Joint Committee on the Draft Gambling Bill

Joint Committee on the Draft Gambling Bill First Report

4 Gaming Machines

38. The Government's proposals relating to gaming machines represent a significantly more cautious approach than that which was outlined in the draft Bill. Category A machines are only permitted in regional/leisure destination casinos and the gaming machine entitlements have been reduced for small and large casinos to 2:1 (with a cap of 80 machines) and 5:1 (with a cap of 150 machines), respectively. The Government's rationale for such a cautious approach was explained by Lord McIntosh of Haringey when he gave evidence to the Committee. He said that the Government's aim "is to limit the accessibility of jackpot machines rather than to impose scarcity. The reason for that is fundamentally about protection".[49] The Government's decision to take a cautious approach is understandable given that Category A machines are as yet untested on the domestic market.

Category A machines

39. Category A machines have no limit on the stakes and prizes which can be placed and won. For this reason they have become widely known as "unlimited prize machines", creating the impression that they could pay out life-changing amounts of money in prizes. While this will be true of some machines, a more informative description of a Category A machine is as a variable machine, whose stake and prize can be altered to suit customer demand. While some machines may pay out life changing amounts, they are likely to be in the minority and only in casinos which can generate such a significant prize pot through the linking of machines. As Mr Nathan remarked when he gave evidence to the Committee "unlimited stakes and prizes […] does not mean all of them have a mammoth jackpot".[50] The majority of Category A machines will offer a range of stakes and prizes to maximise the appeal to customers. Mr Prior, Chief Executive Officer, UK Gaming, Kerzner International told the Committee "a mix of lower frequency lower pay-out machines typically predominate on the gaming floors".[51] The focus on the potential for Category A machines to have unlimited stakes and prizes has led to some confusion about how they might be used in casinos and whether they could be more addictive than other machines to problem gamblers.

40. The Government wants to limit the number of premises that can have Category A machines to "protect the public by preventing a sudden and substantial increase in the availability of high prize gaming machines".[52] The Casino Machine Manufacturers' Group question whether there is evidence to support the view that Category A machines are more dangerous than other categories of machine:

"Given that there is no evidence that Category A machines are more dangerous than any other form of gambling, measures to impose such harsh and arbitrary restrictions seem unjustified and out of keeping with the long process of consultation which the Government has undertaken with the industry".[53]

Mr Kelly told the Committee "I do not think there is any evidence whatsoever that unlimited stakes and prizes machines are any more or less addictive than any other form of machine which pays out in cash".[54] This view is not shared by the religious groups who gave evidence to us, who note that "research in the United States and Australia implies a correlation between the incidence of problem gambling and the accessibility of such machines".[55]

41. Professor Peter Collins noted the lack of research in this area: "I do not think frankly we know enough yet about whether in themselves category B machines would be less addictive or safer than Category A machines".[56] In order to assess the impact of Category A machines on problem gambling, research needs to be done on their potential to cause harm and increase the prevalence of problem gambling. We welcome the Government's commitment to carry out a national survey of gambling participation and problem gambling prior to the implementation of the Bill but recommend that additional research is carried out into Category A machines and their potential for addiction.

42. We have received evidence questioning whether restricting the accessibility of Category A machines to regional /leisure destination casinos is the most appropriate way of providing protection. The British Casino Association state that:

"Given the focus which the Secretary of State has placed on the importance of controlling the issue of problem gambling, we are confused as to how restricting stakes in a Mayfair members' club to £1 and a prize of £500 whilst allowing unlimited stakes and prizes in a regional casino in, say, Blackpool delivers a consistent message on social responsibility".[57]

Evidence from Rank Group also questions whether the restrictions on Category A machines will succeed in meeting the Government's objective. "Rank Group urges the Government to reconsider its prohibition of Category A machines in small and large casinos. It disagrees with the contention that these types of casinos encourage 'repetitive, casual use' of machines in a way in which Regional casinos will not. All casinos are and will continue to be subject to tough regulatory and supervisory environments".[58]

The impact on the existing industry

43. The Government's latest proposals significantly alter the product offered by existing casinos and new small and large casinos. We have received evidence suggesting that this could have a very detrimental effect on the existing industry. Rank have also argued that the proposals could result in no new small or large casinos being developed. "It is clear to us that there would be insufficient demand for the inferior product offer (i.e. Category B machines) that would be allowed in small and large casinos, to justify operators opening such premises in competition to the regionals".[59]

