Examination of Witnesses (Questions 240
- 259)
TUESDAY 6 JULY 2004
MR LLOYD
NATHAN, MR
PETER BACON,
MR ANDREW
TOTTENHAM, MR
TOBIN PRIOR,
MR STEVEN
EISNER AND
MR RODNEY
BRODY
Q240 Lord Walpole: Do you think that
the new small and large casinos will be viable businesses under
the Government's proposals. In other words, would you like to
invest in a small casino?
Mr Prior: If I could answer, I
think that given the proposals outlined thus far there will be
regional spatial strategies which will determine where regional
casinos will be and they will by their very nature be limited,
and we can debate in the light of previous witnesses' evidence
exactly how far they are limited. I think there will be significant
opportunities for new large casinos. There are a lot of areas
where gambling is currently not permitted where I think there
would be opportunities for new large casinos. Despite what you
heard from the last witnesses, I would be very surprised if in
some areas like Croydon, Watford, Milton Keynes, St Albans, Woking,
Tunbridge Wells, to list but six—and there are many, many
more—there would not be new opportunities for large casinos
in the current format let alone a debate about a level playing
field for what is in those casinos. There will be markets which
clearly regional casinos will not be tapping into because of the
regional spatial strategy where there may well be good opportunities
for new investments in large casinos.
Q241 Lord Walpole: You might be prepared
to invest in them?
Mr Prior: Absolutely.
Mr Nathan: We would concur with
that and concur with the previous panel as well because the previous
panel referred to their belief that they would not be viable where
they are in direct competition. There are plenty of areas and
towns that are big enough to merit a small and large casino. It
takes a low-capital expenditure to build them and I think they
would be highly successful businesses. I imagine that everyone
round this table if they were pushed in that direction would look
at them quite seriously.
Q242 Chairman: And these would be
in places, and you named some Mr Prior, which at the present time
are not permitted areas?
Mr Prior: Correct and which probably
would not withstand significantly large investments of the nature
we have been discussing in terms of regional casinos. I think
it is also pertinent to point out that there is likely to be a
period after this law becomes enacted and other regional casinos
come to market where existing casinos with existing player bases
are able to go to the market and take advantage of what the new
regulations allow and develop a very strong business. This is
something which obviously a substantial investment which takes
two years to build is not going to be able to do. I do not see
quite as much doom and gloom as was portrayed by the previous
witnesses.
Q243 Janet Anderson: Do you think
the Government's proposals overall will succeed in limiting proliferation
and therefore problem gambling? Do you think the Government has
just about got the balance right?
Mr Bacon: I think the notion of
having a few large regional casinos will, in my view, help with
the limitation of any proliferation of problem gambling. I think
the difficulty that the Government will face is how to avoid a
proliferation of large casinos. I think that by virtue of the
market the number of regional casinos will be limited. It will
be limited to large cities and towns with sufficient population
to support very substantial investments in large regional entertainment
centres, the core component of which will be a large international
style casino. I would be more concerned if I were in the Government's
position about a potential proliferation of large casinos which
could happen unless there is some cap or some method through the
planning process of ensuring that there are not a large number
of these in any given location or area. We will move on to how
many regional casinos a little later, but by virtue of the fact
that there will be fewer large casinos that will assist in limiting
proliferation of problem gambling. I would be more concerned about
the proliferation of large casinos.
Chairman: The very question you have
just posed.
Q244 Lord Mancroft: "Later"
has now come. I am sure you talked about this but how many regional
casinos do you think there will be under the present proposal?
Mr Bacon: I will answer that and
I think there are some different views around the table. Our view,
based on a fairly careful study of the market in this country,
is that the market could support 25 to 30 (maximum) regional casinos
and here we are talking about very substantial investments upwards
of £50 million.
Q245 Lord Mancroft: Do you think
they would all occur on day one as it were?
Mr Bacon: No, I doubt it very
much. I think there would be quite a lengthy process in competing
for these opportunities. If the opportunities are site specific
there will be competition for those sites and quite a lengthy
planning process.
Mr Tottenham: I think it is very
hard to answer this question because we need to understand what
the regional spatial strategies will be like. Having spoken to
some of the regional authorities—
Chairman: Order, there is a division
unfortunately in the House of Lords so we will suspend the Committee
for ten minutes. I do apologise.
