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Economics of Gambling in UK

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The UK ‘s gaming and betting markets are well developed, with arguably the exception oftheir casino industry, which is undergoing considerable change as a result of the recentlycreated Gaming Act 2005, and the National Lottery, which came into existence in 1994.

During 2001, a typical UK household spent about €565 per week on all items per week from an average gross income of €725 with wide variations in spending depending on income and region. Two-thirds of family spending was on non-essential items. At present, leisure goods and services in the UK is the category with the highest amount of spending at €102 per week. In 2001 the total UK spend (i.e. the money lost, or money staked minus winnings) on gambling was €10.6 billion or €8.41 per household per week, representing about 1.2% of household income or the equivalent to about 11% of all the spending on leisure goods and services.

A survey conducted by National Opinion Polls on behalf of the Department for Culture Media,and Sport in 2004 found that the number of British citizens who had gambled during the previous year was 71%. The survey also inquired about attitudes towards gambling.

Generally attitudes were unfavourable with the exception of lotteries and bingo, with attitudes towards gaming machines, Internet gambling and betting exchanges were the most unfavourable. However, in the case of internet gambling, 47% of respondents stated that they were neither favourable nor unfavourable or did not have an opinion. With betting exchanges, the figure was 63%. (Source: GBGC Report)

The Gaming Act 2005 was passed into law in April 2005. The Gambling Bill originally called for a significant number of regional casinos, or as many as the market would bear, subject to regional planning authority approvals, but that number was reduced to 8 during negotiations in February 2005, and finally to one when the Gambling Bill finally passed. The Act brings about the creation of a Gambling Commission, which will oversee all forms of gambling except the National Lottery. Culture secretary Tessa Jowell said the Bill would give Britain “the toughest, most comprehensive regulatory framework in the world, to protect the public interest, to prevent the exploitation of children” (Mason and Mead, 2005).

While restricting some aspects of the industry, like access of minors to all types of gamblingmachines, the Act permits operation of on-line casinos from the UK for the first time.

However, following great pressure from anti-gambling organisations, general population concern with the proposed new types of gambling (Dodgson, et al., 2004), and the government’s desire to pass the bill before election, the Act allows for only one regional “super casino,” which will be able to have over 40 gaming tables and up to 1,250 class “A” unlimited prize and stake gaming machines; its location will be determined within the next few years. The Act also authorizes eight “large” and eight “small” casinos that are permitted gaming machines according to a formula tied to the ratio of table games to gaming machines. This is in addition to the existing 126 small and medium casinos already in the country, which, however, are still not allowed to have any class “A” machines. The previous UK law had forbidden machines paying prizes above 2,000 pounds and casinos were allowed no more than ten machines each (Black, 2004). The new Gambling Bill does not allow any class “A” gaming machines anywhere (including pubs, hotels, gaming arcades) except in the single regional casino to be created. Also, there is now a new offence permitting a child to gamble.

This is a substantial retreat from the initial recommendations made by the Gaming Review Report (Budd, 2001) and the original government response (2002.) Under the intended regulatory-reform Bill, casinos were supposed to enjoy substantial relaxation of restrictions, namely:

  • ending of the 24-hour rule
    • removal of the ‘permitted areas’ restriction
    • abolition of the demand test
    • live entertainment permitted
    • advertising allowed
    • betting and bingo added to product range
    • linked machines with large jackpots
    • Maximum prizes – unlimited
    • Maximum stakes – unlimited
    • Max No. of (high-prize) gambling machines –
    • ~ 70 for small casinos
    • >1000 for large (over 80 tables or over 10,000 sq. ft.) and resort casinos

Moreover, currently just 3 per cent of Britons visit a casino each year. The cross-industry group for gambling deregulation predicted this would have jumped to 10 per cent (Ahmed and Mathiason, 2003) if the Budd proposals had been implemented.

As deregulation in the UK has now proved to be less than dramatic, the changes that it will bring are not going to be substantial and market composition is not expected to change dramatically, with the exception of on-line gaming, which will continue to grow. Furthermore, the recent emergence and legal acceptance of Fixed Odds Betting Terminals (FOBTs) in betting shops has expanded the number of casino-style gaming machines permitting moderate stakes (up to €145) and moderate payouts (up to €725) available to the public.

However, there is more deregulation in the gambling industry expected to come in the future, as the current level of regulation is almost considered as a ‘trial period’. According to how the one permitted regional casino is going to perform, how would public opinion change, how would interactive gambling continue to develop, and what recommendations the European Union would make in regards to a single European gambling market, a new wave of deregulation could be much more dramatic and Budd’s recommendations could be brought to attention again.

