Gambling (Categorisation and Use of B2 Gaming Machines) Bill [HL]

Lord James of Blackheath Excerpts

Friday 11th March 2016 Lords Chamber

[Lord James of Blackheath (Con)]

My Lords, I need to declare several interests that are set down in the register, one of which I have to say with some embarrassment is that I am probably the only Member of your Lordships’ House who has run a casino. That is almost as bad as admitting to having run a bordello—which I emphasise I have not. The consequence of my experience in the casino has given me some suggestions to make as to what we might do to make this Bill a little more effective because I got to know a great deal about how a roulette wheel behaves. It has a real pattern of behaviour, and if noble Lords think that I have studied this for too long and that I am a guy who should get a life, they are probably quite right.

The other interest I should declare is that for some years I was chairman of Jockey Club Racecourses, formerly known as the Racecourse Holding Trust, which operated 14 racecourses. You might say that the racing industry is not directly connected to this, but it most definitely is. The reason these FOBTs exist today is that the racing industry was failing to provide the continuity of competitive racing necessary to stimulate a continuity of turnover at betting shops. As a result, these other forms of betting activity were invented because the shops said that they were not there for the luxury of keeping the British horseracing industry in races when they were getting only around seven races a day, which was not enough turnover.

Noble Lords should note that by the time the sun goes down tonight, since Monday of this week some 106 horseraces will have been run in England—which is a great many more than was the case when the FOBTs came into existence. This is a powerful argument for trying to bring the bookmakers back to the table. We can say, “Look, you can’t have it both ways. You’ve got your FOBTs and you’ve got your racing back. Something’s got to go”. The betting shops should be made to participate in a dialogue to make this a better and fairer process.

In the days when I was chairing those racecourses for the Jockey Club, every year I had a £10 million share of the horserace betting levy proceeds. Noble Lords may ask what on earth I did with £10 million when there were all these rich owners of racehorses. The owners put up all the money for every race that is run in England—all 14,000 races a year—and they get back only around half of what they invest. In order to keep the prize money going, that contribution of £10 million is needed from the levy board to fund the quality races, otherwise a large part of our very important British sporting heritage would be wiped out. We must be careful that we do not have an unintended consequence by causing the bookmakers to curtail or wreck the levy process because they are going to lose the proceeds of their FOBTs.

I am highly critical of the way the FOBTs work, and I want to make two particular points. First I will address the remarks made by my noble and learned friend Lord Mackay of Clashfern. I am going to destroy his innocent illusion of how money laundering works in a casino. It is not quite as he said; it is much worse. If my noble and learned friend wanted to launder, say, £10,000, I can tell him how that could be done very easily. You need a close friend and you take £10,000 out of the bank. You and your friend have £5,000 each in folding money in a briefcase and you go to a proper casino where you buy £5,000-worth of cash chips each. You then go to a roulette wheel and find the three even-money chances: odd numbers, even numbers, high numbers—19 to 36—and low numbers—one to 17—and you both bet on each of the three even-money chances on every spin of the wheel, so you are betting against each other. If you both put £200 on each even-number spin for 20 spins in a row, one of you will have lost the lot and the other will be up by that amount. At that point you ask the cashier for a cheque for £10,000 in the name of one of you. That money is untraceable by the revenue and you have laundered the whole sum. Yes, there is a risk of losing half your stake if zero comes up on an even-money chance, but you have paid a tax of £1,000 to go away with £9,000-worth of clean money. It is very easy. But do not go to a FOBT for this.

I ended up running a casino in Malta owned by the Kursaal group, a company created by some British businessmen. They had five casinos, but amazingly all five of them were losing a great deal of money—more than £150,000 a night—which is a pretty creative thing for a casino to do. I was sent to find out why they were losing all that money and to stop it. I think I knew the answer before I got off the plane: beeswax. If you want to corrupt a real roulette wheel, you use beeswax to build up the ridges between the numbers so that the ball cannot get over the ridges. In that way you have blocked off which numbers will come up and which will not. It is so easy.

In the world of the FOBTs, I am concerned that they do not replicate a realistic roulette wheel. While I was running Kursaal I did a big analysis which led me to certain conclusions. They do not even begin to compare with those of the famous Eduardo Boanelli, “The Man Who Broke the Bank at Monte Carlo” in the music hall song. Eventually, having been expelled from France, he sailed out of Nice harbour on an oligarch’s superyacht to an island in the Caribbean that he had just purchased with the proceeds of his huge winnings. He published an amazing analysis of the behaviour of roulette wheels, while I have made my own more modest one. He relied on a sequence of 40,000 spins of a single wheel while mine was limited to 10 hours a day for six days at 40 spins an hour, because that is the maximum a croupier can manage.

