Select Committee on Culture, Media and Sport Appendices to the Minutes of Evidence


APPENDIX 8

Memorandum submitted by BACTA

1.  EXECUTIVE SUMMARY

  1.1  BACTA represents the British amusement machine industry. The trade association has 1,200 nominated member delegates who represent c 600 companies. They comprise 85 per cent of the industry.

  1.2  There are 250,000 coin-operated gaming machines and 175,000 coin-operated amusement machines in the UK. They are situated in diverse locations including pubs, seaside amusement centres and arcades, inland licensed gaming centres, casinos, bingo halls, members' clubs, licensed betting offices (LBOs) and motorway service areas.

  1.3  In its first year of operation, the National Lottery impacted on the amusement machine industry and caused an 11 per cent decline in turnover. Scratchcards in particular became an immediate competitor to gaming machines.

  1.4  Figures produced by the Henley Centre show a continuing decline in the profitability of seaside amusement centres and arcades and inland licensed gaming centres (15 per cent and 13.7 per cent respectively) over the period 1995-99.

  1.5  The National Lottery can promote itself and stimulate gambling in ways that are forbidden to the rest of the industry. It has played a part in changing the image of gambling in Britain.

  1.6  The Government has been disingenuous in pretending that the National Lottery is not gambling. It has used this to justify the unlevel playing field that has characterised the gambling industry since the Lottery's inception.

  1.7  Research shows that the National Lottery is the most popular form of gambling in the country, yet it is expressly excluded by the Government for the remit of the Gambling Review Body.

  1.8  The fact that the Lottery supports good causes or funds Government expenditure, does not justify it not being subject to the same degree of regulation as the rest of the industry, not being given special protection that enables it to compete unfairly with the rest of the gambling industry.

  1.9  The Lottery is gambling and should be regulated as such on a level playing field with the rest of the industry.

  1.10  The National Lottery Commission has intrinsically conflicting functions as both the regulator and promoter of the Lottery. Commercial obligations can easily outweigh regulatory concerns.

  1.11  There should be one regulator for the whole gambling industry and the most suitable candidate is the Gaming Board.

  1.12  More aggressive marketing by the operator in order to maximize income will further strain the Commission's split role.

  1.13  The Commission's obligation to maximise income for good causes means it has difficulties in preventing excessive participation and protecting the vulnerable from exploitative promotion. Equally this will lead to increasingly unfair competition against the rest of the gambling industry.

  1.14  Research commissioned by the National Lottery Commission, which does not regulate the gaming machine industry, is considered by BACTA to be methodologically flawed and may have damaged that industry.

  1.15  The age discrepancy between being able to play all-cash AWP machines (age 18) to win very small cash prizes (£15 maximum) and playing the National Lottery (age 16) to win millions of pounds is not logical. The ability to gamble on the Lottery by credit should also be examined.

  1.16  It is debatable whether either inspection, enforcement or penalties regarding the illegal purchase of Lottery tickets and scratchcards are of the same standards as in the rest of the industry that is regulated by the Gaming Board.

  1.17  The problems of illegal playing of the National Lottery will worsen if harder games are introduced to boost flagging sales.

  1.18  In terms of promotion and advertising, there should be a level playing field throughout the whole industry, including the Lottery.

  1.19  The possible introduction of on-line Lottery games will make age control even more difficult to enforce.

  1.20  Relaxing the rules governing the Lottery's operation by allowing on-line games and harder products should be equally available to the rest of the gambling industry.

2.  INTRODUCTION

  2.1  BACTA (British Amusement Catering Trade Association) is the trade association for the British amusement machine business. It represents the operators of seaside amusement centres and arcades, inland licensed gaming centres, machine suppliers and manufacturers and distributors.

  2.2  BACTA has 1200 nominated member delegates representing c 600 companies, ranging from large PLCs to many smaller family businesses. They comprise 85 per cent of the industry.

  2.3  There are around 250,000 coin-operated gaming machines and 175,000 coin-operated amusement machines in use in the UK, situated in diverse locations including pubs, seaside amusement centres and arcades, inland licensed gaming centres, casinos, bingo halls, members' clubs, licensed betting offices (LBOs) and motorway service areas. Machine stakes and prizes vary considerably throughout these locations, but the most common type is the all-cash machine with a maximum prize of £15.

  There are 166,600 all-cash machines mostly found in pubs, inland licensed gaming centres, bingo halls and LBOs. There are also 1,200 high prize club jackpot machines in casinos. The highest prize that can be won on these machines is £1,000. Lesser maximum prizes of £500 and £250 are available on jackpot machines in bingo halls (200) and members' clubs (around 27,000) respectively.

  2.4  Approximately £10.8 billion is wagered annually in coin-operated amusement and gaming machines, of which all-cash machines account for £8.6 billion. £8.5 billion is paid out overall in prizes.