44. We are surprised at the stance the Government has taken in relation to the existing industry, which has developed an international reputation for good governance and integrity since the introduction of the 1968 Gaming Act. The latest proposals could have a very damaging effect on existing businesses, which accompanied with the lack of consultation by the Government have disappointed the industry. The Chairman of the British Casino Association told us:

"It is a great sadness that, having had four years of what in my view has been commendable consultation, there has been absolutely none since we last spoke to you. This has resulted in the industry being astonished by some of the proposals that appeared in the Department's response to your report".[60]

We appreciate that the Department had a limited timeframe in which to prepare its response to our report but believe it is regrettable that consultation with the industry, on what in some cases are significant changes, was not possible.

45. It is questionable whether, by making such a distinction between the product offering (and, therefore, profitability and economic viability) of existing, small and large casinos on the one hand, and of regional/leisure destination casinos on the other, the Government's proposals could have an opposite effect from the one it intended. We heard evidence from the British Casino Association, the Casino Operators' Association of the UK and Gala that the Government's proposals would mean that new investment would only occur in regional/leisure destination casinos and that, due to the advantages gained from having a regional/leisure destination casino compared with a large casino, the Government's proposals could result in there being more regional/leisure destination casinos than there would have been under the proposals set out in the draft Bill. Given that the minimum table gaming area of 1,000m², sufficient for 40 gaming tables, is the same for large and regional/leisure destination casinos a developer would be tempted to seek consent for a regional/leisure destination casino in order to have 1,250 Category A gaming machines, as opposed to the 150 category B machines available in a large casino. The British Casino Association argue that "the cost of a much larger customer area, would be substantially outweighed by a much greater income".[61]

46. The existing industry has stressed the need for a level playing field with the new regional/leisure destination casinos. Mr Allen told the Committee:

"We have to be able to compete on a level playing field and that goes to these category A machines. If large casinos are going to be able to put them in, we have to be able to put them in. You do not have a supermarket selling milk and stopping corner shops selling milk. If we are going to have an open, free market, it has to be one where we all compete on level terms".[62]

47. We feel that the Government's proposals, as they affect the existing casino industry, are unnecessarily restrictive and could have negative implications for the future of the industry. We believe there is merit in the Government's objective of limiting the number of premises that can have Category A machines. We do not however feel that this objective would be compromised by allowing existing casinos, many of which are niche establishments, serving "high-roller" customers, to have a proportion of their gaming machine entitlement as Category A machines. We therefore recommend that the Department for Culture, Media and Sport, in consultation with the Gambling Commission and the existing industry, considers an appropriate entitlement for casinos which were in operation before the 7th August 2003 (the date on which the original policy statement on casinos was published) to have a proportion of their gaming machines as Category A gaming machines. Such discussions should be informed by the outcome of the Government's revised Regulatory Impact Assessment and Competition Assessment and the agreed entitlement should be reviewed after three years, following research on the impact of Category A machines.

48. Subject to the outcome of such research we recommend that the question of whether new small and large casinos should be entitled to have a proportion of their gaming machines as Category A machines is also reviewed. We recommend that this review should consider allowing new small and large casinos to have a proportion of their gaming machines entitlements as Category A machines if they build up a good record in respect of social responsibility over a period of, say, three years.

Will there be any new small and large casinos?

49. The Government's decision to reduce the gaming machine entitlement of existing, small and large casinos has angered and disappointed the existing industry. One aspect of the new proposals that seems to have gone unnoticed is that new small and large casinos are required to have a minimum of only one gaming table, despite minimum table gaming areas of 500m² and 1,000m² for small and large casinos respectively. We do not understand the logic of reducing the minimum number of gaming tables, whilst maintaining the minimum table gaming area for small and large casinos. We recommend that the Department for Culture, Media and Sport consults the industry to consider more appropriate minimum gaming table requirements, which allow the industry reasonable flexibility but which also avoid the risk of a proliferation of new very small casinos. 500m² is thought sufficient to accommodate 20 tables and 1,000m², 40 tables. These were the minimum number of tables required under the Government's previous proposals. As a large casino would need only 30 gaming tables to secure the permitted maximum of 150 gaming machines, it is unlikely that any large casinos would have as many as 40 tables.

