Thursday, Sept. 23, 2004 | 9:20 a.m.
The U.K. government plans to allow casinos to install slot machines with payout prizes above 2,000 pounds ($3,591) for the first time, restricting them to larger locations because of concerns about their effects on gamblers.
Culture Secretary Tessa Jowell rejected the recommendations of a cross-party committee of legislators that the government reconsider allowing only casinos of 5,000 square meters (54,000 square feet) or more to have machines with unlimited prizes.
Speculation that 40-year-old gambling laws would be relaxed has led Britain's two biggest casino operators, Stanley Leisure Plc and Rank Group Plc, to expand their businesses. Companies such as Las Vegas-based MGM Mirage and Kerzner International Ltd. of the Bahamas also plan to build casinos in the U.K.
"The existing operators are reasonably well placed to take advantage, but the proposals really favor new investors who can afford to build and operate new regional casinos," said Iain Wilkie, a partner at Ernst & Young LLP, who estimates 5 billion pounds will be invested in U.K. casino projects.
Shares of Stanley Leisure, Britain's largest casino operator, and Rank, whose Grosvenor Casinos unit runs 32 British casinos, fell as the government said it still plans to impose restrictions on the machines. Stanley Leisure owns Britain's only casino of more than 5,000 square meters, the Star City in Birmingham.
"Today's confirmation that the government is firmly against the proliferation of casinos means that the potential benefits of industry deregulation will likely not be as significant for the incumbents as previously expected," Merrill Lynch & Co. analyst Ian Rennardson wrote in a research note.
The government plans to maintain "a cautious approach" to the reform of the industry, Jowell said in a statement.
"We have relatively low rates of problem gambling in the U.K. and reform needs to be taken in steady steps, not giant leaps, if we are to keep it this way," the minister said.
Rank said it doesn't understand why the government wants to restrict machines with unlimited prizes to larger casinos.
"We are continuing to lobby for further improvements and hope that over the coming weeks the final details of the bill will be resolved so as to ensure an early and smooth passage through Parliament," Chief Executive Mike Smith said in a statement.
The British Casino Association said the government is seeking to attract overseas money at the expense of existing operators.
"By allowing only the new regional casinos Category A (unlimited stakes and prizes) machines, and by allowing such casinos to spring up in the center of urban populations, the government has fundamentally disadvantaged the existing estate of current operators," Chairman Penny Cobham said in a statement.
Kerzner, owner of the Atlantis resort in the Bahamas, has said it plans to help build three casinos in the U.K., including one in London's Millennium Dome with Anschutz Entertainment Group, for $1 billion. The other developments would be in Glasgow, Scotland, and East Manchester. MGM Mirage is planning developments in the English cities of London, Sheffield and Newcastle.
U.K. law currently forbids machines paying prizes above 2,000 pounds. Casinos are allowed no more than eight each. All casinos are restricted to members, and gamblers joining for the first time must have been members for 24 hours before they can go in. Casinos may also only be built in certain areas defined by law.
The draft bill scraps the 24-hour rules and the restrictions on areas where casinos may operate. It lets casinos larger than 5,000 square meters install up to 1,250 no-limits machines.
Church groups told lawmakers this year that high-stakes machines had a "risky nature" and their use should be restricted.
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