Casino gaming reserve

Transcription

1 Casino gaming reserve Consultation, May Introduction 1.1 The Gambling Commission (the Commission) included in its Licence Conditions and Codes of Practice (LCCP) a requirement that all casino operators hold a gaming reserve to enable them to meet unexpectedly large customer wins. The formula is based on maximum stakes permitted in casino games, with additional sums for extra tables and casinos with an appreciable margin to allow for other financial pressures. 1.2 The casino sector asked the Commission to reduce the requirement. This request was based on the considerable excess of the reserve level over actual losses experienced, the current economic situation and the associated cost and difficulty of making reserve arrangements, which banks are currently reluctant to provide. Discussions with the casino sector trade bodies and major operators suggested that they would welcome an early reduction in the reserve but would also like the possibility of a more radical change with a further reduction to the reserve to be considered. Some casino operators have already shown us daily win/loss data to assist our understanding of the fluctuations that they experience. 1.3 We now make two proposals: That as a short term measure we make a change to the current reserve arrangements, to base the reserve on the single highest staking table in a casino group, without any additional sums being required. This will benefit all casino operators financially, with no real reduction in consumer protection. That we undertake a longer term exercise to derive a revised level of reserve, based on statistical analysis of casino win/loss over all games, with a formula set to provide an agreed probability of the reserve being required. The consultation proposal and its impact 1.4 The casino industry commissioned a report into the casino gaming reserve by Professor Bill Eadington of the University of Nevada. The report addressed the mathematics of the volatility of casino games in order to estimate the maximum risk exposure of the casino to losses. Professor Eadington concluded that the gaming reserve's requirement of a figure of 5,000 times the maximum bet for roulette fulfils its purposes in protecting against short term adverse volatility, but that the additional requirements, both for 25% of the reserve for a second table and indeed 25% for each additional casino, are illogical, as exposure risk is reduced the more tables and casinos there are in a company. He therefore considered the simple application of the formula to be adequate without any additional sums added. Victoria Square House Victoria Square Birmingham B2 4BP T F

2 1.5 Roulette is traditionally the highest staking game in casinos and the maximum stake currently accepted in any British casino is 3,000 on a single number, which is offered in a small number of casinos. Within companies there are significant local variations and these maxima are likely to apply to a limited number of known high rolling customers. Provincial casinos typically have a maximum stake of around Since there is a direct relationship between the highest stake and the gaming reserve, a high maximum stake permitted for the minority of players leads to an extremely high reserve requirement. 1.6 Revised calculations, based on Eadington s recommendation that the reserve be limited to the simple multiplier applied to the maximum stake, would result in savings for all operators. Larger groups would necessarily see the largest savings, but even the smaller independent casinos would see some reduction. The effect of this proposal is a minimum saving of 20% on the current reserve requirement, where the reserve is held for a single casino. For a group of casinos, the savings will be much greater. The effect of the proposed change is illustrated in figures 1 and 2 below. Figure 3 demonstrates the relationship between actual win/loss data for a sample casino operator, together with the current and proposed gaming reserve levels. 1.7 The assessment of relative risk between large and small casino groups is not straightforward. The theoretical effect of having a greater number of gambling transactions in a large group is that the maximum possible liability is greater; however there is typically a smoothing effect when a large number of transactions is combined, which means that the probability of the maximum loss for the group is extremely low. Examination of data from a wide cross section of casino operators supports our view that the risk of removing the additional requirements for multiple tables is acceptably low. Access to the reserve and repayment provision 1.8 The LCCP state, in licence condition 3.2, that Except with the prior written consent of the Commission, a gaming reserve must only be used for the purpose of paying winnings to customers that cannot be met from the licensee s income or working capital. Operators have not been required to provide evidence to back up their call on the gaming reserve for this purpose; merely to notify the Commission that it has been so used. Through routine compliance activity we can monitor that operators only use the reserve when there are inadequate general resources to pay a customer their winnings. 1.9 Similarly in terms of repayment, at present the licence condition states that, Licensees must inform the Commission as soon as practicable and no later than seven days after any part of the reserve is used, and, if used, when it has been fully re-instated. It is suggested that this requirement should be revised, to clarify the need for a realistic repayment period to be agreed between the operator and the Commission. This repayment period would be determined on a case by case basis taking into account the pattern of daily wins over the agreed period. Although this approach does not require any change to the existing licence condition, we propose to take the opportunity, while we are amending other parts of licence condition 3.2, to amend this wording. The proposed additional text sets out that the operator must agree with the Commission as soon as is practical and no later than a month after that use, a schedule for full reinstatement of the reserve. Proposed further work 1.10 In addition to the immediate change that we are consulting on, it is also proposed that a small research project be commissioned to undertake statistical analyses of the individual win and loss data for the various casino operators. The aim would be to move away in due 2

