Troubles on land: the case of UK casinos By Andrew Tottenham, Managing Director, Tottenham & Co May 22, 2019 at 2:45 am All is not well in the land-based casino industry in the UK. Whilst the casino industries in other European countries have enjoyed some growth, albeit modest, UK operators are seeing double-digit declines in revenues. Apart from the few casinos operating with 2005 Act licences, UK casinos make the lion’s share of their revenues from table games. The details are interesting. Prior to the 2005 Act, the approximately 120 casinos in the UK were allowed to operate a maximum of 20 gaming machines. The 2005 Act didn’t change that, and the 1968 Act casinos are still quite dependent on table games for revenues. The 2005 Act did allow for 16 new casinos, in two categories; Small and Large – or, in my view, “very, very small” and “not so large”. Casinos in the Large category can have up to 150 gaming machines with up to five machines per table game. In other words, you require 30 table games to operate the full complement of 150 gaming machines. To date, five Large casinos have been authorised. A casino in the Small category is allowed a maximum of 80 gaming machines with a ratio of two machines per table game. A small casino would require 40 gaming tables to qualify for the maximum of 80 machines. Hardly surprising, because the ratio is economically unattractive, only three Small casinos have opened. The high-end casinos in London have seen gross gaming revenues (GGR) fall 32% in the year to the end of February 2019, from £246 million to £167 million, compared to the same period a year earlier. These casinos rely heavily on Chinese and Middle Eastern customers who come to the UK because they have business interests or their children go to school in the UK. The fall was partly due to poorer hold – 11.2% as opposed to 11.6%, but the main factor was that table game drop was down 23%, to approximately £1.8 billion. The more mass-focussed casinos in London saw GGR fall 16% compared to the prior year and the rest of the UK (excluding London) saw revenues fall more than 10%. In fact, only one region, the south of England, saw an increase, of 4%. UK-wide GGR almost touched £1 billion in the year to February 2018 but is now approximately £820 million. What is causing this decline? Possibly the uncertainty around Brexit has something to do with it. When the future is uncertain, people tend to hold on to their money. Retail businesses in the UK are certainly suffering, with over 10% of high street retail premises estimated to be vacant, though this is partially driven by the growth of online commerce. While there have been some spectacular crashes of well-known high street retail chains, the restaurant industry is suffering too, which suggests the problem is not just a migration to online retail. So what might be happening to cause such a steep decline? The main factor is probably the impact of anti money laundering processes. The new requirements that came into force last year are quite intrusive, obliging casino operators to know the source of wealth (inherited? business ownership? high salary?), the source of funds (wages, dividends, sale of property?), and where the customer’s money comes from (it can’t, for example, be from a business account). Nor is it enough to carry out the due diligence process once – if there is an ongoing relationship, the due diligence must be kept up-to-date. Also, operators now have a duty of care to ensure their customers can afford to gamble in the way that they do and that they are not spending money they do not have. All of this means operators have to intrude on what some customers consider to be areas that should be off limits. Certainly, those that have gained their money through criminal activity have no legal right to gamble in casinos or elsewhere. But some of those whose money is quite legitimate will be put off by the investigations the casino operators have to make. In short, there is a very real risk that regulators, having been so successful in closing down illegal casinos and removing the criminal element with the 1968 Act and consequent regulations, will drive a lot of gambling underground, again, by making legal gambling unattractive for many people.