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Bright-ish Future

The Future of the U.K. Casino Industry

Bright-ish Future

In February it will be three years since the U.K. government effectively put the final nail in the coffin of the sole planned regional casino, or “super-casino” as it had come to be known. No matter. Life goes on.

The important thing is what lessons have been learned by operators, legislators and regulators as they prepare to take the industry into a hopefully better future. But repercussions from decisions made when the Beatles were still a band will continue to be felt. As always, to know how to get to where one is going, it is important to know whence one came.

“The last serious attempt to reform the overall landscape of the casino industry in this country came a to a rather ignominious end in 2007 when plans to open up the casino market and introduce much greater freedoms were voted out by Parliament,” says Matthew Hill, director of strategy and research at the U.K. Gambling Commission. “When that proposal first came to light in 1999-2000 in the Budd report, the idea was that you would do away with strict limits on numbers of casinos and the existing permitted area system and replace it with a system that was based on economic barriers to entry.”

The system Hill refers to was a product of the original Gaming Act 1968. At that time, local governments were asked if they were interested in having the possibility to host a casino. Those who said yes were put onto a list of cities and towns which would then be eligible for the awarding of a casino license should a number of other conditions be met, including the need for a casino to satisfy consumer demand. Those who had said no were no longer in the running. And so the situation has remained.

Dan Waugh, group strategy director for Rank Group, sums up the problem: “So, 40 years ago local authorities made a decision and we’re sort of stuck with it today. There are parts of the country where you simply cannot have a casino.”

Waugh suggests a possible solution to the problem.

“One idea that’s been floated by the industry is to say: If there are surplus casino licenses in one particular part of the country, and if another part of the country isn’t on the list but would like a casino, what would be the harm in allowing the operator to transfer that license from an area of oversupply to an area of undersupply?” says Waugh.

In those parts of the nation where casinos are found, often the location was and is less than ideal for modern sensibilities, says Steve Donoughue, U.K. gambling consultant and operator of The idea was to keep them out of sight from the general public and therefore out of mind.

“Our casinos are in locations which are due to what was wanted under the old law. Casinos were located down side streets, out of the way,” says Donoughue.

And because the business of the casino for the most part was gambling and gambling only, Donoughue adds, “You didn’t want a massive, expensive space.”

Ambitious Plans
Surprisingly considering the outcome, there was a time not too long ago that ambitious solutions were being sought by government. In the heady days before the watered-down version of the Gambling Act 2005 was finalized, it looked as if Parliament was not only serious about correcting the errors of the past, but was ready to create an entirely new casino culture.

Most people know about the one regional casino, the so-called “super-casino” that was intended for Manchester but eventually canceled. Some know that a plan calling for eight such regional casinos was proposed. But a report from the 2003-2004 session of the Committee on the Draft Gambling Bill, published in July 2004, spoke of as many as 25 “leisure destination casinos” with minimum areas of 1,000 square meters for as many table games as would fit, 2,500 square meters for maximum 1,250 slots and at least 4,000 square meters for non-gaming amenities.

The committee report reasoned that by increasing the minimum size requirement for a regional/leisure destination casino, the size of investment needed would also increase. In this way the committee sought to create a financial obstacle to creating these larger properties, with the intended result that the numbers would not reach the 40 to 45 such properties for which some proponents had called.

Of course, that plan never made it anywhere near to becoming law. But would it even have been practical given market realities?

“As of 2007 only 4 percent of British adults visited a casino in this country,” says Waugh. “I believe the AGA cites 28 percent as the comparative statistic in the U.S. So it’s a pretty underpenetrated market, a pretty small market in terms of value. And I think what the legislation tried to do, before it was watered down, was to try to move straight to some Las Vegas model. And I think that’s where some of the friction came in, some of the resistance from the press.”

Donoughue adds, “There is the argument: Have we got a whole load of latent casino gamblers, or quite frankly are we satisfying demand? That was always one of the issues. I remember doing the rough math, which was if you took the proposed floor sizes of the eight regional, large and small casinos and added them all up, you were more than doubling the gaming floor supply in the country. And that was a question: If we build them, will they come?”

Another question is whether the U.K. player would take to American-style casinos, or even needs them. In the U.S. most slot machine gambling takes place in casinos. But like many other jurisdictions, the U.K. has a huge street market of slot machines. Of the nearly 250,000 slot machines in the U.K. today, only 1 percent are in casinos. The rest are in pubs, arcades, bingo halls and other areas accessible to adults. Admittedly, they feature lower stakes and jackpots than do casino machines. But the top-of-the-line casino slots, known as Category B machines, themselves only pay a maximum jackpot of £4,000. So the added attraction of the life-changing jackpot potential found in American casinos is absent.

Arguing against the above premise, says Donoughue, is the fact that Las Vegas is one of the primary long-haul destinations for U.K. residents. He believes the destination casino concept would work, with one important addition.

“Part of my issue, when we were thinking about eight regional casinos, was that it always struck me that you should not have them in eight separate places,” says Donoughue. “The whole reason Vegas works is there is a critical mass.”

