Can I quote directly from the prevalence study that was referred to earlier, which says that the casino gambling prevalence rate is eight per cent and fruit machines are three or four per cent, which puts it in sixth place in terms of incidence of prevalence of gambling. So I am not sure your premise is right. I certainly agree with Nick that there is a problem with everything in terms of gambling otherwise we would not be discussing it, but in the scheme of addiction activity, horse racing, casinos, dog racing and private betting all score higher than fruit machines. Q975 Lord Donoughue of Ashton: Bearing in mind the consequences of mixing alcohol and gambling and the fact that in 2002 30 per cent of calls on machine gambling to the GamCare helpline cited playing in pubs and clubs, what measures should be taken to protect the vulnerable and how can they be enforced? Dr Rawlings: I am glad that question was asked. We certainly saw that figure in evidence previously. I have to say GamCare themselves have been very helpful to us in assisting in answering this question. I understand that the 2003 figures are going to be published today and they have given us pre-notice of those. In 2001 the call number was 19 per cent and this last year in 2003 it was 21 per cent. Why and whether it went up to 30 per cent last year we do not have a good answer to, perhaps there is more information on that and that may be so. I would say the total number of calls here is less than 900 a year and if you look at that, 20 per cent of something like 1,000 is 200 calls a year. I should just mention that figure is pubs and clubs we are talking about and there are some 20,000 clubs. So we are talking about 100,000 venues and 200 people made a call to the helpline. From our point of view that is a needle in a haystack as to whether problem gamblers can be found. Q976 Lord Mancroft: Am I right in thinking that 30 per cent of machines are sited in pubs so that 30 per cent of calls would be logical? Dr Rawlings: We think if you look at GamCare figures they will certainly show you that in the past betting shops had an absolute lower percentage of call rate than do pubs, but only two per cent of people play machines in betting shops and 15 per cent play them in pubs. Q977 Jeff Ennis: The Government's policy of "destination" rather than "casual" gambling is an important part of its strategy for restricting levels of problem gambling. How can the provision of gaming machines in pubs be justified in this context? Dr Rawlings: I think this is why I would have to disagree with the Government here. I am not sure we understand what destination gambling is but if what we understand by it is that people have to specifically get up and go gambling I am not sure that is a good thing. Social gambling the Secretary of State says is a good thing. Social gambling includes the National Lottery. You can go out into every high street town centre and shop and buy a Lottery ticket or a scratch card for a £1 and nobody says that is a bad thing. We do not think playing a low prize machine in a pub is any different. It is socially acceptable. We do not have a problem, except those people generally against gambling altogether, with our machines and our research with MORI shows us that, so what is wrong with social gambling? We think it is a better thing to do rather than hide it away and give it a mystique that would make it more attractive, certainly more attractive to younger people. By making it open I do not think we have much of a problem. Mr Harding: We feel that the last prevalence study was very useful but it was based on statistics from 1998. We think that one of the things that ought to be done is that a new prevalence study is conducted because so much has changed in the last five years. We have FOBTs; we have remote gambling; we have the onset of gambling using a mobile handset. I do not think we really have a proper grasp of the gambling landscape at the moment. Q978 Mr Page: There was a little talk of support for GamCare. Could I ask how much your members contribute to GICT and to GamCare and the mechanism as to how such money is collected? Secondly, do you think that the organisations that will gain from this legislation ought to pay more? Mr Brenner: "Certainly" is the word that comes to mind. A lot of our members who operate machines are members of BACTA as well as BALPPA. We contribute mainly through BALPPA and BACTA and use their scale. Others who contribute do it to recognise social responsibility and they contribute accordingly. That is not to say that they believe their assumptions cause a problem. Dr Rawlings: Last year, our Association collected very nearly £100,000 as a contribution to the charitable trust from our members. Some of our non-members also contributed to that. We would like to put on record that we do not believe that anybody should be able to buy legislation. We are concerned that the trust and GamCare are being used in that way. If the Bill is right for the country, the Bill is right, irrespective of who contributes what. What is important here is that the charities themselves receive the money that they need to exist and to run those businesses to help people with problem gambling. We have always supported GamCare, for many years. Before this arose, we were contributing as an industry around 20,000 a year. We recognised firstly that it was difficult for GamCare operators to raise money for problem gambling because it is not exactly a top line public conscious charity, so it is right that the industry looks to itself to make sure they have that funding. We did see the charitable trust as a way of securing regular funding for those industries. If there is undue pressure on that trust to spend its money other than on treating people with problem gambling - I am