Culture, Media and Sport Committee - The Gambling Act 2005: A bet worth taking?Written evidence submitted by Fairer Gambling Campaign

Summary

1. The following is the opinion of, Derek Webb. Derek is currently the manager and a partner in Prime Table Games, and founder of the Fairer Gambling campaign.

2. In short, the 2005 Gambling Act has failed to:

(a)Deliver the three licensing principles.

(b)Adequately address remote gambling.

(c)Reduce over-regulation of previously regulated sectors such as casinos.

(d)Adequately regulate previously unregulated sectors such as betting shops.

(e)Prevent abuse of the licensee primary gambling activity standard.

(f)Enable bricks and mortar non-casino poker for reasonable stakes.

Background

3. In the context of its potential to do social harm, the only reasons to legalise gambling are to:

(a)Prevent illegal gambling and the consequences associated with illegality.

(b)Regulate and generate tax revenue from gambling.

4. The Government should not rely on gambling industry taxes, and subsequently not promote gambling for tax benefit purposes. The Government should be willing to increase restrictions on gambling where there is evidence of a significant negative social impact.

5. The economic impact of gambling is primarily substitutive. Funds spent on gambling would otherwise have generally been spent on alternative forms of entertainment or in other commercial sectors. It therefore follows that jobs in gambling are substitutive for other jobs.

6. Gambling licenses should be seen as privileges rather than rights. Gambling licensees should have limited ability to litigate against or lobby the Government or regulator. They should not be allowed to rely on paid legal opinions to justify their actions or be allowed to grant credit for gambling to politicians.

Licensing Principle of the Prevention of Criminality Associated with Gambling

7. All gambling licensees (owners and primary executives) should be subjected to licensee background suitability investigation. There can be no better evidence proving unsuitability for a licence than previously profiting from illegal gambling, or a willingness to have business relationships with parties that have.

8. Based on current US indictments against certain poker operators, including reference to activity prior to 2006, the majority of the remote gambling industry has profited from illegal gambling by accessing US gamblers. Remote gambling operators rely on the World Trade Organisation (WTO) decision in favour of Antigua to protect them against this, but as these operators were in breach of WTO principles by not respecting US intellectual property rights, this decision is flawed. Remote gambling operators offered games such as Three Card Poker to US players, without obtaining permission from the relevant patent and trademark owners, and therefore engaged in commercial theft. An important fact that was not considered by the WTO.

9. Remote gambling operators routinely require gamblers to accept terms and conditions that assert that the operators own the content of the site. Where games that are owned by others are used without permission then the assertion is false and the agreement invalid.

10. As explained in the preceding three paragraphs, the remote gambling industry is mainly operated by parties that have engaged in illegal gambling, commercial theft and operating under false agreements. The UK Gambling Commission (GC) has accepted this high-level of criminality as having no impact on licensing suitability.

11. Any actions taken by GC against low-level criminality are marginal, trivial and irrelevant when compared to the high-level criminality of the majority of the remote gambling sector. Even so, there has been no noticeable change in action being taken since the Act and no impact on low-level criminal association with gambling. Further, the Act has also had the effect of legitimising high-level criminal association with gambling.

Subsequent Recommendations

(i)Prevent operators from using invented games without appropriate permissions

Licensing Principle of Gambling being Fair and Open

12. The GC interpretation of this principle is its narrowest possible definition. That is: if the rules of the game and the advantage enjoyed by the operator are displayed to the player, the game is open; and if it is played according to the rules of the game, it is fair. By this standard all legal games are fair and open—which merely ensures that legal games are legal.

13. The term “open gambling” should imply totally transparent gambling where adequate information on all aspects of the activity is provided. This is not the case with remote gambling with examples of deceptive practices by this industry including:

(a)Affiliates such as members of the Gambling Affiliates Union often have gambling information websites, steering players towards selected operator sites in return for up to 70% of player losses (as advertised by William Hill in trade magazines). Players are not informed of this commercial relationship and follow the seemingly independent advice offered.

(b)Bonus sign-ups for remote gambling sites appear attractive, but in the small print require a level of play that is not attainable by many players.

(c)Remote gambling sites may trade under a familiar UK high-street brand name to give the illusion of credibility/security, but actually operate from offshore locations managed by a software company.

14. Efforts to create “fair gambling” should identify which games are fairer than others, an impossibility under current GC interpretation. Players should be informed of the historical retention rate of player loss as a percentage of player funds deposited at a particular game or gambling activity. This is known as hold percentage in respect of casino table games and makes clear the most likely experience a player will have at the specific game or gambling activity.

15. Roulette in casinos had a retention rate of under 15% in 2009/2010. Credible estimates of the retention rate on Fixed Odds Betting Terminals (FOBTs) in betting shops (where virtually all turnover is on roulette) are as high as 75%. It is therefore clear that roulette on FOBTs is not as fair as roulette in casinos. The betting shop industry has not been willing to publish this retention rate.