Following the Gaming 2005 Act, The Gambling Commission will be issuing two types of licenses : operating licenses and personal licenses. For each operating license, at least one person must hold a personal license for a specified management office. In addition, the Commission will specify the persons who must hold a license if they are to carry out a particular role. However, small operators will be exempt from these requirements.

Operating licenses will fall into the following categories:

  • casino operating license;
    • bingo operating license;
    • general betting operating license;
    • pool betting operating license;
    • betting intermediary operating license;
    • gaming machine general operating license (for both family entertainment centres and adult gaming centres);
    • gaming machine technical operating license;
    • gambling software operating license; and
    • lottery operating license.

Subject to certain rules and limitations the Commission may issue combined licenses, which cover more than one of these types. However, a single license may not combine both remote and non-remote licenses.

Personal licensees will fall into two main categories:

  1. Those holding management offices. The Commission may require some or all of these individuals to hold a license:
    • the director of a company;
    • a partner of a partnership;
    • any person who holds an office in an unincorporated association; and
    • any individual required to take or share responsibility for those carrying out an
    operational function or for complying with the conditions of an operating license.
  2. Those carrying out operational functions. The Commission may require some or all of these individuals to hold a license:
    • anyone who could influence the outcome of gambling;
    • those who receive or pay money in connection with gambling (we will consider how this requirement should be interpreted in each sector: not all those who handle money will need to be licensed); and
    • those who manufacture, supply, install, maintain or repair a gaming machine.

Recent estimates of the UK gambling industry show a continues increase in the public interest and spending on gambling.

GAMING SECTOR ANALYSIS

Lotteries

In the UK the bid to operate the National Lottery was awarded to Camelot in 1994. The UK National Lottery was established by Parliament through The National Lottery Act 1993 which was amended by the National Lottery Act 1998. These Acts set out the legal framework for regulating the operation of the National Lottery, and for distributing its proceeds to Good Causes. There are overriding duties to protect the interests of participants, to ensure fitness and propriety and – subject to these first two duties – the duty to maximise returns to good causes.

The National Lottery Commission is the statutory regulator of the National Lottery.

Accordingly, Camelot Group plc (Camelot), as operator of the National Lottery, is regulated by the National Lottery Commission whilst the UK’s gambling industry is mainly regulated by the Gaming Board for Great Britain (soon to be replaced by the Gambling Commission following the passage of the Gambling Act 2005 through the UK Parliament).

Lottery proceeds make a substantial contribution to government revenue as well as to “good causes” funds for such areas as arts, sport and national heritage projects. However, the UK National Lottery’s sales have fallen during 1998 and 2003. For every £10 (€14.50) that Camelot makes in net profit, £10(€14.50) goes to retailers, £24 (€34.80) to the Government, £56(€81.20) to good causes, and £100(145 EUR) is paid out to the National Lottery players in prize money.

At present 70% of adults play the Lottery on a regular basis, giving it a greater reach than any other consumer product in the UK. Weekly sales currently average between £85 million and £90 million (€123 million and €130 million), and total sales for the half year to September 2004 grew to £2,354.6 million (€3,415 million). The majority of National Lottery sales derive from large numbers of people spending relatively small amounts, since the average weekly spend for all games is £2.66 (€3.85).

Gambling establishments do not pay VAT in the UK; however there is a gambling specific tax which applies to the National Lottery. It is a 12% duty on all the National Lottery sales. In addition, during 2003/04 Camelot incurred £32.2 million(€46.7 million) of VAT on the goods and services that it purchased to operate The National Lottery. Such VAT will have been charged by suppliers over the course of the year when invoicing Camelot for these goods and services. As sales of National Lottery tickets are exempt from VAT, the £32.2 million (€46.7 million) VAT incurred will not have been recoverable and is therefore an additional cost to Camelot.

In addition, Camelot also pay a variety of license fees for different games it provides, for example £150,000 (€217,548) license authorises the promotion of a game run in association with the promoters of lotteries in other countries in the EU (i.e. Euro Millions). Moreover, Camelot is obliged to pay to the National Lottery Distribution Fund (NLDF), which is then transferred to the lottery distributors. Also, approximately 28% of sales go to a variety of good causes.

The UK National Lottery operator must pay a license fee for each game that it wishes to introduce. The amount for each game differs and is generally linked to how complex a task it is to regulate such a game. The license fee is only paid once.

