Operators sue the Government for parity; in the balance hang the country’s reforms
Many who have followed the twisted path of gambling industry reform in Great Britain say a smash-up in Parliament and the courts was inevitable. Last month, Government appeared to be speeding toward it.
With sparks expected to fly in Commons and Lords over the selection of Manchester for the sole regional casino authorized by the 2005 Gambling Act, the frustration that has been mounting among existing operators over the Act’s creation of distinct hierarchies of casinos finally spilled over into Her Majesty’s High Court of Justice. It just might flood the tribunals of the European Union too.
The High Court was expected last month to consider a request from the British Casino Association, lobbyists for the biggest companies in the industry, for permission to seek judicial review of the Act. The problem for the BCA is the Act creates three classes of casino that didn’t exist before, each bestowed with considerably more slot machines and table games than its members are allowed under the highly restrictive 1968 Gaming Act, which applies only to the existing industry of 130-plus casinos and to applications for licenses pending under the old rules, of which there are several dozen.
The disparities essentially are these: The new casinos of the class designated as “large” are permitted 150 limited-payout slots; those in the “small” class, 80; the regional casino, the “super-casino” as it’s known, is allowed up to 1,250 machines with no limit to stakes and prizes (“Category A” machines, these are called). Existing casinos, however, are capped at 20 limited-prize machines each. Worse, the regional casino and the large casinos are allowed to operate bingo and betting. Existing casinos may not. Worse yet, 11 of the 17 new post-reform properties, the regional casino among them, are destined for cities and towns where existing casinos will have to compete.
Strangely enough, the new Act was designed to breathe fresh life into the industry precisely by liberating it from the suffocating restrictions of the ’68 Act, and largely it will when it comes into full effect in September. That is, except for the existing industry.
“The Gambling Act did not adhere to the principle of equality,” said BCA spokesman Richard Jukes. “Government has adopted a position that is difficult to reconcile from a competitive standpoint and from the standpoint of equitableness.”
For Chris Brammer the issue clearly is one of restriction of trade. Brammer is managing director of Isle of Capri’s ’68 Act casino scheduled to open this summer at Coventry’s Ricoh Arena. U.S.-based Isle, partners on several projects with Blue Chip Casinos, a BCA member, supports the association’s position.
“The market potential is huge if you can get rid of these differences,” Brammer said. “But if you can’t compete on an equal footing, it’s a problem. All we’re asking is fairness. We’re not afraid of competition. If someone wants to open a large casino next to my large casino, who cares?”
It’s an old complaint, dating back at least to the summer of 2004 when the BCA testified to no avail before a Joint Scrutiny Committee of members of both houses of Parliament called to examine the legislation that ultimately became the 2005 Act.
This time, though, the association is serious. Its members have ponied up for the high-powered law firm of Herbert Smith, specialists in EU competition and trade law, and retained the services of “superstar silk” Michael Beloff, president of the British Association of Sport and Law, ethics commissioner to the 2012 London Olympics and currently counsel to Mohamed Fayed in the inquest into the deaths of Princess Diana and Fayed’s son Dodi.
Government is confident it can defend the Act before the High Court. “The limit on the number of new casino premises licenses reflects the government’s cautious approach to this reform,” the Department for Culture, Media and Sport said in a memorandum submitted to Parliament last month. “It allows the government to assess whether the introduction of new casinos leads to any increase in problem gambling. The government will also evaluate new casinos’ economic and regeneration impact.”
Peter Collins, director of the University of Salford’s Centre for the Study of Gambling, believes DCMS will prevail, for reasons of practical policy if nothing else. “Whatever else a judge decides, there is absolutely no way the British Government is going to permit 200 1968 Act casinos to have 150, or even 80, Category A machines.”
But if the court grants the BCA’s request and the ensuing judicial review goes the association’s way, this likely will compel the ministry to reconsider sections of the Act that are fundamental to Government’s gambling policy.
“They weren’t thinking”
What both sides are contending with in this distinction between pre-reform and post-reform casinos is really the tattered remnants of the vision of a freer, more market-oriented industry given shape by the 2001 Budd Report and embraced by Government with enthusiasm, initially at least, on the belief it would attract big money from overseas that would find its way to cities sorely in need of investment.
