The Government wants to overhaul Britain’s outdated gaming laws. Damian Reece looks at the likely winner from the more relaxed regime
JOHN KELLY is Britain’s Mr Bingo. Last week he scored a full house with the publication of the Government’s White Paper on gambling reform.
Gambler anonymous: the future for gaming in the UK is overshadowed by the risk of addiction
The document raises the stakes for Kelly and his privately-owned Gala Group, the UK gaming company that controls more than a third of Britain’s bingo business. Gala has ambitions to expand its casino chain and stands to gain most from the proposals.
Investment bankers have shortened the odds dramatically on Gala announcing a £800m stock market flotation this year, a move given a huge boost by the Government’s decision to reform the country’s old-fashioned gaming laws.
I think Tuesday was the most fundamentally important day for the British gaming industry since the inception of the 1968 Gaming Act,” says Kelly, who is Gala’s chief executive.
“It was incredibly important. The Government response has been considered and proper and it now gives us a much better landscape from which to operate. The UK public will be well served by the new legislation.”
In the eyes of City analysts, the Government’s planned changes also make Kelly a frontrunner to buy Coral, the country’s third biggest bookmaking chain, or at least to be involved in its break up.
Coral has been put up for sale for about £600m by Deutsche Capital, its venture capital owners, and bookmaking is the one big area of gambling that Gala is missing.
For the moment Kelly is being coy about the prospects of Gala going public. After all, the company could prove an attractive acquisition for a potential new entrant into a vibrant British gaming industry.
The Government’s more liberal regime is bound to excite the interests of US operators who dominate Las Vegas, for instance, but are frustrated in expanding further in the US by restrictive American gaming laws. A business such as Gala would be a convenient way into the UK market, given its diverse gaming operations.
“Companies in mature gaming markets overseas will look at the UK and see that there are opportunities for them,” says Kelly.
I believe this is the end of the Online Casino Singapore gaming franchise. Since the 1968 Gaming Act, British gaming operators have had the landscape to themselves. If they can’t take advantage of the new regime they should not be in the market.
Will these reforms benefit the values of companies like ours? Yes. Do they mean we are closer to a flotation than we were 4 to 5 days ago? No. It all depends on businesses like ours taking advantage of deregulation and the wishes of our investors. And our investors are not in any hurry to do a public offering,” says Kelly.
Since 1997, when Kelly teamed up with PPM Ventures, the Prudential’s venture capital arm, and Duke Street Capital to head a management buy-in of Gala from Bass, he has been leading a charge to consolidate the UK gaming business.
But his efforts have all been centred on the market for high-volume, low-stakes gaming. Not for Kelly the high-rolling glamour gaming of Mayfair but instead the £5 blackjack tables of Dundee and Leeds and the bingo halls of Barnsley and Birmingham.
He has overseen a string of deals to amass Gala’s 166 bingo clubs, equal to 38 per cent of the market, and 28 regional casinos, which he bought from Hilton, the hotels group for £235m. Gala now has turnover of £371.4m and an operating profit of £77.1m.
“We are not going to stop the consolidation process,” says Kelly. “We are going to develop our organisation and buy more in the market for high-volume, low-stakes gaming. There are more opportunities. We have a fantastic brand. We are not going to waste it but extend our leadership and we are looking at all sectors that fit the description.”
While his market share in bingo makes it impossible to go any further, Kelly still has headroom to buy more regional casinos.
Tower Group, a US-backed operation, has signalled its willingness to sell its UK casinos while the debt-distressed London Clubs International has a number of regional casinos that fit Kelly’s model. Bookmaking is also a perfect fit.
Kelly has the financial muscle. Two years ago PPM Ventures agreed to a refinancing and cashed in its investment while Credit Suisse First Boston and Royal Bank Private Equity became Kelly’s principal backers.
He has bought into businesses previously seen as old-fashioned and low-growth but which now stand on the verge of a new lease of life as the UK prepares to become Europe’s leading gaming location.
“Does Bingo suffer from an image problem? I think it did in the past,” says Kelly. “But it has been vastly improved by the way we’ve done things. It is now a highly sociable, benign gaming activity with 90m visits a year – which is pretty damned popular.
“We have been working on improving the profitability of visits and for the past 10 consecutive months we have had like-for-like increases in admissions.”
The gambling reforms published last week by the Department of Culture, Media and Sport generated much hoopla in the press about our seaside resorts facing transformation into Las Vegas-style gaming resorts, a possibility that Kelly is sceptical about to say the least.
“I have the highest respect for what people are doing in places like Blackpool but it is not my belief that we will be seeing Las Vegas-style resorts around the country.”
What the reforms do usher in, however, is a far more liberal regime. The likes of Gala are going to be able to operate more money-spinning slot machines with bigger jackpots with machines networked to offer potentially huge rollover payouts.
Casinos will no longer be required to seek 24-hour notice before admitting new members, and, most importantly for Kelly, the Government has sanctioned integrated gaming centres which can offer punters live entertainment, food and drink, casinos, banks of slot machines, bookmakers and bingo halls all under the same roof.
But the future for UK gaming is not without problems, notably the threat of a rise in gambling addiction.
“The incidence of problem gambling is very, very small but the industry can’t be in denial. We are running a gaming business and we have to recognise, just like people selling alcohol or cigarettes, that there is an impact to being in that business,” says Kelly.
“I think the industry has to be self-policing and we have established a charitable industry trust to help deal with addiction. I would never say to you that there isn’t a problem, of course there is, but a responsibly run industry will keep it in perspective and deal with it proactively.
“I don’t believe the Government regulations will result in a big increase in the problem. After all, that would not be in the interests of the industry,” he says.
Experts reckon we are now poised to spend an extra £500m a year on gaming thanks to the Government’s proposals, which are likely to come into force in about two years’ time. Tourism is likely to be another big winner as bigger, better-quality gaming centres spring up, while the Government stands to benefit from higher tax revenues.
But the real winners will be the bookmakers and casino operators and none has more potential to profit than Gala.