Crack baby crack: the rise, and rise, of fixed odds betting terminals.
On February 20 2008 the UK government announced that it had asked the Gambling Commission to report into whether gambling machines, such as fixed odds betting terminals, were contributing to problem gambling.
The British Gambling prevalance Survey 2007 found that "among those who had gambled in the past year, problem gambling prevalence ranged from 1.0% for the National Lottery Draw to 14.7% for spread betting. The next highest prevalence was 11.2% for fixed odds betting terminals, followed by betting exchanges (9.8%), online gambling (7.4%) and online betting (6.0%)."
When announcing its preliminary statement of results for the year ended 31 December 2007, Ladbrokes said that gaming machine gross win had increased by 21.0% to £248.4 million (2006: £205.3 million), with average weekly gaming machine gross win of £585, compared with £481 for 2006, an increase of 21.6%.
Ladbrokes said that all Fixed Odds Betting Terminals (FOBTs) within its estate had been upgraded to dual screen B2/ B3 gaming machines during Q1 2007 and Amusements With Prizes (AWPs) had been replaced with the same dual screen machines by October 2007. The company said that the new B3 content (£500 jackpots) now represents around 50% of all gaming machine transactions and that they had contributed to an increase in overall margin in 2007. Second half gaming machine gross win growth was 26.9% (H1 2007: 15.5%), including it said the benefit of extended opening hours from September.
When announcing its results for the 53 weeks ended 1 January 2008, William Hill said that the
average number of gaming machines in the estate increased to 8,382 (2006: 8,218) in the period. The
average net contribution per machine per week was £466 (2006: £433). Gross win from over the counter (OTC) increased by 3%, while machines gross win was up 15%.
In a House of Lords debate on gambling, on 11 October 2007, Lord James stated that the Government should adopt the recommendations of Lord Donoughue committee on gambling, and impose on the betting industry the restoration of the levy at a reasonable level. He said that they should immediately require offshore bookmakers to abandon advertising in Britain or to comply with the "usual regulations". And finally, he argued that the DCMS should revise all its controls on betting shops to stop them becoming mini-casinos. It is an outrageous state of affairs and needs immediate correction, he said." We publish his speech in full below - uncomfortable reading indeed for the bookmaker chappies.
"Lord James of Blackheath: My Lords, I should declare interests in this. I have in the past run casinos, although not in this country, on behalf of a British bookmaker. Secondly, I was until recently executive chairman of the Jockey Club racecourses and was therefore responsible for the running of the races at Aintree, at Epsom for the Derby and at Cheltenham.
I welcome this initiative. A number of concerns have arisen as a result of the Gambling Act and they deserve close consideration. I have three principal concerns to raise with your Lordships. The first is, like the others, an unintended consequence of the Gambling Act. There is a rapid and tangible drift to the conversion by the bookmakers of the 10,000 or so betting shops into mini-casinos. That trend carries a real moral hazard, about which we should all be concerned. It is not so many weeks ago since we debated in this Chamber the issue of the super-casino for Manchester. Noble Lords will recall that we were concerned about the definition of a ?destination casino? and the extent to which it represented a bigger hazard. However, the moral hazard presented by the spread of the virus of 10,000 immediately available local casinos to the midst of our local communities is immeasurable.
I do not suppose that a great many noble Lords are in the habit of visiting betting shops, so I shall take them on an imaginary tour of what is going on in them. Every casino is allowed to have four FOBTs?that is, fixed-odds betting terminals. Until eight days ago, they were confined principally to roulette, blackjack and stud poker, but they have now been expanded to include direct access to virtual reality racing, to which I shall return shortly.
The FOBTs are the subject of a series of control orders recently issued by the DCMS which I regard as a disastrous gathering of the inadequate and incompetent assessment of the controls to be imposed on the betting shops. They fail in almost every major respect to address the critical issues; for example, they open up the scope for immediate and repeated betting by touching one knob to repeat the bet that one has made previously. You can therefore bet virtually unlimited sums. You have to put real, folding money into the machine. It will then register you as having a number of stakes available according to the number of pounds that you have put in?you can diminish it to a fraction of a pound. You can then touch any number of numbers on the roulette keypad, so that you could bet, let us say, 20 separate numbers for £1 each. However, according to the control orders, which do not foresee that risk, you can press each number 10 times. So you could have £200 on a single spin and press one number to repeat that bet as many times as you had stakes left in the machine. There is no separation of your original stake from the winnings, and therefore no opportunity to remove your stake and bet just with the winnings.
