UK Casinos..The shambles of deregulation

The UK's Gambling Bill, which it was hoped would usher in a process of industry deregulation, was finally printed on 18th October 2004.

In early November 2004 Ministers tabled amendments to the Bill, such that the numbers of "super-casinos" being built would be limited initially to eight - supposedly, so that their social impact could be monitored. This was confirmed on December 16 2004 by Richard Caborn, the Minister for Sport and Tourism who announced that the Government would now also be limiting the number of new large and small casinos to eight.

On 5 April 2005, in a desperate measure to save the Gambling Bill before Parliament dissolved for the General Election, the Culture Secretary Tessa Jowell announced that in fact there would now only be one regional super casino built in the UK, although the Gambling Bill would contain a provision allowing a future government to raise the number of regional casinos back up to eight, if there were to be an affirmative vote in both Houses of Parliament.

In March 2006 it was reported that Richard Caborn, the minister responsible for gambling deregulation, had privately told Rank Group that he wants eight resort-style regional casinos across Britain. Rank's outgoing chief executive, Mike Smith, said: "Caborn wants eight but will settle for four."

In March 2007 the Government announced changes to gaming duty bands and rates, increasing the effective rate of duty on the majority of casinos to 15 % in line with the rate applied to other parts of betting and gaming, and introducing a new top rate of 50% to ensure that "this vibrant and expanding sector continues to make a fair contribution to tax receipts".

On July 11 2007 it was reported in the Times that Gordon Brown had killed off the chances of a super casino opening in Britain. The newspaper said that it understood from government sources that the plan for regional casinos was "dead in the water".

The following article outlines the plans and strategic posturings of those gaming companies, amny from the US, that had expressed an interest in playing a part in the newly deregulated UK casino market.

In October 2003, MGM announced that it had entered into a joint venture with the Earls Court and Olympia Group company to build a casino and entertainment complex at the Olympia Exhibition Centre in the heart of London; under which MGM would hold a 82.5 percent stake in the project. Whilst in November 2003, it said that it had formed a joint venture with Newcastle United to develop a casino and entertainment complex next to the club's stadium.

The Chief Executive of MGM, Terry Lanni, was quoted in November 2003 as saying;

"We see the U.K. as being a significant market in which we will be able to utilize our depth of knowledge and experience to develop large-scale gaming, leisure and entertainment complexes,"

Whilst Lloyd C. Nathan, Managing Director, MGM Mirage Development, Europe, was also quoted at the time, as saying:

"Should the proposed deregulation create an attractive environment for investment, we will be looking to own or operate a number of large-scale casino operations in the United Kingdom, each of which will require an individual license from the Gaming Board. The fact that Metro Casinos has been granted this Certificate of Continuance following our acquisition of a minority stake potentially stands us in good stead for the future."

In April 2004, MGM and British developer Peel Holdings Plc announced that they were considering building four U.K. casino and entertainment complexes worth more than $1.1 billion. High on their list of targets, were plans to build a £250m gambling emporium next to Manchester City's new football stadium (for which, they face competition from a team consisting of Caesars Entertainment and Quintain Estates and Development).

In June 2003, Gala Group announced that it was teaming up with US gaming giant Harrah's to open eight mega-casinos across the country. The casinos would be between 30,000 square feet and 50,000 square feet, Las Vegas-style gaming halls that would have included tables for games such as roulette and black jack as well as slot machines. Some were also likely to include hotel facilities, typically with up to 300 or 400 rooms for casino guests.

Outside of the Gala deal, Harrah's have declared an intention to open two or three mega casinos; with London, Glasgow and Blackpool allegedly key target areas. It had planned, that each casino, would cost around £500m to build, would have 500 bedrooms, 100,000 sq ft of gaming space, and a multitude of restaurants.

In December 2004, Harrah's chief executive Gary Loveman was quoted as saying; 'We would like to think that we have a good chance of getting three of the Super Casinos...."

Kerzner International Limited also signalled its intention to enter the UK market. Having first acquired a gaming license in respect of an undeveloped property located in the town centre of Northampton; where, subject to approval, it intended to develop a new 30,000 sq ft gaming facility; the company announced in September 2003 that it had signed an agreement in principle to build a £210 million (US$348 million) casino and resort hotel at the Millenium Dome in London. A company spokesman said at the time: 'We are monitoring a number of opportunities in the London area. We hope to become a big operator in London."