The UK National Lottery is run for a series of “good causes”. All of the lotteries that make up the National Lottery contribute to them, with the amount determined by the game license.

This reflects the structure of each individual game e.g. scratch cards have a higher prize payout % so will inevitably contribute less to good causes. To date, over £16 billion (€23.2 billion) has been raised for good causes, benefiting more than 185,000 individual projects across the UK- an average of 63 lottery grants for every postcode district. The Scottish and Welsh Art Councils are among the beneficiaries, where the Scottish Art Council receive around £18 million a year and the Welsh Art Council receives around £11 million a year. It also heavily contributed to Sportlot, which is the Lottery Sports Fund for Wales, and to similar organisations. The National Lottery has given away £24.1 billion (€34.9 billion) in prizes and has created more than 1,700 millionaires or multi-millionaires since its launch in 1994.

Camelot employs around 800 staff and the National Lottery Commission 43. This has not changed significantly over the last five years and is not expected to change in the next five.

During July 2002 Vernons launched a £3 million (€4.3 million) online lottery initiative intended to capitalise on the decrease in National Lottery sales. The game ‘My Numbers’ costs £1(€1.45) to play, requiring players to match 4, 5 or 6 numbers out of 49. Prizes range from £7,000 (€10,000) to £1 million (€1.45 million).

In addition to the National Lottery, there are also small society lotteries that are organised on a local level.

Casino Gaming

There were 135 licensed clubs in the UK at 31 March 2003 (five more than a year earlier) of which 126 (four more than in 2002) were trading at that date. This compares with 115 trading five years earlier at 31 March 1998. One of the operating clubs provides card room games only. There are 16 casino operators currently in the UK.

Each year since 1998 the Gaming Board for Great Britain has undertaken a count of the numbers of gaming machines in use in casinos (and bingo clubs). The Deregulation (Casinos) Order (SI 1999 No. 2136), which came into force on 24 August 1999, allowed ten instead of six jackpot machines to be available for gaming in a casino. The Gaming Machines (Maximum Prizes) Regulations (SI 2001 No. 3970), which came into force on 1 January 2002, increased the maximum prize per game for a casino jackpot machine from £1,000 (€1,450) to £2,000 (€2,900).

Under section 32 of the 1968 Gaming Act a casino may apply to substitute the ten jackpot machines authorised under section 31 with prizes up to £2,000 (€2,9000) for a larger number of (amusement with prizes) machines, all to be used for smaller prizes (up to £25 (€36)).

It is has been estimated that there are some 255,000 gaming machines of one type or another sited in The UK (the latest figures available are for the year 2001). These include around 211,000 AWP (amusement-with-prizes) machines. The remainder comprise around 26,000 club or jackpot machines and 8,000 other machines. Estimated distribution shows that clubs and casinos operate about 11% of all gaming machines. The British Casino Association reported that there are currently 5,450 full time employees currently working in the casino sector. This number has been steadily increasing over the past few years.

It is impossible, however, to separate table game attendance from gaming machine attendance, from the total casino attendance, as this type of statistic is not currently collected. It is the case that some persons that enter the casino participate in both table games and gaming machines and it is therefore very difficult to distinguish the attendance for a specific activity.

The total drop (money exchanged for gaming chips) in casinos (‘drop’ ) in The UK during the financial year 2002/03 was £3,797 million (€5,507), an increase of £215 million (€311.7 million) on the 2001/02 figures.

There was also an increase of £50 million(€72.5 million, or 8 per cent) in the total retained by casinos as house win (GGRs).

Each gambling machine generates an estimated win of £40,000 (€58,000) per annum in an average casino. Table games usually generate around £260,000 (€377,000) per annum per table.

The estimated growth for gaming machines revenue in 2003/2004 financial year was 4% (€51 million). Table games were expected to generate 7% more gross revenue and reach €925 million.

UK gambling industry continues to grow rapidly in response to the chain of the deregulation laws. The UK gaming market remains to be an attractive investment opportunity. There has been considerable development in the market both from UK and overseas firms as operators have their eyes focused on the potential for the market post deregulation.

In addition to the UK’s established casino companies positioning themselves to take advantage of what they anticipated to be a deregulated market prior to the legislation being passed, there was a keen interest in the UK gaming market especially from the US and Australia. First it was announced that the Gala Group had had discussions with Harrah’s regarding establishing a joint venture to bring resort casinos to the UK. The two companies have subsequently established a 50-50 joint venture to develop as many as eight regional sites of between 30,000 and 50,000 sq ft in the UK with their investment expected to be worth as much as €800 million.

