“Scully and the X Files: The mystery of the Gambling White Paper”

Carl Rohsler, head of gambling regulation at Memery Crystal gives some personal reflections on the long-awaited proposals for gambling reform.

Introduction

At the end of October, I spoke as part of a panel discussing the issues which surround the reform of gambling law in the UK. It proved a useful and lively debate (albeit under Chatham House rules). Still, it caused me to reflect on the process of reform, and I thought I would try to put some of my own thoughts on paper.

What follows is a serious enough piece. But articles these days seem to need a gimmick, and so let me extend my titular metaphor for a paragraph or two.

“The truth is out there”

Three years ago, the Government said that it intended to reform the Gambling Act 2005 to make it fit for current societal needs. Things began normally enough, with a call for evidence posing fifty or so questions on areas for reform. Industry and other interested parties made their contributions to the debate between December 2020 and March 2021. ?

Since then, however, it’s as though the White Paper was plagued by paranormal activity. As soon as a minister is appointed to oversee its progress, he mysteriously disappears. Nigel Huddlestone: abducted by aliens? John Whittingdale, disappeared over the Bermuda Triangle? Chris Philp, lost in the enchanted forest? Did someone cast a spell on Damian Collins? ?It was even said that the final text was on the desk of the Prime Minister and merely required his signature. Tantalisingly close and then… “hasta la vista, baby”.

The White Paper still hangs before us like a spectre, impossible to pin down. We will have to see if the Government’s newly appointed agent, Scully, can finally solve the mystery of the invisible reforms.

There. That’s done. Now let’s get down to business.

?Setting the scene

Not everyone will have followed the development of gambling in the UK on a daily basis. So it’s probably wise to set the scene.

The 2005 Act was a product of the Tony Blair administration and a more idealistic age. As a measure of the spirit of those times, the last gambling White Paper published in 2004 was entitled “Gambling - a safe bet for success”. It described gambling as “morally neutral activity” forming a normal part of adult entertainment. Those sentiments seem very far from those of today.

The 2005 reforms, bravely cleared away a patchwork of legislation stretching from the 1960s right back to the 18th Century, and put in place a new legal framework. Regulation of gambling was to be taken away from the criminal courts and the Gaming Board and handed to a new and neutral dedicated statutory regulator. Its remit was to permit the natural expansion of the industry, provided that such development did not imperil the licensing objectives[1]. Casinos were going to get bigger and be used as engines for urban regeneration. Gambling was out of the closet: to be allowed to advertise in ways never seen before, no longer constrained by a demand test. Online gambling was blessed and regulated. The new regime was even liberal enough to create a white list of jurisdictions (including the whole of the EU) which could advertise to and do business with UK citizens, without further permission or licence.

The results of this liberalisation should not have been difficult to predict. When you permit clever and motivated people to develop a commercial opportunity to its natural limits, you should expect rapid growth. That is precisely what happened in the following 15 years.

Advertising of gambling became ubiquitous, ties between sport and gambling became frequent and close, even to the point of dependence. We saw the rise of new products: ?on-line poker, FOBT’s, betting intermediaries, binary betting and spread betting, betting on lotteries, new umbrella lottery schemes and fantasy products all being examples. There were also some bad cases of exploitative or reckless behaviour by operators.

With these developments came growing concerns that gambling was becoming a dangerous pre-occupation. First, gambling developed a broader public appeal. The National Lottery had brought gambling onto mainstream television and integrated it culturally as an activity with implicit institutional approval. Betting also developed from its focus on minority sports such as horse and dog racing to more popular ones like football, widely watched and played in the majority of schools. With greater exposure, came greater potential for harms.

Second, operators became ever more focussed on encouraging a small class of gamblers (‘VIPs’ / ‘whales’ / ‘high rollers’) who accounted for a disproportionately high level of their profits. VIPs ?remain the central dilemma for many commercial operators. The long tail of low-level gamblers are costly to acquire and manage, promiscuous and not particularly profitable. By contrast, a few key punters are very valuable indeed. But the defining characteristic of a VIP gambler is not someone who has sufficient assets to be immune from harm, but someone who is prepared to lose a lot more than other people. So how do you ask the industry to reduce its dependence on VIPs?

Another factor which is seldom mentioned, is that some of the statistical concerns about the impact of gambling were self-fulfilling. More regulation, and the rise of online gambling products converged to generate much more detailed data on gambling activity. Rather than gambling taking place on an essentially anonymous basis in thousands of betting shops or pubs, gamblers were now identified account holders whose every bet was recorded. Harmful habits which had probably always existed invisibly, were suddenly much easier to identify.

