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Long Way to Tipperary?

A report on Ireland's gaming legislation

Long Way to Tipperary?

 A recent government study has raised the possibility that Ireland may revamp its gaming laws to allow for full casino gambling. There are other proposals, but the one that most interests investors will be the possibility of an integrated resort on Irish soil.

There are several other forms of gaming and issues within the framework of the long-awaited gaming legislation, but let’s start at the beginning and focus on how the Irish gaming industry has evolved since the first legislation was introduced way back in 1956.

Slots and More

The legislation that became law in 1956 does not deal with any of the trends or issues of the gaming market today. One example of the 1956 act was the setting of stakes and the coinage that machines were allowed to accept. Since Ireland has since changed currency and coinage a number of times, the law has been out of date for years. Regarding payouts, jackpots, limits and more, the 1956 act, and any amendment to it since, has little bearing on what is actually going on today. For example, there is no mention of progressive jackpots that are being offered today.

With the advancement of technology over the years, we also have note acceptors where our machines today can accept €5 notes and up to €500 notes. One might ask what the authorities are doing about this, and the answer is that they are turning a blind eye. It is also worth pointing out that neither the government nor local councils have a way of assessing returns made from the profits of slot machines. They take what they are given, since there is no regulator, department or officer trained in checking of these machines. And the operators are simply “making hay when the sun shines.”

 
Slot Machine Locations

Slot machines are located all around the country, in buildings normally referred to as arcades or amusement arcades. There are approximately 250 of these establishments varying in size. The largest are located in cities and also in coastal holiday areas, where they are invariably attached to amusement parks. Each building must have an arcade license and each machine must be licensed.

Amusement arcades will have slot machines and machines/games for children and young adults that are for amusement only, hence the name amusement arcade. The reality, however, is that for many years hard gaming and soft (amusement) shared the same floor. It is only in recent years that operators are beginning to separate the two forms. This unusual mix could be blamed on the government, because it had concerns that the building or location where the operator was seeking a license would become a hard gaming location.

The operator could only obtain a license if they offered other forms of amusement in the building. So the candyfloss and children’s amusements were born out of that.

Many have criticized the fact that the two forms were ever mixed in the same building, noting that a major aspect of gaming legislation in any jurisdiction is to protect the young and the vulnerable.

Slot Machine Manufacturers/Suppliers

It is interesting to note that the slot machines themselves seem to move freely when it comes to them being imported to Ireland—unlike other countries that have up-to-date gaming legislation and where suppliers require licenses and shipping permits with government approval.

Many of the machines in Ireland are assembled or manufactured in Eastern Bloc countries. Officials of some major slot-makers say they won’t do business there until proper legislation is passed, so as to protect their licenses in other jurisdictions.

Companies that are doing business in Ireland would normally find it difficult to compete with the major slot machine manufacturers elsewhere. There is a lack of competition in Ireland, but new legislation would solve this imbalance.

Private Clubs and Casinos

Casinos and gaming clubs are technically illegal in Ireland, but they have been allowed to flourish.

Today, there are approximately 45 private-members clubs and casinos around the country. The majority of the clubs are small. A typical table games mix would be one or two roulette tables, two or three blackjack tables and anything between two and six poker tables. The larger clubs, in cities like Dublin and Cork, have twice or three times that many tables.

Up until 2002, there was only a handful of these clubs in the whole country, but they quickly became very popular. The existing clubs until then were run like the speakeasies of Prohibition time in America—word of mouth, no real advertising, and rarely was the name “casino” used in any form to identify the club in a commercial way.

The first club to change that style of operating opened in Dublin in 2003. It was called Silks and was aimed at the racing fraternity.

Silks was in a Georgian building with the finest Italian-made gaming tables. Equestrian art covered walls, there was waitress service (new at the time), and the club used quality advertising including radio commercials. This casino became a venue for up-market parties, launches and celebrity visits including Miss World, Rosanna Davison. Silks presented a new customer/client experience that matched the enormous prosperity that characterized that period in Ireland. The fact that casinos weren’t legal added to the experience of an exciting night out.

 
Progress and Trends

Between 2003 and 2006, Irish people started to get a real appetite for this new social engagement. “Casino” became the buzzword, coupled with the ever-increasing rise in popularity of poker, particularly Texas hold ‘em.

The whole concept of private-members clubs became a great alternative to a normal night out, not to mention that some clubs gave their clients complimentary drinks, as it is illegal to sell alcohol in a private-members club.

Charity balls, product launches and 21st birthday parties all wanted a casino night. Toward the end of 2005, financier Dermot Desmond (of Sandy Lane Hotel, Barbados) opened a private-members club/casino in Dublin with a gaming area of 12,000 square feet. By now, there were approximately 22 clubs spread across the country.

