Terminal Decline: FOBTs’ final fate still to be decided

For over a year now, media discussion of the gambling sector has been dominated by FOBTs (Fixed Odds Betting Terminals or, more precisely, B2 gaming machines) which have rarely been mentioned without the suffix “the crack cocaine of gambling”.

The Government’s announcement (see here) last week of the results of the latest review has not brought an end to this discussion and has introduced another 12 week consultation which will only serve to prolong the somewhat sterile debate.

History

Prior to 2003, FOBTs were not classified as gaming machines and hence were effectively unregulated. In January 2003, the UK Government expressed concern at the increasing prevalence of FOBTs in betting shops and the perceived risk that FOBTs posed to the issue of problem gambling in Great Britain. Subsequently in November 2003, in conjunction with a settlement of litigation brought by the Gaming Board, the Association of British Bookmakers agreed a code of practice that imposed certain restrictions on FOBTs. Amongst other things, bookmakers were prohibited from operating more than four FOBTs per betting shop, the maximum prize and stake were limited to £500 and £100 respectively and the frequency of play permitted on FOBTs was restricted.

Under the Gambling Act 2005 and regulations made pursuant to it, FOBTs were classified as B2 gaming machines and maximum limits for stakes and prizes were prescribed, as was the maximum number of machines permitted to be operated in each betting shop.

In January 2013, DCMS published a consultation (“the 2013 Triennial Review”) on proposals to amend the maximum stakes permitted on FOBTs with other similar restrictions on their use. However, the outcome of the 2013 Triennial Review was to maintain the limitations imposed by the Act until “robust” evidence was gathered on the contribution of FOBTs (if any) to problem gambling, although the Government stated that FOBTs had a “serious case to answer” and that their future was “unresolved”.

Nevertheless, in April 2015, additional conditions were imposed on the use of FOBTs where a player wanted to stake more than £50 (the so-called “£50 journey”).

The latest review

In October of last year, DCMS announced a further review of gaming machines amid growing pressure for increased regulation of FOBTs in the following terms:

“The Government is reviewing the maximum stakes and prizes for gaming machines across all premises licensed under the Gambling Act 2005; the number and location of gaming machines across all licensed premises; and social responsibility measures to protect players from gambling-related harm.”

Originally, DCMS hoped to publish its results in spring of this year but the report was not published until the last day of October.

While the June 2017 manifesto of the Conservative party did not contain any reference to FOBT reform, the manifestos of both the Labour party and the Liberal Democrats called for a reduction in the maximum stake applicable to FOBTs to £2, which has led to repeated calls for the re-elected Conservative Government to pass legislation giving effect to the same.

Throughout the period of the review there has been a sustained and effective campaign by various groups against FOBTs, most calling for a reduction in the maximum stake to £2. Combined with a series of regulatory interventions in recent months by the Gambling Commission, the Information Commissioner’s Office, the Competition & Markets Authority and the Advertising Standards Authority, and reinforced by most of the media, the gambling industry has very much been in the eye of a storm. The 2005 Act was essentially a liberalising and libertarian piece of legislation but the last year has seen a sharp swing back of the pendulum towards a more interventionist approach.

Many people – both gambling operators and their critics – had been hoping that publication of the latest review would bring closure to this issue but, whilst it is clear that there will be a reduction in the maximum stake for FOBTs, where the new maximum will be set remains open and is one of the main issues which is now the subject of a 12 week consultation. The Government has set out four options, being to reduce the maximum stake to £50, £30, £20 or £2. What has not been mentioned by most reports is that the consultation says that these are illustrative options and it may be that the maximum stake is ultimately set at a different level. Another subtlety which has also been omitted from most commentary is that the £20 option as described in the consultation is £20 for non-slot machine games but £2 for slot machine games. The other three options apply to all content played on B2 machines. The Government also raises the issue of whether the spin speed (the frequency of play) which is currently set by the Gambling Commission at 20 seconds should be increased.

In addition, the Government is strongly suggesting that any reduction in the maximum stake needs to be combined with other measures designed to address problem gambling such as tracking and monitoring play (to better inform policy decisions) and “nudge-type” measures such as time and spend limits with hard stops when limits are met.

In contrast with much of the debate, the consultation is a thoughtful and considered piece of analysis and discusses in detail all of the main issues and arguments as well as relevant research. Also published on the same day as the consultation (see here) was the advice given by the Responsible Gambling Strategy Board to the Gambling Commission in connection with the review. This is another very interesting piece of work which comprises a thorough analysis of all the relevant issues and displays a much more open mind to the debate. For example, the RGSB is not convinced that reducing maximum stakes will necessarily make a material contribution to reducing gambling-related harm.

Other issues dealt with by the Consultation

Although, understandably, most commentary has focused on the most contentious issue of FOBTs, the consultation does deal with a range of other matters.

Other gaming machines: stakes and prizes

As well as FOBTs, the consultation also addresses stakes and prizes for all other categories of machine and, save in relation to prize gaming, proposes that the level of stakes and prizes should remain unchanged.

