May 2014: Gaming Intelligence: Feature - How the gambling industry lost the political war on FOBTs

posted Jun 17, 2014, 3:27 AM by Steve Donoughue   [ updated Jun 17, 2014, 3:27 AM ]

The UK bookmaking industry is at something of a crossroads. It has been hit by a forceful political campaign that has resulted in tax hikes and increased regulation. But could it have avoided it?

While the recent move by government to tighten controls on fixed odds betting terminals has quietened the storm for now, most observers expect the Labour Party (probably in coalition with the Liberal Democrats) to resume efforts to curb the industry if they win the next general election in May 2015, as many political commentators predict.

For now, the details need to be thrashed out as to how the government’s new rules are implemented. For example, if bookmakers are required to implement cards for account-based machine play, will the government be happy with loyalty cards that encourage play in addition to just tracking players?

These negotiations need to be handled delicately. Until now, government/political relations is not something the bookmaking industry has been particularly good at. If you speak to almost anyone at the big three bookmakers, they will argue the industry has been hit by a political storm that was beyond its control. If you speak to any political or public affairs consultant, they will tell you the industry has completely failed in this arena. So what is the truth of the matter?

The end of FOBTs

Steve Donoughue is a gambling industry consultant, who has recently been a special adviser to the British Parliament’s Culture, Media & Sport Select Committee inquiry into gambling. He also runs the Secretariat of the Parliamentary All Party Betting & Gaming Group. His father is Labour peer Lord Donoughue. You could say he is pretty well connected.

In January of this year, Donoughue wrote that FOBTs will be finished within two years: “What is glaringly apparent is that FOBTs are entering the end game and bookmakers have few friends left in either Westminster or the media. The fact that the bookmakers don’t seem to have realised this is just an example of how they have lost the plot about public affairs and its importance to their business.”

Donoughue stands by this claim despite the DCMS proposals, which he characterises as a “very rare example of a moderate and proportionate response” by government to a political storm. He believes that FOBTs dodged a bullet now but a year into the next government, there will be another clampdown.

“The bookmakers don’t have any political constituency anymore,” says Donoughue. The Conservative Party is largely supportive of business but there is a moralist wing to the party that does not approve of gambling. The Labour Party largely disapproves of gambling but in Shadow Chancellor Ed Balls it has an influential voice, who is largely supportive of business, but thus far his voice has been drowned out by those demanding an end to FOBTs and the clustering of betting shops.

The Labour Party’s antipathy has helped fuel bookmakers’ belief that there is little they could have done to weather the storm. In 2008, FOBTs were a backbench Labour issue led by politicians characterised as the “loony left”. However, in 2008 the banking crisis hit and Lehman Brothers went bust.

The bookmakers will tell you that has led to a public and political backlash against regulated industries from bankers to energy companies to the bookmaking industry. This is possibly true. But political consultants such as Donoughue will tell you that the industry has only helped fuel this whirlwind. By continually peddling the line that FOBTs are not a problem and that we should look at the jobs the industry provides and the taxes it gives, it is putting itself in the category of ‘predatory capitalist’.

As Camberton founder Mark Davies points out: “It’s no use crying ‘please don’t stop us making money’ - it does not resonate.”

After the Campaign for Fairer Gambling spread its anti-FOBT gospel through the pages of The Daily Mail, the Guardian and the Mirror and onto the desk of Labour Party bigwig Tom Watson, it was clear the issue was going mainstream. Labour Party leader Ed Miliband has adopted the issue as he knows it will fill the same pages and press the same emotional buttons as payday lenders, predatory energy companies and rampant bankers.

However Watson only adopted the issue six months ago. The industry had been warned of this six years ago. Two years ago it could have done some lobbying of its own. If the pages of the Mail, Guardian and Mirror are unfavourable towards bookies (despite their gaming sites bringing in the cash because their readers want to gamble) then perhaps a better job could have been done with The Sun, The Telegraph, The Times and the BBC. And if the Labour Party was always going to be a hard sell then what about the Lib Dems and Conservatives?

Big three failure

According to every industry expert surveyed, the problem lies in the attitude of the big three CEOs towards lobbying.

In March 2014, Gala Coral Group appointed Fiona Thorne to the newly-created role of corporate affairs director. Gala Coral has had a fairly serious restructuring job on its hands for some time now but for the third largest bookmaker in the UK, not to have someone managing its political affairs is little short of scandalous.

William Hill has an extremely active government relations arm led by Andrew Lyman. However, in consultation with government it refuses to admit there is a problem.

“Look at the statistics,” its people will say. Just two months ago, following the publication of the Association Code of Conduct, its spokespeople were telling this publication that they genuinely did not see what more they could do on this issue.

While both sides can debate the nature, extent and cause of problem gambling, there is no debating the fact that the government has a political problem. Telling politicians and regulators that there is not a problem does not ease the political pressure.

“The operators show no empathy for politicians,” says a source. Worse still, others claim they have no interest in impressing politicians.

“[William Hill CEO] Ralph Topping likes to do his public affairs through the pages of the Financial Times,” says an insider. “It does more harm than good.”

Another source had this to say of the Ladbrokes chief executive: “In my conversations with Richard Glynn it is kind of obvious that he does not think government relations are important.”

“I would totally refute that,” says a Ladbrokes spokesperson. “He has played a lead role personally in guiding the industry through the politics and has made a significant contribution both in terms of direct engagement with DCMS and the Commission and in developing an approach for the future.