The journalists and media were all hungry for stories or photo shoots of the events in the clubs, and some of the more serious journalists wanted to write about the legal issue regarding this new form of business that had erupted.               However, most club operators were cautious about speaking, and the one or two who did speak usually got little or no reply back when it came to the government’s position.  

But then, there was a dramatic turnaround.

 
Dealing with the Issue

In March 2006, the then-Minister of Justice Michael McDowell began to discuss private-members clubs.

“Their numbers are up,” he said, vowing to change the law on gambling clubs and secure prosecutions to close down operations across the country. He made no secret that he was vehemently opposed to the private-members clubs and casinos, and made several references between then and July 2006 of his intention to change the law if necessary to achieve their closure.

There was even talk of a “special task force” specifically set up to raid the clubs and prosecute those running them. It was at this time that a small number of clubs got together and formed a group called GALA (Gaming and Leisure Association), not to be confused with the giant casino operator of the same name in the U.K.

Through press releases and announcements, the group emphasized how well they run and manage the clubs, and warned of the job loss that would occur if they were closed.

 
The U Turn

In the months that followed, McDowell carried on making statements on his dislike of the private-members clubs, but that was all about to change. In July 2006, McDowell announced that he wanted to set up a regulatory body that would research and investigate the gaming business, along with a plan to create gaming legislation. This was a dramatic turnaround and a complete change of strategy by the minister, and to this day this change has never been explained.

Because of this new strategy, many new clubs opened over the subsequent couple of years, almost doubling the number that existed when McDowell was set to close them. The prevailing attitude was to open a casino, wait for legislation and be rewarded with a casino license. The fact that the minister had not forced existing clubs to close opened doors for those who wanted to get involved in the private-members clubs.

Performance of the Clubs

Of course, the real figures on private-members clubs are closely guarded secrets, for obvious reasons regarding the grey area in which they operate. However, one owner in 2008 actually revealed to a journalist that his table drop was €20 million over a period of one year. However, outbursts like this are rare.

But the Sporting Emporium in Dublin is widely reported to have consistently operated at a loss since it opened. Certainly, over the past three years or so, operators are finding it harder to make profits on just the live table games. And strictly speaking, they are not allowed to have slot machines, but there is a growing trend now where the private-members clubs are installing slot machines without licenses.

This obviously does not sit well with the slot arcade operators, since they have to pay a license for each machine and also a fee for the license of their premises. One private-members club in Cork has installed at least 30 slots.

Ongoing Legislation

A research committee was set up as McDowell promised, and the public was invited to make submissions to the minister of justice. After almost two years, in July 2008, the report “Regulating Gaming in Ireland” was released. (It can be viewed at www.justice.ie.) A Gaming Control office was set up soon after within the minister of justice’s office, and further submissions were invited. A further report, “Gambling Options,” which again took approximately two years to complete, was released in December.

Money Laundering

Ireland has been under pressure for some time to comply with the third money-laundering directive (known as 3MLD) issued by the E.U. Casinos have always been seen as a target for money laundering, and as they are included on the directive, there is pressure on the government to make sure that Irish casinos and private-members clubs are in compliance.

So, last June, the Anti Money-Laundering Department in the Minister of Justice’s Office asked if all private-members clubs would register their respective clubs with the department so as to comply with the 3MLD.

The reality is that none of the clubs themselves are regulated or follow any procedures issued by the government, yet they have been asked to register and comply with the money-laundering directive. The penalty for refusal is imprisonment or a fine of €5,000. But the operators have no training to spot money-laundering activities on their premises.

It should be noted that while this registration process makes private-members gaming clubs amenable to the full rigor of the Irish anti-money laundering statute, it does not purport to endorse or regulate the gambling activities of those clubs. Ironically, the government is not forcing the slot and amusement arcades to comply with the regulations, despite the fact that other European casinos and gaming arcades where slots are the main business are required to comply. In many cases, there are larger monetary transactions in the Irish slot arcades than there are in the casinos and private-members clubs.

 Registration for money laundering control purposes, therefore, cannot be taken by private-members clubs as a license to engage in gambling or to extend their gambling activities beyond their club memberships. Neither does it guarantee that such clubs will be offered licenses in any future regulatory regime, should the government decide that such a regime is warranted, following the settling of policy in relation to a new gambling architecture for the state.

The VAT

The latest battle that the private-members clubs have had to deal with is that they are liable for VAT (value-added tax) payments, according to Irish revenue commissioners.

While bookmakers and much of the gambling industry are exempt from VAT, the Irish tax authorities now want the casino clubs to pay VAT at 21 percent. A number of assessments in respect of VAT have already been made on some clubs, and there is also the issue of back-dated payments. The government considers that VAT must be paid on membership fees, entry fees, fees to take part in a game and net receipts from gaming.