16. Each remote gambling site should publish two retention percentages. The funds retained by the operator as a percentage of funds deposited for all terminated accounts, and funds retained by the operator as of a specified date (e.g. month end) as a percentage of funds deposited for all active accounts.

17. The Act has not required operators to be more transparent or provide more information to players about probable real gambling experiences. The fair and open licensing principle has had no impact on player understanding or behaviour.

Subsequent Recommendations

(ii)Require publishing of game and gambling activity retention rates.

(iii)Prevent remote gambling payments to affiliates (allow brands to grow based on content, service and standards).

(iv)Prevent remote gambling bonus sign-ups (they encourage gambling participation).

Licensing Principle of Protection of Children and Vulnerable Persons

18. The Act has actually increased exposure of children and vulnerable persons to gambling by legitimising remote gambling (including offshore operations) and FOBTs - resulting in increased visibility through more gambling advertising on television, in sports arenas, and the high-street.

19. By its own definition of problem gambling, the recent British Gambling Prevalence Survey (BGPS) showed a 50% increase in this phenomenon from 0.6% to 0.9%. The BGPS also identified an at-risk group of 6% of gamblers who are both high-time and high-spend gamblers.

20. Tests using underage players in betting shops and arcades have shown pitifully low levels of compliance with the principle that children should be protected from gambling. In one test carried out by Blackpool Trading Standards, over 60% of betting shops failed to stop an under-18 from betting, but there has been no significant action against these shops. In stark contrast, casinos in the US (where the general minimum age limit for gambling is 21 rather than 18) have been fined as much as $100,000 for a single under-age player.

21. The betting shop industry targets vulnerable persons with its FOBTs by locating its premises in the poorer urban and sub-urban areas. These operators open multiple premises in close proximity to each other so that they are able to maximise machine winnings from the locality.

Legislative Framework of Remote Gambling

22. The Act accepted and legitimised many deceptive remote industry practices and sanctioned the criminal activities of the industry (see paragraphs 8 and 13 above).

23. By “white-listing” certain jurisdictions, the Act also legitimised access to UK players where:

(a)The interest of the regulator is too close to the industry.

(b)The commercial interest of the jurisdiction is dependent on the industry.

(c)The regulator allows indicted companies to continue to operate.

(d)The regulator allows the random number generator (RNG) to be outside the jurisdiction.

Subsequent Recommendations

(v)To prevent UK remote licensees from facing possible future prosecution in US and the resultant harm to the reputation of the UK industry, the UK government should engage the US government to:

(a)Request amnesty from prosecution by UK licensed operators for any activities prior to 2006 Unlawful Internet Gambling Enforcement Act.

(b)Confirm that WTO decision should be invalidated based on Antigua internet casinos unauthorised use of games with US intellectual property such as Three Card Poker.

(c)Confirm that the EU request for trade compensation from US related to the WTO decision should be abandoned.

(d)Confirm that UK licensees will not be permitted to be party to or fund trade organisations or lobbyists working to obtain US trade compensation.

Financial Impact of the Act

24. The Act has been of far more economic benefit to certain sectors relative to others. This shows an uneven regulatory approach. One sector that has benefited most from the Act is the offshore remote gambling industry, which includes many UK companies. In the UK, the sector to benefit most is the betting shop industry, which was granted legitimacy to operate FOBTs with casino table content.

25. The effect of the casino gambling taxation rate being increased to a band from 15% to 50% has had a negative impact on this sector. It is illogical that live casino table games, with the highest ratio of employee per player position, should be taxed at any higher rate than any other form of gambling. This particularly also applies to bricks-and-mortar poker, which has lower revenues and lower profitability per employee than any other form of licensed gambling.

Effectiveness of the Gambling Commission

26. If the licensing principles were just political spin, rather than an attempt to properly regulate the gambling industry, the GC has been very effective at maintaining that spin. If there was a genuine desire to establish and enforce principles, the GC can be said to have been wholly ineffective.

27. Like many regulators, GC regulates entities that are too big to fail and see their role has being the promotion and protection of the industry, its regulatory body and their own personal careers.

Impact of Off-shore Remote Gambling

28. Low tax and low regulation have allowed off-shore operators to have higher spend on advertising and affiliates, enabling them to attract greater numbers of players. This is particularly powerful for operators where player volumes are important, such as poker sites. These poker sites now find it easier to attract poker players to their casino and betting sites than would otherwise have been the case. These sites obviously have an adverse impact on UK sites.

Subsequent Recommendations

(vi)Require all UK accessing remote gambling operators to locate all equipment in UK.

(vii)Publicise that gamblers at non-UK sites will have to pay 85% tax on gambling winnings.

(viii)Place Internet Service Protocol (ISP) and Financial Banking Transaction (FBT) measures in hand.

Lack of New Casinos

29. There are a number of factors not related to the Act that have inhibited the growth of new casinos in the UK. These can be summarised as follows:

(a)The introduction of the smoking ban.