Imagine installing a camera on a busy road to record the speed and registration number of the cars that pass. Within months there are thousands more fines and convictions for speeding – but what has occurred is not really an increase in speeding, just an increase in measuring speeding.?

I am not of course suggesting that one should ignore a problem if there are new tools to measure harm. But let us not also ignore that the increased evidence of problem gambling in the last decade arises from the combination of (i) more prevalent gambling and (ii) the increased ability to quantify that which had previous been unmeasured.

Whatever the balance of causes, by 2019 a bank of public opinion had grown, fuelled by certain elements of the press, which saw gambling as exploitative, dangerous, addictive, and linked to crime. Strange to say, the amount of gambling did not go down as a result of these widely held sentiments[2]. But there was a strong narrative to the effect that enough was enough, and that measures were needed to reduce the impact of gambling and address the harms that had been identified.

Under the same pressure, the Gambling Commission became a much less tolerant regulator. It ceased to be a neutral overseer of industry and took on the role of consumer champion. If the Commission managed to avoid being openly inimical to the gambling industry, then it was certainly clear that it was not its friend. Fines and regulatory settlements became very much larger and more common. There was also growing (if inevitably muted) criticism from an industry which felt that it was being held to unrealistic standards, and that the Commission’s judgements were often unsophisticated and arbitrary.

By 2020, the time was ripe for reform. The need for tighter control on gambling enjoyed (and still enjoys) widespread support across the political spectrum. Gambling is an industry in which (however entertaining it may be) the vast majority of punters are long term losers. So it is not difficult for political parties to pledge that the public should be better protected against what might be seen as their own weakness.

But just as swift, wide-ranging restriction on the industry seemed imminent, it was blown off course. Government was paralysed by Brexit, and soon after the whole country was paralysed by the Covid pandemic. The effects of these events are still being felt through the economic aftershocks currently running through world politics. When energy prices, inflation, interest rates, and economic stability are so fragile, it is hardly surprising that gambling reform becomes a low priority.

So what of the White Paper?

The Government has said that the White Paper will soon be published. But to be honest it has said the same for almost 18 months. I would guess at early 2023. When it comes, it will no doubt grab some headlines, but I do not think that it will cause much of a stir within the gambling industry. Some of the proposed reforms have been leaked, and most have been priced into the industry’s plans and budgets. I personally see it an opportunity largely wasted. The balance of this article is designed to explain why.

How much reform is actually necessary?

The watchword of modern government is action. Whether in the field of education, health or fiscal policy each new administration comes to power promising radical reform and change. It is as though Government must be seen to be busy effecting societal change. Part of the reason for delays in the White Paper has been the sentiment that this is a “once in a lifetime” chance to reform gambling.?But none of the proposals for reform that have been mentioned or trailed are going to have a radical impact on the industry. And if the Truss administration taught us anything, it is that radical change is not always welcome.

Will there be primary legislation?

The phrase most often used to describe the need for change is that the current law is not “fit for purpose”. As a practitioner who works with the ?legislation pretty much every day of my life, I can say that the Gambling Act is still fit for purpose. That is partly because it was well drafted in the first place, and mostly because it was an “enabling Act” – one which created a framework under which the law could be allowed to develop subsequently through the use of delegated legislation. One can see this by comparing the total number of sections in the Act (362) and the total number of references to powers to given to the Secretary of State to make further law by regulation (just under 200). In other words, the Act has been built with a good deal of future-proofing flex. There have been more than 80 statutory instruments, effecting piecemeal change to gambling law over the last 17 years.

Consequently, it seems to me unlikely that the implementation of the White Paper will require much amendment of primary legislation. The reforms can be achieved either through delegated legislation or through changes to the Licence Conditions and Codes of Practice. Reform, as and when it comes, will be piecemeal.

The evidence base for change

One of my main concerns with the process of reform to date, is that we simply do not know what evidence the DCMS received in response to its call. I recognise that part of the art of government is selecting the strands of evidence which support a legislative path that it intended to take from the start – but, in the present case, there really is a very strong argument for full disclosure of all the materials. Why? Because gambling is one of those topics where there is so much misinformation and so many gaps in our understanding, that it is a shame to lose the opportunity for well-informed debate from all sides. I know that I spent a lot of time with clients making contributions to the call for evidence and a lot of time an effort was spent in trying to give a full and fair response. But currently, we have no evidence of what was said in response to the call for evidence, and therefore no way of knowing to which voices government has listened (if any).