Back to Reality
For now and the foreseeable future, the regional casino will have to serve as “what if” food for thought and speculation. What is real, though, are the eight large and eight small casinos approved under the 2005 Gambling Act. The 16 local governments that were awarded these licenses are at various stages of a process that doesn’t seem to be moving very quickly to Roy Ramm, compliance and security director at London Clubs International.

“Although the act brought in the ability to license 16 new casinos from September 2007, the actual process has moved at a glacial speed,” says Ramm. “The first license is not expected to be granted much before March 2011 and the casino will not open until 2012—over five years after the law came into effect. Even then, some of the conditions attached to the licenses are so strange and anti-competitive that it is doubtful that all 16 will ever be built, and a certainty that none of the eight small casinos will resemble what the legislators envisaged.”

Lobbying by the NCIF is one type of action that can lead to change. Another starts from within the Gambling Commission itself.

“We’re dealing with very new legislation,” says Hill. “We’re a relatively new organization ourselves, going on just about three years. And we’re constantly coming across wrinkles in the legislation that we think are not necessary from a regulatory point of view, and actually getting in the way of the industry getting on and making money, which is what their job is. So we will get together with them and say, we’ve got this list of things that we think we could change, and then it’s up to the government to say, well yes, we could see that.”

The Gambling Commission as the regulator does have some leeway in adjusting some rules. However, with the government preoccupied with the economy these days, and the 2005 act still relatively new, Hill does not see change at the legislative level as a government priority.

“If you look at the last major attempt to reform gambling in this country, it was kind of a nexus of the government having a modernizing, liberalizing, deregulatory agenda, the gambling industry struggling with a regulatory regime that had been in place for the past 40 years, and the regulator recognizing that the industry had changed hugely in that time and the legislation was just not accommodating harmonization of the industry. These three things coming together generated the first wholesale review of gambling legislation in a generation,” says Hill.

Moving Forward
The Gambling Commission does have some ideas on how to improve the industry, says Hill.

“We’ve got quite an antiquated system for permitting casino games,” says Hill. “A casino can only offer games that are permitted by us as a regulator. What we’d like is to move to a kind of principles framework-based approach.”

That translates to making sure when designing games that they are fair and open and being offered to customers in ways that they can understand.

“Provided you’re doing all that, we’re not really interested in the details,” says Hill. “You should be able to innovate. You should be able to offer the widest range of product so that you can to get people through your doors. But what we do care about is that you’re open and you’re transparent and the games are legal, safe and fair.”

This is a change that the Gambling Commission has the power to effect without involving Parliament, says Hill.

Another area where the commission could make its own changes is in the casino gaming reserve. Hill says research has shown they can reduce the size of the mandated reserve and perhaps do away with it altogether.

Moving back to an area where government would have to weigh in, Hill says the commission would be comfortable with the start of public debate on the future regulation of gaming machines. In this case, referring to technological advances, Hill asks, “Is there another way to regulate gaming machines, that doesn’t rely on the constraints that you build into the machines themselves?”

He is not talking about the kinds of controls being discussed in Australia, where players will use the machine to pre-set limits on time and spend for a given session. On the contrary, he is talking about a more interactive function.

“At the moment, if you’re a machine gambler, you’re subject to the same controls whether you are the most in-control gambler in the world or you’re the one at greatest risk of addiction or problem gambling,” says Hill. “That’s because we base the controls within the machine. If you expand the technology to track player behavior in real time, then you might be able to open up more innovation within the machine design and have the controls where they are really needed.”

While the Gambling Commission involves itself with tweaking regulations, the operators are trying to come up with casinos that people want to visit.

London Clubs has immersed itself in the casino-as-entertainment role. In the spring of 2011 the company will open a Playboy casino in London, which Ramm says “will bring a new fun dimension to exclusive, high-end London Gaming.”

Although LCI still wants its casinos to be the destination of choice for VIPs visiting London, the company has developed a broad demographic across its customer base.

“In London we enjoy customers from almost every conceivable ethnic, economic and social grouping,” says Ramm. “Our properties attract different groups at different times. We try to attract everyone from ‘ladies that lunch’ to the younger crowd who enjoy a less pressured kind of night out than they might find in, say, a nightclub. We also adjust our F&B offerings to tick as many boxes as we can, offering good value snacks to fine dining in most of our premises.”

At Rank too, diversification in the casino offering is the trend.

“It’s about building casinos which appeal to consumers today but also have some ‘give’ in them as the market grows,” says Waugh. “When the next government survey comes in February next year, we expect the figure of 4 percent adults who had visited a U.K. casino to have grown to 5 percent or 6 percent. So we are seeing sustained growth in visits to British casinos. We think there’s a lot more to go for there, but it’s about tapping into what consumers want to do, taking casinos out of the niche and more into the mainstream.

“We’ll see more revenue diversification from casinos and we’ll start to see other amenities develop around them over time, whether it’s lodging or other forms of retail or other forms of dining. And it doesn’t need the experiment of the ’05 act for casinos to do that. We just need support for the existing industry from the government.”

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