Anti Gambling lobbyists don’t waste a penny on reports, do they?

Regulus partners disassemble an incompetent report, funded by Derek Webb, by Nera Consulting

The 2021 report was written by George Anstey, Soren Christian and Sofia Bittari – three economic illiterates from Nera Consulting (a think tank). It was commissioned by the Peers for Gambling Reform, who were funded by Webb. The 2023 report on New Jersey was written by Soren Christian (again) and Duncan Broadie and was funded by the Campaign for Fairer Gambling. It relied heavily on the bs NIESR report in 2022, which was funded by the Gambling Commission (nuf said!) and led by James Noyes and involved the archangel of anti – Heather Wardle. The NIESR report relied on the entirely unsubstantiated assumption that being economically inactive due to ill-health and WINNING £500 from gambling over two years was a proxy for ‘at risk’ gambling. It’s a case of bs begetting bs.

Derek Webb

Regulus Partners

Introduction

• In, May 2021, NERA Economic Consulting published a
  report on the economic impact of implementation of five
  proposals for legislative reform contained within the 2020
  report of the House of Lords Select Committee on the
  Gambling Industry
• The report was commissioned by the Peers for Gambling
  Reform (the ‘PGR’), a House of Lords based lobby group
• The report was funded by Las Vegas resident, Derek
  Webb, who is described as a “benefactor of the PGR”
• The report’s central claim is that while the
  implementation of the five reforms would have a
  substantial impact on Britain’s licensed gambling industry,
  they would be economically beneficial in terms of
  increased jobs and taxation at the level of the national
  economy
• This report examines the NERA report in terms of factual
  accuracy and methodological coherence

The Five Reforms

• structural limits on online stake sizes and play speed
• affordability checks for online play
• the introduction of a Mandatory Levy for gambling
  operators
• the classification of video game loot boxes as gambling
• a ban on direct sponsorship by gambling operators.

2

Executive summary I

Our analysis raises a number of concerns with regards to NERA’s report.

1. The presence of a number of relatively basic factual inaccuracies that reveal a lack of understanding of gambling
   regulation, problem gambling and Britain’s tax system. As well as betraying a paucity of expertise, these errors have
   material effects on NERA’s economic impact calculations.
2. Highly speculative use of data and highly selective use of research to inform modelling
3. The use of completely untested assumptions to model the effect of legislative interventions – for example the
   assumption that expenditure by people with gambling problems will switch entirely into shopping, food and drink, the
   arts and sports in the event of greater online restrictions (and not to unlicensed gambling)
4. A complete failure to consider counter-factual scenarios (e.g. the possibility that spending might be shifted into activities
   that result in as much or greater harm such as excessive consumption of alcohol or unhealthy food)
5. The implausible implication that the remainder of the recommendations in the House of Lords report would have no
   material economic impact
6. A failure to consider negative wellbeing impacts on non-problem recreational gamblers and a reduction in consumer
   surplus
7. What appears to be a complete lack of interest in whether the reforms sought by the PGR will in fact result in reduced
   harms

3

Executive summary II

Over and above all the factual and methodological problems
with the NERA report, there is also the question about how
valid such projections are.

• It is not the role of businesses or consumers to create
  jobs;
• It is not the role of Government to intervene in the lives
  of its citizens in order to channel their spending into
  sectors with the highest rates of employment and wages
• The key issue on gambling reform is how the Government
  should seek to balance the freedom and enjoyment of
  citizens against the need to protect them from harm
  The NERA reports provides no illumination on this question
  (see opposite)

“If the assessed reforms are effective in reducing harmful
gambling activity, some of [the] excess fiscal costs could be
reduced. The extent to which this is true depends on:

• “How effective the reforms are in reducing harmful
  gambling activity; and
• “The extent to which gambling harm is itself the driver of
  the excess costs listed in Table 4.8. For instance,
  individuals with harmful gambling habits may also be
  more likely to exhibit other characteristics that require
  greater NHS treatment (e.g. alcoholism), and these other
  characteristics may not disappear even if the harmful
  gambling activity does.
  “We do not consider in this report the extent to which
  either of the conditions above are true”

4

Overview

We analyse NERA’s report in three areas:

• Inputs – the data and research considered by NERA in making its report
• Methodology – how NERA produced its estimates of economic impacts
• Inconsistencies

5

The inputs I: overview

Much of the information used by NERA in the report is highly speculative, as the authors admit:
“Throughout this report, we base our analysis upon the most reliable data available to us. In many cases, especially for data
specific to the gambling industry, the data sources are few and far between, and may be based on incomplete samples.
Where better data exists in house with gambling operators, this has not been shared with us, and so we cannot rely upon it.”