Whilst there has been much progress in understanding the behavioural economics and psychology of gambling and consequently we have a better grasp of what measures will be effective. Nonetheless, there is still a great deal of public ignorance about the issues.

The cost of ineffective policies is twofold: the harm continues unchecked, and operators are needlessly restricted. If the harm continues, there is also the temptation simply to reapply the same ineffective policy more stringently. One is reminded of the medical practice of bloodletting. When a patient had redness swelling or pain, the received wisdom was that this was due an excess of blood in the area affected. Leeches were applied to remove that harm. It was a treatment of symptoms that makes logical sense, but few would now defend it as an effective remedy. And if the patient remained in a weakened state after treatment? Apply more leeches.

The reforms (as leaked) include proposals for operators to limit certain types of advertising, reduce the stakes on certain gaming machines and to oblige operators to police affordability. Those policies might work to reduce harm, but they might not.

Advertising

As to the proposals for limiting advertising, although widespread advertising of gambling might well normalise gambling among young people, there is little evidence to suggest that it actively prompts ?them to gamble. The results of a survey in 2017 conducted for the Gambling Commission asked children who had gambled in the previous week what had caused them to take that step. Advertising came 14th in the list of 16 identified factors. ?The most frequent reason given was that minors gambled because they had seen their parents doing it. So whilst there may be evidence that certain types of advertisementinvolving celebrity endorsement may have more impact on minors, is there really a need to restrict operators from that type of advertising, if the real stimulus for gambling is children being allowed to gamble in a family setting? ?And if the normalisation of gambling among the young is caused by advertising, then isn’t it also caused by loot boxes and bonuses in video gaming? Commercial free speech should only be legally curtailed for good and compelling reasons.

Limiting stakes

Another likely reform will be limiting stakes for some types of machine. Reducing stakes does have the effect of making losing a specific sum a slower process. But I am not aware of strong evidence on how effective it is at reducing problem gambling. People get drunk on beer, wine, and spirits. If you ban spirits, does problem drinking stop, or do people just choose different products?

An alternative mechanism, espoused in some other countries (such as France) is that no game should be able to give a return to player of above 85%. Essentially, instead of reducing stakes, this approach makes games less attractive because players lose their stakes more quickly. I have no evidence as to which of these two approaches is more effective. But I can say that I do not think the UK government has considered all the potential alternatives.

Affordability checks

The issue of affordability troubles me from a different point of view. I know of no other industry in which a service provider is asked to determine the amount of the service which is enough for each customer. Restaurants are not asked to ?impose menu restrictions on the chubby. Auction houses do not limit the price of paintings, or the number that any collector may buy. Video games and social media platforms do not compel timeouts during the long hours that (mostly young people) waste in their thrall.?

But once an industry accepts responsibility for assessing and controlling the appetite of its audience, customers are absolved from that responsibility. Furthermore, the legislative technique of making commercial providers responsible for limiting their own supply will receive an implicit approval. And by doing so we are legislating that the state is entitled to impose arbitrary limits on the freedom of individuals to make choices about the way they live their lives. So my objection to affordability limits is not that they are ineffective, but that they are flawed in principle.????????

?Did the call for evidence ask the right questions?

Another weakness of the reform process is that its scope was too narrow. It is true that the call for evidence asked more than 50 questions covering various areas of gambling policy. But a number of key areas were largely neglected. One good example is the lottery sector.

Society Lotteries have been a success story over the last few years, with significant increases in sales[3]. There has been a steady move of ticket sales from retail to remote. Nevertheless, lotteries have faced significant pressures, not only from the National Lottery which has arguably been too protective of its special status and, more concerningly, by the growth of a huge number of prize competitions, “free” draws and other gambling products which have been trying to ‘steal the clothes’ of lottery products.

Prize competitions and ‘free’ prize draws escape all regulation yet many offer an almost identical product to the regulated sector. A matter as simple as the disproportionate rise in the price of a first-class stamp[4] has allowed draw operators to offer tickets to be purchased on-line more cheaply than using a so-called “free” entry. So de facto lotteries have been created by not keeping an eye on inflation. ?

Many competition operators and those who offer bets on lotteries have also sought to offer some form of charitable giving element as part of their products. By doing so, they harness one of the distinctive selling points of the lottery sector, whilst usually making nowhere near the same level of contribution to good causes[5].

Some parts of the society lottery sector are also calling for a significant increase in the maximum available prize – a matter that would be easily achieved by an order of the Secretary of State (and indeed has been the subject of past changes, though small and incremental)[6]. But the question of prize limits was not even mentioned in the call for evidence.