Said Collins, “You had Sir Alan Budd, this great free marketer, and it was thought this would be highly welcome and would sail through Parliament. It was the great New Labour modernising agenda. It was going to be all roses, and everybody would get plaudits for a job well done.”
What happened was the opposite. The press was hostile. A kind of xenophobia set in among British casino operators and their counterparts in the large and influential amusement machine industry. By degrees the vision succumbed to the fear that casinos would spring up on every high street. The very term “super-casino” is indicative of the hysteria. Politicians were not long in picking up on it.
“The enemy was the great big, bad foreigner, particularly the big, bad Americans,” Collins said.
As David Miers, a professor of law at Cardiff University, recalled in a recent issue of Gaming Law Review: “The bill progressed through Parliament during 2004-2005 to constant background noise that was substantially centred on problem gambling and on safeguards for children.”
DCMS, which found itself charged with steering the reforms when the industry was removed from the longstanding oversight of the Home Office, has tried to navigate a narrow path between the hard sell — promoting casinos as tools of economic regeneration — and the need to acknowledge their political unpopularity. In the end, to save the Gambling Act from certain defeat in Parliament, the reluctant decision was made to ring-fence the post-reform casinos, limiting them by number to eight regional, eight large and eight small.
It was, Miers said, “a complete volte face.”
As to how these numbers were arrived at, even the Office of the Deputy Prime Minister was confused. “Consultation with central Government officials indicated that the origin of this precise figure [8-8-8] was unknown,” according to an internal ODPM report of December 2004. “An alternative and perhaps preferable approach would have been to identify a range of possible regional casinos; for example between four and 12.”
The class of regional casinos, the most controversial of the lot, was of course ultimately whittled down to one, prompting a politically charged bidding war that raged through most of last year from the Channel to the Clyde. The selection of Manchester was made by a Government-appointed panel that also selected the 16 large and small locations. Blackpool, the most surprised and disappointed of the regional casino losers, has gathered thousands of signatures appealing for a reconsideration. Some 100 MPs, 65 of them Labour, have signed on to a formal resolution known as an early day motion calling on DCMS to reconvene the Joint Scrutiny Committee to re-examine the issue of locations. The ministry has responded with an all-or-nothing proposition, a draft order in Parliament requiring that MPs and peers vote for Manchester and the other locations in their entirety or reject them all.
In the opinion of Collins, “[Culture Secretary] Tessa Jowell personally just loathes the whole process and wishes it would go away.”
In any event, the stage was set last month for a showdown.
The problem, in Miers’ view, stems from a policy beset by a kind of official schizophrenia. “The tension implicit in the Government’s preference for ‘restrained modernisation’ and its acceptance of the market is fundamental to the continuing lack of political clarity,” he said. “The outcome, one regional and eight each of small and large casinos, was the result of pure political opportunism, which makes no economic, commercial, regulatory or planning sense.”
“What was Government thinking?” Collins wondered. “I think the answer is, they weren’t thinking.”
What they’re left with now is indeed a “dilemma,” said Warwick Bartlett of West Midlands-based Global Betting and Gaming Consultants. “On the one hand, [Government] wants to expand the market, regenerate poor areas and increase the tax take, yet at the same time restrict the market and reduce the effects of problem gambling. In a nutshell, you can’t have your cake and eat it, and the laws really have to apply equally to all operators.”
“Impossible to predict”
British courts, unlike U.S. courts, have no power to strike down an Act of Parliament. Parliament is constitutionally supreme. That said, its actions, along with those of every public agency, are subject to judicial review if it can be argued they are illegal, irrational, the result of what is known as procedural impropriety, or if they breach EU law or violate the European Convention on Human Rights, which is applied in the United Kingdom through a 1998 law known as the Human Rights Act.
What BCA wants from the High Court, Jukes said, is the opportunity for the industry to “make the argument that they’ve been disadvantaged.”
“We want to bring the Government back to the table and say to them, ‘You’ve disadvantaged the existing casinos, and you have to take another look at this.’”
Their case could be made on a number of grounds:
• Illegality — This would apply to official action taken on the basis of an “irrelevant consideration” or one that failed to take into account a “relevant consideration”.
