This submission is made on behalf of the Novomatic UK Group of gambling businesses. We are part of the market-leading, Novomatic Group, which is one of the global industry’s largest - employing over 30,000 people across more than 50 countries.
Novomatic UK includes long established stalwarts of the British industry, such as the largest land-based arcade operator in the country and one of the major suppliers of gaming machines to UK land-based casinos. We are active members of bacta and support its submission to this call for evidence.
Questions
The Gambling Act 2005
Response
1.1 From the perspective of our main sector-focus (i.e. seaside and high street arcades) we believe that overall these three primary aims (which are termed the “Licensing Objectives” by the Gambling Act 2005 (the “Act”)) are upheld. The 3 Licensing Objectives underpin the Act and everything that is done under it. The wording is clear and easy to understand.
1.2 The first Licensing Objective: To prevent gambling from being a source of crime or disorder, from being associated with crime or disorder or being used to support crime: Instances of crime or disorder associated with arcades are low. As with all licensed sectors, operators of arcades must hold an operating licence for the business and, for larger operators, all key personnel must hold Personal Management Licences issued by the Gambling Commission. The application process to confirm suitability is detailed and lengthy in both cases.
1.3 The aim of land based arcades is to provide a fun, leisure pastime in a safe environment. The operating model for arcades (whether adult or family) has never been to hide staff in a booth or behind a screen – instead, trained staff circulate the customer floor area to assist and supervise. They are not hidden. Our arcades are fitted with sophisticated CCTV and security systems to support extensive policies and procedures. The gaming machines we operate are low stake (in Adult Gaming Centres (AGCs), the maximum stake is £2.00 for the highest category of machine) and, as recognised by the Government’s AML risk assessment, the risk of money laundering in this sector is low. Nonetheless, we are vigilant and in rare cases of attempts to launder proceeds of crime, such as the attempted use of dye-stained notes, our trained staff and systems are immediately alerted and the authorities notified.
1.4 The second Licensing Objective: To ensure that gambling is conducted in a fair and open way: Terms and conditions for the use of the facilities in our arcades are prominently displayed and available. Details of each game are available from staff and are on the individual machines, including the rate at which customer stakes are returned for each game on each machine. Staff are always present in the arcade and can be spoken to immediately if there are any issues. In the event of a complaint, our procedures are clear and available at each venue. An established, independent ADR entity is available for customers to contact and, at the customer’s request, to deal with any unresolved complaints free of charge.
1.5 The third Licensing Objective: To protect children and other vulnerable persons from being harmed or exploited by gambling: By law, AGCs are only for those aged 18 and over and employees receive rigorous training to prevent under age access. Together with many other AGC operators, we operate a ‘Think 25’ policy which is strictly enforced. Another fundamental part of the protection in AGCs is that interactions are carried out by staff, face to face. Our typical AGC customer is known to staff who receive specific training on interacting with any customer who gives rise to vulnerability concerns, whether from their behaviour in the premises and/or from additional information known by staff. The same is true of engagement in Family Entertainment Centres (FECs), which as the name suggests, are family oriented arcades which have existed on piers, at the seaside and in town centres for decades. In short, we physically see our customers and are not restricted to relying on algorithms.
1.6 It is a condition of all AGC and FEC premises licences that no alcohol can be consumed on the premises and we have a strict policy of not permitting entry to anyone who appears to be under the influence of drink or drugs.
1.7 We have extensive policies and procedures to ensure that the Licensing Objectives are upheld throughout our business. Training is given to employees at all levels and for venue staff, it is delivered both face to face and through our bespoke eLearning platform. We have an in-house training team and a dedicated, full time national compliance team.
1.8 We prepare a bespoke Local Risk Assessment for each venue, considering any risks that might be posed to the Licensing Objectives (including that concerning children and other vulnerable persons) by the facilities offered. That assessment identifies any points of local concern (for example schools, or addiction treatment centres) and sets out how any risks identified are mitigated. That assessment which is provided to the local authority, is kept on site and updated to reflect local changes.
1.9 Our operations are audited internally for compliance. Additionally, we are subject to external audits and have recently been accredited for Responsible Gambling by the independent, globally recognised G4 Compliance Group for Responsible Gaming.