In September 2004, Kerzner announced its intention to invest £160 million in a complex at the SECC in Scotland; billed as the nation's first destination resort casino.

In October 2003, Isle of Capri Casinos Inc, the Mississippi-based riverboat operator, with annual revenues of $1.2bn (£663m), received regulatory approval to own casinos in the United Kingdom, announcing that it intends to acquire a two-thirds stake in U.K. casino developer Blue Chip Casinos Plc, before the end of the calendar year. Isle of Capri also has plans to build a resort development next to Coventry City's new football stadium.

In February 2004, Tim Hinkley, the president of Isle of Capri Casinos, called upon the UK Government to cut the tax currently charged on casinos revenues, from 40% to 15%;

"It [UK tax] is too high," Mr Hinkley said. "The numbers only work if you can get a decent return on investment. We think tax should be no more than 15 per cent of gaming revenues."

In what was the clearest indication yet, of a broader land grab strategy, MGM Mirage and BLB Investors, a U.S. group including golf courses-to-hotels firm Starwood Capital, Bahamas resort owner Kerzner International and leisure firm Waterford Group, staged a bidding war for the UK listed gaming group Wembley, which owned a number of greyhound reactracks, many of which would make perfect locations for casinos.

In January 2004 MGM had announced that it would buy UK gaming firm Wembley Plc for about $493 million. However, on April 20, BLB said that it would pay 860 pence per share in cash for Wembley ($553 million), and MGM dropped out of the race;

"Following careful consideration, the board of MGM Mirage has concluded that the price offered by BLB Investors is in excess of the price which MGM Mirage is prepared to offer."

IN July 2004, BLB announced that it too was to withdraw its offer for Wembley PLC; citing concerns over the company's Rhode Island dog track. The fact that MGM and BLB were prepared to go after Wembley was sufficient to indicate that the industry had entered a land grab phase.

In February 2004, MGM said that it was entering into a deal with British Land to develop a £250m leisure complex next to British Land's Meadowhall shopping centre in Sheffield.

In January 2004 it was announced that Accor Casinos was to merge with Lucien Barrière to create one of Europe's biggest gaming operators. The agreement was based on the combination of the casino and hotel assets of SHCLB, SHCD, Accor Casinos, and their respective subsidiaries. SHCLB, which will be renamed Groupe Lucien Barrière , will be transformed into a "simplified joint stock company", with the with the Barrière family owning 51% in the Group, with Accor holding 34% and Colony Capital holding 15%. Pro-forma for the transaction, gross revenues for the Group were approximately EUR900 million for FY2003.

It was also announced in January 2004 that the British nightclub operator Luminar Plc was in talks with Accor, about creating a joint venture to introduce gaming facilities into 25-30 of Luminar's clubs. In May 2004, the pair said that they would acquire acquire a building in Leeds, with the object of transforming it into a casino and thus establishing the first step towards other future developments.

Also in April 2004, Harrah's Entertainment Inc. Chief Executive Gary Loveman, was quoted on Bloomberg Television as saying; "Legislation before Parliament would deregulate the industry and allow Harrah's to build U.S.-style casinos in the U.K."

In July 2004 a consortium lead by Kerzner International Limited and Manchester-based Ask Developments unveiled plans for a £260m Las Vegas-style casino and leisure complex in the east of Manchester. The 80,823 sq m complex complex, was to include a casino with 1, 250 slot machines and 50 gaming tables, a 10-storey, 150-room hotel and a swimming complex, with artificial beach and wave machine 4,000-seat arena and ice rink.

There were also strategic manoeuvres within the UK market itself. Stanley Leisure, for example, consoliated its position as Britain's leading casino operator with the acquisition of the Tower Casino Group for £44.3m (US$67.6 million) in cash and shares. This acquisition brought Stanley's total number of casinos to 40, including three in London.

And, in November 2003, Stanley opened the UK's biggest casino in Star City, Birmingham. The 68,000 sq ft casino, branded 'Stanley Star City Casino', is arranged over several main and mezzanine floors and boasts 40 gaming tables, a 12,000sq ft main gaming floor and hundreds of slot machines.

In October 2004 Stanley announced that it had bought the rights to seven acres of land beside Leeds United's Elland Road ground. The company said that it had plans to build a £125m complex; which would comprise a 150,000 square foot casino, a hotel, restaurants, bars, leisure facilities and designer shops.