• Irrationality — This is more difficult to prove. An action falls within this realm if it can be shown to be “disproportionate”. But in this regard a key to the BCA’s argument could be the question of whether this statutory distinction between new and old casinos truly provides a rational test of gambling’s impacts in line with the Act’s stated objectives of keeping the industry free of crime and disorder, ensuring that gambling is conducted fairly and openly, and protecting children and the “vulnerable”.
• Procedural impropriety — A case argued on this basis must prove bias, or the denial of a fair hearing, or some failure to provide adequate explanation after a decision is made.
Then there is the question of fair competition and the freedom to provide goods and services, which are protected by European Union law. EU law takes priority over Acts of Parliament. But a British judge cannot overrule Parliament. The best that can be gotten is a declaration in law that the relevant legislation is “incompatible”. The issues could also be referred to the European Court of Justice.
Miers, among others, believes the BCA could have a case in Luxembourg. “Because the reason [Government] is imposing these restrictions is to try to achieve an economic benefit. Under European competition law that is illegal.”
A case might also be made on the basis of discrimination, which is prohibited under Article 14 of the European Convention on Human Rights. This has since been extended under a protocol to the Convention to cover discrimination in the exercise of any legal right, even when that right is not protected under the Convention, so long as it is provided for in national law. The UK is not a signatory to this particular protocol, but the Human Rights Act provides for remedy in British courts for breaches of these protections.
There are precedents for EU involvement in gambling and related policies in Britain. In the landmark Schindler case in the ‘90s, the European Court of Justice affirmed the legality of the National Lottery monopoly. The European Commission a couple years ago struck down a below-market sale of the Tote. The Commission also struck down a Premier League broadcast contract with Sky on grounds of unfair competition. The Gambling Appeals Tribunal provided for in the 2005 Act was created in response to a ruling by the European Court of Human Rights against the Gambling Commission’s predecessor, the Gaming Board for Great Britain.
Miers, however, points to the wide latitude governments have always commanded to regulate gambling on grounds of public welfare and safety. “As long as Government can point to what are justifiable reasons for doing this, they are secure. … And for the moment they can.”
There is also the fact, as Miers points out, that “We’ve always had these restrictions. This is not unique. This did not begin with the Gambling Act. There has always been discrimination between venues. And it’s always been a matter of grousing and complaint, of course.”
There could be any number of ways out, though, for everyone concerned. The Gambling Act, in the main, does not come into force until September, and so neither do the new classes of casinos. This is significant, according to a legal source close to the BCA’s case. Politically it could be hugely significant, making the act easier to amend. There is also the fact that the 8-8-8 formula concocted by DCMS was never actually voted on by Parliament because the Act was shoved through to passage just ahead of the 2005 General Election. Section 355 of the Act empowers Jowell as secretary of state to amend the act through “secondary legislation” known as a statutory instrument, same as the draft order submitted to Parliament on the new locations. The Act also contains two sections (78 and 79) that allow her to impose “transitional provisions” on licenses issued before formal regulations are made.
One solution is simply to allow the ’68 Act casinos the same products and gaming positions as the large and small casinos, provided they meet license requirements. This is close to what the BCA wants. Government is not likely to go along with this, as Collins pointed out. Politically it would be unpalatable in the extreme.
But, as Miers suggested, “Once you do that you could get howls of pain from the large and small.”
Collins does not believe any of this will be resolved soon. Gambling is far from the top of the national agenda, for one thing, and it isn’t helping that Whitehall is in the midst of a transfer of power from Tony Blair to his designated successor, Treasury chief Gordon Brown, who is viewed as more sceptical of the industry than the current regime.
“We’re in the middle of intense and passionate lobbying at a time of weak government,” Collins said. “The outcome is impossible to predict. I would say there is a lot more to come by way of litigation, judicial review, parliamentary objections, anti-gambling stories in the press. You’d need a very strong and clear-sighted government to seize the bull by the horns and wrestle it to the ground, and we don’t have that.”
Brammer summed it up neatly: “There are a lot of disgruntled people out there.”
By James Rutherford, International Editor of International Gaming & Wagering Business magazine. Reprinted with permission from IGWB.
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