The Committee suspended for a division.
Q246 Chairman: Mr Tottenham, I believe
that you were about to tell us your estimate on the number of
regional casinos. I think these answers are a combination of how
many you think there will be and how many you would like there
to be.
Mr Tottenham: There is a lot of
truth in that. As I was saying, it is very hard to say today because
we do not know what the regional spatial strategies will look
like. Having spoken to the some of the planning authorities, they
are quite far back in the process in determining this. The other
element is grandfather rights. We do not know what is going to
happen with applications for casino licences in the next year
before this Bill becomes law, so we do not know what is going
to happen there. Subject to that and subject to taxation being
acceptable, it is our estimate that there will be somewhere in
the region of 25 to 35 regional casinos.
Mr Prior: I wish to state that
I have been on record before this Committee before with my estimate
and it remains consistent. Obviously it is qualified by what the
dynamics of the market-place will end up being. I would like to
stress one point that it is still not clear from the policies:
the potential proliferation of large casinos we might be faced
with will have a significant impact on the number of regional
casinos ultimately out there in the market-place, but my view
is that there will be between 15 and 25 regional casinos and that
is over the medium term. I do not think they will all be lined
up on day one.
Q247 Chairman: Medium term meaning
10 years?
Mr Prior: Five to seven years.
Chairman: Let's turn to gaming machines.
Q248 Viscount Falkland: What are
your views on the gaming machine to table ratio of 25:1 for regional
casinos and the 1,250 machine cap for regional casinos?
Mr Nathan: I think the proposed
cap of 1,250 for Category A machines will limit the size and scale
of any given project. Given the risk and magnitude of capital
expenditure required to actually build a regional casino there
should be no reduction in either the number of Category A machines,
nor the proposed ratio of 25 machines to one table game. Nor should
there be any limitation on the range of machines that one can
have available to any operator within that 1,250. Any reduction
will make the deliverability of regional casinos potentially unviable.
Mr Eisner: Just to follow on I
think that it does strike, as the Government attempted, a fair
balance between companies' ability to develop full entertainment-type
facilities and to provide for a controlled growth of the market
as opposed to just an open, unmanaged growth, so I think that
is an important point. The goal was a controlled and managed growth.
I think that is what a 1,250 machine cap and a modest number of
regional casinos will allow for.
Mr Tottenham: Caesar's is in favour
of a cap, there is no question. Also I think that the 25:1 ratio
is sensible but the 1,250 machine cap that has been proposed has
been proposed without taking into account the actual investment
required to put into one of these resorts and the returns that
you are looking for. It is the additional facilities that create
the demand for the gambling product not the gambling product that
creates the demand for the additional facilities. The other thing
is about managing peak business, it is not about managing day-to-day.
1,250 machines means you can have 1,250 people playing on machines
at any one point. That means on a Friday and Saturday night you
will be full and you will be having people standing waiting to
play and some of them will leave dissatisfied. On a Thursday morning
or a Wednesday morning you will probably have, if you are lucky,
100-150 people, so the very fact that you limit the number of
machines in this manner at 1,250 means you jeopardise what you
could have achieved in terms of investment and regeneration, you
limit the amount of planning gain that could have been available,
and you limit the investment. We are arguing that this should
be moved up and then it becomes an extremely attractive proposition
to build a very large resort.
Q249 Janet Anderson: What estimate
have you made of the average annual profit per machine?
Mr Prior: I have been working
on the average daily take per machine and that is a competitive
piece of information that I would not really like to give you
but let me say this, it is probably around $130 on average and
it will vary from region to region.
Janet Anderson: £130 take per day?
Q250 Chairman: $130 per day?
Mr Prior: Yes it was dollars,
$130 per machine per day.
Q251 Janet Anderson: That is not
profit? That is what goes into the machine?
Mr Prior: That is gross gaming
revenue per machine per day. It would be of that order.
Q252 Chairman: If the machine paid
out 85% of stake in prizes your take will be 15% of $130 and out
of that you have got to pay tax and all your overheads?
Mr Prior: Yes, and just to make
the point, that varies by machine, varies by denomination, varies
by market, et cetera, et cetera, but that is the average practical
number that we would be working on.