Competition issues

50. The British Casino Association believe that the inequality between different categories of casino raises competition issues that should be bought to the attention of the Office of Fair Trading.[63] The DCMS has not published a revised Regulatory Impact Assessment or Competition Assessment alongside its latest proposals. This is regrettable. The Rank Group consider that "it is imperative for the Government to update and republish its own Regulatory Impact Assessment and Competition Assessment, neither of which takes any account of the Government's latest proposals".[64] This view is shared by the Casino Operators' Association of the UK.[65]

51. The Transport and General Workers Union have expressed concern that the Government's proposals, in creating a competition distinction between regional/leisure destination casinos and all other casinos, could lead to job losses: "we have concerns that one category of casino (regional) will have an unfair advantage over small large and existing casinos with grandfather rights […] the Government's response has led to too wide a gulf between different categories of casinos. Obviously the siting of these new casinos (i.e. London Docklands) could have a detrimental effect on existing casino jobs and existing casinos. Existing establishments must be allowed to compete".[66]

52. We have also received evidence suggesting that the Government's proposals could have a negative impact on other sectors of the gambling industry. The Bingo Association believe that the policy "fails to take account of the likely impact this will have on other sectors. The size and location of future casinos will be critical to the survival of many bingo clubs, many of whom have been effectively prevented from converting where they cannot survive as a stand-alone bingo entity".[67] This view is echoed by Castle Leisure who consider that the proposals "contain aspects, which will have a significant detrimental effect on competition within the bingo industry and on the competitiveness of the bingo industry as a whole".[68] The Casino Machine Manufacturers' Group contend that "the Government's recommendations in this area will […] damage the viability of existing UK operator's businesses".[69]

53. The Committee believes that there are valid competition issues arising from the significant changes to the Government's original proposals that must be given due consideration before the debate is concluded. We therefore recommend that the Department for Culture, Media and Sport undertakes full revisions of its Regulatory Impact Assessment and Competition Assessments without delay.

The 1,250 machine limit

54. Under the Government's proposals, regional/leisure destination casinos are limited to a maximum of 1,250 gaming machines, as recommended in the Committee's original report. Evidence from international operators suggests that they would prefer to see a higher maximum number of machines. Las Vegas Sands "believe that prohibiting over 1,250 machines in regional casinos will limit inward investment and regeneration without significantly alleviating problem gambling".[70] A similar view is expressed by MGM Mirage Development who state that "the proposed cap of 1,250 Category A machines for 'regional' casinos will limit the size and scale of any 'regional' casino complex that might evolve".[71] We have also received evidence requesting caution in this area. In a joint submission, the Methodist Church, the Salvation Army, Quaker Action on Alcohol and Drugs and the Evangelical Alliance argue that "given the evidence of the risky nature of these machines, we are still concerned that the proposed cap of 1,250 machines in regional/leisure destination casinos is too high. […] We would urge the Government to begin with a much lower cap in regional casinos, and monitor the impact before raising it".[72]

55. While we have recommended an increase in the minimum total customer area for regional/leisure destination casinos, our recommended definition leaves the minimum gambling areas unchanged. The Committee's reasons for recommending such a cap in its original report remain valid. Therefore, we do not think it is necessary to increase the 1,250 cap on Category A machines in regional/leisure destination casinos. When asked, international operators accepted this view and confirmed that the cap was adequate for their commercial needs.[73]

56. Category A machines remain untested on the UK market. The Government's proposals for regional/leisure destination casinos to have up to 1,250 Category A machines allow for a major expansion in the number of gaming machines in the UK. Given the uncertainties about the possible impact that Category A machines may have on problem gambling we welcome the Government's cautious approach and do not believe that an increase in the maximum cap for regional/leisure destination casinos is justified. We so recommend.

Category B machines

57. Under the Government's latest proposals small and large casinos are only permitted to offer up to Category B gaming machines, with a cap of 80 and 150 machines respectively. As part of their machine entitlement, existing casinos will be permitted to retain their current entitlement of ten machines, with a maximum prize of £2,000. Category B machines have a maximum stake of £1 and maximum prize of £500. This means that small and large casinos will be able only to offer significantly lower prizes than they could do with Category A machines, and consequently will have reduced flexibility in varying the levels of stakes and prizes.

