Tottenham Report: Bordering on the insane? By Andrew Tottenham, Managing Director, Tottenham & Co July 14, 2021 at 10:00 pm Europe has more than 800 land-based casinos that employ some 70,000 people. This excludes slot arcades, which in some countries meet the legal classification of casino. You might think that these casinos are evenly distributed around the population centres, but that is not the case. Europe´s patchwork quilt of casinos has some threadbare parts to it and others where there is an overabundance. France and the UK account for more than 40 percent of the total number of casinos, though the two represent only seventeen percent of the total population of Europe. So why is this the case? Each country in Europe sets its own gambling policy and where Europe is concerned, each country has made this decision in isolation of what is going on in surrounding countries. There are two basic models for issuing licenses or concessions. One is a free-for-all, where anyone who meets the criteria can receive a license and the market will ultimately determine the number of casinos that can be operational. The other is to restrict the number of licenses and, in some cases, the maximum size and location of casinos. In this case, under European law, the operator has to be selected through a public-tender process. France restricts casinos to certain towns and cities. Originally, these were spa towns where the rich used to congregate and later to tourist destinations. In recent years, the criteria have become increasingly blurred, with cities successfully arguing that they meet the criteria and should be allowed to have a casino. Each municipality allowed to have a casino can issue a 10- to 15-year casino concession to a qualified operator through a public tender. Longer concession periods are frowned upon by the European Commission and must be justified. Germany is a mix of Lande (federal state) owned casinos and private operators. The model (i.e., private or public), number, and location of casinos are dependent on the policy in each Lande, although there is some level of cooperation between each Lande to ensure one doesn´t cannibalise the gambling revenues of its neighbour. Sixty-six casinos are currently operational in Germany, with 35 operated by the states and 31 by private operators. Most countries that were behind the “Iron Curtain” have a legal system whereby if an activity is not specifically illegal, it is allowed. The consequence is that there has, until recently, been no control over the number or locations of casinos or, for that matter, slot arcades with casino machines, VLT parlours, and casino machines in bars. Hungary is an outlier, having determined early on in its post-Soviet-dominated history to control the number of casinos and issue licenses through public tenders. Ten casinos are currently operational in the country. The UK is slightly different; it has a hybrid model. Licenses under the 1968 Gaming Act were originally issued on a first-come first-served basis in certain permitted areas — towns and cities with a population of more than 200,000. Applicants not only had to prove they were “fit and proper” to hold a license, but also that “a substantial demand already exists on the part of prospective players for gaming facilities of the kind proposed to be provided on the relevant premises”. The demand test led to operators sending “secret shoppers” to the would-be competition to count the number of tables and empty seats on different days and at different times of the day and night. Proving demand was almost impossible and the then-Gaming Board always opposed a new application in court. It was only when a legal challenge to the Gambling Board´s opposition was proposed, on the basis that the Gaming Board´s interpretation of substantial demand was flawed, that the Board stopped automatically opposing these new applications. The 2005 Gambling Act came to the Board´s rescue by creating three different types of casino license — resort, large, and small — although limiting them to only eight large and eight small casino licenses. The process was similar to the Japanese system in that towns and cities that wanted a casino had to bid for them on the basis of economic regeneration and those that won the right to issue a license then held a public tender. It may be that the current review of the 2005 Act leads to changes to the different types of casino allowed. This patchwork quilt of gambling policy, which has been made in silos, has led to entrepreneurs taking advantage of restrictions on one side of a border by opening casinos on the other side in a country where there are few or no restrictions. Czechia is a case in point. Czechia does not control the number or location of casinos. However, recently the municipalities have been given the right to say no to gambling in their locality when the licenses come up for renewal. Czechia sits next to Austria and Germany, both countries that control the number and locations of casinos. Now, nearly every single border crossing between Czechia and Germany or Austria has a number of casinos nearby. The market for these casinos is not Czech nationals, but the people on the other side of the border. The Iron Curtain was not very permeable to people or commerce, with the result that the number of people living and working near the border, with the attending economic activity, was quite low. With the removal of the Iron Curtain and the implementation of the Schengen Agreement, whereby borders between countries in the Schengen area were removed and people and goods could travel freely without checks, the economies of the border areas have been lifted. In 2019 and in a rather cheeky move, Holland Casino opened a casino in Venlo on the main road to the border with Germany about five kilometres away. In my opinion, the Venlo casino was not intended to cater to the Dutch market, but only to attract those living across the border in the nearby German cities of Duisburg, Essen, and Dortmund. When the privatisation of Holland Casino was being discussed, the Dutch government proposed that the company should be split up into packages of casinos and new licenses issued based entirely on the Dutch population in each area with no account made of the population beyond its borders. I thought the best opportunity would be to win one of the new licenses and locate it in a border area near to Germany. Liechtenstein is a tiny country, a small sliver, only 160 square kilometres and with a population less than 40,000, which sits between Austria and Switzerland. All three countries are party to the Schengen Agreement. To date, six casinos operate in Liechtenstein. The market is almost entirely Swiss and Austrian nationals. The government decided not to limit the number of licenses and it is entirely possible that more will open, although the local population is starting to get upset about the number. The Schengen Agreement means that people can move freely across the border without having to show any documentation. Sometimes the only way you can tell you have crossed the border is that the language of the road signs has changed. For operators in Czechia or Liechtenstein, things could not be better. It seems ludicrous to me that some European governments still shape casino policy based entirely on what is or will be available in their own countries without considering what is or is very likely to become available immediately on the other side of the border. Countries that both restrict gambling supply and sit next to those that do not will see their citizens cross the border to seek out gambling on the other side and in so doing will fill the tax coffers of their more liberal neighbour.