1.10 It seems clear that the Licensing Objectives were intended by legislators to be straightforward and they were initially viewed in that way. Latterly however, there has been a move by some to interpret the third objective, as set out above, to include virtually the entire population in the concept of “vulnerable.” The vast majority of those who gamble do so perfectly safely. To term everyone who gambles as “vulnerable” for the purposes of the Licensing Objectives would, we believe, not only go far beyond the intentions of the Act, but the concept would be highly unusual if not unique amongst regulated environments in this jurisdiction.
Response
2.1 New technology impacts this industry as much as, if not more than, many others. The Act was debated and drafted before the days when online business and mobile technology (in particular smart phones) became the norm in every household. Consequently, regulators, government and operators must now try to shoehorn new concepts and technology into the confines of the Act which was largely designed for a land based industry. One of the unintended results is that visitors to land based AGCs (who are met in the venue by staff trained in face to face supervision and interaction), are permitted to play our supervised, land based games for a maximum stake of £2 - but can gamble on their mobile phones either in the same venue and indeed at the same time, or in isolation at home - in either case for unlimited stakes and prizes without face to face observation and supervision.
2.2 Gaming machines in land based licensed premises are subject to strict regulation in the form of technical standards and, for higher category machines, to external independent testing by expert testing houses. Online games have some degree of standards and testing, but are not subject to the same detailed regime which for example prohibits “enriched periods” in the game or “winning streaks” and “linked games” which entice players to gamble further– despite having no limitations on the stakes and prizes they can offer. We do not understand why the standards for online games should differ from those that apply to land based games.
2.3 Since the Act was introduced, society has also seen a sharp shift away from the use of cash in day to day activities. That shift continues unabated, even in land based pursuits. Cashless payments are now the norm for many, but unlike virtually all other forms of retail leisure activity, land-based arcade operators cannot offer cashless facilities – everything must be paid for in cash. Not only might this lead to the demise of the sector, it also closes the door on opportunities to explore the possibility of enhanced Social Responsibility measures, such as customers placing restrictions on use of their card for gambling activities. Online gambling is of course based entirely on cashless payments.
Response
3.1 The land based regulatory framework in Great Britain is mature and viewed by many other jurisdictions as a model approach. That is unsurprising - the British land based industry has a long history of regulation, with the previous regime being overseen by its regulator in the form of the Gaming Board. Legislation was then light, but the sector was run tightly.
3.2 However, the Act and subordinate legislation are vast by comparison with the previous regime, even though as above, the Act did not originally envisage the technological changes that have brought such major changes.
3.3 The main regulator is the Gambling Commission and, for land based operators only, local authorities also have a vital role as regulator. The Gambling Commission is entirely funded (save in relation to Lottery activities for which it receives grant-in-aid) by licensed operators and holders of personal licences in the form of licence fees, amounting to c £18 million in the year 2018/2019.
3.4 Again from a land based perspective, the obligations introduced for operators after the Act came into force in 2007 have in the main been developed and imposed by the Gambling Commission rather than parliament. Those additional obligations imposed on what is a relatively straightforward land based sector, largely take the form of new and varied licence conditions and codes of practice (commonly referred to as the LCCP) and guidance, following an exponential number of very detailed consultations. At times this might be described as “regulatory creep” and there are also occasions when it is widely felt that the Commission seeks to expand its regulatory role to include the development of new laws and interpretation of existing laws. Those are the jobs of legislators and courts - not regulators. See for example: The Commission’s requirement that large operators file Annual Assurance Statements; it’s re-defining of the Act’s definition of “premises;” its reinterpretation of the Act’s requirements for use of “Provisional Statements” (the latter approach being changed after a court challenge), as well as the introduction of a “Primary Use concept” (which was again subsequently withdrawn).
3.5 The land based industry is highly regulated and while arcades (with their limited and low permitted stakes) account for only 2.9% of the industry’s GGY (as per the latest Gambling Commission’s Industry Statistics October 2017 – September 2018), the regulatory requirements are the same as for those representing larger parts of the industry, including online with its permitted unlimited stakes and prizes. Full operating licences (or small operator equivalent) are held by all arcade operators and personal management licences (also issued by the Gambling Commission) are required for many members of staff, including senior executives and those holding specified posts including area managers, heads of compliance, marketing etc. The application process is probing and lengthy.