(b)The increase in casino gambling tax to a 15% to 50% range.

(c)More opportunities to look for better return on investment internationally and in other sectors.

30. There are also a number of factors related to the Act that have inhibited the growth of new casinos in the UK. These can be summarised as follows:

(a)Maintaining the licensing requirement for staff such as dealers.

(b)Limitations on numbers of machines and the size of the stakes available on them.

(c)Geographical and numerical limitations on casinos.

(d)Local authority input describing casinos as “slot sheds” and “slot barns” but ignoring the existing dominance of FOBTs.

Subsequent Recommendations

(ix)Remove licensing requirements for all casino employees except senior executives.

(x)Reduce the tax rate on casinos to parity with other sectors.

(xi)Remove geographic and numerical limitations on casinos.

(xii)Introduce parity in local authority control over gambling licenses. If “aim to permit” is acceptable for one sector it should be acceptable for all sectors.

Regulation of Gambling Machines

31. There is a clear disconnect in the logic behind the regulation of betting machines. Casinos under pre-2007 licenses are allowed slot machines with only £2 maximums, whereas FOBTs are allowed £100 maximums. There are over twelve times more FOBTs than there are UK casino slot machines, making this distinction nonsensical.

32. FOBT roulette creates deceptive near-miss scenarios with the ball circling around the spinning wheel—despite the fact that the result had been determined prior to the spin. Research by Sharpe, Blaszczynski, and Walker (2005) has shown that near-misses provoke the same reaction as wins in the brain of problem gamblers, meaning that the repeat bet and multiple bet opportunities, combined with the near-miss frequency and perception, results in players trading-up their total wager amount and ultimately losing more.

33. This tendency to create addictive behaviour is well illustrated by statistics from the GC and Nevada Gaming Control Board showing that FOBTs, although accessible half the time of Las Vegas Strip gaming machines, win twice as much per machine per day. This statistic is made even more astounding when you consider the thousands of hotel rooms directly above the Las Vegas machines occupied by wealthier gamblers than typical UK betting shop gamblers.

34. FOBTs account for around 80% of betting shop turnover. On the understanding that FOBTs are gambling machines then all betting shops are in breach of the primary activity aspect of their license.

35. Based on current FOBT growth trends, it is reasonable to assert that, without policy changes, the number of UK FOBTs will treble to around 100,000 by around 2025, giving even more people exposure to these highly addictive machines.

Subsequent Recommendations

(xiii)Remove table game content such as roulette from FOBTs.

(xiv)Require ticket-in only (no cash-in) with ID for all machines with stakes over £2.

Problem Gambling

36. It is clear that there will be a long-term increase in problem gambling as result of the growth of remote gambling and FOBTs. The full impact of mobile and television gambling will take a number of years to be felt.

37. The BGPS identified five problem gambling activities. Of these five, the activity with the largest volume of business is FOBTs. The BGPS identified eighteen different gambling activities. FOBTs have very high ratios of participation by vulnerable gamblers, relative to total gamblers participating in the activity, compared to the other seventeen gambling activities as follows:

(a)Lowest income group gamblers—the highest ratio.

(b)Young gamblers (16 to 24)—the joint highest ratio.

(c)Unemployed gamblers—the second highest ratio.

(d)At-risk gamblers—the third highest ratio.

38. FOBT roulette players experience an estimated loss as percentage of funds used as high as 75%. This by far exceeds the equivalent casino roulette percentage of under 15%. Only problem gamblers could tolerate such a negative player experience.

39. It is generally accepted that around 20% of gamblers contribute around 80% of the industry’s revenue. It is reasonable to assert that:

(a)Less than 10% of gamblers contribute over 50% of revenue.

(b)The BGPS 6% high-time high-spend at-risk group will have strong correlation with the less than 10% group.

(c)Gambling is generally operationally profitable because of at-risk gamblers.

40. So whilst the industry as a whole always quotes how small the problem gambling percentage is, the real significant point is “What percentage of revenue is from problem gamblers?”

Subsequent Recommendations

(xv)The remote gambling industry could be required to identify on a site-by-site basis what percentage of total revenue is provided by the top 10% of individual revenue providers.

(xvi)Remove casino games such as roulette from mobile devices and television.

Primary Activity of the License and Introduction of a Poker License

41. Live casino table games should be the primary activity of casinos, and over-the-counter betting should be the primary activity of betting shops.

42. The only gambling activity for which there is a real unsatisfied player demand is for non-casino non-remote poker at stakes higher than those allowed in pubs etc.

Subsequent Recommendation

(xvii)Require betting shops to have minimum 80% of gross revenue from over the counter betting.

(xviii)Require casinos to have minimum 80% of gross revenue from table games (but including a maximum 20% from electronic table games).

(xix)Create a license specifically for reasonable stakes poker to be played in bricks-and-mortar premises that are not casinos.

June 2011

Prepared 23rd July 2012