During November 2003 MGM Mirage and Newcastle United soccer team announced a 50:50 joint venture agreement to build a major new mixed-use development on a prime site above St James’ Metro Station, which is in the heart of Newcastle’s city centre and adjacent to Newcastle United’s football stadium. The site will be used to build an exciting new complex, which could house commercial and retail outlets, residential apartments, a hotel, leisure and entertainment facilities and a casino of approximately 100,000 sq feet.

During February 2004 MGM Mirage agreed a joint venture with British Land to build a €360 million resort casino complex in Sheffield adjacent to British Land’s Meadowhall Shopping Centre, which has a throughput of nearly 800,000 people per week. The scheme would have included a casino, hotel, restaurants, entertainment venues and a conference centre. During the following month Sheldon Adelson, the man behind the Las Vegas Venetian, announced plans to develop a casino at Glasgow Rangers Football Club.

Center Parcs commissioned PricewaterhouseCoopers to investigate the feasibility of launching casinos at its four UK holiday resorts.

Foreign and domestic companies would have developed these sites as long as they still believed the draft legislation to be sufficiently favourable. Caesars Entertainment stressed that a cap of at between 2,000 and 2,500 gaming machines would be the minimum level required in order to make resort casinos viable, particularly if they were going to be on a scale that would have a significant impact on the regeneration of an area as the Government would like to see. Despite all the interest in investing into the gambling industry in the UK, the Scrutiny Committee’s report and then the legislation itself firstly reduced the number of gaming machines to no more than 1,250 in the largest properties and then reduced the number of resort casinos to only one.

Machine Gambling Outside Casinos

BACTA (the trade association for the pay to play machines industry) has estimated that in 2003 there were some 250,000 gaming machines of various types sited in The UK.

  • Club/Jackpot 29,000;
    • SWPs 14,000;
    • Trivial AWPs 56,000;
    • All Cash 167,000.

The Bingo Association has estimated that about 18,300 machines (7.3% of the total) were sited in licensed bingo clubs in 2003, of which 16,600 were Amusement with Prize (AWP) machines and 1,700 were Jackpot machines.

Club/Jackpot machines that pay up to £1,000 (€1,450) in prizes are restricted to casinos, bingo clubs and membership clubs, although in bingo halls the maximum is £500 (€725) and for membership clubs it is £250 (€362). All cash machines that pay a cash prize above £5 (€7.25), but no more than £15 (€21.75), are chiefly found in pubs, licensed gaming centres and licensed betting offices.

AWPs pay up to £5 (€7.25) cash or £8 (€11.6) tokens. At March 2003 16,589 AWPs and 18,644 Club/Jackpot machines were located in bingo clubs, with just over 10,000 Club/Jackpot machines located in membership clubs. (Source: GBGC Report)

VAT at 17.5% is charged on the income (gross gaming yield) from gaming machines and is chargeable on the rental costs (where relevant). In addition, an Excise Duty, known as Amusement Machine License Duty, is charged on gaming machines. The duty, which takes the form of a fixed cost license, is an annual fee which is based on a sliding scale depending on the maximum prize payable by the machine. Current rates of AMLD are as follows:

Machines that are not gaming machines: £250 (€362.60) pa
Gaming machines – small prize (AWP up to £8 (€11.60)): £665 (€964.50) pa
Gaming machines – medium prize (AWP up to £25 (€36.30)): £715(€1,037) pa
Gaming machines – Jackpot type (10p (0.145 EUR) play): £1,415(€2,052) pa
Gaming machines – Jackpot type (above 10p (0.145 EUR) play): £1,915 (€2,778) pa

The new legislation restricts provision of the ‘ambient gaming’ machines and forbids minors to gamble. The maximum prize for a jackpot machine remains at £500 (€725.50) in betting shops (i.e. FOBTs) but is no longer to be permitted in private clubs. The legislation also states that local authorities should set the limit on the number of machines that an arcade may have with reference to the size of the arcade and that the limits of all machines should be increased only in line with inflation, as and when agreed with the Gambling Commission.

During early 2004 it emerged that a number of arcades and bingo clubs are to install lower stakes versions of FOBTs. As these devices fall outside of the gaming machine legislation there are no controls regarding the speed of play or preventing children from using them.

