36. Memorandum from NERA Economic
Consulting (GMB 36)
SUMMARY
This short report provides NERA's comments on
the Government's response to the First Report of the Joint Scrutiny
Committee (JSC) on the Draft Gambling Bill.
It is NERA's view that:
— The latest Government proposals would
appear to impose stricter regulations on casinos than had previously
been envisaged. However, we question whether the Government's
objective of preventing increases in problem gambling will be
achieved, despite the socially responsible approach.
— While the tighter restrictions on
small and large casinos will reduce their proliferation by making
them less attractive business propositions than in other previous
proposals, we do have concerns about the proposed regulations
for regional casinos.
— Comparing the definition of regional
casinos given in the Government's response, with that of large
casinos in the First Report of the JSC, suggests that the two
categorisations are not substantially different. While the minimum
size requirements do appear to be more onerous for regional casinos
than for the large casinos, it is far from clear that this is
sufficient on its own to reduce the proliferation of regional
casinos significantly below that envisaged previously for large
casinos.
— Without the necessary changes to
primary legislation, or strict planning controls, the risk is
that the number of regional casinos, and therefore the ensuing
problem gambling, could approach the levels previously expected
for large casinos.
— Under a scenario of 60 regional casinos,
offering around 75,000 Category A gaming machines, we estimate
that there could be up to 500,000 casino-related problem gamblers
in 2010, approximately 400,000 more than at present.
— Given this potential for problem
gambling, the Government needs to provide clear and consistent
guidance, at the regional level, over the criteria for allowing
regional casinos to operate. The guidance needs to reflect concerns
about problem gambling so that local authorities are clear about
the issues that they face in reaching their decisions.
— Failure to control the development
of the regional casinos effectively will not only lead to significant
levels of problem gambling, but will also jeopardise the ability
of local authorities to deliver the regeneration impacts that
are believed to be an important benefit of these casinos.
THE IMPORTANCE
OF CONTROLLING
CATEGORY A MACHINES
1. This evidence is submitted by NERA Economic
Consulting. We are an international firm of economists with more
than 40 years of practical experience in providing economic advice.
We have previously published reports on problem gambling, with
our latest work being referred to in the Government's response
to the First Report of the Joint Scrutiny Committee (JSC) on the
Draft Gambling Bill.[9]
This short report provides our comments on the Government's response.
2. Despite the additional controls proposed
by the Government, the Bill would, if it became law, introduce
a completely new gambling product to the British market. Many,
though certainly not all, British casinos would be allowed to
offer large numbers of unlimited stake and prize gaming machines
(USPMs).
3. These casino machines generate up to
85 per cent of casino earnings in a number of countries that allow
them. This high profitability is a result of them being both attractive
to gamblers, because of the game characteristics and the high
top prizes, and because they are much cheaper to operate than
tables, which require continuous staffing. The ability of these
gaming machines to generate substantial profits has resulted in
USPMs becoming critical to the success of modern casinos. Therefore,
any attempts to control the numbers of machines that casinos operate
will reduce casino profitability, and significantly impact upon
both the number and type of casinos that would develop.
4. In NERA's earlier studies into problem
gambling[10]
we concluded that uncontrolled liberalisation of the UK gambling
industry could lead to an increase in the proportion of problem
gamblers from the present level of some 0.8 per cent of the adult
population to the levels of about 2.0 to 2.5 per cent experienced
in some liberalised Australian states. This could have resulted
in their being up to one million problem gamblers, with much of
the increase being a consequence of the new gaming machines.
5. We have continued to monitor developments
and had revised our estimates in the light of the Draft Bill and
JSC proposals for controls on maximum machine-to-table ratios.
Both reform proposals would have resulted in some controls on
liberalisation and a smaller increase in problem gambling than
we had predicted in our earlier work. We estimated that, if the
Government had adopted more liberal ratios for large casinos,
there would have been around 80,000 Category A machines by 2010,
leading to a middle case forecast of 650,000 casino-related problem
gamblers. Under more restrictive ratios, we estimated that there
would have been nearer to 53,000 machines, but these could still
have led to in excess of 500,000 casino-related problem gamblers.
