September 2007 saw the introduction of a new UK Gambling Act, which intended to ensure all gambling operations were handled fairly and effectively. However, the first six months have brought rumblings of concern from the coin-op industry. Helen Fletcher spoke to operator Gamestec, manufacturers Barcrest Group and Harry Levy and distributor Electrocoin to find out the real effects on the industry...

Back in February members of the UK amusement industry gathered at the House of Commons to ask MPs to review the implementation of the Gambling Act, which has had devastating and unintended financial consequences on the UK’s traditional gaming machine sector which covers amusement centres, arcades, bingo halls and retail outlets in pubs and clubs as well as gaming machine manufacturers and suppliers.

According to BACTA, revenues have collapsed by an average of 21 per cent across the industry, year-on-year since the introduction of the Act. The decline is additional to the negative impact of the smoking ban implemented in July 2007. It has wiped out profits for this period and threatens the long-term viability of these businesses.

The sector currently employs around 26,000 people directly and gaming machines are found in 89,000 sites nationwide, serving millions of customers and generating approximately £600m in tax per year.

The Gambling Act reduced the stake levels on gaming machines available in the amusement centres and arcades and restricted the numbers of certain types of machines that each venue can install.

The industry has now asked for a return to the machine stake levels that were in force before the Act was introduced and to allow venues to operate machine numbers in proportion to the venue size.

The trade association’s view

In a press release issued by BACTA, president Nick Harding said: "I have never seen anything like it in 30 years in the industry. Our members are in desperate straits. We are simply asking for stake levels and machine numbers to return to the status quo as before September 1, 2007, to allow the arcades and other premises to compete.

"A solution has to be found quickly as people are already feeling the severe financial impact, and are at grave risk of going bust."

Harding went on to say that there is also a social consequence. "The UK has always had a diverse gaming industry, with something available for everyone," he said. "Because of the changes to the game format, which were introduced in September, we are facing the possibility of customers leaving their traditional venues in favour of other gaming environments where harder forms of gambling are available.

"If the number of softer gaming outlets decline, we will see an increase in harder forms of gambling and the corollary of this must be a potential increase in problem gambling rates. This is an outcome that nobody wants, and is the exact opposite of the objectives of the Gambling Act."

The effect on the manufacturer

According to Colin Mallery of Harry Levy, the government has missed an opportunity to produce a fair and cohesive Gaming Act and what it has come up with instead is a mishmash of proposals, which satisfied no one.

"It would appear that Lord Pendry’s submission on the effect the bill would have on manufacturers and seaside businesses has proved correct," said Mallery. "As a manufacturer and distributor of Category D and fun type machines, I can confirm that since the Act Harry Levy has experienced the worst downturn in business in over 25 years."

Mallery went on to say that the traditional amusement industry on the whole is currently in a state of disarray - amusement centres are closing all over the world and many more are set for the same fate if things do not improve.

"For the UK I would relate this directly to the unfair playing field created by the new legislation," he continued. "Our main competitor has now become the local bookmaker which can offer its customers fixed odds betting terminals with up to a £100 stake; this together with their extended opening hours has left our industry without the means to compete.

"The Act is taking our customers away from the traditional soft gaming and novelty games, the type of products which have helped this country have one of the smallest problem gaming statistics in the world.

"This year alone we have had to cope with the smoking ban, increased regulatory costs and a dramatic downturn in revenue caused directly by government mishandling of gaming legislation."

Adding to Mallery’s comments Robert White, managing director of Barcrest Group, said: "The UK Gambling Act has clearly had an impact on the industry, with the removal of Section 16 and 21 machines from bingo clubs and arcades, leading to reduced revenue streams in these venues.

"However, this is only part of the story; other factors including the smoking ban and double taxation on bingo have compounded the effect, with the UK market, six months on, experiencing difficult trading conditions across all sectors."

Barcrest Group’s approach, according to White, is twofold - in its core markets it has supported the efforts of BACTA in lobbying for an earlier triennial review, which would give a boost to the pub market and it has also supported the call for an increase in numbers of B3 machines in permitted sites.

"At the same time we are continuing to invest in the development of games for new markets," said White, "such as interactive digital television, internet and mobile gaming content, which will allow the industry to invest in products that can attract new revenue streams and mitigate the difficult conditions."

One of the reasons behind introducing the Gambling Act was to protect children and reduce problem gambling. However, according to Mallery, this is unjustified as the UK industry has a "superb record of low problem gambling figures," as well as the fact that no one under the age of 18 can play £2 machines.

"I fail to see what the problem is," said Mallery. "Maybe the government has another agenda we don’t know about. If urgent action to help our industry is not forthcoming the economic and social consequences will result in irreversible damage particularly to all the seaside resorts in the country."

The distributor’s view

For Kevin Weir of UK distributor Electrocoin, it would seem that although the initial transition period has been difficult, there are still opportunities out there if companies choose to grab them. Although "tough decisions have had to be made", FECs are currently growing in numbers in the UK and "products are performing well when located in them," he said.

"The transition period has been difficult," said Weir. "Customers have spent money on conversions for Section16 rather than investing in new products.

"However, if you have the right product, there is business to be done. We have had a great amount of interest in our latest AWP Magic X and its reputation is growing every day."

And as far as player trends go it would seem, according to Weir, that players are taking their time to adjust their habits.

"Magic X has done well, particularly as it is the first Bar X type game using video reels," said Weir. "But the one machine that has really benefited from the Act is pinball, which can now be operated on a share basis rather than rent.

"The recent dramatic growth has seen pinball appearing in pubs for the first time in 12 years and there is a new generation out there who are being exposed to a well established game for the first time.

"Operators have told us it is the best return on investment on any machine in the pub market at present."

Weir added that there are, without question, difficult times ahead as there is an imbalance between high street locations such as adult gaming centres and licensed betting offices.

And for the operator?

Gamestec is one of the major amusement operators for the UK pub market and Adrian Ah-Chin-Kow, commercial director of the company, told InterGame: "We acknowledge market conditions are tough - reduced consumer confidence and economic downturn and the knock-on cumulative effects of this, as well as the smoking ban, have led to a very difficult situation and the industry as a whole is losing money.

"However, we are in a better position now than the last few years, giving us a strong position despite adversity."

Ah-Chin-Kow went on to say that with regard to player trends it is still too early to say whether these have changed.

"Although the smoking ban has had a negative impact it will not be permanent if we go off what happened in Scotland," he said. "Yes, the average net balance is in long term decline, but prizes haven’t really kept up with general inflation and changes in legislation have made these conditions even tougher.

"We will need more time to pass before we can really assess trends as a result of the Act in conjunction with other legislation."

According to Ah-Chin-Kow, for Gamestec the main aim will be to continue to research and analyse the market to find out what motivates gamers, how they like to play and when, what can be done to increase motivation to play and how it can promote initiatives such as tournaments and so on.

"Despite the Act people will continue to want to go out and want entertainment so we must closely track evolving needs and make sure we cater for established and future generations," said Ah-Chin-Kow. "With the advent of the internet, interactive and alternative forms of entertainment need to be looked at and possibly incorporated and we need to find new ways of attracting and engaging customers to remain successful."

When asked how he would like to see the Act amended, Ah-Chin-Kow, told InterGame: "The pub sector needs an increase in the stakes and prizes for Category C machines; the proposal is for a £1 stake and a £50 prize limit.

"In adult gaming environments there needs to be a return to the stakes and prize levels in place prior to the Act’s introduction."