3.6 Additionally, each arcade must be granted a permit or premises licence by the local authority in order to operate as an arcade. Again, the application process for a licence/permit is stringent and costly and each such licence or permit contains numerous conditions for operation.
3.7 We submit detailed annual returns to the Gambling Commission, which in addition to financial data, records Social Responsibility information such as self-exclusion and interaction numbers, to name but two categories.
3.8 To supplement any age verification testing by authorities, we engage an external, highly regarded and independent third party to carry out age verification testing at our premises and we report all results direct to the relevant local authority and the Gambling Commission. Our age verification “pass rate” is high, running above 90%. Again, all site staff receive extensive training on the issue and failure to adhere to our policies and procedures in this regard are met with serious sanctions. It is noteworthy that in our experience, AGCs are not an environment which is attractive to those aged under 18 and it is important to bear in mind that a “pass rate” of less than 100% does not in reality mean that under aged persons are entering the facilities. The leisure interests of young people do not generally lie in trying to gain access to adult only machine arcades – viewed by many as old fashioned when compared to the technological alternatives. We rarely see them.
3.9 We have an open dialogue with both the Commission and local authorities in relation to our premises and operations and which is largely constructive. As a land based operator, our arcades are regularly inspected by the Gambling Commission and relevant local authorities (the latter only having jurisdiction over land based operators, with no authority over online activities). The inspections are of our compliance activities, policies, and records in relation to that site. While inspections can be relatively swift, they can last for hours. However, other interaction with the Commission has significantly reduced over the years with a notable shift at the Commission away from engagement with the industry. This is regrettable and we believe has led to a decreased understanding of the industry. This is compounded by the real reduction at the Commission of officers with sector specialist knowledge. While dialogue was direct and frequent in the days of the Gaming Board, that is not the case with the Commission.
Response
4.1 As above, gambling operators with operating, personal and premises licences are subject to extensive licence conditions attached by legislation and the LCCP. The LCCP are considerably more onerous and extensive than those first introduced at the time of the Act in 2007. Licence conditions are enforceable by the Commission which has significant powers: breaches can lead to serious sanctions including unlimited fines, licence revocation and prosecution. As such, under their operating licences and (in the case of land based operations only) premises licences, operators already have a duty to their customers. That duty extends to staff, whether they are customer-facing or performing back office functions such as marketing. The level of care already required and enshrined in this way is enhanced and underpinned by our company approach, policies, procedures and training and by external audits. Constant engagement with our customers provides real time, face to face human interaction to support customers. We have policies, procedures and training in place for every aspect of our Social Responsibility duties, from under age access and age verification to customer interaction and self-exclusion.
4.2 On the basis of the above, it is unnecessary to extend the relationship further to a formal duty of care. To attempt to do so and seek to determine the extent of that duty would also be fraught with difficulty and lead to unnecessary litigation.
Social and economic impact
Response
5.1 We assume that the question intends to focus on the “social and economic costs of problem gambling” (emphasis added) rather than simply the costs of gambling itself and defer to the experts. We note that people who experience problem gambling issues often suffer from one or many other problems, making it difficult to identify a sole cause.
Response
6.1 The majority of people who gamble do so without issue. The aim of land-based, arcade and bingo hall businesses has always been to provide leisure time in a social environment. They provide an important facility for customers (and older customers in particular) many of whom come to spend leisure time with friends and to play in a safe environment. While the benefits of such a leisure activity are hard to measure in concrete terms, they are nonetheless real and important.
6.2 The economic benefits of gambling are well documented. The industry generated £14.5 billion GGY in the year October 2017 to September 2018, of which land-based businesses (excluding lotteries) accounted for some £5.4 billion. Direct and indirect taxes, rent and rates are paid and over 100,000 people are directly employed in the industry, which also supports many varied, national and local supply chains.