These casino-related problem gamblers would be in addition to
those problem gamblers whose problems were caused by other forms
of gambling.
THE GOVERNMENT'S
RESPONSE
6. The latest Government proposals would
appear to impose stricter regulations than had previously been
envisaged. In its response, DCMS indicates that they are guided
by the objective that changes in legislation will not lead to
increases in problem gambling in Britain[11]
the Government is seeking to provide consumer choice but not at
the expense of problem gambling.
7. The proposed changes to the Draft Bill
in the Government's response to the JSC report will mean that
three categories of casino will be permitted in Great Britain:[12]
"small", "large" and "regional"
casinos. While all of these casinos will be allowed to operate
limited numbers of gaming machines,[13]
it is only the "regional" casinos that will be able
to offer unlimited stake and prize, or Category A, machines. Although
the exact mix of machines in these casinos is a decision for the
individual casino operators, the proposals would allow up to 1,250
gaming machines in each regional casino and many if not all of
these machines are likely to be Category A ones.
8. The rationale behind this latest set
of proposals is that, in order not to increase current levels
of problem gambling, the proposed legislation must limit the extent
to which ambient gambling opportunities will exist. This view
is based on the belief that with high levels of opportunities
to play USPMs, problem gambling will increase because gambling
will become an impulse, convenience good. But by focussing on
destination casinos, where gambling is offered in a small number
of concentrated locations, deciding to gamble will become, other
than for the locals, a positive decision made by players and is
less likely to lead to problem gambling. Removing impulse gambling
opportunities will reduce growth in problem gambling as the casino
sector is liberalised.
9. However, we do question whether these
objectives will be achieved despite the socially responsible approach.
10. NERA does believe that the revised proposals
would lead to a reduction in the growth of small and large casinos,
and the associated problem gambling, compared to what would have
happened under the Draft Bill or even the JSC's First Report.
This is both because Category A machines will not be available
in small and large casinos, and because of the tougher restrictions
on the number of machines that can be offered. The impact of the
two proposals will be to make these casinos less attractive business
propositions than had previously been expected. Furthermore, the
prohibition of bingo in the small casinos will remove the potential
to convert existing bingo halls into mixed-use casino facilities,
and therefore lead to very limited development within this category.
This is not to say that there will not be any small or large casinos,
just that the numbers of these types of casinos would be lower
than under any previously proposed scenario. However, the exact
extent to which these casinos will be attractive to operators
will depend, in part, upon how the characteristics of the Category
B machines are regulated; 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.
11. But it is with regard to the regional
casinos that our main concern arises.
12. Under the earlier proposals, the majority
of the projected growth in the casino sector was expected to occur
within the large casino category, with the typical British casino
operating 40 gaming tables and 320 USPMs. Under the revised proposals,
the significant tightening of machine restrictions will reduce
the economic viability of the large casino category to a significant
degree. However, as can be seen in Table 1, what are now being
defined as "regional" casinos are not that significantly
different from what were proposed previously by the JSC for large
casinos; both types of casino require a minimum of 40 gaming tables
and the equivalent of 1,000 square metres of gaming table area.
Table 1
Comparison of Casino Classifications
|
| Criteria | Large casinos
(Joint Scrutiny Committee)
| Regional casinos
(Government Response)
|
|
| Min. table gaming area | 10,000 sq. feet (approx 1,000 sq metres)
| 1,000 sq metres |
| Min. no. of gaming tables | 40
| 40 |
| Min. total customer area | Not specified
| 5,000 sq metres |
| Min. machine-to-table ratio | 8:1 (suggested)
| 25:1 (capped at 1,250) |
|
Source: Government Response to the First Report of the Joint Committee
on the Draft Gambling Bill, June 2004 & House of Lords &
House of Commons—Joint Committee on the Draft Gambling Bill,
"Draft Gambling Bill", Volume 1, March 2004.
