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The Future of Land Based Casinos - February 2010

The future of land based casinos will depend on how they respond, in the short term, to the new casinos being introduced under the Gambling Act 2005, and in the long term, to the threat of internet gambling and the opportunity of being allowed to advertise. This article predicts that with minimal deregulation and an amenable Chancellor of the Exchequer, Britain’s land-based casinos could enter a renaissance as centres for well regulated adult leisure and entertainment, generating many jobs and taxes. However, if political indifference continues, this industry will undoubtedly be squeezed for more taxes again in the future.

The British casino industry is at a low point in its 40+ year history and it has done practically nothing to deserve it. The restrictions placed upon it by the Gaming Act 1968 meant that for many years it couldn’t publicise its existence and had to operate under severe regulation and supervision. So until the turn of this century, the casino industry was practically hidden from view for all but those who sought it out and then were willing to wait 24 hours to play. From a political viewpoint, casinos just weren’t an issue; there was no crime and very little scandal. The industry just carried on, having happy punters, making money, employing staff and paying taxes.

Then gambling legislation got its overhaul and the Budd review took what was a ‘closed’ casino industry under a benign Stalinist regime and shone the light of neo-liberal economics upon it. It recommended that there should no longer be mini-oligopolies for casinos based on the theory of servicing ‘un-stimulated’ demand, instead there would be a free market and punters would be able to walk in off the street and gamble, as they have been able to around the world. Advertising would be allowed and a new gambling regulator, the Gambling Commission, would bring the “wonders” of expertise-light modern regulation to this unique and complex industry.

However, there was to be a spanner in the works, a free market in casino gaming was too much for the self-appointed arbiters of British morals, the Daily Mail and with its Editor’s friendship with Gordon Brown, we would see a very effective campaign to destroy the dream of a new era in British gaming, assisted by an almost mute Department for Culture, Media & Sport. What they didn’t realise is that the eventual legislation, emasculated in deference to the media onslaught would end up being harmful to the existing industry and cost jobs and reduce government revenues.

The Gambling Act 2005 put an end to the old system where if you wanted to open a new casino you would go before a magistrate and argue there was a demand for it. Section 175 of the new Act only ever allows for 1 new regional, 8 large and 8 small casinos to be added to the 192 existing ‘68 Act licenses (143 casinos are actually operating), regardless of the change in population numbers or needs of the public. The new Act originally designed to free the market, for the first time made it permanently closed.

The one regional casino, which was to be the pilot for a new type of casino, based more on those found in France and Germany than on those found in Las Vegas and Australia (although reading the Daily Mail you would think otherwise), was ceremoniously dumped by Gordon Brown in a response to a Prime Minister’s question on the 11th July 2007, two weeks after taking office as Prime Minister, three and half months after the government had been defeated on the Statutory Instrument which would have placed it, rather bizarrely, in Manchester and not Blackpool or Bournemouth. Gordon’s moral views and desire to court middle England meant he could not stomach the idea of allowing what would have been a very minor enlargement of our gambling environment.

The remaining 8 large and 8 small casinos have managed to squeeze through and as this article is being written, the local authorities whose gift their licence is; are preparing to open competitions for their allocation. Eleven of these sixteen licences are in or near local authorities that already have casinos. Since these licences come with a machines allocation that is far more generous than that allowable for ’68 Act casinos (’68 Act casinos are allowed 20 category B to D machines, small casinos are allowed a maximum of 80 and large casinos a maximum of 150), the new competition will be unfair and existing casinos will undoubtedly close. Operators of existing casino will be forced to compete for the new licences (at much cost) either to replace their existing licence or just not to open and protect their old casinos as these casinos. Either way these 11 new casinos will add little and cause much cost and job losses. As for the five new licences in new areas, most experts agree that only two have any commercial potential. So there is not much to show for the biggest change in casino gaming legislation in 40 years, just a good case study in what happens when a government loses its mettle.

The casino industry, while missing out on the upside that seemed so possible with Budd, has instead had to suffer the downside of new legislation. The smoking ban hasn’t had the same affect that it has on bingo, attendances have continued to increase, but most casinos have had to go to the expense of making outside smoking areas to keep punters accommodated. The Gambling Act saw the removal of Section 21 machines due to the closing of a legal loophole, while not a point of principle, this still has meant reduced revenues, as unlike bingo they haven’t been given new machines to replace them. But the biggest hurt of all has been the cavalier manner in which the tax rate was altered in the 2007 Budget, where Gaming Duty, based on a sliding scale between two and a half percent and 40%, with an overall average rate of approximately 20% duty was changed with the lower rate being abolished, the 12.5% rate increased to 15% and a new top rate of 50% introduced. JB Colbert, Louis XIV’s finance minister once said: “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing”, this industry feels that there can’t be that many feathers left to pluck.

As if this wasn’t enough, the casino industry has to contemplate a future of the next generation of internet gambling. Discussed in depth in a later article, internet gambling has the potential to do severe harm to the land based gambling industry because it will soon provide a customer experience that very nearly equates to the thrill, excitement and enjoyment of playing in a land based venue. Once the UK has a fibre optic network and people are receiving broadband download speeds in excess of 100mbps, then this author predicts that online gaming will evolve to a new level of customer experience based on interactive streaming video. This will mean that players will get not only a fully immersive, interactive real-time casino experience but this can be enhanced by all the wizardry of computer generated graphics. Playing blackjack with a super model like croupier while the moons of Saturn revolve around you while you are actually still in your front room may well seem preferable to the journey to your local casino in the future.

This is where the opportunity has to be for British casinos of the future. To compete against the internet they must focus on the one thing which makes them different, physical social interaction. Even when the future has us all sitting in front of 100” 3D screens, conversing with the lovely Grazyna who is dealing Texas Hold ‘Em in Vilnius while virtually dressed as a wood nymph, it will still not be as emotionally fulfilling experience as physically being in a cutting edge gaming establishment. You can never completely translate the atmosphere of a casino into binary code. Television did not kill the cinema, cinema did not kill the theatre, off licences haven’t killed off pubs and iTunes hasn’t killed off night clubs. People enjoy each other’s company and seek it out. British casinos need to start thinking about what casinos were originally invented for back when Europe’s aristocracy had to pass the time while taking the waters and that is the ability to offer all sorts of leisure activities, not just gambling. They can do quite a lot of it already; bars, restaurants and entertainment, but still the focus is 90% gaming and 10% fun. This has to be readdressed and could be done so, just there will always be the battle about whether a casino is there to provide gambling or there to provide a leisure experience. This author believes that when the gambling is so easily provided online, casinos of the future will have to focus on the experience.

Casinos have had the ability to advertise for a number of years now and are not yet fully grasping it as a medium to drive customers their way. Some of this reticence is due to the fact that many of our casinos don’t have much more to offer than a few gaming tables but much of it must be due to the knowledge that whenever gambling raises its head in the public perception, many a newspaper (who offer their own online gambling) goes into overdrive about the forthcoming demise of British society. If casinos could make their offer less about gambling and more about safe, well regulated adult entertainment (of which gambling was just a part) than surely they could use advertising more freely and compete against the internet.