6.3 As an arcade operator, our venues have always been primarily located in high street locations and it is well established that the majority of our customers combine their visits to our venues with visits to other local retail shops, thereby adding much needed vitality to the high street. We also run a very successful age-restricted tanning business, with our salons based in the same building as our arcades – a model adopted by many other AGC operators. Without the arcade venues, our tanning business would not be retained.
Levy
Response
7.1 Unlike (we understand) the alcohol, tobacco and car industries, all gambling operators with an Operating Licence are required by a licence condition to make annual financial contributions to organisations which between them focus on research, education, and the prevention and treatment of gambling related harm (commonly referred to as RET contributions). GambleAware recommends that those donations are equivalent to at least 0.1% of GGY. Although there are no prescribed recipients, the majority (but not all) of donations appear to be made to GambleAware. However, despite operators having to include information about RET donations each year in their annual returns to the Commission, we understand that the Commission is unable to confirm how much licensed operators actually pay. The information is within the Commission’s possession and if not, it has the powers to obtain it. For the sake of transparency and to inform the debate it would be extremely helpful if the Commission were to interrogate the information provided to it (as it does for other topics) and produce a definitive figure. If there are entries in operators’ annual returns that the Commission finds curious, it is open to it to explore those entries with the operators and to seek supporting evidence. It is plainly vital that the amount contributed is established.
7.2 While it is not possible to be certain about any correlation between GGY and RET donations to GambleAware (because the GambleAware and the Commission’s calculation years do not run concurrently) we can say that £14.5 billion GGY was reported by the industry for the year October 2017 to September 2018. 0.1% of this would produce £14.5M. GambleAware reports that in the year April 2018 to March 2019, £9.6M was received by GambleAware by way of voluntary RET donations. This might suggest that there was a deficit of some £5M in respect of the recommended 0.1% donations. However, as acknowledged by GambleAware, it was not the only recipient of RET donations, so the amount contributed is higher by an unknown sum.
7.3 GambleAware also requests that in addition to licensed operators, contributions are made by those who benefit from gambling but for whom gambling is not a core activity. This category would for example include sponsoring companies and those with permits rather than full operating and premises licences. It is clear from the GambleAware data that very few such organisations made any RET contributions in the last GambleAware year.
7.4 GambleAware received more than £30 million in voluntary donations in the last 4 years. In addition to RET donations, GambleAware has also received regulatory settlements and while we do not suggest that operators should benefit from the fact that they have breached licence conditions, those sums are significant and part of the wider context. As such, they cannot be ignored.
7.5 Fundamentally, no research has been carried out to establish how much money is needed to meet current needs and we suggest this is dealt with as a priority.
7.6 We think it important that the overarching question of whether the current system of voluntary contributions is adequate, is also considered in light of the issues at paragraph 6 above. We estimate that the annual Treasury receipts from the industry run into the many millions if not billions of pounds, a substantial part of which is available to Treasury to use towards NHS funding. This, we submit, should also be part of the analysis.
7.7 If it is decided that a mandatory levy is required, the two fundamental issues will be the level of the levy and the categories of those who are required to pay it. On some views the amounts contributed/levied would never be enough. As at 7.5 above, the first step should be to establish how much money is needed. Further, an appropriate “enforcement” of the 0.1% donation level and transparency of exactly what is being contributed in this way and by whom, would be a sensible starting point. On any analysis, an objective view is essential.
7.8 It is also important that the amount of any levy reflects the relative contribution to gambling related harm that is associated with different products. For example, it would be unreasonable to ask land based arcade operators with low stake products (and in the case of FECs, products that society rarely views as “gambling”) and face to face supervision (and all that entails), to pay the same rate as online operators with unlimited stakes and prizes.
7.9 In terms of who would pay a levy, as at para 7.3 above, a narrow view restricted to licensed operators, would in our view fail to reflect the extent of the wider benefit and responsibility. If 0.1% of GGY was paid by all operators and the wider beneficiaries, the annual sum raised would be substantially more than the £14 million figure mentioned above and the amount requested by GambleAware. That is before regulatory settlements and tax receipts are included.
7.10 In terms of how monies raised should be spent, we understand that historically not all money donated to GambleAware has been spent. Of the money that is spent, there appears to be a bias towards research projects but it is unclear how the balance of expenditure is monitored, or indeed if outcomes of research are reviewed. It will always be possible for potential research topics to be identified, but again, an objective view is needed to ensure balance.