3 course from the reserve calculated solely by reference to the maximum stake for a single game, taking account of overall casino win or loss. The researcher would be charged with generating formulae to calculate reserve levels based on the mean of, and variations in the win and loss. A variety of approaches would be examined so that the Commission could decide at which level of probability a loss of the size of the reserve would be acceptable In addition to deriving a new win/loss based formula to set the level of the reserve, the other component of the study would be to generate a methodology to set the arrangements for repayment of the reserve. This might for instance require that any daily win above an agreed level be automatically returned to the reserve fund and take account of the pattern of wins and losses in the preceding months The intention would be to set a formula that was calculated on the basis of actual win/loss, which would bring the reserve closer to the maximum losses likely to be experienced than the present formula sets. However there would be a corresponding tightening of the arrangements such that there would be greater restrictions on access to the reserve and stricter rules for its reinstatement after use Proposals for any further change to the gaming reserve will be subject to further and wider consultation. Figure 1: Gaming reserve proposals worked example calculation Max. stake in roulette ( ) Reserve calculation ( ) (stake x 5000) Reserve if more than one table ( ) (preceding column x 125%) Contribution to group reserve (%) Contribution to group reserve ( ) Casino A 1,000 5,000,000 6,250, ,250,000 Casino B 500 2,500,000 3,125, ,250 Casino C 500 2,500,000 3,125, ,250 Casino D 200 1,000,000 1,250, ,500 Casino E , , ,250 Casino F , , ,250 Casino G , , ,250 Casino H , , ,125 Casino I , , ,125 Casino J , , ,125 Total ~ 8,828,125 Current reserve( ) 8,828,125 (~) Proposed reserve( ) 5,000,000 (#) Reduction (%) 43 Reduction ( ) 3,828,125 3

4 Figure 2: Gaming reserve proposals - impact of the proposed change calculated for a variety of casino operator examples Casino example Number of casinos Current (compound) reserve ( ) Proposed (simple) reserve ( ) Reduction in reserve (%) Reduction in reserve ( ) Single provincial 1 156, , ,250 Single London 1 18,750,000 15,000, ,750,000 Small provincial 2 703, , ,125 group Small group 4 20,156,250 15,000, ,156,250 London/provincial Medium group 8 11,000,000 5,000, ,000,000 London/provincial Large Group 32 25,000,000 10,000, ,000,000 Figure 3 Sample Casino - daily win/loss Win/loss ( ) Date Daily Win/Loss Reserve with LCCP formula Reserve with Eadington formula 1.13 The proposed revised provision (using the convention that deletions are struck through and additions underlined) is replicated below, followed by a clean copy of the licence condition as it will read if the amendments are agreed. 4

