Posted by Woods Whur | Gambling

On 21 December 2016, the Gambling Commission (“GC”) published proposals for significant changes to its fees that will come in to force on 6 April 2017. Those proposals result from a consultation conducted jointly by the GC and the Department for Culture Media and Sport (“DCMS”) between 7 July and 9 September last year and are contained in the responses document, a copy of which may be viewed here: http://www.gamblingcommission.gov.uk/pdf/Consultations/Proposals-for-Gambling-Commission-fees-from-April-2017-consultation-response-2016.pdf

The GC has been looking into the fees it charges operators to cover the work that it does for some time now, having previously launched what it described as a “discussion exercise” from 1 September 2015 to 27 October 2015, to take into account the implications, in terms of its income and costs, of the implementation of the Gambling (Licensing and Advertising) Act 2014. As part of that exercise, the GC held a workshop for Trade Associations on 24 September 2015 and it held a similar workshop on 20 July 2016, as part of the more recent consultation exercise.

The previous consultation was wide-ranging, posing a large number of questions relating to the GC’s current fee structure. It attracted a total of 27 responses from, predominantly, trade associations and operators. It covered matters ranging from those of general application, such as the GC’s current approach to revising fees every two to three years and its differentiation between sectors and licence types, using a banded structure to set fees, to more detailed questions, dealing with, for example, reducing fees payable for applications to continue a licence when a change of corporate control has occurred in relation to small-scale-family-owned operators and for applications to vary a licence where an operator moves only within a fee band. The GC published its response to that consultation exercise in December 2015 that document may be viewed here: http://www.gamblingcommission.gov.uk/pdf/Discussion-papers/Fees-discussion-responses-document-December-2015.pdf

The responses received to the 2015 consultation were taken into account in the advice provided to DCMS by the GC, which, in turn, informed the 2016 consultation process.

The 2016 consultation document received 36 responses, again, predominantly from operators and Trade Associations, but also from members of the public. It outlined three main options for changes to GC fees, for stakeholders to consider. The main features of option 1, DCMS’s and the GC’s preferred option, were:

  • A reduction of 10% in total annual fee income across the industry as a whole, to reflect efficiencies achieved in the GC’s operating costs;
  • The retention of a banded structure of fee categories, but with those categories being determined dependant on gross gambling yield (“GGY”) rather than premises numbers for certain non-remote operators; and
  • The sub-division of certain fee categories into smaller bands.

The second option considered was for no change to be made to current fee levels. The third option consulted upon was that there be a flat 10% reduction in annual fees for all operators.

The changes now proposed will result, the GC estimates, in fee reductions for around 1900 operators, with fees being held at current levels for around 1000 operators and fees increasing for fewer than 100 operators. Application fees for all operators across all types of licences will be reduced by 10%.

One of the most significant changes is that, from 6 April 2017, the fees payable by non-remote betting, bingo and arcade operators will no longer depend upon the number of premises they operate but, instead, will be determined according to their GGY. This is defined as A+B-C, where:

A = The total of any amount paid to the licensee by way of stakes in the relevant period directly in connection with activities authorised by the licence;

B = The total of any other amounts (exclusive of VAT) that will otherwise accrue to the licensee in the relevant period directly in connection with the activities authorised by the licence; and

C = The total of any amounts that will be deducted by the licensee for the provision of prizes or winnings in the relevant period in connection with activities authorised by the licence.

Whilst non-remote betting and arcade operators who responded to the consultation favoured this change, the bingo sector largely opposed it, on the basis that it will result in non-remote bingo operators representing almost half of the total number of operators for whom these new fee proposals will result in an increase in the amount they will be required to pay. Bingo operators felt that this was disproportionate, compared to other sectors which would mainly benefit from the proposed change. However, the GC and DCMS are persisting with this option and the consultation response document points out that, whilst more than 35 bingo licence holders will receive significant fee increases, approximately 150 will, in contrast, receive a reduction. The document also points out that the move from premises-based fee categories to GGY will shift the fee burden away from the very smallest bingo operators that generate very low GGY (including working men’s cubs) towards high street and retail bingo operators. The justification for a move to GGY in calculating fee levels is that GGY represents the volume of gambling activity being carried on and thus represents a fairer way, in the GC’s view, of recovering its regulatory costs.

