It's time to take on the gambling industry

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Stop Predatory Gambling

Voices like those of Thomas Pascoe of The Daily Telegraph of London continue to grow louder about taking down government's predatory gambling policy.

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Thomas Pascoe Economics September 6th, 2012

Thomas Pascoe worked in both the Lloyd's of London insurance market and in corporate finance before joining the Telegraph. He writes about the financial markets. His email is thomas.pascoe@telegraph.co.uk and his Twitter address is @PascoeTelegraph

It's time to take on the gambling industry

Long odds – the Liberal Democrats hit upon a good idea

Earlier this week, the Liberal Democrats announced measures which will hit one of the few growth areas in the British economy hard. It will impose a nannying restriction on freedom of the individual; arguably, it will also strike at one of the remaining recreational pleasures of the man on the street. I am glad.

The proposals concern fixed-odds betting terminals, those roulette, blackjack and video slot machines found in bookmaker’s shops throughout Britain. They suggest limiting these machines to a maximum stake of £2, reduced from the current threshold of £100. Other "nudge"-style policy ideas being considered include extending the length of time between bets on terminal games and stricter enforcement of existing age restrictions.

This is not a glamorous issue; it is not one that affects an electorally significant portion of the population (0.9pc identify as problem gamblers according to the Gambling Commission); but is a rare instance of a party identifying an area in which a legislative change could produce a clear and instant uplift in quality of life for many.

Most of these terminals work by inviting the player select from a palette of virtual versions of casino games. After selecting the bets in the same way as a casino, the player then watches an animation of, for instance, a roulette wheel spinning, before told whether their bet had won or lost.

If that does not sound like your idea of fun, the maximum win available on these machines is £500. It is easy to fall into a repetitive pattern of betting every 30 seconds or so, not least because the manufacturers have included a large button marked "Repeat Bet" which takes away even the need to mark out your chips again.

Interested now? Don’t be. In a casino, the result of these games is one of chance. It would be possible, although not likely, for a player to win ten hands of blackjack in a row. At a fixed-odds terminal, a player is certain to lose in the long run (because of a house edge built into the games, this is also the case in a casino). The reason for this is that fixed-odds machines have pre-set pay-out rates. Most machines fix these at a return of 99p in each £1 for a player with a perfect blackjack strategy (in reality, most bookies report payout rates for the terminal of 97p per £1). These payout rates are intended to replicate the long-run payout rates in casinos.

In other words, the implication is that the machine will choose to deal you a hand from which you cannot possibly win if its calculations tell it to recoup money already paid out, although without the gaming algorithms themselves submitted to independent bodies you simply cannot tell (although algotithms are tested by the Gambling Commission to ensure their results fall within a given range).

Machines are allowed to do this under the law, see section 5.8 here. If this is true then that is not chance, it is an abuse of the position of trust which bookmakers are in.

It is hard to overstate the importance of these machines to the gambling industry in Britain. Bookmakers have found the machines a powerful marketing tool, especially given that they offer the instant hit and illusion of skill found in online gambling, but unlike online betting firms, high-street bookmakers pay out immediately in cash.

Paddy Power, which recently announced a 21pc increase in profits, has seen a 37pc rise in profits from fixed odds betting terminals in Britain over the last year. In the first half of this year, the net revenue from its traditional sports betting operation was €25.2m, with net machine gaming revenue at €22.5m, almost even.

Ladbrokes, meanwhile, has seen machine gaming revenues rise by 20pc in the first half of this year, and has seen the value of bets placed on them rise by £96m in the last two years. One of the most concerning aspects of the numbers was the revelation that machine takings were up 60pc on Sunday evenings. If you’re playing pretend roulette in Ladbrokes on Sunday night, you have a problem, and increasing numbers of people are doing just that.

Rivals William Hill have seen their win per machine grow from £648 per week in 2007 to £924 per week in the first half of this year, which might not sound a lot were it not for the concentration of gambling shops in poor areas with high unemployment. A typical shop with four terminals (the legal limit) will take £192,192 more from punters than it pays out every year. Now consider how few people use these machines, perhaps 50 regulars per shop in a suburban area, and the impact becomes far more pernicious.

These revenues are drawn largely from those who can least afford to lose their cash. Walk past any bookmakers shop at 3pm today, and the people you will see glued the terminals are not those with high disposable incomes fluttering for fun, they will be addicts fluttering on credit.

I dislike the notion that we need to be saved from ourselves by the state. However, when machines are designed in such a way that they trigger addictive tendencies, they ought to be fair game for regulators.

The impact which these terminals can have is appalling. The industry funded gambling charity, Gamcare, has a heartbreaking online forum where addicts share their stories. Almost uniformly these are addicts who have lost everything playing on fixed-odds betting terminals.

It could be argued that the impact of gambling terminals ought to be a permitted evil, along with smoking and binge drinking. The financial impact is vastly different. However bad an alcoholic is, he could not drink away his home in a year. Stories such as this one from Gamcare’s forum stand as a case in point:

I need serious help for a roulette machine addiction. Yesterday I lost £9,300 in a bookmakers mostly on roulette. I played for nearly the whole day by 8pm I was completely broke with only a couple of pounds in scrap change left. I didn't gamble until about 2 years ago when I was made redundant due to factory relocation. Since then been only working part-time using my savings and redundancy. Started with horse racing but then roulette machines as I used to go to casinos in my younger days. Since then I have lost and won but way down in total probably not far from £80,000 in 2 years. I am now broke after losing yesterday my run of luck has been terrible recently just this month I have lost just over £15,000.

I am now seriously in debt with loans from couple of years back and a few hundred pounds from borrowing money in the betting shop. I can’t believe how rubbish things are I used to be reasonably well-off due to savings and being frugal and now skint living off £80 a week. I can’t keep out of these bookmakers even if my life depended on it if a friend gives me £20 to get by I’ll spend it on roulette. I am tearing my hair out in how bad this addiction is I need help now and fast before I lose my home and my sanity.

These terminals appeal to our worst instincts, and blight lives. The Liberal Democrats are right and principled to have taken a lead on saving the reckless and their families from themselves on the high street.

http://blogs.telegraph.co.uk/finance/thomaspascoe/100019843/its-time-to-take-on-the-gambling-industry/