Betting

Until very recently the fixed odds betting market in The UK was dominated by five operators

However, William Hill has recently acquired the betting shop estate of Stanley Leisure, so the market shares above will need to be adjusted accordingly. This remains subject to a possible referral to the Competition Commission by the Office of Fair Trading, who could ultimately void the deal, as occurred previously when Ladbrokes proposed a takeover of Coral some years ago. Assuming the deal is not voided, William Hill is likely to occupy the position of market leader (although it should be remembered that the major bookmakers also derive significant revenue through remote technologies and gaming machines, which will also have an important impact upon this). After William Hill purchased Stanley Leisure’s 624 shops for £504 million(€731.3 million) they now therefore have over 2,200 shops nationwide.

The Government revised the General Betting Duty in 2001 from a 9% duty on stakes or winnings (paid by the punter) to a 15% gross profits tax (paid by the bookmaker). Off-course betting on horses is also subject to a statutory levy contribution, administered by the Horserace Betting Levy Board and amounting to approximately 10% on gross profits. The levy is distributed to the horseracing industry to cover prize money, fixture fees etc. The annual levy is agreed between bookmakers and the Levy Board, with the Secretary of State called upon to arbitrate where a deal cannot be reached. The Government is committed to removing itself from this process, and the administration and financing of horseracing, and has publicly stated its commitment to abolish the Levy in 2009.

It is hoped that the Levy can be replaced by commercial agreements between horseracing and bookmakers. It was initially intended that this would be based upon the sale of data rights, amounting to the same as – if not more than – the present levy yield. However, a case brought by William Hill against the British Horseracing Board has thrown this plan into some doubt, as the European Court of Justice recently found in William Hill’s favour that they were within their rights to exploit information from the BHB’s database. The ECJ Court of Appeal will rule in June 2005; nevertheless, an independent working group chaired by Lord Donoughue has been tasked with looking into alternative funding sources for the horseracing industry.

Some bookmakers also pay a voluntary levy of 0.6% of their turnover to the greyhound industry, which presently brings in around £14 million (€20.3 million) per annum, on top of a fully commercial arrangement which also brings in a similar figure.

Bookmakers are not centrally regulated. Instead, bookmakers’ permits and premises licenses are issued by licensing magistrates. Under the Gambling Act 2005 all bookmakers in The UK will be licensed by the Gambling Commission which will issue operating and personal licenses. Premises licenses will be administered by local authorities based on guidance issued by the Gambling Commission.

Bookmakers in licensed betting offices (LBOs) are permitted to take bets on any event (except the UK National Lottery), both sporting and otherwise (e.g. the outcome of political elections). Under a voluntary code of practice agreed with the Department for Culture, Media and Sport they are also allowed to operate up to four Fixed Odds Betting Terminals (FOBTs) per LBO. These machines, which have entered betting shops over the last few years, are to all intents and purposes identical to many gaming machines. However, due to the wording of the present legislation (dating back to the 1960s) there is arguably a loop-hole that may allow these machines to be legally regarded as betting machines. Consequently, they would be not be subject to the strict gaming regulations enforced by the Gaming Board, notably covering stakes and prizes, for which betting has no such limitations.

In the light of this, the Gaming Board and bookmakers (with Government approval) have reached a formal agreement (the ‘code’) that will govern these machines until the provisions of the recently passed Gambling Act come into force (this is not expected before 2007).

FOBTs have been the source of considerable profit to bookmakers (Ladbrokes announcedthat in 2004 the average gross win per FOBT was £584 (€847.50) per week – they have over5,500 such machines). The Government has stated publicly that FOBTs are ‘on probation’and will await the publication of further evidence before taking any steps to deal with FOBTs.

The Gambling Act 2005 gives the Secretary of State powers to vary the stakes, prizes and number of FOBTs (to be known as category B gaming machines under the Act), although it is anticipated that the present operating conditions described in the code, notably up to four FOBTs per LBO, will remain. However, the Government has stated that if research indicates that FOBTs pose a significant risk of harm they will not hesitate to act. It is estimated that there are presently around 27,000 FOBTs in around 9,000 betting offices. (Source: GBGC Report)

Fixed odds bookmakers also operate on racecourses, greyhound tracks and other sporting events (commonly known as ‘on-course’ betting). The majority of bookmakers on-course are small, independent businesses, although the major fixed odds players also have a presence.

The major fixed-odds bookmakers (and the Tote – see below) also run telephone and internet operations. It is legal to run a betting website in The UK (although it is currently illegal to run a gaming site).

On 31 May 2003 there were 8,804 betting office licenses in force in England, Scotland and Wales. This figure, however, may overstate the number of betting shops as they may not be operational while licenses are extant. It can be estimated that there are currently about 8,300 betting shops trading with 3,600 bookmakers’ permits. In January 2005 there were 744 betting companies operating.