The risk was summed up beautifully yesterday by a senior bookmaker who said to me, ?Do you know, our betting shops are empty in the afternoon now; there?s nobody there?. ?Why is that??, I asked. He said, ?Because our machines are so efficient that we have stripped all the money out by lunchtime and everybody?s had to go home. There?s no money left in anybody?s pocket?. Moral hazard is rampant there.
Virtually reality racing has concerned me for a huge time. For those who are unfamiliar with it, I say that it is a technique which has been developed by the bookmakers whereby they are able to represent with a computerised software programme an imaginary race run by images of horses, with jockeys on top. It is known in the business as cartoon racing. In theory, each of the 12 horses in a race has an identical chance, with odds of 11-1. However, the bookmakers want to encourage people to bet on them, so they put up on a separate screen the imaginary odds for three or four of the horses to imply that they are favoured. The Select Committee on Merits of Statutory Instruments, of which I am a member, asked the DCMS whether the odds were being in any way manipulated. We were told that they were not, that the bookmakers were at arm?s length from the software systems and that the software system was sacrosanct and never interfered with.
When we then asked why they were able to offer odds of 3-1 on a horse in a 12-horse field, the startling answer was that they were giving the chosen horses a 20 per cent loading of having a better chance. The bookmakers were thereby admitting that they were lying; they were intercepting the system. One would expect in those circumstances to see the incidence of winning favourites to match the 20 per cent or so which applies to live, breathing racehorses in proper races. In fact, it comes out at 16 per cent; that is, nearly four points below the average for living racehorses. It is even more remarkable that the clear favourite, if it is winning only 16 per cent of the races, is coming second in 17 or 18 per cent of them. God forbid that I should be accused of being a cynic, but if I were, I would say that the bookmakers are getting it both ways. They are encouraging bets to be laid and then avoiding the necessity of having to pay out on the horse that is the favourite because the software system is in some way stopping it winning. That is as much a corrupt process as slipping dope to a horse or getting a jockey to pull it. What on earth are the bookmakers doing? It is a question of integrity in racing, but one that comes from a different direction.
The bookmakers claim that because they now offer these wonderful betting methods, they should no longer contribute to the betting levy which has been the lifeblood of British horse racing and the thoroughbred racing industry. As a result, the industry is now bereft of £90 million. The Government should do three things immediately.
My Lords, I shall list those three things and finish. First, the Government should adopt the recommendations of the excellent committee of the noble Lord, Lord Donoughue, and impose on the betting industry the restoration of the levy at a reasonable level. Secondly, as the noble Lord, Lord Faulkner, said, they should immediately require offshore bookmakers to abandon advertising in Britain or to comply with the usual regulations. Thirdly, the DCMS should revise all its controls on betting shops to stop them becoming mini-casinos. It is an outrageous state of affairs and needs immediate correction."
Sports Minister Gerry Sutcliffe told Reuters the government would take a tough stance if high-stakes video roulette and blackjack machines were found to be triggering problem gambling.
"I'm concerned about the longer-term impact of the growing popularity of FOBTs (fixed-odds betting terminals) and have asked the Gambling Commission to give particular priority to work on the risks associated with high-stakes machines.....We have always said if any evidence emerges that they (FOBTs) are causing harm, then we are prepared to take action and we have the power to take action."
Come February 2011 and the spectre of fixed odds betting terminals ("machines") had not gone away, indeed, it was clear from the results posted by the likes of Ladbrokes, William Hill and Paddy Power that they were flourishing. Paddy Power said that its average gross win per machine per week including VAT was £1,072, an increase of 24% compared with the previous year. William Hill said that a 1% decline in Over The Counter net revenue had been offset by gaming machine gross win growth of 13% (11% on a net revenue basis, reflecting the impact of the VAT increase in January 2010), with Gross win per machine per week of £847. Ladbrokes reported gross win per gaming machine of £730 in 2010);
"Despite the disruption caused by the machine supplier trials, ongoing throughout the year, total machine gross win grew 7.2% during the year to £302.8 million with average gross win per gaming machine per week rising 6.6% to £730 in 2010. The performance in the fourth quarter was particularly encouraging with gross win per gaming machine per week up 11.6% reflecting strong management focus and the end of the disruption period on Barcrest machines (92% of the estate). During the year 24 regional managers have been deployed to focus solely on machines and we have carried out a machine re-siting initiative. In 2010 there were on average 7,953 terminals versus 7,892 in 2009. At 31 December 2010 there were 8,020 machines."