It is important to note that. If a croupier can manage only 40 spins an hour, it makes a mockery of the 20 seconds per spin that we have been hearing about on the FOBTs. That has a huge effect on a player’s behaviour: the faster the thing will spin, the faster you go. The sum of £2 every 20 seconds is ridiculous and also does not take into account the fact that a player can put 10 chips at £2 each on to the electronic screen. There must be a limit on how many times a player can press the button for each spin, not just set it at £2 per chip per spin, otherwise a player will still get through their money.

Most roulette players are playing to recover their money after five or six spins, and they become more desperate the longer they go on. You need a much longer interval between plays. I would like to see an interval of two minutes between each spin. Here I have a question for the bookmakers. If there are four FOBTs in a row all displaying a roulette wheel, does the same software drive all four machines identically or do they operate individually so as to lure a player into direct competition between him and the machine? That is hugely dangerous. I can easily imagine a system in which the software is written so that if a player puts £10 on five adjacent numbers on the wheel, it will automatically block off those numbers as long as that player continues with the game. Those numbers will never come up, so he loses every penny with no possibility of winning anything back. It would be the easiest software in the world to write. I want to know from the bookmakers whether they do that. I also want to know whether the software in each machine is identical so that everyone sees the same number come up.

What I want to know most emphatically—this is not the Boanelli theory, it is the David James one—is this. Every roulette wheel generates all 36 numbers plus zero once in every 121 spins. Every croupier making 40 spins an hour will generate 28 different numbers, give or take two. There are therefore eight numbers including the zero that will not have come up at all. You cannot take those eight numbers and put one chip on each of them for the next 81 spins to get to 121. If you do, you will lose something like £450 at £1 a chip. It is quite ridiculous.

The FOBT machines are one great big rip-off. I do not believe that the software is fair and provides the balance of a fair game between the punter and the casino. If this Bill goes through, I shall table an amendment that will require every manager of a betting shop and every bookmaker to provide a software printout that the DCMS can have independently audited of a sequence of no fewer than 2,000 spins on every terminal so that it can be easily and automatically checked to see whether it is meeting the requirements of every number coming up in every 121 spins and at least 28 in every sequence of 40 spins. That would be at least the first step towards showing that it was an honest machine.

I have similar concerns about what we call cartoon racing, which is simulated horseracing using computer-generated images of horses that do not exist ridden by jockeys who certainly do not exist. You usually have about 18 of these imaginary horses lined up. This is a worse cheat than the FOBTs. They run one every five minutes. You have 18 computer-generated horses and there is no form for any of them. There is no specific benefit that one can show—any ability that it has above another. Clearly, if you have 18 runners, the odds ought to be 17:1 on every horse in the race, but the bookmakers make three short-priced favourites, because punters are used to seeing ordinary horseracing, where the favourites run better and it is an indication of a trainer’s intention that their horse should win. The punters back the horses that the bookmakers have identified to them by cutting the odds as being the favourites, and they lose.

This will be another amendment I will table: all cartoon racing must be supported by an onscreen analysis of the percentage of winning favourites going in over the previous three months. For every ordinary race, this information appears in the Racing Post every day. You should get a figure of about one favourite in five. I want to see what the winning percentage of favourites on cartoon racing is. I also want to see on the screen what the overround and underround percentage is. Overround and underround is the simple calculation which shows, if all the prices in a race are assessed on a bet of £1 to win on each horse, whether the bookmaker comes out with a guaranteed profit or a loss. That could be so easily put on screen as a warning to the punter not to do it if it is against him. I want the bookmakers to undertake to put that up as well.

My point is: if the bookmakers do not like what we have been talking about here, and they will not, let the British Horseracing Board convene a meeting between the DCMS, perhaps with some representation from ourselves, to discuss what they can concede, on their own admission, to make this a fairer and more honest process. Otherwise, we would impose with this excellent Bill a requirement to get the maximum stake down to £2 and to limit the number of chips that can be used in any one spin to three, maximum four—and for goodness sake, let us have a certification of how many spins it takes for the whole wheel to come up in every occasion so that it is there onscreen to be seen. It would not cost the bookmakers anything and it would at least give us a chance to frighten off the punter by showing him how bad the chance was of him winning. Also, slow the whole thing down, please: one spin every two minutes would be the maximum I would want to see.

It is an excellent Bill. We need some work on it. I will be putting forward some tricky amendments.