Between 1997 and 2003, the number of betting office licenses declined by 2%, following a long-term downward trend. Looking forward, the number of shops will depend on general economic and regulatory factors. The latter include the Government’s decision to remove the ‘demand criterion’ that limited the supply of betting shops in local areas, the impact of the move to gross profit tax, and any introduction of taxation on betting activity on betting exchanges.

As mentioned above, from 6 October 2001 the basis on which General Betting Duty is charged was changed. For all bets other than spread bets, Duty is now calculated as 15% of the sum of the value of stakes less the value of winnings paid out to winning customers.

Operators only pay VAT on items they consume. Gambling-specific taxes include :

* GPT 15%
* Amusement Machine Duty £715 (€1,037)/machine
* Statutory Levy paid to the Horserace Betting Levy Board: 10% of gross profits on British horseracing

In addition a bookmaker’s permit costs £160 (€232) and £20 (€29) for renewal once every three years and a betting office license costs £125(€181) and £25 (€36) for renewal once every three years. Also, Horseracing Levy 2004/05: £95 million (€137.9 million). This is in addition to commercial payments made to racing.

A review is being conducted into the future funding of horseracing. The object of that review is to identify alternatives to the statutory Levy. One option is to develop the sale of rights to bookmakers and others. The Levy will cease in 2009. Bookmakers also make voluntary contributions to the greyhound industry. These totalled £8 million (11.6 million) in 2004. This is in addition to commercial payments made to greyhound racing.

A leading bookmaker estimates that there are 4.62 full time employees per shop on average.

For a betting shop estate of 8,300 this gives about 38,000 jobs. This figure does not include headquarter staff connected with betting shops. It seems reasonable to assume that the figure for the betting shop sector is in excess of 40,000 FTEs.

In 2003/04, £9 billion (€13.06 billion) was bet off-course on horseracing, most of it in the circa 8,500 licensed betting offices in Britain, with a further £120 million (€174 million) bet with the Tote on-course. Total prize money reached a record total of £101.3 million (€147 million) in 2004.

British racing raises money by collecting a statutory levy on off-course betting on horseracing, and on the Tote, and on-course bookmakers. Off-course betting includes bets placed with Licensed Betting Offices, spread betting firms and bet broking operations. It is collected from bookmakers as a percentage of the gross profit on their horserace betting business. The majority of levy income is expended in direct support of horseracing. These amounts are paid to The Horserace Betting Levy Board, which received over £110 million (€159.6 million) from off-course bookmakers and the Tote in 2003/04.

In total, British racing and breeding support some 60,000 jobs, including the equivalent of one in eight agricultural workers. A further 40,000-plus are employed in the betting industry, which relies on horseracing for approximately 60% of its business.

There are 59 racecourses in Britain, of which:

* 17 stage only Flat racing
* 24 stage only Jump (National Hunt) racing
* 18 stage both, of which 3 stage all-weather Flat racing, one of them under floodlights.

Some 6.05m people went racing in 2004, the highest figure on record. There are 9,500 active racehorse owners, and overall some 50,000 people are involved in racehorse ownership through various types of co-ownership. There are around 14,000 horses in training and over 90,000 runners in a year. The gross profits (GGRs) of horserace betting were £921 million in 2002/2003 and £1,037.7 million in 2003/2004.

In 2005, 1,349 fixtures were programmed, providing over 8,500 races – both a record high. Of these fixtures, 129 were to take place on 46 Sunday dates, and 220 will take place on 116 different evenings.

The British Horseracing Education and Standards Trust is a registered charity and company limited by guarantee. It is the government recognised Awarding Body for a range of qualifications in the racing, breeding, equine and farrier industries. BHEST overall annual budget is approximately £1.3 million, where £614,735 is received from the Horserace Betting Levy Board (HBLB) and £514,737 is deducted under Order 194 of the Orders and Rules of Racing from the Trainers’ share of prize money and allocated specifically to the training of stable staff. A further £83,337 is deducted under Order 75/76 of the Orders and Rules of Racing from the Jockeys’ share of prize money and allocated specifically to the training of jockeys and £67,015 is received for qualification registration fees/other income/interest etc. In addition, from time to time BHEST receives unsolicited charitable donations from the racing industry.

Following the introduction of GPT it was anticipated that there would be a market for a significant number of additional betting shops in the UK as GGR was anticipated to rise. The vast majority of the benefit created by the change in the taxation system has been passed on to the punter and racing as margins fell and a new more generous media rights deal was negotiated to replace the old levy system. The industry has shown some good growth during the past two and a half years which suggests that the long-term trend for betting tax receipts will be regained by the end of 2007.