“This has been exemplified by Ladbrokes commitments on a new board committee and executive remuneration as well as us being the first company to launch a dedicated responsible gambling ad. We are also developing our Odds On loyalty card to provide insights into problem gambling behaviour. All initiatives that have been fully supported by Richard. All CEOs have to manage different priorities but as a group they have stepped up the industry's approach significantly and our approach will continue to develop in the months ahead.”

These are valid achievements but according to most observers it is a case of too little, too late.

The industry needed to be proactive on this issue but it waited until the public had made up its mind before putting forward its initiatives. As Davies points out: it’s no use lobbying politicians about FOBTs if the public has already decided they are the “crack cocaine of gambling”.

The Association of British Bookmakers (ABB) has to accept a fair share of responsibility for the lame effort it has put up in defence of the industry.

“The Campaign for Fairer Gambling is two men and a dog, a marketing company and a bit of cash,” says Donoughue. “Yet it has run rings around a multi-billion pound industry.”

Former ABB chair Neil Goulden has a great number of fans in the industry. As a Labour Party donor he is politically engaged and he has taken on numerous fairly thankless tasks (and often unpaid ones). At various times, he has been the chairman of the Business in Sports and Leisure organisation, the chairman of the Responsible Gambling Trust (RGT) and the chairman of the ABB. However, laudable as his energy and commitment are, they may well have ended up doing more damage than good.

It was a very basic error to assume the role of chair of the ABB and chair of the RGT. It left the RGT open to attacks of conflict of interest and the possibility of a situation whereby Goulden would have had to announce the results of research into FOBTs and then respond on behalf of the ABB. That situation has now been resolved after Goulden stood down from the ABB and was replaced by leading barrister Paul Darling QC.

Goulden was also involved in a minor furore over a personal donation of £20,000 he made to Labour’s shadow business secretary Chuka Umunna. Goulden stressed that the donation was a personal donation and had nothing to do with his position as ABB chair. However, it embarrassed Umunna and to make matters worse Goulden commented: “I’ve never discussed gambling policy with the Labour Party.”

“He’s either a liar or the worst chairman of a trade association ever,” exclaims Donoughue.

A question of PR

The gambling industry has an image problem. It is easy for the press to throw around statistics claiming punters “lost” more than £1bn on FOBTs while other comparable industries such as the video games industry, where there is nothing to show for a customer’s outlay, can talk about “entertainment”. More than one executive has spoken to me resignedly about this as if it is a simple fact of life that cannot be altered. The thinking goes like this: “Some people think gambling is evil, others think it’s morally reprehensible and nothing we do will ever change this. We are on a hiding to nothing.”

The natural extension of this into company strategy is “let’s make as much cash as possible before we get screwed again by the government”.

However, there are a few people out there who believe that perception can be changed.

“The key to the debate is problem gambling. Rather than sitting there saying ‘there are no problems, look at the evidence’, the industry could have taken a slightly more humble approach from the beginning,” says Donoughue. “What the bookmakers need to do is put up their hands and say we need a debate about the future of the betting shop.”

Donoughue believes a debate about what is acceptable gambling on the High Street could be positive for the industry. It would allow the industry to point out the ludicrous status quo, where you can bet on your phone in a pub or drink a pint at the bingo or in a sports stadium while betting but you cannot buy a hot Cornish pasty in a bookmaker. It could lead to liberalising legislation rather than the shop closures and the inevitable online exodus of punters, which is the way the debate is heading at present.

Davies at Camberton recently suggested linking executive pay to revenues from clean jurisdictions and even finding a way of linking it to responsible gambling measures. Sure, you would need to find criteria for safe gamblers but what better way of demonstrating your commitment?

He has also highlighted the work of Featurespace, a company that claims to predict problem gambling before it becomes a problem.

The common theme of all these innovations is that they move beyond the current debate and the current solution. They would take the wind out of the sails of the anti-bookmaking fraternity by presenting the industry as progressive, safe and entertaining.

Inspired Gaming supplies 50 per cent of the country’s FOBTs. When the government upped the tax on FOBTs, Inspired lost £2m. Its CEO Luke Alvarez and his counterpart at SG Gaming, (which supplies the other half of the nation’s FOBTs), Steve Frater called for an industry-wide adoption of the Code of Conduct on machines across all products - online and off. The response from the industry was mixed, says Alvarez. The tone of his voice suggests there has been some hostility.

“The industry needs to get ahead of these issues. There is periodically a legitimate debate for society to have about the ethics, opportunities and risks of gambling. The smart outcome of that debate is always keep it legal, keep it well-regulated and keep it visible and transparent. But there are things that the industry could do as a whole to reduce the very small instances of problem gambling. But those initiatives are only effective if they are cross-industry initiatives,” says Alvarez.

The first cross-industry initiative that this correspondent can recall was the formation of the Industry Group for responsible Gambling. It brought together the ABB; the British Amusement and Catering Trade Association (BACTA); Bingo Association (BA); National Casino Forum (NCF) and Remote Gambling Association (RGA). Its chairman has even reached out to the lottery.

So perhaps we are learning. One of my spies even thinks he saw new DCMS secretary of state Sajid Javid in William Hill’s seat at the FA Cup Final. So work is being done. Let’s just hope he didn’t get an ear-bashing about jobs and taxes for 120 minutes.