Mr Eisner: As Tobin said, for
competitive reasons we have probably all got different numbers
that are up or down from that but it will really depend on competitive
conditions in and around you. If there are 1,000 machines serving
London I am pretty confident that number would be a lot higher,
so it is just a matter of how many large casinos there are, how
many regional casinos there are, and what the mix-up will be and
what the particular jurisdictions are.
Mr Prior: In other jurisdictions
overseas that number will vary typically somewhere between £100
and £160 and there are exceptions, and you mentioned some
at this Committee before, in France and one or two specific jurisdictions,
but that is a pragmatic average number.
Q253 Lord Brooke of Sutton Mandeville:
I heard Mr Tottenham's original equation and I followed his logic
from his premises and I have no disagreement with the logic he
followed. I did not actually catch in either his equation or his
premises any reference to problem gamblers. Would that number
also go up as the cap on traditional machines was raised?
Mr Tottenham: I do not believe
so. I think that problem gambling is an issue that we deal with
wherever we are in the world and we like to think that we are
responsible in the efforts that we put in in managing that problem,
and that is everything from training our employees, access to
information, making people aware that this might be a problem.
I do not believe that increasing the number of category A machines
in a destination casino is going to increase the absolute number
of problem gamblers.
Q254 Chairman: So you think it is
proliferation of outlets rather than proliferation of the total
number?
Mr Prior: That is a bigger issue.
Mr Bacon: There is little point
in proposing a cap on the number of machines unless one addresses
the regulation of the supply, the number of outlets. I mentioned
before the potential for the proliferation of large casinos. Also
I think the issue of problem gambling has got a lot more to do
with the location of casinos as opposed to the number of machines—where
they are actually placed.
Q255 Lord Mancroft: Taking your equation,
Mr Tottenham, and what you have just said about responsible gambling,
assume therefore that the existing small casinos—and it
does not apply to all of them as we know—be allowed two
or three category A machines per table, that would affect neither
the profitability of the machines in the regional casinos. Nor
would it, if we take your equation further, have any affect on
problem gambling, would it?
Mr Tottenham: There is an issue
here. I agree with the premise, yes, that is if the number of
those outlets is controlled, one, and, two, that the small casino
could not be 25 or 30 tables.
Q256 Lord Mancroft: The existing
industry?
Mr Tottenham: The existing industry
I do not have a problem with.
Q257 Lord Mancroft: You as a group,
as it were, do not have a problem with the existing industry having
what this Committee propose and which the Government appear not
to be very keen on which is category A machines?
Mr Tottenham: I do not think so,
I think they are a controlled environment.
Mr Prior: I would like to make
a very clear point. What is not in any of the proposals is how
proliferation of those will be controlled because we are getting
back to the number of category A machines, which is the number
of outlets times the number of machines in them, and we are capping
and controlling regional casinos but somehow large casinos do
not get capped and controlled. You cannot let the one free and
control the other. If you are looking for a level playing field
it is a matter of how you define that playing field. The number
of category A machines in the market will definitely define the
viability of regional casinos and if there are a lot of them in
a nearby market, then where you have exactly the same gaming offering
in that market and yet you have got to make a huge investment
with a lot of planning gain for a regional casino, then that is
not a level playing field.
Q258 Mr Page: You gentlemen have
had the benefit of listening to the previous witnesses on the
question I am going to ask about category A machines. I noted
carefully that Lloyd Nathan said that there should be no limitation
on the range of machines. What proportion of the regional casinos'
gaming machine entitlement would you expect to consist of category
A. I am looking for a six-nil answer here.
Mr Nathan: I think you might get
it. I can tell you from real life experience, Chairman, across
our properties on average well in excess of 90% of our machines
are Category A. For example in Detroit, Michigan 93.2% of our
machines are Category A and—
Q259 Chairman: What does that mean
in stakes and prizes?
Mr Nathan: Unlimited stakes and
unlimited prizes but it does not mean all of them have a mammoth
jackpot. I am trying to equate—because we do not have Category
A machines, that is not how we define them—what you would
see as a Category A machine and well in excess of 90% of our machines
fall into that category and that is by choice. If we wanted to
have 100 per cent we could have, we are not limited to 1,250,
and it is at our discretion as to what percentage of machines
are Category A.
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