Hotels can still make a game of it
The UK hotel and gaming industries have traditionally been close bedfellows. Yet for at least two industry giants in recent years the trend has been to focus on their core hotel business and divest themselves of their gaming interests.
InterContinental Hotels was formerly the owner of Gala bingo and Coral bookmaker, but sold both of these, the former in the late 1990s and Coral more recently. Hilton Hotel Corporation also sold the UK bookmaker Ladbroke, following its acquisition of Hilton Group this year.
Yet the Gambling Act 2005, which received royal assent in April 2005, could pave the way for hoteliers and publicans to find new gambling-related revenue streams, although the Government has taken a more cautious approach than some hoped. A new Gambling Commission is currently developing policies and secondary legislation for the act, which is expected to be fully implemented in October next year.
Remote Gambling
One of the most prominent features of the new act is that it makes the UK the first major country to legalise and license operators of remote gambling on its shores. The most popular form of remote gambling is through the internet, where there are an estimated 1,700 sites. More recently, interactive television has become a popular platform, and more gambling opportunities are becoming available through the mobile phone.
Starting a remote gaming or betting business under licence in the UK would certainly be possible for UK-based hotel companies. Premium brands such as the Harrods online casino have gone down well with punters, who are given an assurance that the games are fair and their money is safe.
Applications for operators will be available in January next year, and licences are expected to be issued the following October.
Most other countries in the world have taken the position that the operation of remote gambling businesses based in their country is illegal. Certain jurisdictions have legalised it and have become havens for remote gambling operators, including Alderney, Gibraltar, Isle of Man, Costa Rica, Curaçao and Antigua.
Land-based Casinos
The new law with respect to land-based casino reforms is fairly disappointing for gaming industry investors. On the plus side, the rule that requires someone wishing to become a member of a casino to wait 24 hours before obtaining membership has been abolished, so this will make casinos more accessible. The laws prohibiting entertainment and drinks on the gaming floor and the enforcement of gambling debts have likewise been reformed and the laws with respect to advertising will also be liberalised. More slot machines will be permitted, and stakes raised.
The biggest negative of the new act is the number of new casinos allowed. The act severely compromised to provide for a pilot project whereby only one supersized "regional" casino, eight "large" casinos and eight "small" casinos will be permitted. The location of the casinos will be determined by a government panel, which is currently convening. Regional authorities will then go through a competitive tender to determine the ultimate licensee for each new site.
What does all this mean for the hotel industry?
Hotel owners or companies excited by the new liberalisation may decide they would like to apply to have a casino as part of their hotel, or build or buy a hotel near one of the new licensees. Alternatively, hotel owners may wish to set up poker rooms or online gambling facilities in the public areas or guest rooms of their hotels.
The Grosvenor House hotel in London recently applied for permission to add a casino to its facilities, but was turned down under the existing law which requires evidence of an unsatisfied demand for gambling services in the area. Because of the existing number of casinos in Westminster, the Grosvenor was unable to satisfy the demand test. There currently remains a glut of applications for new casinos in certain areas of the country under the old act, particularly in London, and few are likely to be granted.
Under the new act, almost every major UK and many foreign casino companies have already indicated their intention to apply for some if not all of the 17 licences. Competition will be intense, so if plans haven't already been under way for some time, it's now quite late in the game for a hotel or hotel company to start considering applications.
Can hotels or pubs host poker or other games of chance on their premises and take part of the rake? It's currently nearly impossible for hotels or pubs to operate a poker room without a licence, and this won't change with the new legislation. The difficulty in obtaining casino licences now and in the future has already been discussed. Even if a casino licence were obtained, the amount that can be legally charged to punters to participate in poker doesn't make it a very profitable business.
Derek Kelly, owner of the Gutshot Poker Club in Clerkenwell, London, is being prosecuted for hosting poker games without a licence. He recently told the Independent: "We cater for the social player who doesn't want to play for high stakes and doesn't want to be in a gambling environment like a casino. I don't see why people who want to play poker and maybe win a maximum of £50 in a night should have to go to a casino."
Kelly is putting forward a defence that poker is a game of skill, not chance, and therefore outside gambling law. The popularity of poker has soared in the last 12 months, and the practice of pubs hosting unlicensed games is increasing. But it's unlikely that the High Court will agree with Kelly's defence and the court will probably support the police and Gambling Commission. The problem with pub tournaments, according to the commission, is that they're unregulated. In a casino you have to give your name and address and games are monitored by CCTV, whereas in a pub people may get out of their depth, start playing for high stakes and be exploited by more experienced players.
Still, it's understood that the new act will dispense with the need for licensed premises to obtain a further licence to host poker tournaments, but accompanying restrictions on stakes and prizes render the change irrelevant to businesses aiming to profit from such tournaments.
Can hotels provide facilities for online gaming? One final area of possible interest for hotels is the idea of putting online gaming in hotels. The state of Nevada has recently passed legislation that will allow casino guests to be given hand-held terminals which can be used to gamble in the public areas of the hotel such as bars, restaurants and at the poolside, but not in guest rooms, or in the limo on the way from the airport. If this is successful, it may be extended at some point to hotel guest rooms.
Outside of casinos in Nevada, however, providing facilities for online gambling in hotel rooms is not permitted either in the USA or the UK, and this won't change under the new act. Whether facilities are being provided for gambling is a factual determination under the new law. If a terminal or PC can access only dedicated gambling websites it would be considered illegal. But if internet access is provided generally, even if gambling sites can be accessed, it would not be considered as providing facilities for gambling, and would be permitted.
However, as previously mentioned, starting a remote gaming or betting business under licence in the UK would certainly be possible for UK-based hotel companies.
The Gambling Act 2005: Key Facts
The Gambling Act is expected to come into force in October 2007.
New casino licences will be awarded to 17 new UK venues, which include one supercasino, eight "large" sites and eight "small" sites.
Areas shortlisted for the supercasino licence include Blackpool, Brent, Cardiff, Glasgow, Greenwich, Manchester, Newcastle and Sheffield.
The act will allow remote gambling businesses that use the internet, tv or mobile phones to operate from the UK. Under the current law such businesses are confined to offshore havens like Gibraltar and the Isle of Man.
David Schollenberger, partner and head of gaming team, Manches. Tel: 020 7753 7729