5 Part I: General conditions imposed by the Gambling Commission Suite of general conditions to be attached to operating licences under Section 75 of the Gambling Act 2005 ( the Act ) 1 Personal licences and qualified persons 3 Financial robustness 3.2 Casino gaming reserve All non-remote casino operating licences Licensees must maintain a gaming reserve. They may do so either by maintaining an Individual Reserve or by demonstrating to the reasonable satisfaction of the Commission that they have an unconditional entitlement to draw on a Group Reserve. Except with the prior written consent of the Commission, a gaming reserve must only be used for the purpose of paying winnings to customers that cannot be met from the licensee s income or working capital. Licensees must inform the Commission via its key events address: key.events@gamblingcommission.gov.uk or key events postal address: Key Events, Compliance Administration Team, Gambling Commission, Victoria Square House, Victoria Square, Birmingham B2 4BP, as soon as is practical and no later than seven days after any part of the reserve is used, and (if used) when it has been fully re-instated and must agree with the Commission as soon as is practical and no later than a month after that use, a schedule for full reinstatement of the reserve. Whether the gaming reserve is held on behalf of a single casino, a number of casinos operated under a single operating licence, or a number of casinos operated under separate operating licences but all forming part of a Group Company, the reserve is calculated from whichever gaming table results in the greatest sum in accordance with the following formula: The next section concerns the calculation of individual reserves. Where only one casino is operated in reliance on the licence, the reserve is an amount calculated in accordance with the following formula: Roulette = 5,000 times the maximum stake permitted en plein / single number Blackjack = 100 times the maximum stake permitted per box Dice = 200 times the maximum stake permitted on a line bet Baccarat = 100 times the maximum stake Punto Banco = 100 times the maximum stake When more than one table is operated in a single game, the amount needed for the second table is taken as 25% of the amount needed for the first table; no further addition need be made for additional tables. Where more than one game is provided, the reserve required for each game should be calculated. The game generating the largest required reserve should be taken as indicating the total reserve required and the other games ignored. (NB: Cash reserves needed for the exchanging of chips and other operational requirements are in addition to these amounts.) Where more than one casino is operated in reliance on the licence, the reserve is such amount as represents the aggregate of: the highest of the individual reserves which would be required in respect of each of the casinos so operated, were that casino the only casino operated in 5

6 reliance on the licence; and 25% of each of the individual reserves which would be required in respect of each of the other casinos operated in reliance on the licence, were each such casino the only casino operated in reliance on the licence. The next section concerns the calculation of group reserves. A Group Reserve is a gaming reserve available to all Group Companies. A licensee is a Group Company if it is the holding company of, a subsidiary of, or shares a common holding company with, another company which holds a non-remote casino operating licence. The Group Reserve is an amount equal to the aggregate of: the highest of the individual reserves which would be required in respect of any of the casinos operated in reliance on an operating licence held by a Group Company, were that casino the only casino operated in reliance on that licence.; and 25% of each of the individual reserves which would be required in respect of each of the other casinos operated in reliance on an operating licence held by a Group Company, were that casino the only casino operated in reliance on that licence. A licensee is a Group Company if it is the holding company of, a subsidiary of, or shares a common holding company with, another company which holds a non-remote casino operating licence. For the purpose of this condition holding company and subsidiary respectively have the meaning ascribed to them by s736 of the Companies Act 1985 or any statutory modification or re-enactment thereof. Part I: General conditions imposed by the Gambling Commission Suite of general conditions to be attached to operating licences under Section 75 of the Gambling Act 2005 ( the Act ) 1 Personal licences and qualified persons 3 Financial robustness 3.2 Casino gaming reserve All non-remote casino operating licences Licensees must maintain a gaming reserve. They may do so either by maintaining an Individual Reserve or by demonstrating to the reasonable satisfaction of the Commission that they have an unconditional entitlement to draw on a Group Reserve. Except with the prior written consent of the Commission, a gaming reserve must only be used for the purpose of paying winnings to customers that cannot be met from the licensee s income or working capital. Licensees must inform the Commission via its key events address: key.events@gamblingcommission.gov.uk or key events postal address: Key Events, Compliance Administration Team, Gambling Commission, Victoria Square House, Victoria Square, Birmingham B2 4BP, as soon as is practical and no later than seven days after any part of the reserve is used. Whether the gaming reserve is held on behalf of a single casino, a number of casinos operated under a single operating licence, or a number of casinos operated under separate operating 6

