The economic and regulatory landscape that has evolved in the UK is very different from that envisaged in the heady days of 2002 when consultation leading to the 2005 Gambling Act began. However, the British casino industry is nothing if not resilient. The patient may not be very well, but it certainly isn’t dead.
Along with most sectors of the UK economy, times have been difficult for the casino industry. The effect of the recession on consumer spending was to be expected, but the industry also has had to contend with the new regulatory environment created by the Gambling Act.
In 2009 there were three casino closures - including London Clubs International’s Fifty, formerly the famous Crockfords - and two openings, which meant that there were a total of 142 casinos operating in the UK at the end of the year, compared to 143 the previous year. Of the 142, 24 were in London and 118 in the provinces.
When the Gambling Act came into force in September 2007 it allocated 16 new licenses: eight for “small” casinos and eight for “large” casinos, the essential differences between the two being maximum square footage and allowable gaming positions. The act also stipulated where those licenses could be awarded by local authorities. Large casinos could be licensed in Great Yarmouth, Kingston-upon-Hull, Leeds, Middlesbrough, Milton Keynes, Newham, Solihull and Southampton. The small casinos could be licensed in Bath and North East Somerset, Dumfries and Galloway, East Lindsey, Luton, Scarborough, Swansea, Torbay and Wolverhampton. While there are some applications pending with local authorities, as yet, none of the new licenses has resulted in a new casino.
Peter Wilson, a lawyer with the London firm of Memery Crystal, blames democracy for why none of the 16 licenses is currently active. “The local administrations have been slowly but steadily grinding on towards the issue of licences,” he says. “Local democracy means giving everyone a say, so local authorities consulted on their new gambling policies and proposed criteria for awarding the precious licences. The process is complex, involving the running of a competition whereby applicants will need to illustrate the additional benefits their proposals can bring the community besides a mere gambling opportunity.”
Roy Ramm, director of compliance for London Clubs International, speaks for many in the industry. “The process of allocating the 16 licenses has been unbelievably slow,” he says. “That is partly down to Government not passing the necessary enabling legislation until 2008. It probably won’t be until 2011 before any of those new casinos see the light of day, which is disappointing.”
Scott Longley, business editor of industry news Web site Gambling Compliance, believes it unlikely that the 16 licenses will become actual casinos, even with a change of government. “The 16 small- and medium-casino proposals got caught out in the shakedown when Gordon Brown nixed the ‘super casino’ in a fit of Presbyterian pique, and they haven’t really surfaced since. Although it is thought to be in the hands of the local authorities, it would appear that they have sunk without a trace. There might be some interest in reviving the plans for them, as the UK casino industry, in parts at least, has done a good job of recovering from the imposition of the smoking bans in Scotland and then England and Wales and the new taxes imposed in 2007. But hopes would rest on a new government, as of May at the latest - likely Conservative - and casinos are just not high enough on the agenda.”
The Conservative Party was hugely critical of the Labour Government’s Gambling Act during the years it took to reach the statute book but has yet to announce any clear policy changes. It is unlikely that a Conservative Government will rip up the act in its entirety, but it is possible that it may make the unused 16 licenses portable so that local authorities that want casinos can accommodate operators who wish to open in their areas.
That change in policy would be welcomed by Ramm. “We need to get away from the whole concept of permitted areas and say to local authorities, ‘If you want a casino you can have one, as long as someone is prepared to move an existing license there.’ That way you wouldn’t increase the total number of casinos, and there would still be less than 200 in the whole country, but it would mean all the licenses were being used and casinos were in places where they were wanted.”
He cites the capital as an example. “Only two out of the 32 London boroughs have casinos: the Royal Borough of Kensington and Chelsea and the City of Westminster. If another borough like Croydon, Havering or Harringay wanted a casino, what is wrong with one of the casinos that are concentrated in the West End, which doesn’t need a boost to its night-time economy, moving to the outskirts? Currently, we have people coming into the West End to use casinos when they could have the facility where they live. A casino in somewhere like Havering could create 200-300 jobs for the local economy.”