  2.5  The industry employs 23,000 people and pays £771 million annually to the Treasury in taxation.

3.  ISSUES OF CONCERN

  3.1  BACTA is grateful to the Committee for conducting this inquiry. The issues of concern to the association are the following:

    —  the impact of the National Lottery upon the betting and gaming industry and the unfair competition;

    —  the role of the National Lottery Commission;

    —  the enforcement of the age limit for purchase of Lottery tickets; and

    —  the promotion and public image of the National Lottery.

Impact of the National Lottery upon the betting and gaming industry and the unfair competition

  3.2  The National Lottery has had a profound effect upon the whole gambling sector. In its first year of operation, its impact on the amusement machine industry caused an 11 per cent decline in turnover. Scratchcards in particular became an immediate competitor to gaming machines. Scratchcard sales peaked at £44.5 million per week in May 1995 and have since fallen back to the current figure of between £9 million and £11 million.

  3.3  However, the effects of the Lottery on the amusement machine business continue to be felt. Figures produced by the Henley Centre for seaside amusement arcades show that profits (in £ millions) which were £10.7 in 1995 have fallen to £9.1 in 1999 (a decline of 15 per cent which does not take inflation over the period into account). Henley also shows a decline of 13.7 per cent in the profitability of inland amusement centres over the same period. These declines have resulted in the closure of some smaller family-owned types of arcade, as the National Lottery, with its unrestricted advertising and promotion, captured the punter's imagination at the expense of more established forms of gambling such as machines.

  3.4  The legislation that established the Lottery allowed it to actively promote itself and stimulate gambling in ways which are strictly forbidden to the rest of the gambling industry by the 1968 Gaming Act. The name "National Lottery" has identified gambling in the public mind as being sponsored and approved by Government. The Lottery has introduced many people to gambling, who would never have entered a traditional gambling establishment. The fact that the odds of winning are around 14 million to one against has not deterred players, even though expenditure and activity seem to have levelled out at current levels. These have remained constant for some time. The image of gambling as a vice to be condemned has changed completely and the whole industry is now recognised as an important part of the leisure and tourism sector. The National Lottery has played a part in that change of image.

  3.5  However, the fact that the Government, when establishing the National Lottery, went out of its way to emphasise that participation in it was not gambling is clearly disingenuous. Promoting the idea that the Lottery was not really part of the gambling industry justified the unlevel playing field in the regulation and operation of the Lottery, when compared to the rest of the gambling industry. The sweeping aside of the principle of "unstimulated demand", which had governed all previous gambling legislation and still applies to the rest of the industry, exemplifies the Lottery's unique and unfair position.

  3.6  The Government's attitude on this issue persists. For example the Committee will be aware that the Gambling Review Body (established by the Government earlier this year), is expressly excluded in its remit from examining or making recommendations about the National Lottery. It is only permitted to consider "the impact on the Lottery of any proposed changes to gambling laws, including an assessment of the potential effect on the income to good causes". Yet the recent comprehensive survey into gambling in Britain—the British Gambling Prevalence Study carried out by the National Centre for Social Research on behalf of GamCare—states "the National Lottery is by far the most popular gambling activity in the country". The Gambling Review should not have excluded the Lottery and we are grateful that the Culture, Media and Sport Select Committee is examining it.

  3.7  Money raised from the Lottery was originally intended only to fund "good causes". However, changes made by the present Government have channelled Lottery money into funding some Government expenditure. It is a spurious argument to say that because money raised from the Lottery goes to good causes or funds Government expenditure, therefore the Lottery is not really gambling. It cannot justify the Lottery not being subject to the same degree of regulation as the rest of the industry, nor the protection it enjoys nor the competitive advantages.

  3.8  The Lottery competes with established forms of gambling on an unlevel playing field. It was established under completely different legislation, has its own regulator and comes under a different Government department from the rest of the industry. The Lottery is gambling and should surely be treated the same as other gambling activities.

Role of the National Lottery Commission

  3.9  Although the National Lottery Commission has a different structure than its predecessor, Oflot, its statutory duties remain the same. To share responsibility among a five member board is an improvement on having a Director-General with sole responsibility. But as with Oflot, the Commission is charged with the responsibility of regulating the Lottery, appointing the operator and ensuring that the operator (currently Camelot) produces the maximum income for good causes, which effectively means the promotion of the Lottery. These are intrinsically conflicting functions. Commercial obligations can easily outweigh regulatory concerns, especially as the proceeds are now being used to replace taxation. The problems experienced by Oflot over its relationship with Camelot, focused on GTech, exemplify this. Had the Gaming Board with its decades of experience in the gambling industry been the Lottery regulator, it is unlikely these difficulties would have arisen. BACTA believes that promotion by the Government of one form of gambling at the expense of other parts of the industry is unfair and that there should be one regulator for the gambling industry, including the Lottery. The most suitable candidate is the Gaming Board. This would ensure a level playing field for everyone.