This notwithstanding, as a result of the responses received to the consultation, the GC has amended the proposals slightly. A new fee band will be created for bingo operators with a GGY between £750,000 and £1.25 million. The GC estimates that around 16 bingo operators will fall into this band. These currently pay an annual fee of £1,531 and, under the proposals as originally drafted, would have been due to pay, instead, an annual fee of £3,055. Those falling within the new band will now be due to pay an annual fee of £2,050 instead. The GC has also done a calculation of the new annual fee as a percentage of GGY for those bingo operators who will be subject to an increase, and anticipates that this figure will still be low, ranging from 0.08% to 0.27%.

The proposals will result in an increase in fees for medium-sized and large remote betting operators. The GC estimates that 11 operators will be affected by this increase. At the same time, 100 smaller remote betting operators will see their fees decrease. The GC takes the view that the fees for large remote betting operators are currently set at too low a level to enable it to recover a fair proportion of its costs from such operators, given the relative volumes of gambling they generate. It says that the proposals are aimed at ensuring that costs are spread more fairly and proportionately and, again, estimates that the new annual fees will still represent a small percentage of GGY, falling between 0.06% and 0.027% of that figure.

Under the proposals, certain fee categories will be further sub-divided into smaller bands. In addition to the creation of an additional fee band for medium-sized general betting (standard), bingo, AGC and FEC operators whose GGY is between £750,000 and £1.25 million, the size of the fee bands for the largest bingo and AGC operators will also be amended, to ensure that differently-sized operators at the top end of these sectors will pay different fees. The GC maintains that this will ensure that a more proportionate amount of costs is recovered in relation to GGY. The GC’s view is that the main driver of risk to the licensing objectives, and therefore of its regulatory effort, is the volume of gambling activity generated by licensed operators, which is best measured by GGY. In the GC’s view, an increase in gambling volume may, for example, generate more consumer complaints and regulatory issues such that, when an individual operator’s GGY increases, more compliance work will be required. The GC will use operators’ most recent annual regulatory return (or the previous four regulatory return submissions for operators who submit returns quarterly) in order to allocate operators to a fee category based on GGY. It intends to write to all operators shortly, and before the changes to fees are implemented, to confirm their GGY.

The GC has also reviewed its costs in relation to 2005 Act casinos by comparison to those relating to 1968 Act casinos. It has decided that the current costs applying to Small 2005 Act casinos were set at too high a level, being three times higher than the annual fee for a 1968 Act casino with the same GGY. Therefore, the fees for Small 2005 Act casinos are to be significantly reduced, by approximately 50%.

Another major change brought about by these proposals is the creation of a new category of “host licence” for gambling software licensees that also provide facilities for gambling by making their games available to customers of remote casino, bingo or betting operators. Such operators are currently required to hold a full operator’s licence in addition to their software licence. From 6 April 2017 they will, instead, only be required to hold a “host licence” licence, and pay correspondingly reduced fees, as long as they do not contract directly with any of the participants using the facilities and do not provide facilities for peer-peer gambling. Those fees will depend, again, upon GGY which, in the case of the B2C operators, will be calculated upon receipts after they have made payment to the B2B entity and, in the case of the B2B operators, will be calculated by reference to the payment they receive from the B2C entity, whether that be a fixed sum or a percentage of revenue.

The GC has decided that it is not appropriate to make a similar “host licence” category available to gambling software providers serving the lotteries sector. This is on the basis that a lottery operating licence may only be held by a non-commercial society and that, if a commercial entity participates in any of the activities which constitute promoting a lottery, they must hold an external lottery manager’s (“ELM”) licence. The GC considers that any form of “reduced” ELM licence for operators hosting lottery products would not be sufficient for it to recover its regulatory costs for its work in the lotteries sector.

The new fee proposals also cover various matters of detail. These include dropping the fee for operators when they apply to vary their licence to increase or decrease fee category to a flat rate of £25.00. In addition, the fees discounting system whereby the first annual fee is discounted by 25% will, from 6 April 2017 apply to new remote operating licences, whether or not the business already holds a non-remote licence. The discount which already applies to non-remote licences will remain. Further, the annual fee discount arrangements will be amended to apply a 5% annual fee discount to every licence activity on both non-remote and remote operating licences, for operators who hold both. Applications to continue operating licences following a change of corporate control where the applicant is a small family-owned limited company and the shares have been transferred to an immediate family member will attract a reduced fee of £100.00. Finally, any application to vary a personal licence to reflect a change in the name of the licence holder, or to amend the name of an individual named on an operating licence, will be dealt with free of charge.

If the GC’s calculations are correct, these new proposals will result in either no change to, or a reduction in, fees for the vase majority of operators. However, it is undeniable that significant increases will be felt by some. If you are concerned about how the new fees structure might affect you, please contact one of the team.