13. The key difference between these two casino classifications,
other than the significantly higher machine limit for regional
casinos, is that regional casinos will be required to have at
least a further 2,500 square metres of additional gambling area
and 1,500 square metres minimum of non-gambling area, totalling
a minimum total customer area of 5,000 square metres. This means
that the regional casinos seem to be larger than would have been
the casinos in the large category under previous scenarios. It
appears that the Government expects that this minimum size requirement
will make these casinos so large that the requirement will naturally
limit their proliferation. However, when considering how onerous
is this size requirement two factors should be taken into account:
— While there were no minimum sizes for the other
gambling and non-gaming areas originally proscribed under the
previous large categorisation, the other gambling area, albeit
smaller, would have been required to operate the gaming machines
anyway, and it is hard to imagine that some non-gaming areas (ie
bars or restaurants) would not have been provided; and
— While 5,000 square metres may appear large compared
to existing casino sizes, the average standard DIY chain store
is on average between 4,000 to 5,000 square metres, so a building
of the size envisioned for regional casinos in the response is
not that uncommon in most of Britain's towns and cities.
14. Consequently we doubt whether the proposed criteria
for the dimensions of the regional casinos will themselves be
sufficient to prevent the widescale development of such casinos.
Without the necessary changes to primary legislation, or through
strict planning restrictions, the risk is that the regional casinos
could become as numerous as would be the large casinos under the
previous proposals. International experience of gambling deregulation,
plus the maturity and complexity of the existing British gaming
industry would suggest that the potential demand for these types
of casinos could be substantial.
15. The potential for development of significant numbers
of these casinos, fuelled by rushed competition between local
councils to attract the maximum perceived regeneration that accompanies
them,[14] could adversely
impact on the Government's objective not to increase the numbers
of problem gamblers.
16. As a condition of impulse and compulsion, problem
gambling depends critically on the availability of gambling opportunities,
and in the case of casino-related problem gambling, the availability
of USPMs, an argument reflected in the Government's response to
the JSC.[15] Therefore,
in order to limit the increase in problem gambling, policy needs
to limit the introduction of these machines, which involves limiting
the availability of regional casinos. Such a policy would need
to address two key issues:
— number of casinos—the critical driver of
machine availability is clearly the number of these casinos in
Britain. The greater the number of the casinos, the easier it
is on average for people to access the gambling opportunities
and, therefore, the greater the likely size of the problem gambling
population; and
— location of casinos—whilst the number of
casinos is critical to availability, the location of these casinos
is also important. Even if there is a relatively large number
of casinos in the country, if all of these casinos are clustered
in a small number of locations away from the centres of population,[16]
then average accessibility for the country as a whole will remain
low, and therefore, this would control the growth in problem gambling.
17. Whilst the spatial issues are of principal importance
in determining the accessibility of casinos and USPMs, the importance
of mixing "hard" and "soft" gambling in the
same venue should not be ignored. The current proposals would
allow both regional and large casinos to offer both bingo and
betting in the casino premises. By allowing this, the "destination"
characteristic of the casinos would be eroded as players may migrate
to the "harder" casino offerings having initially made
the decision to visit the casino to access only the betting and
bingo facilities.
18. In Table 2 we provide some indicative estimates of
how the numbers of regional casinos, and therefore, accessibility
to USPMs may impact on problem gambling. These estimates do not
reflect any specific clustering scenario, although we would anticipate
the estimates of problem gambling for each number of casinos,
other than in their local areas, would fall if these casinos become
increasingly concentrated in a limited number of geographical
areas. However, this is unlikely to occur if casino development
is left to market forces, as casino operators will seek to locate
new casinos in areas with high populations to maximise their potential
customer base.
19. The forecasts in Table 2 suggest that the regional
casinos could contribute to a significant increase in our currently
estimated 95,000 casino-related problem gamblers. Under a scenario
where 60 "regional" casinos are allowed to be established
in Britain by 2010, we estimate that the number of casino-related
problem gamblers could be as high as 500,000. This figure is in
addition to the problem gamblers whose problems are related to
other forms of gambling. By restricting the numbers of casinos
to our lower scenario of 10, we estimate that this number of casino-related
problem gamblers could be approximately a third, at around 164,000.
If these 10 regional casinos were concentrated in a very small
number of locations, we would anticipate that the increase on
current casino-related problem gambling could be significantly
less.