• What the authors do not disclose is the extent to which they attempted to obtain “better data” (e.g. by asking licensed
  operators to share information).
• This is critical – if the data inputs used in the report are unreliable, we must exercise extreme caution when considering
  any of its outputs.
  The report is also based upon highly selective and unverified inputs from other sources, as NERA admits:
  “Information furnished by others, upon which all or portions of this report are based, is believed to be reliable but has not been verified
• This is negligent – particularly given the presence of a number of conflicts of interest. Our analysis shows that it was
  unwise for NERA to assume without checking that the information supplied to them by others is reliable.
• In certain instances, the NERA report reveals an absence of basic understanding of gambling regulation, problem gambling
  and – perhaps most surprising of all – how Britain’s tax system works.

6

The inputs II: basic errors (taxation)

NERA seems to misunderstand the way that value added tax (‘VAT’) works

• On page 37, NERA describes the differences between betting and gaming duties and VAT as follows:
  “The loss in consumption-based tax revenue is due to the difference in how RGD and VAT are assessed. For every £1 a person spends on online gambling, £0.21 is directly recovered as tax revenue, and the gambling operator would additionally pay VAT to its upstream suppliers.
• For every £1 a person spends on other activities, they are charged £0.20 in VAT, but a portion of that is used to offset VAT paid by the company to its upstream suppliers. Therefore, a smaller portion of expenditure in other sectors actually makes it to the Exchequer through consumption taxes.”
• This description is however incorrect. VAT of 20% is charged on top of expenditure (it is an “added” tax). The passage
  therefore should have read “For every £1.20 a person spends on other activities, they are charged £0.20 in VAT….”
• It is highly surprising that an economic consulting firm should misunderstand the basis for the application of VAT.
• The error has a material impact (c.£50m) on NERA’s calculations of revenue lost to the Exchequer.

7

The inputs III: basic errors (duty)

Basic errors

• On page 28, NERA describes online gambling taxation as follows:
  “All online operators must pay 21 per cent RGD on GGY from customers who live in the UK.74 For each £1 reduction in online GGY, therefore, we assume that the industry saves £0.21 in RGD”
• This is incorrect – expenditure on online gaming is subject to RGD at 21% but expenditure on online sports betting is
  subject to General Betting Duty at 15%.
• This error has a material impact (c.£40m) on NERA’s estimate of operator cost savings (as well as on projections of lost tax
  receipts).
• Elsewhere in NERA’s report, we also find examples of factual errors in relation to maximum stakes on terrestrial slot machines (p.5) and problem gambling (which is incorrectly conflated with gambling-related harm – p.6 and elsewhere).
  While these latter mistakes have no bearing on Nera’s calculations, they do betray a lack of expertise and domain knowledge.

8

The inputs IV: unverified claims

The Nera report is based upon a surprisingly thin selection of evidence.

• What is more, some of the sources are drawn from parties with clear vested interest – interests that Nera chooses not to declare in its report..

Source Undeclared conflict of interest
Noyes, J. & Shepherd, A. (2020) Gambling review and Reform: Towards a
new regulatory framework. Social Market Foundation.

Funded by Derek Webb who also funds the PGR and who paid for the Nera report

Cowen, T. & Blond, P. (2018) Online Gambling: Addicted to Addiction.
Respublica.

Funded by the Campaign for Fairer
Gambling, a lobbying organisation funded by
Derek Webb (see above)

Newall, P., Weiss-Cohen, L. Singmann, H., Boyce, W., Walasek, L. & Rockloff,
M. (2021) A speed-of-play limit reduces gambling expenditure in an online
roulette game.

Philip Newall was expert adviser to the
House of Lords Select Committee (and
claims to have influenced its report).

Muggleton, N., Parpart, P., Newall, P., Leake, D., Gathergood, J. & Stewart, N.
(2021) The association between gambling and financial, social and health outcomes in big financial data. Nature Human Behaviour

Philip Newall was expert adviser to the House of Lords Select Committee (and
claims to have influenced its report).