When announcing its half year results for the period ended June 2012 Ladbrokes said that "Machines net revenue up 20.1% with gross win per terminal week of £947 for H1 and £970 in Q2." And when announcing its half year results to 26 June Willian Hill said; "Gaming machine net revenue is continuing to grow steadily, up 5% in the period, with gross win per machine per week of £924 (2011: £902)."
When announcing it interim results for the six months ended 30 June 2012, Ireland's Paddy Power said that it had seen machine gaming net revenue up 5% in constant currency. In its annual report for 2011 the company had said that "The average gross win per gaming machine per week including VAT was £1,210, an increase of 13% compared to last year. There were 655 gaming machines installed at 31 December 2011, an increase of 163 compared to the previous year as a result of new shops."
Fixed Odds Betting Terminals ("Gaming Machines") were the subject of a House of Commons debate on Thursday 9 February 2012. The Liberal Democrat MP Don Foster raised concerns regarding the detrimental impact that the machines were having on society;
"I am most grateful to the Minister for that answer. The FOBTs he refers to, through which punters can lose £100 a spin or £18,000 a year, have been described as the crack cocaine of gambling. As he said, numbers are exploding: some 32,000 such machines are in easily accessed high street betting shops, yet the evidence shows that they are causing real damage to individuals and families, including some of the poorest people in our communities. Does the Minister therefore not agree that a responsible Government should be taking urgent action to address this problem, including looking at the recommendations in early-day motion 2634, such as cutting the stakes and prize levels of these machines so that they are more akin to those in other adult centres?"
The Conservative MP Philip Davies,the recipient of donations from Ladbrokes and a group called Peninsula Business Services Ltd,which is headed by Peter Done, the co-founder of Betfred, claimed that there was no link between the number of fixed odds betting terminals in a betting shop and an individual's problem gambling;
"Despite what the right hon. Member for Bath (Mr Foster) says, does my hon. Friend the Minister not accept that the percentage of problem gamblers using FOBTs declined from 11.2% in 2007 to 8.8% last year, and that the availability of gambling on the internet drives a coach and horses through the ridiculous limits we now have on the use of betting shop terminals? Given that people can use only one at a time—or perhaps two at best if they are particularly proficient—whether there are four, six or eight in a betting shop makes absolutely no difference at all to an individual’s problem gambling."
In an interview aired on Channel 4 TV on Monday 6th August, 2012, Harriet Harman MP criticised those elements of the Gambling Act that had allowed the clustering of betting shops in poor areas and the introduction of fixed odds betting terminals.
"If we had known then what we know now [about the clustering of Betting Shops], we wouldn't have allowed this, because it's not just ruining the High Street it's ruining people's lives...I got the most heart-rending letters and emails and calls that I've ever had in thirty years of being an MP. Just saying, please do something about this. It's ruined my life, it's ruined my family, it's really dangerous and the problem is it's getting worse and that's why we need the law to be changed so that something can be done about it."
On the same programme, it was revealed that Professor Jim Orford from Birmingham University had conducted research that suggested problem gamblers lose up to £57m a year on the horses; around £75m a year on the dogs; and around £75m in casinos; but an estimated £297m a year on FOBT machines.
"Getting on for a quarter of all the profits from these machines are being contributed we think by people who've got problems with their gambling. Put another way - if a betting shop has people playing all its four machines, the chances are one is a problem gambler. My own view is that we should probably get rid of them on the High Street. I don't think casino gaming by machine belongs in the High Street, I think it belongs in casinos", Professor Jim Orford adds.
Jeremy Hunt, the culture secretary, in charge of gambling, declined to appear on the C4 programme, but a spokesperson for him, said: "the government has no plans to amend the gambling act unless there is clear evidence of a need to do so".
To cite this article: Niall O'Connor(2012) "Crack baby crack: the rise of fixed odds betting terminals.".
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