The latest prevalence study conducted by the country’s regulatory authority, the UK Gambling Commission, showed that less than 5 percent of Britons have ever visited a casino, and one of the reasons for the low level of penetration is the plethora of other gambling options open to them, such as high street betting shops and online portals. The availability of these other channels has also had the effect of decreasing the value of licenses. As Wilson points out, “The recession, growth of machine gaming in betting offices and ever-expanding facilities for online gaming have all combined to damage casino footfall and drop, so the prospect of having to finance a massive upfront capital investment in developing a multiplex casino and entertainment facility is less attractive now than at any time since the Gambling Act was implemented in 2007.”
As an example, Clermont Leisure, a subsidiary of Guoco Leisure, had applied for 30 licenses in 2007 but announced to the Hong Kong stock exchange last year that it was withdrawing all of them.
Conversely, one of the positive effects of the act was to put an upper limit on the total number of casinos that will be allowed in the country. This means that operators know how much they can expand their estates, and this has certainly enabled Grovesnor, part of the Rank Group, to set some targets, as Rank Director of Communications Dan Waugh explains: “We increased our estate from 32 casinos at the beginning of  and had 35 by the end of the year while the whole market went from 145 to 142. There is now a ceiling on the market, and we know where it is.”
Grosvenor has 12 licenses it is not using, and Waugh says current plans are to expand from 35 to 47 casinos, and maybe more, if opportunities arise to acquire casinos or licenses.
Interestingly, Waugh is not as critical of the act as many in the industry. “I think people are forgetting that there were some very good things in the act,” he says. “We went from 10 jackpot machines to 20, and the 24-hour rule, which was truly draconian, was rescinded. Casinos are now allowed to advertise more than their addresses. So there were some pretty outmoded restrictions that have fallen away.”
A TAXING CONCERN
Tax is another matter. British casinos pay a tax on gross gaming revenue that is calibrated at a rate that increases with revenue. The tax was increased in 2007. As it stands now, the first £1,929,000 is taxed at 15 percent, the next £1,317,000 at 20 percent, the next £2,329,000 at 30 percent, up to £4,915,500 at 40 percent, and at 50 percent above that. In addition, so-called Category B slot machines in casinos are charged an amusement machine licence duty of £2,815 per machine per year, and the value added tax of 17.5 percent is assessed on all winnings. These rates are high compared with those of other jurisdictions, but given the state of the country’s finances they are unlikely to be significantly lowered by any new government.
“I think we are more concerned about taxation,” Waugh says, “and it is particularly disappointing the Department for Culture, Media and Sport has had its plans for the industry effectively scuppered by the Treasury. We want to see a joined-up approach by Government that aligns fiscal policy with social policy.”
Although trading has been tough, UK operators have responded by innovating and looking closely at their offering. LCI and Grovesnor have been leaders in marketing the casino experience as leisure rather than a pure gaming activity.
“We want people to look at in the same way as, say, a night at the theatre,” Ramm says. “In London, if you go out to dinner and a show you won’t get much change out of £150, but you’re OK with it because you have had a good time. It should be the same with the casino. But you have to offer more than just gaming.”
Waugh says that Grovesnor has adopted such a strategy with its new G casino brand.
“Traditionally, casinos in the UK have just offered table games and slots, and we think customers will want more than that. So our new G casinos tend to be larger than the traditional casinos, but the extra floor space isn’t given over to gaming but rather to a decent quality restaurant, a nice bar and a sports lounge where people can watch the football. In our older casinos we were getting around 90 percent of our revenue from gaming, but in our new casinos we’re bringing it down to closer to 70 percent, so we’ve more than doubled non-gaming revenues as a proportion of our business.”
While operators are able to innovate in some ways, such as offering entertainment and quality catering, the Gambling Act stops them from changing their core offering of table games. Ramm, for one, worries that new customers, who are familiar with online gambling, will be disappointed with the traditional casino offering.
“About the only place you cannot bet online in the UK is in a casino,” he explains. “You can play online at home, or even in a church, but not in a casino. Under the act it is impossible for casinos to offer the kind of technology and gaming product that people are getting used to online. At present we can only offer card games with paper playing cards. We would like to be able to offer them with virtual cards and offer virtual blackjack and virtual poker.”