Other parts of the society lottery sector are able to demonstrate returns to good causes very significantly in excess of the minimum 20% - and would like to be considered a form of incentivised giving, able to enjoy gift aid status[7]. And in terms of risk, lotteries are among the safest products with low returns to player and rarely lead to gambling harms – so it might be thought that support of lottery products could be achieved without much political risk.

These potential reforms were also ignored. The only question asked was whether society lottery products should have an age restriction at 16 or 18. Given the player profile of most lotteries, such a change will make almost no difference at all to player harms or to ticket sales. It is another example of window dressing reform, while the true issues facing the sector remain unventilated.

To be clear, lotteries is not the only area in which the scope of the call for evidence was too narrow, loot boxes, novel gambling products and crypto-currencies are others which should all have been considered. But perhaps it is now too late

Quis custodiet ipsos custodes?

Juvenal’s famous soundbite asks “who guards the guards themselves?” The issue of the Gambling Commission’s own powers and procedures was the subject of two questions in the call for evidence:

• Q19: Is there evidence on whether the Gambling Commission has sufficient investigation, enforcement and sanctioning powers to effect change in operator behaviour and raise standards?
• Q20: If existing powers are considered to be sufficient, is there scope for them to be used differently or more effectively?

There has in truth, been very little said about the way that the Commission exercises its powers, and whether they are exercised fairly and proportionately over the last years. Practitioners will have their own anecdotes. But there are a number of factors which are going to make transparency and improvement in that field much more difficult.

The first of course is that operators which have been subject to regulatory scrutiny are unlikely to be keen to complain publicly about the treatment which they have received. The second point is that if the White Paper is in fact implemented not by primary legislation but by delegated rules and changes to policies implemented by the Commission itself, the opportunity for critical self-examination is much reduced.

There is also the fact that the Commission does not expose itself very often to the possibility of independent scrutiny. Its regulatory decisions normally end in a settlement rather than a fine – a compromise under which the operator in question agrees a reduced penalty in return for waiving its rights of appeal. Furthermore, the Commission has not chosen to use its prosecutorial powers very much at all – which means that the quality of its evidence collection and legal arguments have only rarely been tested before the Court. Instead, by regulatory investigations and settlements, the Commission has defined its successes and marked its own homework for several years.???

So I do not think that we will see many answers to the criticisms that the Commission has become distant from operators.

Conclusion

I have not touched on all the possible areas of reform – and there are many other points one could make – but it is hard to write about something that has not yet happened – particularly when it has not yet happened for so long.

There is actually quite a strong argument for starting the whole consultation process again from scratch because the industry (and indeed our whole society) has changed a great deal since the questions were first asked. But the moment when real reform could have been achieved, has probably now passed, so we must ask Mr Scully to make the best of a flawed job.

I add one final point, which probably over steps the threshold of heresy. The UK already has one of the safest and most protective environments against gambling harm. The statistics for problem gambling are at historically low levels and have been consistently falling over the last decade. In response to such points, it is frequently said that “even one problem gambler is one too many”. Of course one can understand such a statement as a rhetorical flourish. But as a literal expression of policy it is actually not true. If one problem gambler is truly one too many, then the only logical response is to ban and criminalise all gambling.

Our society permits cars, and by doing so it accept a certain level of pollution, accidents, car theft, bureaucracy over policing traffic offences and road building. ?Society does not like these things, and it tries to limit them, but it accepts that these harms will be a permanent feature of our society. Equally, our society permits gambling and, in taking that step, it must accept that the freedom to gamble will give rise to a certain level of consequential harm. The policy objective must never be to remove all harm from the system. The policy objective, uncomfortable as it may sound, is to decide how much harm is acceptable, and regulate only to that point. ??

[1] For which see s.22 of the Gambling Act 2005

[2] One is reminded that a famous industry survey recorded that 70% of online casino gamblers thought that the games were sometimes fixed against them – and yet of course they continued to play.

[3] sales of ￡200m in 2008/9 have risen to ￡830m in 2019/20

[4] A stamp was 30p in 2005 and is 95p in 2022, which is double the inflation rate over the same period.

[5] Statute provides a 20% minimum of ticket sales to the good cause.

[6] Maximum prize levels have increased from ￡100,000 in 2005 to ￡500,000 in 2021, but require ticket sales of ten times that figure – and the overall number still falls well short of the totemic figure of ￡1m, which is seen as a big draw for consumers.

[7] One indication that lottery players are motivated by giving rather than by the hope of a prize (at least in some society lotteries) is that, where return to good cause exceeds 35%, about 10% of prizes are not claimed, but simply re-donated to the charity.?