The government response to a review of the UK's gaming legislation prepared by the Gambling Review Body - chaired by Sir Alan Budd - is expected at the end of this month. If the majority of the Budd recommendations are taken up, this could have wide-reaching effects on the UK's casino market.
There is evidence that even the prospect of reform is already influencing property decisions within the sector, and a positive response from the government is likely to fuel further investment as the market shifts towards significantly larger, casino-led entertainment venues.
At present, around three-quarters of Britain's casinos are controlled by just three companies. According to last July's Gambling Body Review report, The Rank Group owns 31 casinos, four of which are in London. Gala Group Holdings own Ladbroke Casinos with a portfolio of 27 casinos including six London outlets. Stanley Leisure has 27 provincial casinos and three London venues, and was recently believed to be on the verge of becoming the market leader by purchasing the four UK holdings of the Tower Group, though it appears this deal has now fallen through.
With Tower Clubs' UK portfolio up for sale, and the recent troubles of London Clubs International, which faces financial difficulties after its joint venture in Las Vegas filed for Chapter 11 bankruptcy, the existing casino market is already shifting. But the proposed changes in legislation put forward in the Budd report will see the market adjust significantly further, and a rapid expansion in UK casino gambling is now on the horizon.
When a similar liberalisation of gaming regulations took place in Australia, albeit on a more ad hoc state-by-state basis, its gambling industry witnessed massive growth. Over the last decade, total expenditure on gambling doubled, and at its 1998 level of around £4.2bn it was more than treble that of 15 years previously.
Legal gambling in Australia has a turnover in excess of £36bn, and the casino industry alone employs 20,000 people. This compares with the 11,700 people employed in Britain's casinos, whose turnover in 1999 was only £0.6bn. Australians are said to be the heaviest gamblers in the world, with a spend per head which is nearly double the UK level. Will a liberalisation of Britain's casino market result in a similar expansion?
The recommendations of the Gambling Review Body cover all aspects of gaming, but the implications for casinos are more significant than for any other segment of the UK gaming industry. Casinos have been subject to more stringent regulations than other gambling activities, but going forwards the Budd report would like to see the majority of these restrictions lifted.
Rule change for casinos
The report proposes the abolition of the permitted areas rule for casinos, currently restricted to the 53 UK locations identified over 30 years ago. Similarly, the demand test for bingo halls and casinos would be abolished, meaning it is no longer necessary for developers to demonstrate unfulfilled demand within a permitted area. In addition the licensing of premises will pass from local magistrates to local authorities, and will operate on a similar basis to the planning system.
These changes will make opening a new casino a less challenging prospect, but perhaps more significant will be the impact of the Budd recommendations on the operation of casinos. Currently, all patrons of casinos and bingo halls are required by law to be members or guests of members, with membership applications submitted a minimum of 24 hours in advance of a new member entering the premises. Under the report's recommendations, this 24-hour rule would be abolished.
With the exception of direct use in gaming machines, credit cards will now be approved for gambling purchases. A wider range of gambling activities within each casino will become available. The ban on alcohol on a casino's gambling floor will be lifted, and live entertainment will be permitted.
An outcome of this overhaul of gambling legislation is an increase in the number and size of casinos. To reduce the risk of a proliferation of casinos, the Review recommends the introduction of a floorspace of around 2,000 sq ft for the area devoted to gaming tables within casinos.
Allowing for the ancillary space required within a casino besides hard gaming, such as areas for soft gaming, staff and bars, in the existing market this would equate broadly to a total floorspace of around 10,000 sq ft (the average provincial casino currently being between 8,000 and 12,000 sq ft).
Going forward, should the recommendations be taken up, ancillary space is likely to be a greater proportion of total floorspace, leading to even the smallest casinos being much larger than is currently available. The minimum size stipulation is intended to ensure that the number of casinos does not become uncontrollable, and that deregulation does not lead to a proliferation of small unregulatable casinos.
Nonetheless, an increase in the number of casinos as a result of deregulation is undisputed - Sir Alan himself estimates an increase from 123 to 450 venues. What no one has yet estimated is the potential increase in total casino floorspace. This is likely to be rapid as a result of the introduction of several types of gambling venues in addition to the expansion of existing premises. One of the most talked about changes will be the introduction of resort casinos to the UK market.
This will please those who have been campaigning for a Las Vegas-style strip in Blackpool in order to rejuvenate the town's flagging tourist appeal.
Granting a monopoly
Budd's report makes it clear that the question of whether a particular location should be granted a monopoly was outside their terms of reference, but it is clear that Blackpool has its eye on just such a provision and is all set to take up the challenge to reinvent itself as Britain's answer to Vegas.
The enthusiasm of the northern town, which has suffered more than most from the British public's increasing attraction to foreign destinations, is so great that even the Bishop of Blackpool himself has proclaimed his passion for the project.
A rapid growth in out-of-town gaming centres - multi-leisure hubs that combine casinos with bingo halls, cinemas and the like - and stand-alone out-of-town casinos is also likely. The Rank Group has invested in the latter, relocating its sites at Birmingham, Great Yarmouth and Blackpool with four more relocations scheduled over the next 18 months. These out-of-town venues are typically four times the size of existing premises, and will allow the expansion of casinos to incorporate new gaming and leisure activities.
Casinos are restricted to 10 machines per venue, but the Budd report recommends relaxing this to permit up to eight machines per gaming table. The Rank Group has estimated that this change in the law would allow them to provide 10 times more slot machines in its casinos than are available, and their relocation out-of-town is a way of providing floorspace to accommodate such a massive increase.
Harpers submits plans
The beleaguered London Clubs International has recently taken an extra 42,000 sq ft to capitalise on the proposed changes and Harpers Leisure International has submitted plans to develop a 70,000 sq ft casino complex in Guildford. Even the Millennium Dome is a potential venue. Park Place Entertainment - the world's biggest gambling company and another interested party watching the progress of London Clubs International - is under consideration by the Anschutz Group as a potential partner to open a casino as part of the Dome's redevelopment.
All these investments are relying on the government to take up the bulk of the recommendations put forward by Budd's Gaming Review Body. The Department of Culture, Media and Sport is expected to produce a response at the end of this month, which it is hoped will take the form of a White Paper - indicating a requirement for change in primary legislation. The need for new legislation means even a successful outcome from the review is unlikely to come into being for another two to three years.
The market is confident that a White Paper will come forward and will recommend positive changes for the casino sector. When this occurs, the evidence is that controlling companies will make property decisions well in advance of the legislation actually coming to pass.
For investors, developers and punters alike, the casino segment of the UK property market will be the one to watch.
Claire Higgins is an associate in research, and Neil Richmond is head of licensed and leisure at Colliers CRE
Licensed and Leisure Property Supplement, Spring 2002
A joint supplement by Estates Gazette and Caterer & Hotelkeeper magazine