There have been claims that FOBT’s have cannibalised turnover at amusement arcades and casinos, but bookmakers claim that their internal research shows no such evidence. The bookmakers argue that FOBTs are merely an automated alternative to a cashier taking bets over the counter.

Previous British gaming law only regulated gaming machines. By ensuring that the event on which the bet is placed did not take place within the machine itself, FOBTs fell outside the definition of gaming machine. This meant that operators were able to install FOBTs without breaching the restrictions on the numbers of, and prize limits for, gaming machines.

The Tote has an exclusive right to carry on pool betting business both on and off theracecourse. Under a rule issued by the Jockey Club – the non-statutory horseracingregulator – the Tote is required to offer pool betting services at all 59 racecourses in Britain.The Tote is also permitted to take fixed odds bets and has around 460 LBOs. It is owned bythe state and the sponsoring department is the Department for Culture, Media and Sport.

As part of the Government’s intention to withdraw itself from the governance and financing of horseracing, the DCMS is currently leading on the privatisation of the Tote in a sale to a consortium of representatives of horseracing. This policy is currently under scrutiny by the European Commission to ensure that it is compatible with state aid rules. The sale aims to honour the historic link between the Tote and horseracing, and in an effort to ensure that pool betting remains as a viable alternative to fixed odds betting, the Tote will be granted an exclusive license to carry on pool betting for seven years following the sale.

It is worth noting that the Tote has the ability to give authority to other bookmakers to take pool bets on its behalf. The Tote has entered into commercial agreements with a number of bookmakers (e.g. Ladbrokes) who take Tote bets in their LBOs in return for a share of the profit. Other companies that offer pool betting are Vernon Pools and Littlewoods (Sportech).

Betting Exchanges as a type of betting operation have emerged over the last few years, accounting for an increasingly significant share of the betting market. They operate over the Internet by allowing users to ‘match’ bets with other users on particular events, thereby allowing individuals to ‘lay’ (i.e. take bets) as well as ‘back’.

The dominant market leader is Betfair, which launched in 2000. Other UK exchanges launched between 2001-4. Betfair were instrumental in forming the Betting Exchange Trade Association (BETA) in 2004. BETA has informed us that they are aware of eight operational exchanges in this country: Betfair, Betdaq, Backandlay, Betmart, Ibetx, Betsson, Tradesports and Matchedbets.

It is very difficult to get figures for relative market share and turnover. Different exchanges measure the matched amounts on their exchange differently. While Betfair calculates their matched amount by doubling the backers’ stakes, irrespective of the odds at which bets are struck (and as a consequence the amounts that the layers have staked), Betdaq calculates the matched amount number by adding all amounts staked by backers and layers.

Betfair published results for the year ending April 2004 which showed after tax profits of £11.9 million (€17.3 million). No other British licensed exchanges have made their results publicly available. Approximately 90% of the total horseracing levy contributions made by exchanges in the last levy period was made by Betfair, which gives an indication of its dominance in the exchange market.

Betting exchanges are currently licensed under the same regime as conventional bookmakers (requiring a bookmaker permit). Under the Gambling Act 2005 they will be classed as betting intermediaries and will require a specific license by the Gambling Commission. Betting exchanges have attracted some controversy over their ability to allow punters to lay bets on players or horses to lose a match or race. Nevertheless, the Government has recognised that they are legitimate players in the betting market.

There are no figures available for the exchanges’ profits during the years following their emergence, and therefore it is impossible to accurately estimate their growth. Nevertheless, in the short time they have been in existence, betting exchanges have proven to be popular with a growing section of punters. It remains to be seen whether the larger bookmakers – with their greater brand awareness – will launch betting exchanges of their own. An independent bookmakers co-operative recently announced plans to launch an exchange model. If the larger players follow suit it could have a significant impact on the market.

Bingo

The Bingo Association is the representative trade body in The UK for proprietors of bingo clubs licensed under Part II of the Gaming Act 1968. These clubs are proprietary clubs operated on a purely commercial basis for profit.

In the Bingo market, the number of operators licensed under the Gaming Act 1968 as at 31st March 2005 was 144. The licensed bingo market is dominated by two operators, Gala Bingo Ltd and Mecca Bingo Ltd (part of The Rank Group plc), who between them operate something like 290 clubs. The nearest operator to those two, in terms of the number of clubs, is Top Ten Bingo Ltd with about 25 clubs. There is thus a substantial gap between the two leading operators and the remainder of the industry.

