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Why the customer is key to ending regulatory angst

By Dan Waugh, Regulus Partners
There will be a heightened air of expectancy when British casino operators tour ICE this year. The expo takes place in the midst of a Government review
of gambling that goes beyond the standard questions of stake and prize maximums. Critically, the question of how many machines a casino should be permitted to
operate is now out in the open. The door has been cracked ajar, offering a tantalising glimpse of meaningful reform of slots regulation for casinos. Now two questions remain. Have operators done enough (in responses to last year’s call for evidence) to persuade the Government of the merits of their case? If so, will they manage to preserve any gains through the (probably tempestuous) consultation period that will follow the publication of DCMS proposals? The current review is the best opportunity in a decade for Britain’s casinos to increase their machines entitlements; but to secure the best possible outcome may require a change in approach.
Last year, I attended a seminar in Westminster on ‘The Future of Casinos’, where industry leaders addressed MPs and peers on the need for reform. The familiar lamentations in relation to fairness and the structural integrity of the ‘regulatory pyramid’ were reeled off, as were the standard assurances on responsible operation. It was all very worthy, all very logical, all very dull. At the heart of any policy changes on gambling, there is implicit an assessment of contingent costs and benefits. This presents two challenges for the sector. First, casinos are of relatively marginal value to the overall UK economy. Second, the net value of projected economic benefits tends to be highly subjective (even if believed).

To illustrate what I mean by this, let us look at job creation. According to latest data from the Gambling Commission, casino employees represent c.0.05% of the overall UK labour market – that’s around one in every 2,000 jobs. British casino companies are not significant employers at a national level.

Furthermore, it is not necessarily the case that the creation of new jobs through casino market expansion is a good thing. As Earl Grinols has written (in relation to the US market), “The most common misconception about the social evaluation of gambling is the belief that counting jobs created by casinos is the way to measure benefits. Jobs are not a benefit, and more jobs in an area may even be harmful to existing residents.”
Context is critical – for both jobs and taxes. For example, do new casinos generate incremental revenues (which underpin taxes and jobs) or are they simply cannibalising existing consumer expenditure?
The standard economic arguments suffer from a misalignment with strategic aims. Employment and taxes are costs – often the two biggest costs for casino operators. Companies spend considerable time and effort working out how they can reduce both. For all their lobbying, casino executives do not wish to create additional jobs and taxes – these are simply the concomitants of desired revenue expansion.
Now let us turn to responsible operation. While there is no doubt that harm minimization is taken much more seriously these days, its value in terms of engineering regulatory change can be overstated. One doesn’t (or at least shouldn’t) be able to get past ‘Go’ without being able to demonstrate duty of care; and it is likely that any future regulatory loosening will be accompanied by requirements to enhance player protection. Yet the demonstration of virtue does not by itself provide a compelling reason for reform.
The most powerful argument for positive regulatory reform is not jobs or taxes or the virtues of CSR programmes but something more closely aligned to strategic aims – the desire to entertain and bring joy to customers.
In recent months, the chief executive of the Gambling Commission, Sarah Harrison has repeatedly exhorted gambling companies to “put the consumer at the heart” of their policies. This has been interpreted largely as a signal of change in relation to regulatory protections – with licensees encouraged to focus on the impact of policies on the individual rather than on compliance box-ticking.
Significantly though, it may present an opportunity for operators to frame their arguments for regulatory reform within terms of consumer enjoyment rather than matters of fairness and finance.
Grasping this has existential importance. Land-based gambling in Great Britain is now in retreat with visitation on the slide across each of the licensing categories - casinos, bingo clubs, betting shops and arcades. While the remote sector grows inexorably, traditional forms of gambling have become prisoners of licensing constructs largely defined in the 1960s. Customers are moving on while (with isolated exceptions) traditional venues struggle to keep up.
The internet has radically changed the rules of gambling business – and that means that the same must eventually happen to regulatory thinking. The ‘regulatory pyramid’ – an edifice based on consumer protection rather than consumer enjoyment – has been crumbling for some time now (even as far back as 2001, the Budd Report was skeptical of its value). A new way of thinking is required.
The starting point for all businesses ought to be “what does the consumer want?”; but too often in gambling it is “what does the regulation allow?”. Putting the customer - rather than regulation or products - at the heart of thinking leads to innovation. Painting a picture of an exciting future for casinos (before setting out the regulatory and fiscal changes required to achieve it) may just change the tone of discourse with Government.
With the global gaming industry converging on London for ICE this year, our industry has a wonderful opportunity to look outwards and inspire.
Image Dan Waugh, Regulus Partners
Originally Published 24th January Casino Life magazine issue 103.