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Friday, 18 December 2015

In testing times we’d be daft to duck the question

"Guilty Mallard?"

By Dan Waugh, Partner

“If it looks like a duck, sounds like a duck and walks like a duck it’s unlikely to be a horse.”

One of the problems with regulating gambling in a relatively permissive society like Great Britain is that the target simply refuses to stand still. Changes in technology and consumer behaviour propel gambling companies forward in search of ways to grow the market and to capture greater share – sometimes rubbing up against the confines of regulation.

If the regulatory cords are tied too precisely, they may become outmoded and so create loopholes; too loose and they give rise to inconsistency of interpretation and possible exploitation.

This is the sort of problem that the Gambling Commission has been grappling with in trying to ensure that licensing regimes are used for the purposes intended (and more specifically to guard against the proliferation of machine gaming in ‘ambient’ premises). Attempts to set some measurable parameters around the principle of ‘primary purpose’ (the idea that a betting shop licence should be used primarily to offer betting, a bingo licence for bingo and a casino licence for table games) have been met with predictable entrepreneurship (often manifested in tokenism) from the industry. This in turn has led the Commission to seek to implement the well-worn ‘duck test’.

The ’duck test’ which focuses on outcomes rather than compliance tends to trump the industry’s best-laid arguments. The recent travails of DraftKings and FanDuel in the USA illustrate the point. The daily fantasy sports sector may be correct in asserting that their activities are exempted from the proscriptions of UIGEA and the Bradley Act; but if the regulator decrees that the carve-out is being exploited to offer sports betting by proxy, there will be only one winner.

Back here in Britain, local authorities may soon be asked to consider whether a bingo club is really a bingo club, not on the basis of technical specifications (bingo positions vs slots, floor space allocation, revenue splits) but on whether it meets their expectations of what a bingo club should be.

It is a common sense approach to licensing that the Commission hopes will put paid to pubs masquerading as bingo clubs, arcades aping casinos and betting shops bereft of sports. In some respects it may be seen in the same vein as the current regulatory emphasis on impact and effectiveness rather than simply compliance – a renewed recognition that the spirit is every bit as important as the letter of the law.

There is of course the risk is that the proposed new approach leads to inconsistency of interpretation between local authorities; but the Commission will be only too aware of its task in meeting this challenge.

Perhaps the more important concern is that in applying the ‘duck test’ to licensing, we are once again addressing symptoms rather than getting to the heart of the matter.

Britain’s terrestrial gambling operators are – generally speaking – a fairly well-behaved and conservative bunch. The widespread inventiveness in licensing that we have seen since the Gambling Act has often resulted from challenges to the traditional business model (such as the smoking bans of 2006 and 2007 or the casino duty increase of 2007) rather than base avarice. Sometimes covetousness creeps in where there are obvious regulatory imbalances (e.g. FOBTs being permitted in betting shops and not arcades; bingo clubs having better slots entitlements than pubs) but deep down this has been about the need to adapt to a changing world.

As I have argued in previous articles (notably http://regulusp.blogspot.co.uk/2015/02/time-to-think-outside-box.html), the prognosis for licensed gambling venues in Great Britain is worrying and this is largely because they are still defined by parameters set in the 1960s and the needs of a dwindling band of customers. Our arcades, betting shops and bingo clubs are looking increasingly anachronistic while the much vaunted rise of the casino has somehow failed to materialize. Gambling activity seems to be shifting inexorably to remote channels – a trend that may not be unambiguously positive.

Against this backdrop, it is unsurprising that operators have become more enterprising in how they interpret regulations. Done in the right way, it can even serve to force positive change. Several years ago, I was involved in the process to supplement machine numbers in bingo clubs through multi-licensing – a response to a restriction in the Act that limited clubs to just four jackpot machines per premises (at a time when some clubs were receiving up to 1,000 visits a day). With no evidence of harm arising from the machines expansion in bingo clubs, successive governments have relaxed restrictions and so largely obviated the need for multi-licensing.

Nevertheless, the rise to prominence of machine gaming in venues where it is intended to be a secondary activity is a justifiable source of concern for the Gambling Commission as is the land-based industry’s growing dependence on those machines. Application of the ‘duck test’ is a sensible response to current challenges (notably Greene King’s attempts to deploy bingo licensing in community pubs) but it is unlikely to end the game of cat and mouse over licence definitions, precisely because it does not address the root cause of incipient obsolescence. It asks the question of whether the licensing regimes are being adhered to rather than whether the licensing regimes are themselves appropriate.

This is existential stuff for the industry but will never be a priority for government; so the onus is on companies to address it. Put simply, if our ambitions fail the Commission’s ‘duck test’, perhaps it is time for us to consider whether we wish to be ducks at all – particularly those of the sitting kind.