Estimated market shares are as follows: Gala Bingo c. 24.0% Mecca Bingo c. 17.0% Top Ten Bingo c. 4.0% Carlton Clubs c. 2.5% Walker Leisure c. 2.0%. All other operators have a market share, individually, of less than 2.0% and in many cases the figure is very small indeed. Gala and Mecca have held the market leadership as first and second respectively during the past five years but Top Ten Bingo has moved into a clear third place as a result of acquisitions in 2003 and 2004. Carlton Clubs and Walker Leisure have held pretty steady over the last five years and there has been no other operator that has significantly changed its position in terms of market share. Changes in market share over the next five years are difficult to predict due to the recent passing of the Gambling Act 2005, which will take effect in stages over the next two years. The impact of this new legislation on the industry’s fortunes will therefore not be fully appreciated for some time yet. One new entrant has come into the market in 2004 and others may follow but it is too soon to tell.

Such is the nature of licensed bingo as played in The UK that the operators’ income (Gross Gaming Revenue) from bingo is subject to VAT of 17.5% and it is charged on gross gaming yield and is paid on goods and services supplied.

As with market share, it is difficult to forecast how the aggregate annual gross gaming revenue will move over the next five years because of the implementation of the new gambling legislation. The difficulty is due to two factors; firstly, the phased implementation and, secondly, the increased competition from other gambling sectors arising from their differential benefits relative to licensed bingo.

Bingo Duty at 15% is charged on the gross gaming yield (excluding VAT). The Bingo licensing process has two elements. The first is obtaining a Certificate of Consent from the Gaming Board, which is the industry regulator. This certificate is an absolute pre-requisite for the making of an application for a Gaming License. The fee for a Certificate of Consent is payable on application; the current level is £8.351(12,115 EUR) (for the Grant of a Gaming License (limited to Bingo)) and £5,567(8,076 EUR) (for the Transfer of such license). The second element is the application for the license itself. The fee payable on the Grant of a Gaming License (limited to Bingo) is £4,232(6,139 EUR). The fee payable for the Transfer of a license is £1,724(2,501 EUR). The Gaming License (limited to Bingo) is renewable annually; the renewal fee is £1,616(2,344 EUR). In all cases the fees are reviewed annually; they are set at levels to reflect the costs of the Gaming Board or the Licensing Authority in carrying out their regulatory or licensing responsibilities.

As of this time, there are no other statutory impositions of payments upon the licensed bingo industry. However, the newly-enacted Gambling Act 2005 gives a reserve power to the Government to impose a levy upon the gambling industry generally if it believes that the industry’s ‘voluntary’ scheme for supporting socially responsible attitudes towards problem gambling is inadequate. To this extent payments made by the various industry sectors are mandatory in everything but name. The gambling sector’s vehicle for promoting socially responsible attitudes towards problem gambling and its causes is a charitable trust called the Responsibility in Gambling Trust (‘RIGT’).

The Bingo Association does not anticipate significant increases in future contributions to RIGT. Rather, it expects RIGT to bring other gambling sectors, which have hitherto avoided making contributions, within its net of contributors.

Despite the fact that the number of operating clubs has declined over the five year period (from 727 in 1999 to 696 in 2003) the level of employment has remained remarkably consistent. This is probably due to the fact that the closure of older and smaller clubs has been compensated, in employment terms, by the opening of new, larger clubs.

In 2003 there were 699 bingo clubs operating in the UK. Of these, 95 were seasonal venues and 604 were non-seasonal. There were about 3 million active members, who accounted for just over 83 million admissions generating £1.22 billion(€1.77 billion) in stakes and £553.7m (€803.6 million) in other turnover including entrance fees, refreshments and gaming machines (revenue from the gambling machines is accounted for in the Gaming Machines Outside of Casinos section of this report). (Source: GBGC Report)

Sales Promotional Gambling

The UK recently reviewed its Gambling legislation, through the Gambling Act 2005, and it has now differentiated prize competitions from lotteries (Article 14, section 5). Lotteries are defined by Article 14 as “relying wholly on chance”. The Act lays out that legal prize competitions require “persons to exercise skill or judgment or to display knowledge”. More detailed guidelines on legal prize competitions will be issued by the Gambling Commission in due course. So, while the UK does not consider prize competitions as a form of gambling” the Gambling Act does set out the conditions under which a prize competition would be an illegal lottery. In order to be a legal prize competition, there is a requirement for “persons to exercise skill or judgment or to display knowledge”.

© European Union

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