58. One advantage of limiting Category B machines is to maintain the distinction between them and regional/leisure destination casinos. Leisure Parcs believe that "capping the number of Category B machines for both 'small' and 'large' casinos and implementing the slot to table ratios at the levels proposed by the Government will further aid the clear distinction between 'regional' and other casinos".[74] This view is shared by Kerzner International who "strongly support the restriction of category A machines to 'regional' casinos".[75]

59. The combination of the lower stakes and prizes of Category B machines, the cap on their numbers and the removal of the entitlement to Category A machines in existing, small and large casinos has caused considerable frustration within the existing industry.[76]

60. Increasing the maximum stakes and prizes for Category B machines has been put forward as a means of addressing this issue. The British Casino Association suggest that the Government should "permit category B machines in casinos to have maximum stakes and prizes of £10 and £50,000".[77] This view is shared by Leisure Link, Rank, and Business In Sport and Leisure.[78] Gala propose that there should be "an additional class of Category B machines […] for grandfathered and large casinos with a £10 maximum stake and £10,000 maximum prize".[79] London Clubs International agree.[80] As the Casino Machine Manufacturers' Group observe, casinos are "strictly regulated environment[s]". Arguably this justifies increasing the maximum stakes and prizes they can offer on Category B machines.

61. NERA Economic Consultants however suggest that increasing the maximum stakes and prizes for Category B machines could have the negative effect of increasing the proliferation of new casinos: "if these machines are allowed increased stakes and prizes then the profitability of them will be greater, making the business case for the casinos stronger, and therefore, leading to more of them than would otherwise be the case".[81]

62. On balance, the Committee does not consider that having a maximum prize of £500 for a Category B machine in an existing casino, or a new small or large casino, is appropriate. In contrast, although it seems that the Government does not intend the maximum stakes and prizes applying to Fixed Odds Betting Terminals (FOBTs) in betting shops to be permitted in Adult Gaming Centres and bingo halls, the Committee remain concerned about allowing FOBTs in such premises. We do not believe that the Government's approach on FOBTs is consistent with its approach to existing casinos or new small and large casinos.

Increasing the maximum stakes and prizes for Category B machines in casinos

63. If the Government proceeds with its proposals to allow only Category B, C and D machines in existing casinos and new small and large casinos, the existing industry will be seriously disadvantaged. Increasing the maximum stakes and prizes for Category B machines located in casinos would provide operators and customers with a more attractive product and could go some way in defusing the disappointment and frustration caused by the proposal to restrict Category A machines to regional/leisure destination casinos.

64. In its response the Government notes, that under Clause 195 of the draft Bill, "the prize limits for a Category B machines will vary according to where the machine is situated".[82] We welcome this provision and recommend that the Gambling Commission, in consultation with the Department for Culture, Media and Sport and the gambling industry, develop a schedule of varying stakes and prizes for Category B machines in different gambling premises. Specifically, we suggest that there is a strong case for substantially increasing the maximum stake and prize limits for Category B machines located in casinos.

65. While we appreciate the industry's frustration that the proposed caps of 80 and 150 Category B gaming machines in new small and large casinos are unnecessarily harsh, we do understand the reasons for the Government's cautious approach. We therefore recommend that the maximum number of gaming machines permitted in small and large casinos should be reviewed by the Gambling Commission three years after Royal Assent and that appropriate recommendations should be made to the Secretary of State for Culture, Media and Sport.

49 Q 1 Back

50 Q 258 Back

51 Q 265 Back

52 Department for Culture, Media and Sport (DCMS), Draft Gambling Bill, Government Response to the First Report of the Joint Committee on the Draft Gambling Bill; Session 2003-2004, Cm. 6253, June 2004, page 30 Back

53 Ev 129, paragraph 2.3 Back

54 Q 205 Back

55 Ev 147, paragraph 2 Back

56 Q 365 Back

57 Ev 52, paragraph 6.4 Back

58 Ev 126 Back

59 Ev 55, paragraph 3.2 Back

60 Q 173 [Lady Cobham] Back