One case already taken to the European courts was ruled in favor of the revenue board, and this is sure to have a domino effect to the other operators of casino clubs.

This could be the issue that finally decides the legality of gaming. The government contends it wants to treat the private-members clubs like any other business. The government wants a 21 percent tax on membership fees, entry fees and more; why have they not requested 21 percent when gaming chips are purchased?

The only thing that will change this type of taxation is gaming legislation. And the government could use the tax issue as a whipping stick prior to legislation. There is no doubt that the opening of the private-members clubs has been the main catalyst toward gaming legalization, but how many of these will exist when full legislation arrives?

If major casino companies arrive and invest millions of euros into five-star structures, has the cleanup of these smaller operators already begun?

Attracting Investors

Many feel it important that the government realizes the business of casinos has changed immensely over the past 20 years. The competition between casinos around the world for their share in the market is at an all-time high.

Considering the economic downturn in Ireland, it will be difficult to attract large casino companies without establishing a reasonable tax rate, and it’s probably even wise to consider tax inducements. The casino giants will be very cautious after the lessons learned from Great Britain and its disastrous de-regularization scheme a few years ago.

At that time, William Weidner, then the COO of Las Vegas Sands, arrived in the U.K. and was discouraged about what he found.

“The home team won,” he said. “The operators there in the U.K. worked the system very well, so they ended up with what they wanted, which I would consider to be sub-optimal, lousy little casinos that kept them in the game and kept us out. If we had known the game was stacked against us, we wouldn’t have wasted jet fuel going over there.”

The Future and Opinion

Elections took place in late February, with a new government being formed over the subsequent weeks. This new lineup will give Ireland its fourth minister of justice since the gaming issue began, and there really has been no progress.

Still, it seems gaming legislation is getting closer. There are questions, for example, whether the new government will accept the research and options completed over the past four years by the outgoing government. Or will they begin their own research, which could go on for another few years?

But the overall question the industry is asking is, have they the political will to see the new gaming legislation through? The country itself is in economic freefall, and proper legislation and regulation—not just for the casinos and slot arcades but for other issues including online gaming and more—could bring in badly needed revenues. After all, other jurisdictions all over the globe are earning substantial revenues. Why not Ireland?

With the proper legislation, the major casino corporations would show interest and provide the industry with that “wow factor” and provide Ireland with tax revenue, infrastructure improvements and tourist attractions that could bring visitors from around the world to Irish soil.

Immediate Impact

Casino resort complex could be first fruit of new legislation

The new gaming legislation being proposed in Ireland could have a positive effect on one of the most ambitious projects of its kind in the country.

The County Council of North Tipperary has approved plans for a €460 million project which includes a 6,000-square-meter casino and 500-room hotel.

The concept from developer and gaming arcade operator Richard Quirke incorporates a replica of the U.S. White House, a casino and five-star hotel, an entertainment complex capable of holding 15,000 people, an all-weather horse-racing track, a greyhound track, an 18-hole golf course, a heliport and parking for almost 6,000 cars.

The landscaped grounds will feature a reproduction of Lafayette Park, the seven-acre public park to the north of the White House in Washington, D.C. The “Tipperary White House” would host weddings and banquets.

It won’t be easy, however. Engineering feats required for realization include the diversion of two rivers and construction of a road to connect to the new Dublin-Cork M8 highway.

Independent TD Michael Lowry, who represents the district, told the Irish Times that the council’s decision is “a major step forward” and “refreshing and positive news at a time of gloom.”

Lowry estimated that about 1,000 construction workers would be employed in the three-year building phase and as many as 2,000 permanent jobs would be created by the various facilities.

The Irish national heritage organization, An Taisce, could try to appeal the decision. The group submitted a complaint to North Tipperary County Council, arguing that the development “couldn’t be more inappropriate.”

Lowry defended the project, saying that the “biggest planning application ever lodged in North Tipperary” had gone through “thorough and rigorous analysis” by officials.

Quirke acknowledged the “efforts and assistance” of Lowry, saying “this project would not have come to fruition if it were not for his time and dedication.”

Lowry said that the project would not require state aid or grants, that it had already attracted “a keen level of interest from international investors.”

The project is expected to be one of the major reasons that changes to the gaming act will be considered by the new government, elected in late February.

JJ Woods is director of operations for Atlantic Casino Consultants, which he founded in 2005. Woods was born in Ireland but left in the 1970s to live in London, where he started a career in banking. He later trained in the casino industry, and over the last 25 years, Woods has dedicated his career to the design, opening and management of casinos around the world.

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