referring to suggestions that maybe the trust should pay for the prevalence studies - I think that money should go directly to the best charities that are around to help people. We would reserve the right to put our money directly into those charities if we felt that was in danger. Mr Harding: The companies I represent contribute to the GICT through BACTA. They contributed something like 30 per cent funding through the BACTA funding last year. I have to declare an interest here in as much as I am a trustee of the GICT. Philosophically as a trustee, I have an issue with the suggestion that we should raise more money in order to pay for the problems that we are going to create. The money that the trust has should be there to look after people with problem gambling now and the idea that it should be used to buy legislation is not acceptable to me. Q979 Mr Page: I am a great believer in strong trade associations. Do your trade associations have all the market or are there members who are outside your trade association which make no contribution? What is the percentage? Dr Rawlings: Of 60,000 pubs we probably represent somewhere around 36,000. It varies between 35,000 and 40,000, depending on who owns who this week. Q980 Mr Page: Something like 40 per cent do not contribute? Dr Rawlings: They do not pay us a fee. That is not to say they do not contribute to the trust. Some outside our membership have, as equally some have not. I think it is an important principle that it is voluntary. We ask our members to pay up voluntarily and that is what they do. Lord Brooke of Sutton Mandeville: This is really a question for you, Chairman. When the Minister gave evidence to us and we were discussing prevalence studies, he at a later stage in his evidence suggested that the charitable trust might finance such studies. Have we had any information from DCMS? Chairman: Yes. He has subsequently written to me confirming that he did not mean that. The prevalence studies are for the government to pay for. Q981 Lord Mancroft: Do you think the relationship between the industry and the trust is somewhat incestuous? Mr Harding: Now that we have an independent chairman, I think that is not the case. I think it could have been said to have been incestuous when it was chaired by Lady Cole, with no disrespect to her of course. Q982 Lord Faulkner of Worcester: If the government were to decide that the trust should be entirely independent of the government, financed presumably by statutory levy rather than voluntary levy, would you shed many tears about leaving it in those sorts of hands? Mr Harding: No. Q983 Chairman: Could I summarise what I think you are saying? We have a draft Bill, not complete, although we have policy statements which are fairly complete. It has been trumpeted as modernisation or even deregulation of the industry but what all three of you have just told us in the last hour or so is that you fear that you will have more regulation, not less, because other people will be able to open up gambling opportunities and not only will you have more regulation; you will have less business. Dr Rawlings: We would certainly agree with that, yes. We agree that there are some changes that need to be made. I do not think anybody would dispute that internet gambling needs some regulation. We are not against casinos looking at expansion, provided it is done in a way that is cautious that could be reversed if it was seen to go too far. We want under 18s regulation in our pubs. Beyond that, is there any real need to go and fix a 1998 Bill that we do not think is very broken and has worked well? It is respected around the world and we are particularly concerned that with this Bill -- the government acknowledges it will increase problem gambling -- we would suffer the backlash. We will have to pay for it and we will get more regulation to try and hide up the effects of it. Mr Brenner: We would very much like the 1968 Gaming Act to stay as it is with some slight modifications. Question seven is about problem gambling with children. We consider that with our environment children can learn about handling gambling with a responsible attitude to the playing of machines in an environment with their parents. If that is taken away, I think it would be equal to closing the classroom if you want to educate somebody, because they will get out on the main streets at the age of 18 and be allowed to go into LBOs and anywhere else and they will not know anything about the mechanics of gambling. They will be cannon fodder. Q984 Lord Wade of Chorlton: If on the one hand you are concerned that the change in the law is going to open up other opportunities, I do not see why that is against the interests of your members because your members can take advantage of that just the same as anybody else. Just because they are a member of your organisation does not mean that is only what they can do, does it? Dr Rawlings: I think it does if you are running a pub. There is nothing in this Bill that says we will have any increased opportunities for gaming whatsoever. We will end up with codes of practice and regulations which we think are unnecessary, binding us into something in a declining market. It is not an attractive prospect. Q985 Lord Wade of Chorlton: I own a pub but it does not stop me worrying about what else I might own. Dr Rawlings: As far as gambling is concerned, that income is set because it is constrained by regulation. We are not arguing that it should not be constrained, but if you open up all the competition around you it is bound to have an effect. Chairman: We will resist the temptation of going down the road of who owns a pub and where all the alcohol comes from for your casino hotels. Thank you three gentlemen, very much, for coming here today and for answering all our questions. |