  3.10  The Commission's split role is likely to come under further strain as the pressure mounts to maximise income. This can only be achieved by more aggressive marketing and the introduction of new harder games. The award of the new Lottery licence could well intensify this trend, as the new operator will have to justify it. The example of the attempt to introduce Pronto—a hard and rapid frequency form of gambling, akin to Keno—into Britain is instructive. Once the hard gambling nature of Pronto was apparent, the Home Office and the Gaming Board acted to prevent it. In a similar situation, the National Lottery Commission could not necessarily act in the same way, as it would have to give equal consideration to maximising income as well as to regulation. This obligation means that the Commission cannot always prevent excessive participation or protect the vulnerable from exploitative promotion in the way the Gaming Board is able to do. Clearly the Government needs to examine these conflicting duties inherent in the National Lottery Commission's remit. The answer is to have one regulator for the whole gambling industry, which should be under one Government department. Monitoring of the Lottery operator's commercial activities could remain with the National Lottery Commission.

  3.11  The National Lottery Commission regularly commissions studies on young people (12-15 year olds) and gambling. The research details the (illegal) buying of scratchcards and Lottery tickets by these young people. The other main activity it details is their playing of gaming machines, which is not illegal where the cash prize available is £5 or less. BACTA has complained several times that this research—commissioned by a regulator that has no responsibility for the amusement machine industry, nor involvement or expert advice from that industry—is methodologically flawed. Our complaints have been ignored and the same format and type of research continues to be employed. The National Lottery Commission since 1998 will have produced three reports on young people and gambling, (the next is expected in November/December 2000). BACTA has never been consulted about and has had no input into these reports, even though they can materially affect and prejudice the amusement machine industry. Equally, the last report concluded that 23 per cent of these children had entered and betted at a betting shop (illegal for under-18s) and 24 per cent had played bingo at a bingo club (of which around 96 per cent prohibit under-18s). This further demonstrates the flawed methodology. These results negatively impact on the reputation of other parts of the gambling industry and BACTA cannot accept that this situation should be allowed to continue. Clearly it is necessary for the Lottery's regulator to know if under-16s are buying tickets and scratchcards, but that should either be the remit of the research or they should consult with the other parties involved. They should in any case improve the research methodology, if it is shown to be flawed.

Enforcement of the age limit for purchase of Lottery tickets

  3.12  It is illegal for anyone under the age of 18 to play a gaming machine with a cash prize of more than £5, yet perfectly legal for a 16 year old to play the Lottery and win a prize of millions of pounds, or to buy scratchcards which are similar in effect to gaming machines, except the stakes and prizes are much greater. Furthermore when that Lottery player reaches the age of 18 they can use their credit cards to gamble on the Lottery, which is strictly banned for every other form of traditional gambling. This age discrepancy and the ability to gamble on credit need to be addressed.

  3.13  The amusement machine industry is subject to the toughest standards of regulation by the Gaming Board, the police, local authorities and Customs & Excise. Powers of enforcement are thorough and penalties severe for the traditional gambling industry—eg an amusement centre can lose its licence to operate if it is discovered that under-18s are playing all-cash machines (ie those with a cash prize of over £5 and up to £15). It is debatable whether either inspection, enforcement or penalties are the same standard regarding the illegal purchase of the much higher prize Lottery tickets and scratchcards.

  3.14  The problems associated with the illegal playing of the National Lottery by under-16 year olds will be worsened if harder games are introduced, as seems likely with the award of the new licence to an operator, who will have to be pro-active to deal with the pressing demands to revive flagging sales and maximise the money for good causes.

Promotion and public image of the National Lottery

  3.15  The Lottery is allowed to promote itself through broadcast and press advertising almost without any restrictions. This promotion is likely to increase substantially with the award of the new licence. The rest of the gambling industry is hidebound by the tightest restrictions on advertising and promotion. If there is to be a level playing field, then either there should be a tightening of the rules for the Lottery or a loosening for the rest of the industry.

  3.16  The need to maximise income from the Lottery will become ever stronger. This means that the Lottery will need to pursue more aggressive promotional techniques and introduce harder games to increase the rate of play and meet its income targets. This is almost certain to take the form of on-line Lottery games, which would make age control even more difficult to enforce.

  3.17  On-line gambling is illegal for the rest of the UK gambling industry and allowing the Lottery to go on-line would make the playing field even more unlevel than it currently is. The answer is to allow fair competition between gambling products in terms of their promotion and operation and to stop the protectionism that surrounds the Lottery.

September 2000


 
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