Gaming machine allocations

This issue looked at the number of gaming machines entitled to be located in different categories of premises and again proposes no changes from the status quo.

Another proposal made by gaming machine operators of all categories was that machines should be allowed to have a contactless payment facility; the Government does not support this proposal.

Gaming machines: social responsibility

The report proposes trialling various measures to improve player protection across B1, B2 and B3 gaming machines such as voluntary time and spend limit setting, mandatory alerts when certain time and spend benchmarks are reached and utilisation of algorithms to identify problematic play on gaming machines.

Online gambling

Again, this is an element of the consultation which has not received much coverage but is potentially very significant given the increasing size of the online gambling sector which, according to the most recent Gambling Commission statistics, now accounts for 56% of the profits made by the commercial gambling sector. Over the last few months, whilst the focus of the debate has been on casino-type games played on FOBTs, there has been the occasional comment made that it is odd that there are limitations on stakes on, for example, roulette on a FOBT but there are no limits playing the same game online. Clearly, this is a simplistic argument which does not take account of the differences between land-based and remote gambling. As the consultation acknowledges:

“Unlike land-based gambling, all online gambling is account-based, which means operators know who their customers are, what they are spending their money on, and their patterns of gambling. This provides opportunities for operators to use customer data to identify and minimise gambling-related harm.”

However, this does not mean that the remote sector is immune from review and the RGSB advice takes a different tack, saying:

“The absence of any regulatory limits on stakes and prizes on remote platforms, including those which offer games identical to those on B2 gaming machines, is anomalous, given the wide accessibility of such platforms and the rapid pace with which they are developing. The remote sector needs swiftly to demonstrate that the risks associated with remote gambling are being managed effectively and comprehensively. If they fail to do so, controls should be placed on stakes and prizes on remote platforms comparable to those on similar land-based products.”

In fact, the Government sends a very clear message to the online sector that, as the Gambling Commission has been saying for some time now, it needs to raise its standards and accelerate the pace of change – failing which, the Commission clearly has the Government’s backing to take action.

Specifically, the consultation refers to the following:

• The CMA’s investigation into unfair terms and misleading practices – where the consultation states that “The Gambling Commission is working with the CMA to deliver sector-wide change in the areas of concern identified and to drive improved compliance with consumer protection law in the gambling sector. The Government fully expects the gambling industry to ensure terms and conditions are clear to consumers.”
• Bonus and promotional offers – where the consultation states that “The Gambling Commission has made clear it will consider restricting the use of bonus and promotional offers if operators cannot appropriately manage the risks presented by such offers. The Government is also concerned about the prevalence of free bet offers and fully supports the Commission’s stance in this area. We will continue to monitor closely developments in this area and keep the need for further intervention under review.”
• Customer interaction – where the consultation states that “We agree with the RGSB that it is vital that the online sector capitalises on the data it holds and demonstrates it is actively supporting its customers and helping to manage the risk of harm from gambling. We are clear that the risk of harm should not be affected by whether individuals are gambling online or in land-based venues.”

The Government sets out its position extremely clearly by saying: “We want to see the Commission exercise the full breadth of the powers available to it to manage the risks arising from the rapid growth of the online sector. Whenever the Gambling Commission identifies specific risks to the licensing objectives we expect it to take prompt action to ensure that young and vulnerable people are protected from gambling-related harm. If the Commission’s powers prove insufficient to manage any new or emerging issues or risks, then the Government will consider putting in place additional legislative controls.”

And, if there was any doubt about this, the consultation makes it clear that the Commission is currently undertaking a wide-ranging review of the online sector.

Advertising

Contrary to most people’s expectations, the Government is not proposing any change to the times at which gambling advertising may be broadcast. Instead, the Government proposes a package of measures (including a two year responsible gambling advertising campaign with a budget of £5-£7 million in each year) designed to minimise the risks to vulnerable people.

What happens next?

The 12 week consultation period will expire on 23 January 2018. Following that, DCMS will need to review and consider the responses to the consultation before announcing its conclusions.

A change to the maximum stake would require new regulations to be passed pursuant to the Gambling Act and requires a positive vote from both Houses of Parliament. There need not be any debate in respect of either vote (although there can be if members consider one appropriate). Neither House can table amendments to the regulations; they must be either accepted or rejected in its entirety. The vast majority of such regulations are voted through quickly and with little difficulty. Prior to the new vote the House of Lords Secondary Legislation Scrutiny Committee will review the regulations and determine whether any particular attention should be drawn to them. If the regulations do not attract any great attention, they will be passed as and when Parliamentary time allows and this usually occurs within a few weeks.

If the Government decides to change the frequency of play, this is something that the Gambling Commission needs to implement by amending the B2 Machine Standards.

If it is decided that operators’ licences need to be amended by amending the terms of the LCCP, the Commission will normally provide for a three month consultation prior to any amendments.

Furthermore, as machine software will need to be changed to reflect the new provisions, the implementation date of any new regulations, standards or licence conditions will inevitably be set to give operators sufficient time to ensure that the machines are compliant.