Dan Waugh – Regulus Partners – Time to think outside the box

Dan Waugh – Regulus Partners

Creativity requires the courage to let go of certainties. Erich Fromm

It may seem strange to suggest it now at a time when gambling is once again at the centre of a fairly major public policy debate – but there may come a time when even the Daily Mail recalls with misty eyes a time when gambling was part of the fabric of British high-street life.

Looking at data from the last five years suggests that – notwithstanding the current concerns around proliferation (principally betting shops) – we should be concerned about the future of land-based gambling.

Everyone knows that bingo clubs and arcades have been under pressure for some time. According to the latest Gambling Commission data, revenue from these sectors has shrunk by 4% and 19% respectively since 2009. These are the show-ers.

What is less widely reported is the state of the supposed growers. The betting shop sector has experienced solid growth this decade delivering a c. 40% gross win increase since 2004 – but decline in its core product (horse-racing and greyhounds) has been masked by stunning (and relatively easy) growth from machines. Over and above the political risk on machines, there is something unsettling for the industry about this situation.

It’s all a little reminiscent of Robert Putnam’s 1999 work ‘Bowling Alone’, in which the Harvard Professor of Public Policy described the decline in community participation in the USA during the second half of the twentieth century as age cohort by age cohort people gradually disengaged from traditional methods of interaction.

Meanwhile, the casinos sector exceeded £1bn in table revenue for the first time last year and has generated an impressive 7% compound growth rate over the last five years. However, the lion’s share of this growth has come from London (where Mayfair has benefited from a buoyant international market and the mainstream has been bolstered by about £90m of capital investment split between the Hippodrome in Leicester Square and Aspers at Stratford).Taking London out of the reckoning, casinos start to look a little anaemic with CAGR of just 2% over the last five years. Meanwhile, annual participation rates (for playing casino games in a casino) were stuck at just 3% according to the most recent health surveys – hardly the boom we were led to believe would follow the Gambling Act 2005.

On the other hand, remote gambling – now in its 21st year – keeps growing, with mobile putting a new spring in the step of the sector. Indeed at over £3bn in revenue, remote is now bigger than any single sector of land-based gambling (other than the National Lottery)

One of the problems facing the land-based element of our gambling industry is that the unit classifications have not really changed in the last 40 or 50 years. We have on-course betting, betting shops, bingo clubs, casinos and amusement arcades – concepts defined in the 1960s. There have been product ‘innovations’ (but these have largely been limited to EGMs) as well as some significant regulatory gains. Bingo clubs and casinos are typically larger now than back then and betting shops are permitted to admit natural light and even to offer toilets (as well as four B2/3 machines per shop) – but the core nature of the units themselves has remained largely unchanged. We have had supply-side and regulatory modifications on a theme but nothing more fundamental.

In land-based gaming (unlike in the remote sector) the licence – rather than customer needs – still largely determines the product and experience: casinos are distribution points for roulette and card games; bingo clubs for bingo games; arcades for slots. Betting shops may now generate the majority of their revenue from machines but betting on horses is still the draw for most customers.

Britain is a remarkably accommodating market for gambling. Just about all products are available, gambling taxes are generally on the low side, advertising is (controversially) prevalent, and regulation is designed to be of the light-touch variety. Yet while we have all types of gambling, we don’t have all formats – and attempts to add new formats have been limited.

In Connecticut right now, a British company, Sportech is developing sports and sports wagering bars under the Bobby Vs brand – yet the idea that it might transplant the concept to its home market is almost unthinkable because the necessary regulations are not in place.

Taking a global look at each of the key gambling product categories – betting, casino, bingo and slots – it is apparent that our solutions are not the only ones available. The obvious example is casinos where Britain’s limited amenity locals market format looks increasingly out of step with the global development of destination-style venues. However, there are also international alternatives to the British model of bingo club (community gaming centres in Canada for instance or the new style venues emerging in parts of Spain), betting shops (casino-based sportsbooks in Nevada, PMU bars in France, TAB outlets in Australia) and slots arcades (the Station Casinos Wildfire concept in Nevada, arcades as mini-casinos in parts of Spain and in the Netherlands).

The common strand to most of these examples is that they tend to be larger and more complex outlets than their British counterparts – and typically incorporate a wider range of non-gambling amenities, including licensed bars.

Over the course of the last 50 years, Britain has developed as a convenience gambling market (the Gambling Commission regulates more than 10,000 licensed venues, not including pubs with slot machines). This is in contrast to the situation in a number of culturally similar jurisdictions where governments have favoured concentration and control rather than dispersal.

The problem with the UK situation (from a commercial standpoint) is that convenience is now the trump card of the remote sector. This presents a structural issue for ‘purely transactional’ gambling in traditional outlets. In order to compete effectively, venues may need to enhance the experience of gambling – and that is likely to require a much more sophisticated approach to concept development (including a willingness to embrace the risk of failure in order to learn and innovate). The alternative is to give up gradually on land-based gambling and seek to shift one’s business over time from venues to remote channels – but this is not without its risks.

Gambling often blames DCMS and the Gambling Commission for impeding innovation. However, it seems likely that the real culprit is a lack of industry imagination. Instead of trying to excite government about the possibilities of new gambling formats, or testing new concepts on customers, operators more commonly engage in trying to find loopholes through which to sneak in more products (generally slots) without offering much in the way of economic or social value or compensating customer protections. Unsurprisingly, this finds few supporters in government and tends to spark in-fighting with neighbouring sectors.

Remote gambling is now an important and valuable part of our gambling industry – especially in terms of consumer choice – but it would be a shame on many levels if it came in time to be our gambling industry.

Contrary to the current direction of travel, I believe that there is a ‘win-win’ solution in the gradual replacement of our existing formats with more sophisticated and more powerful land-based units – something that would arguably be easier to regulate, better able to offer social protections, of greater economic value and better suited to changing market conditions.  If so, it would seem that now is the time for the industry to start thinking ‘outside the box’.


Dan Waugh, Principal Consultant Regulus Partners


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