Hilton Group announced that it had plans to transform its coastal hotels in places such as Brighton, Blackpool and Bournemouth into giant casinos with roulette tables, slot machines and cabaret, whilst Trevor Hemmings made public his plans to build a Vegas-style casino, hotel and retail complexe on the seafront at Blackpool.

Rank Group had said that it would be developing new sites to a 40,000 sq ft specification, through which it would offer casino gaming, bingo and sports betting under one roof. The company is also improving facilities at existing casinos and relocating where necessary. They had relocated a total of eight casinos, with plans in place for a further two in 2003. In another new development, Rank announced in November 2003 that its online division Blue Square, hopes to open its first betting shop, next door to the Grosvenor Casino in London's Edgeware Road, in time for the Cheltenham Festival in March 2004.

In May 2004, London Clubs International, in association with Gerald Ronson, received planning permission and gaming board consent to develop an £8m gambling emporium in Glasgow, on the south bank of the Clyde. The announcement trumped plans by the bigger MGM Mirage to develop a large casino on the north bank of the River Clyde.

In September 2004 Kerry Packer announced plans for a £50 million ($128.3 million) development at Brierley Hill in the West Midlands. His company already held licences for casinos in Newcastle and Swansea in equal partnership with British entrepreneur Damian Aspinall.

Andrew MacDonald from Packer's Consolidated Press Holdings (CPH), was quoted in the Australian Daily Telegraph as saying; "With potential for the modernisation of gaming laws that's been talked about for the last four years finally coming close to the wire, we're starting to really ramp up our efforts...The list is fairly extensive as to what we're looking at. We'd take as many as we could, to be blunt....We'd just like to be a player in this market and if it so happens that we end up being one of the biggest and the best, then all the better."

The Weekend Australian reported that Packer, in partnership with Damian Aspinall, was planning to sink an additional £250million into building a further five casinos in Britain and that he had already begun negotiations with planners and authorities. It was also reported in the media that Packer was is in talks over acquiring an 85,000sq ft site in Aberdeen and that he was assessing locations in Glasgow and Edinburgh.

It was also announced in September 2004 that Caesars Entertainment, the US casino operator, was in talks with Quintain Estates, the developer that owns the 42 acres surrounding the new National Stadium at Wembley; with regard to the development of a casino complex. During the month, Genting Bhd, the largest shareholder in London Clubs International, strengthened its position in the UK via the acquisition of the Maxims Casino in London, from Gala Group, for 10.5 million. And Sun International announced plans to invest up to £150 million in a US-style leisure complex in Scotland, with a casino, restaurants, fast-food outlets and bars.

Las Vegas Sands has hired UK property agency Jones Lang LaSalle to identify opportunities in Scotland; where it had plans to build an entertainment complex, including a casino, hotel and restaurants, next to Rangers' Ibrox stadium.

On November 23 Stanley Leisure Plc surprised many when it announced that it was to join up with Malaysia's Genting Berhad to develop Vegas style casinos. Under the terms of the deal, Genting will raise its stake in Stanley to ten per cent and the two companies will jointly control a company established to build and run regional casinos in the U.K. Genting has given an assurance that it won't bid for Stanley Leisure for at least three years without a recommendation from the U.K. company's board or unless another offer is forthcoming for the business.

Whilst nobody could have been certain how the licence granting procedure would work, ambitious plans continued to be rolled out - Rank Group, for example, submitted plans for a casino next to its Mecca Bingo outlet in King Street, Oldham; Las Vegas Sands Inc revealed plans for a £100m gaming and entertainment complex at Sunderland's Stadium of Light; the owners of the Venetian in Las Vegas, the Isle of Capri in New Orleans, and Aspinalls in London all declared an interest in developing complexes in Middlesbrough; and, in early December 2004, Ameristar Casinos said that it had entered into an agreement with Bravo Netwrok to develop a $445 million casino complex at Southampton's West Quay, which will include a 65,000-square-foot casino, dining and entertainment venues and a 200-room hotel and conference facility.

In August 2006 London Clubs International was bought by US gaming giant Hurrah's Entertainment for £280m, whilst in Sepetmber 2006 Stanley Leisure agreed to a takeover offer from the Malaysian gaming firm Genting, in a deal that valued the UK casino company at about £639m ($1.2bn).

