Casinos on the high street

When people first consider investing ethically, they commonly think in terms of avoiding so-called 'sin stocks'. While armaments, pornography, alcohol and tobacco are among the more traditional of these, a sharp rise in revenues generated from gambling in the UK has alerted investors to the risks of a rapidly-expanding gaming industry.

Casino board with chips on it - Rathbone Investment Management

Matt Crossman, Engagement Manager

In recent years, two factors converged to facilitate an increase in the number and variety of gaming options. The first was technological, with the internet and the mass production of mobile devices combining to allow opportunities for online gambling to thrive. The second was regulatory, as the UK government of the early 21st century sought to relax gaming legislation.

For all the subsequent anxiety about ‘supercasinos’, it was something far less conspicuous that prompted a rise in rates of problem gambling in the UK. The Gambling Act 2005 opened the way for casino-style gambling in arcade game formats, circumventing the law banning the operation of roulette tables outside of regulated casinos. Consequently, highly addictive and profitable games like roulette began to proliferate in high street betting shops across the UK.

The machines delivering these casino-style games are classified by the Gambling Commission as 'B2 gaming machines', also known as fixed-odds betting terminals, or FOBTs. The latest gambling industry statistics count just 146 casinos in the UK, but almost 34,000 FOBTs. Their attraction is proving to be highly lucrative: in 2017, the gross gambling yield from FOBTs - the amount retained by operators after the payment of winnings but before the deduction of operating costs - was £1.8 billion. On average, each machine delivers a profit of just over £53,000 a year for the operators.

Their design is alluring and their placement tempting. Traditionally, betting shops were reliant on sporting and cultural events to provide consumer entertainment, but with FOBTs, they can offer all-day gambling. As such, games are often designed to encourage extended play - roulette terminals, for example, list the results of previous spins to give a false impression of trend emergence. While hosting outlets are restricted to four FOBTs per location, these limits haven’t checked their proliferation. Betting shops have moved into the high street in record numbers and it’s not uncommon to find multiple outlets run by the same operator in close proximity, each stocking the maximum number of FOBTs.

Gambling has its defenders and detractors. The defenders would point to its value as entertainment - that there’s an inherent thrill in playing games of chance for gain, and that a responsible wager can enhance the experience of any event. Its detractors, however, argue that gambling - and FOBTs in particular - offers nothing more than a route to addiction and financial hardship for users and their families.

Indeed, it’s easy to lose a lot of money very quickly on FOBTs. With a maximum bet of £100 every 20 seconds, FOBTs can drain a bank account in a matter of minutes. While correlation doesn’t necessarily equal causation, levels of problem gambling in the UK have risen with the emergence of FOBTs in high street betting shops. Reporting in 2017, the Gambling Commission estimated that there were around 430,000 problem gamblers in the UK in 2015, up by over 50% in the three years from 2012. While FOBT gaming accounts for around 13% of gross gambling yield in the UK, 43% of people classified as problem gamblers use such machines.

The gambling industry would also defend itself as a provider of employment and tax revenue - but at what cost? Each pound spent on FOBTs, net of winnings, is a pound lost to the local economy. On average, £1 billion of consumer spending in the UK supports 21,000 jobs. By comparison, FOBTs support only 4,500 jobs per £1 billion of spending, automation in particular requiring less intervention from staff. Additionally, those in jobs supported by FOBTs face threats to their physical safety with incidents of violence reported against machines and staff.

Despite efforts by the gambling industry to improve its image and encourage responsible gambling, profits continue to soar. With the establishment and expansion of online betting, many of those controlling it have become very wealthy: Denise  Coates, co-CEO of the online betting company Bet365, took home £217 million last year. This drew criticism from the head of the charity Addaction, who noted that the sum equated to 22 times the amount donated by the UK gaming industry to combat gambling addiction.

The gaming industry may be able to defend traditional, over-the-counter betting at some level as recreational fun, but the evidence is clear that the spread of high-stakes FOBTs in the poorest areas of the UK is causing serious social harm. This has far-reaching consequences for the overall prosperity of the UK, which is why Rathbone Greenbank has lobbied the government for tougher FOBT regulation and pushed for reductions in maximum stakes.

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