9

The inputs V: unverified claims

Reasons to be cautious

•Source Issues
Newall et al. (2021) Unpublished paper with no evidence of peer review and no funding or conflict of interest disclosure. The paper itself is based upon a simulated gambling experiment rather than actual data. Despite these issues, NERA states that “We rely heavily on this research…”

Muggleton et al. (2021) This study of gambling expenditure revealed in bank account data is flawed in a large number of ways – but principally the fact that the researchers looked only at cash outflows and ignored cash inflows. As a consequence the report is based upon a substantial overstatement of expenditure.

Thorley, C., Stirling, A. & Huyn, A. (2016)
Cards on the Table: The cost to Government associated with people who are problem gamblers in Great Britain. IPPR.

This report has been criticised by both the Government’s Regulatory Policy
Committee and the DCMS.

Cowen & Blond (2018) Produced demonstrably false estimate of the distribution of revenues by PGSI classification (See slide 11) 10

The inputs VI: unverified claims (illustrative example)

An example of how NERA perpetuates claims from misleading research
“According to the think tank Respublica and cited in the Committee Report, 24 per cent of the online gambling industry’s profits derived from 0.8 per cent of the UK population it classifies as ‘problem gamblers’. A further 17 per cent comes from the 1.0 per cent of the UK population it classifies as ‘moderate risk gamblers’.’”

• The estimate of revenue from problem gamblers cited was first produced by Landsman Economics, an organisation also
  funded by Derek Webb
• The underlying data derives from a PwC report published in 2017 – ‘Remote Gambling – Phase II’
• The PwC study deliberately over-sampled problem gamblers: “We can accommodate the above in our approach by our segmentation which deals with product bias, and the fact that we intentionally selected more active gamblers to increase the sample of potential problem gamblers.“ (PwC, 2017, p.18)
• The PwC report revealed staking levels by PGSI classification (i.e. problem gambling, moderate risk, low risk) – it provided no information at all on revenue or profit. It is unscientific to assume that share of stake is the same as share of revenue or profit
• The House of Lords Select Committee was made aware of this error – but the PGR continues to use it, suggesting perhaps a wilful attempt to mislead

11

The inputs VII: unverified claims (illustrative example)

• In a deliberately skewed sample, PwC provided information on mean staking levels and online gambling frequency by PGSI classification
• Extrapolation indicated that around 60% of total stakes were bet by 29% of the sample (6% problem gamblers; 23% moderate risk)
• Landsman Economics made the baseless assumption that the distribution of stakes in the PwC report was nationally representative and so applied it to the PGSI classification distribution from the combined Health Surveys 2015. This is
  methodologically unsound. This was presented to show that 41% of stakes were bet by 12% of online gamblers (5% problem gamblers; 7% moderate risk gamblers)
• Respublica (Cowen & Blond, 2018) rebadged ‘stakes’ as ‘profit’ and changed the base from online gamblers to all adults (irrespective of whether they had gambled online or gambled at all).
• By a series of sleights of hand, ‘60% of stakes from 29% of online gamblers’ magically became ‘41% of profit from 1.8% of the population’.
• This is statistically illiterate.

12

Methodology I: spending substitution (i)

NERA fails to provide any evidence for its spending substitution calculations and simply ignores unlicensed market risk

• NERA models the economic consequences of the PGR proposals on the assumption that “100 per cent of money not spent
  on online gambling diverts to” general retail (59%), eating and drinking (28%), creative arts (5%) and entertainment and sports and recreation (8%).
• No explanation or evidence is offered in support of these assumptions.
• This is problematic given the clear implication from Nera that reductions in gambling expenditure would come from those experiencing harm (which Nera mistakenly conflates with DSM-IV/PGSI ‘problem gambling’).
• In other words, NERA seems to make the counter-intuitive assumption that changes to online stakes and speed of play and the imposition of ‘soft’ affordability checks will result in those with gambling problems switching their expenditure to shopping, eating and drinking; while recreational (non-problem) gamblers will continue to gamble.
• The idea that someone with a gambling problem will switch from gambling to shopping as a result of stake or speed of play restrictions (and not for example consider continuing to gamble with an unlicensed provider) seems to misunderstand the nature of the disorder.
• NERA gives no consideration to the counter-factual possibility that harms may arise from switching expenditure from gambling to – for example – the consumption of alcoholic drinks or HFSS foods. Given that problem gambling is typically a ‘secondary disorder’ and often described as a ‘coping method’, it seems plausible that if expenditure by problem gamblers is diverted to other activities, this may happen in a way that also leads to harm (for example through compulsive buying behaviour, alcohol dependency, obesity or internet use disorder) and imposes costs on society. 13