In october 2007, Rank Group, which had been one of the great plays on UK gambling industry deregulation announced 2% like-for-like growth in continuing group revenues for the 40 weeks to 7 October 2007. However, the company stated that total sales for the continuing group are 1% below the comparable period in 2006, with its UK retail businesses, comprising Mecca Bingo and Grosvenor Casinos, having experienced a significant deterioration in revenue in recent weeks.

Rank attributed the deterioration to a combination of the loss of Section 21 gaming terminals (as required by the Gambling Act 2005 from 1 September 2007) and the ban on smoking in enclosed public places, which came into effect across the whole of the UK on 1 July 2007.

In the five weeks following the removal of its Section 21 terminals, Mecca Bingo like-for-like revenue had declined by 19% across the UK with admissions down by 13% and spend per head down by 7%. Revenue in England and Wales fell by 22%, while in Scotland (where the smoking ban was introduced in March 2006) it was 6% lower than in the comparable period in 2006.

Rank said that in the 40 week period since the start of the financial year like-for-like revenue at Grosvenor Casinos had been in line with the comparable period last year, with a marginal increase in spend per head offsetting a 1% decline in admissions. During the last five weeks, however, revenue was down 9% with admissions 1% lower and spend per head down by 8%.

Rank said that for the first 40 weeks of the financial year revenue at Blue Square was 38% ahead of the comparable period in 2006. Rank Group shares which had been trading around the 3.50 mark during the height of the deregulation story, fell back below the 1.00 mark. A fitting testament, if one were needed, to the shambolic plans put in place for Casino UK by Tony Blair's Labour government.

In a House of Lords debate on Gambling on the 11 October 2007, Viscount Falkland stated;

"The noble Lord, Lord Faulkner, must have been a little ironic in asking the Government what guidance they will give to the commission. I do not expect him to be as vituperative as me or the noble Lord, Lord James, but there is nothing to make us believe that the Government will be able to lead; it is rather like expecting the blind to lead the partially sighted. The Government’s record on gambling and betting has been disastrous. The noble Lord, Lord James, gave us the example of the FOBTs, which are dishonest in themselves because they are gaming machines. People ask, “FOBTs? What’s that? They must be all right—it sounds complicated”. He explained that phenomenon well.

The noble Lord, Lord Faulkner, and I, together with the noble Lord, Lord Donoughue, who is in the Chamber, and the noble Baroness, Lady Golding, who will speak later, went to a great deal of effort of which we should be proud. However, the Government’s response was disastrous and a bad Bill appeared on the statute book. Many questions will have to be answered at a later stage. The Government completely failed to understand how regeneration could be achieved through casinos. They never even bothered to look at it. The whole idea of regeneration was knocked on the head—although very few people remarked on it—just before we had the famous vote in this House which was narrowly won by the Minister, whom I always admire for his tenacity in some of the briefs he is given and for the agreeable way in which he carries out his job. The Chancellor of the Exchequer, as he then was, suddenly put a 50 per cent tax on casinos, which really meant that regeneration was out of the window."

The annual impairment review conducted by Genting on its assets during the current quarter indicated that it has suffered an impairment loss of RM897.3 million on goodwill arising from its acquisition of Stanley Leisure in 2006. The company said that the impairment is largely attributable to the increase in gaming duty rates by the UK government, which were effective from April 2007. The company said; "The increase in gaming duty took the UK gaming industry by surprise as it was made without any prior consultation and indication. The smoking ban which came into effect in the UK from July this year has also adversely impacted the gaming business." Meanwhile, Top Ten Holdings, Britain's third-largest UK bingo-club operator, has seen its profits decline by more than fifty per cent because of the smoking ban and the introduction of new gambling legislation. The operator of 38 clubs said that it expected the difficult market conditions to persist through the second half of the year, as it reported a drop in pre-tax profits from £846,000 to £381,000 on sales down £1m to £13.7m in the six months to September 30. Manchester is threatening to take the government to court over Gordon Brown's sudden decision to scrap plans to allow it to build a Las Vegas-style super-casino. Legal advisers have reportedly told the city council that it has strong grounds to seek a judicial review of the prime minister's U-turn over the gambling act. The Sunday Telegraph, without citing sources, stated that Rank Group had rebuffed an offer from Harrah, which would have seen the US casino operator offer to swap its UK casinos (mostly London Clubs) for a 28 percent stake in the enlarged Rank Group.

To cite this article: Niall.A.O'Connor (2007) "UK Casinos...The shambles of deregulation". (Bettingmarket.Com).