Table 2
Potential Impacts on Problem Gambling
|
Number of
Regional Casinos,
2010
| Maximum
Number of
Category A Machines
| Assumed
Participation
Rate for Regional Casinos
| Assumed Rate
of Problem Gambling Amongst Regional
Casino Participants
| Casino-Related Problem Gamblers, 2010
|
|
| 10 | 12,500
| 4% | 8.75%
| 164,000 |
| 20 | 25,000
| 5% | 8.75%
| 205,000 |
| 30 | 37,500
| 6% | 8.75%
| 246,000 |
| 60 | 75,000
| 10% | 10.50%
| 493,000 |
|
Source: NERA estimates
Notes: An increasing rate of problem gambling is assumed to reflect
the increasing ease of access to USPMs allowing addiction to develop.
The step change from the currently estimated 7 per cent problem
gambling rate among casino patrons to 8.75 per cent represents
the introduction of the Category A machines to a limited number
of destinations, while the second increase to the rate of 10.5
per cent represents the significantly greater ease of access to
the machines from having high numbers of regional casinos.
THE NEED
FOR CAUTION
20. The Government has made significant steps in its
latest proposals to address the issue of problem gambling. The
proposals to restrict access to Category A machines in small and
large casinos will contribute to a significant lowering in the
proliferation of these casino types, and an associated smaller
increase in problem gambling. However, concern does still exist
as to whether the proposed requirements for regional casinos will
be sufficient to limit the proliferation of these casinos, and
therefore of problem gamblers. While the minimum size requirements
do appear to be more onerous than previous proposals, it is far
from clear that they are sufficient to constrain significant development
of this category of casino.
21. It is our view that the Government needs to provide
clear and consistent guidance to local authorities over the criteria
for allowing casinos to operate. This guidance needs to focus
at the regional level, in line with the concept of regional casinos,
to limit the extent to which individual councils can negatively
compete with each other within a region for these facilities.
As a result of the current lack of guidance from central Government,
we have heard industry reports that failing to limit regional
casinos could result in more than 50 of them being developed,
potentially as many as 90. This advice also needs to reflect issues
of problem gambling so that local authorities are clear about
the issues that they face in reaching their decisions.
22. Failure to control the proliferation of regional
casinos would not only lead to an increase in the social costs
of casinos, through significant additional casino-related problem
gambling, but the benefits to society that stem from the perceived
regeneration that the casinos deliver would also be jeopardised.
If regional casinos are allowed to develop freely, the ability
of local authorities to extract planning gain from the casino
operators, which is seen as one of the key elements of the regeneration,
would be severely undermined as there would be less profit to
appropriate.
July 2004
9
Department for Culture, Media and Sport Draft Gambling Bill:
Government Response to the First Report of the Joint Committee
on the Draft Gambling Bill; Session 2003-2004 June 2004. Back
10
NERA Gambling Liberalisation and Problem Gambling, November 2003.
(This report is an updated version of NERA, 2002). NERA Predicted
Changes in the Incidence of Problem Gambling in the UK Following
the Recommendations in the "Gambling Review Report"
and Proposals in the White Paper, May 2002. Back
11
DCMS Government Response to the First Report of the Joint Committee
on the Draft Gambling Bill, June 2004, p.15 Back
12
There will also be a fourth category of existing casinos that
are too small to fit into the new categorisation. Back
13
Small casinos will be allowed up to 80 machines at a minimum
ratio of 2 machines per gaming table and large casinos will be
allowed up to 150 machines at a minimum ratio of 5 machines per
gaming table. Back
14
Given the lack of guidance at the local authority level, there
is a risk that the councils or regional authorities will want
to accept applications from as many casino operators as possible
so as to capture any regeneration in their region rather than
losing it to another area. Back
15
"Across the world, gaming machines are perceived to involve
increased risks of excessive play", Government Response to
the First Report of the Joint Committee on the Draft Gambling
Bill, June 2004, p. 16. Back
16
In reality casino operators will aim to site regional casinos
as close as possible to areas with high population density. Back
|