Research
Response
8.1 As was supported by several speakers at the 2018 GambleAware conference, the concept of diversity is at least as important in the field of research/researchers as it is for operators. While we are sure that the seemingly small pool of researchers active in this field are well qualified, it is important for any research bank that the research is conducted by a neutral and diverse body of researchers, holding a range of backgrounds, qualifications, specialisms and interests. To date that does not appear to be the case.
Response
9.1 If a gap in research is identified, it can be commissioned through a tender process for funding from GambleAware. We would note that there is much confusion among the public about the difference between gambling and social “gaming” (not to be confused with gaming under the Act) which is not regulated by the Gambling Act 2005. This general confusion, coupled with different approaches adopted by young people to interviews, is almost certain to skew any current statistics about the numbers of children alleged to gamble, which we certainly do not see reflected in our high street arcades.
Education
Response
10.1 Gambling is an established feature of many people’s leisure time and we believe that people are generally aware of the benefits and disadvantages associated with gambling. However, informed choice is important and the education system has a part to play in providing that information. As we understand it, school education about gambling is patchy and although we appreciate that it would compete with others for space in the PSHE curriculum, PSHE would seem to provide a sensible opportunity to enhance education about what is a common pastime, although the scope of the lessons would have to be very carefully considered. Ygam is a good example of an independent charity helping to educate school children, but its reach is limited and much could be done to support such an organisation, particularly through funding.
Treatment
Response
11.1 We defer to the experts qualified in this field.
Response
12.1 We defer to the experts qualified in this field.
Advertising
Response
13.1 This is an area for neutral, academic research and we would support a detailed evidence-based review which includes focus on the implications of television advertising at all times of the day.
Gambling and sport
Response
14.1 We defer to the experts qualified in this field.
Gambling by young people and children
Response
15.1 As above, there is general confusion amongst the public as to what activities qualify as “gambling”. The unsupervised and unregulated activities must be contrasted with supervised gambling in regulated, land based venues overseen by trained and experienced staff
Response
17.1 We believe that the reference to an “historical accident” originates in the 2001 Gambling Review report, generally known as “The Budd Report”. The reference was to children playing gaming machines (as they are now known) which the report acknowledges was driven by what even then, was the decades long existence of seaside amusement arcades which offered simple mechanical games. With respect we do not think it correct to describe the circumstances as “accidental” (as per the Call for Evidence). Category D games and in particular Penny Pushers and Cranes have for many years been an integral part of any family visit to the seaside. Indeed, having considered extensive evidence before finalising the report, the Budd gambling review body decided against prohibiting children from playing any games that became classified as “Category D” gaming machines. Despite the above, we are conscious of the concerns about children playing another Category D low stake (10p) gaming machine, in the form of cash fruit machines and we support 16+ age control stickers being displayed on those machines in our FECs, as is being trialled across the bacta membership.
17.2 The majority of the public have never considered pushers and cranes to be “gambling” – in contrast to their view of playing for random loot boxes and skin upgrades, which the Gambling Commission has expressly stated do not in their view amount to “gambling” activities.
17.3 Nonetheless, pushers, cranes and very low stake fruit machines are classified as gaming machines, with all of the regulatory requirements that entails. Gone are fruit machines at taxi offices and chip shops - they can only be sited in permitted premises and in the case of arcades the operator must hold a premises licence (and operating licence from the Gambling Commission), or permit for the local authority. As above, we are introducing age control stickers on our low stake Category D cash fruit machines.
17.4 All of our policies and procedures referred to above in section 3 apply equally to our FECs. Trained staff supervise our premises with a particular focus on the wellbeing and safeguarding of children and young persons. Under bacta’s members code, children are not permitted entry to the FECs in school uniform or during school hours in term time.
17.5 In the wider societal context, it is relevant that the live National Lottery Show (advertising and promoting an age restricted activity) remains a popular prime time family TV fixture, as do gameshows such as Tipping Point, which is little more than a televised giant Pusher.
Lotteries
Response
We do not have a view on these questions.
6 September 2019