Casinos make a play for a deregulated UK

The stakes are high but the winnings are potentially enormous for the casino operators jostling for a place at the table following the deregulation of the gaming industry in 2006.

Virgin has become the latest to chance its hand with a mooted extension of its Virgin Games brand into the high street casino business (MW last week). The company is not alone in wanting to exploit the potential of a deregulated gambling market, with the three main casino chains, Stanley Leisure, Gala and Rank, set to be joined by a host of leading Las Vegas operators such as Harrah’s and MGM Mirage.

Hilton has announced plans to re-enter the casino market with its Ladbrokes bookmaking brand, while casino firm London Clubs is preparing to raise £49m through a rights issue to cover expansion. Even William Hill chief executive David Harding said last week that its brand could be stretched into the casino market, which is forecast to explode come deregulation.

According to a report last month by KPMG, gross profit (the amount taken in bets less that paid out in winnings) in the casino market is predicted to grow 217 per cent between 2003 and 2009 to £2.5bn. Government figures suggest the total gaming market was worth £42bn in revenue in 1998, of which 44 per cent came from casinos. Sources say that going by anecdotal evidence, the industry has grown since then.

Research from Gala indicates that about 2 million people play in casinos at least once a year, which it forecasts to grow to more than 5 million people post-deregulation. The company predicts that the number of casinos will grow from 125 last year to about 300 by 2009, although other estimates put the figure nearer 400.

Nigel Sibley, commercial director at Rank Group, says that deregulation will transform a market hampered by laws introduced 36 years ago. “This is the most fundamental moment in the evolution of the casino market,” he says.

The Gambling Bill will allow casinos to be governed for the main part by market forces as with any other entertainment industry. This will mean companies can set up casinos where they want, rather than just in permitted areas, and make them far larger than current regulations allow. While slot machines are limited at the moment to ten to a casino, this figure is set to rise to 1,250.

Membership rules and restrictions on entertainment and alcohol will be relaxed and, perhaps most importantly, casino operators will be allowed to conduct conventional marketing activities for the first time. Since 1999, casinos have only been allowed to provide factual information in the classified section of newspapers.

Richard Sowerby, sales and marketing director at Gala, says: “Ad agencies must be rubbing their hands in glee at the prospect of a virgin advertising market opening up.”

The industry is already looking to ad agencies to help position brands for deregulation. Ladbrokes appointed Bartle Bogle Hegarty (BBH) earlier this year to devise an advertising and branding strategy (MW March 11). Meanwhile, Rank says it will review its advertising later this summer. It uses WCRS for its bingo operation, but it has yet to appoint an agency to handle the casino business.

Although there could be restrictions on advertising, with suggestions including a 9pm watershed and health warnings on ads, companies will be able to create mainstream casino brands for the first time.

Rank is conducting a review of all its brands, which could see the Grosvenor casino name ditched in favour of more modern brands such as Hard Rock (News, page 7). Around 30 of Rank’s Mecca bingo halls are earmarked for conversion to casinos, although which brand they will fall under has not been decided.

Sibley says advertising will also aim to position the wider casino industry as a mainstream entertainment: “The advertising campaigns to create brand equity will also be about communicating the reality of an exciting night-time entertainment.”

And if the public perception image of the casino industry changes, says Simon Burridge, chairman of Virgin Games and ex-head of the People’s Lottery bid, so too will the type of the customer.

Burridge says repositioning the casino as a wider entertainment venue will help it to appeal to women as much as to men. He says a well-known brand such as Virgin is ideally suited to take advantage of the “democratisation” of the gaming industry.

Gala, too, forecasts that by 2009 up to 50 per cent of its customers will be female. Sowerby says that creating the right casino environment will be a big part of the marketing mix. Casinos need to be less frightening and more accessible to new customers, he says.

Sowerby adds that super-sized, “resort” casinos set up by US operators such as MGM will have a strategy aimed at attracting a “weekend” customer with big-name entertainers, while UK companies such as Rank, Gala and Stanley are more likely to focus on their high street chains.

Sowerby says they will need to be sensible as to where casinos are set up, however. “Supply needs to match demand and there isn’t the demand for a casino on every corner. We can’t chase after the same pounds like McDonald’s does with Burger King, but there’s room for all of us,” he says.

Sowerby adds that UK casinos will have a home advantage over incoming US companies and doubts that the US model of resort casinos will work immediately in the UK.

However, the US companies have already started to form partnerships with local companies to help crack the UK market. Harrah’s has a commercial arrangement with Gala that could see the creation of up to eight Las Vegas-style casinos, while MGM has a stake in UK-based Metro Casinos. MGM has also partnered UK property groups to build complexes in Manchester, Liverpool, Glasgow and Salford.

The Department of Culture, Media and Sport is due to report on the Gambling Bill in the next two weeks, with a paper expected from the Office of the Deputy Prime Minister. The bill needs to be in place by the end of the summer to be included in November’s Queen’s speech.

These two reports will clarify the position on possible hurdles for larger casinos such as tax levels and caps on machine numbers, but no one doubts that the Gambling Bill will herald a renaissance for the industry in the UK.

Whether or not the UK will become the Las Vegas of Europe, however, will depend on how companies will use their marketing freedom to convince the UK population that casinos are as attractive a night out as an evening at the cinema.