7 licences but all forming part of a Group Company, the reserve is calculated from whichever gaming table results in the greatest sum in accordance with the following formula: Roulette = 5,000 times the maximum stake permitted en plein / single number Blackjack = 100 times the maximum stake permitted per box Dice = 200 times the maximum stake permitted on a line bet Baccarat = 100 times the maximum stake Punto Banco = 100 times the maximum stake NB: Cash reserves needed for the exchanging of chips and other operational requirements are in addition to these amounts. A licensee is a Group Company if it is the holding company of, a subsidiary of, or shares a common holding company with, another company which holds a non-remote casino operating licence. For the purpose of this condition holding company and subsidiary respectively have the meaning ascribed to them by s736 of the Companies Act 1985 or any statutory modification or re-enactment thereof. Consultation questions Q1. Do you agree that the Commission should change the reserve formulation as proposed? Q2. Do you agree with the proposed additional text in relation to setting out a repayment provision? 2 Responding to this consultation 2.1 The Commission is inviting comments on these proposals and would prefer respondents to complete the responses template provided and send it by to: consultation@gamblingcommission.gov.uk. Further information and assistance is available from the Commission s consultation co-ordinator at the same address. If you are not able to use the template provided, please indicate clearly the questions or issues to which your comments refer. 2.2 Alternatively, responses can be sent by post to: Jessica Loveland Gambling Commission Victoria Square House Victoria Square Birmingham B2 4BP 2.3 This is a short consultation, because it affects a small and closely defined part of the gambling industry and has been discussed informally with those concerned prior to the formal consultation period. The closing date for receipt of responses by the Commission is Friday 12 June When responding, please state whether you are responding as an individual or representing the views of an organisation. If responding on behalf of an organisation, please make clear who or what that organisation represents. If responding as an individual, please mention your own interest. 2.5 Please note that responses may be made public or published in a summary of responses to the consultation unless you state clearly that you wish your response or name to be 7

8 treated confidentially. Confidential responses will be included in any statistical summary of numbers of comments received. If you are replying by or via the website, unless you specifically include a request to the contrary in the main text of your submission, the Commission will assume your consent overrides any confidentiality disclaimer that is generated by your organisation s IT system. 2.6 Any information or material sent to us and which we record may be subject to the Freedom of Information Act 2000 (FOIA). The Commission s policy on release of information is available on request or by reference to our website at The Commission will treat information marked confidential accordingly and will only disclose that information to people outside the Commission where it is necessary to do so in order to carry out the Commission s functions or where the Commission is required by law to disclose the information. As a public authority the Commission must comply with the requirements of FOIA and must consider requests for information made under the FOIA on a case-by-case basis. Therefore when providing information, if you think that certain information may be exempt from disclosure under FOIA, please annotate the response accordingly so that we may take your comments into account. 2.7 All information provided to the Commission will be processed in accordance with the Data Protection Act However, it may be disclosed to government departments or agencies, local authorities and other bodies when it is necessary to do so in order to carry out the functions of the Commission and where the Commission is legally required to do so. 2.8 The Commission will consider all responses carefully when finalising its proposals, but will only alter its position if it thinks there is good reason to do so. Following the end of the consultation the Commission will prepare a summary of responses. Gambling Commission May 2009 The Gambling Commission regulates gambling in the public interest. It does so by keeping crime out of gambling, by ensuring that gambling is conducted fairly and openly, and by protecting children and vulnerable people from being harmed or exploited by gambling. The Commission also provides independent advice to government on gambling in Britain. For further information or to register your interest in the Commission please visit our website at: Copies of this document are available in alternative formats on request. Gambling Commission Victoria Square House Victoria Square Birmingham B2 4BP T F E info@gamblingcommission.gov.uk LCCP 09/03 8