Methodology II: spending substitution (ii)

• NERA appears to assume that the utility of every Pound of expenditure is the same
• However, the purpose of the economy is not to supply jobs but rather goods and services which deliver maximum welfare.
• If good x is prohibited, and everyone then switches to good y, with expenditure and employment the same, the change is not neutral.
• Economic welfare has been lowered because individuals had been signalling from their previous purchases that x gave them more satisfaction than y.
• This is the true economic impact.

14

Methodology III: jobs and income tax

• NERA provides estimates of growth in employment as a result of consumer expenditure switching from gambling to other activities
• It models a net increase of 20,000 to 30,000 new jobs – predominantly in retail and food and drink
• Aside from serious concerns regarding the extent to switch consumers would substitute shopping or drinking for gambling, NERA also appears to consider that every incremental Pound of expenditure generates an equal number of new jobs –failing to consider the fact that some industries require relatively high fixed levels of employment and that productivity gains would be expected from large increases in expenditure
• In addition, given the huge heterogeneity in terms of average wages and labour intensity attempts to estimate employment and wages based upon historic means is likely to be so imprecise as to be useless
• This causes us to question NERA’s estimates of both the numbers of new jobs that would be created and the marginal impact on average earnings (particularly when many of the more highly paid jobs in industry are likely to be found in the fixed employment based)
• This suggests that NERA is likely to have substantially overstated estimates of both job creation and income tax generation
• While NERA attempts to model the impact of job losses within the gambling industry, it fails to consider impacts on jobs
  associated with gambling – notably the significant losses from the horseracing industry likely to result from the imposition of affordability checks

15

Methodology IV: impact on licensees

“The gambling industry could lose between £696 million and £974 million as a result of the proposed reforms, but industry profits are most likely higher than this at present.”

• Any assessment made at the level of the industry will fail to recognise that different companies are in different positions with respect to profitability (and balance sheet strength). The impact therefore of measures designed to reduce consumer expenditure and increase operating costs will vary significantly between different licensed operators.
• Nera seems to assume that the profits generated by the basket of gambling companies from whom it derives its industry profit estimates relate solely to customers and operations in Great Britain whereas they are in fact global.
• As a result, NERA fails to explore whether revenue reductions in Great Britain would make that particular market unprofitable (in which case, companies would likely withdraw). This is shown most clearly in its assumption that the
  licensed online gaming (casino/slots/bingo/poker) market would remain viable following the loss of 76% of its revenue.
• In any case, NERA seems to assume that the industry could bear a substantial margin reduction (of the order of 150% to 200% basis points) and still generate value – in other words that the industry as a whole may still be viable so long as it generates some level of profit, even if that profit is lower for example than the cost of capital.
• Nera fails to recognise the fact that substantial margin erosion will impact the customer experience and offer a significant advantage to unlicensed operators (who will be in a position to offer far greater rewards and incentives).

16

Inconsistencies I – mandatory levy

• NERA considers the imposition of a Mandatory Levy to raise £150m a year from licensed gambling operators.
• It assumes that this would be roughly equivalent to 1% of total industry GGY (including National Lottery) and that this would be calculated on a ‘smart levy’ basis (although how such a levy would be constructed is not explained)
• Of the funds raised, £20m would be used to fund a new gambling Ombudsman. This is strange as one would normally expect a regulatory body to be funded by licence fees.
• The balance of £130m would be collected by HM Treasury. NERA suggests that these funds would be used to support general Government spending rather than being hypothecated to pay for treatment of gambling disorder – or research or
  education. In other words, it is simply an additional tax rather than a safer gambling levy.
• Nera suggests that HM Treasury might subsequently elect to spend £68m to £87m of this £130m on research, education and treatment (‘RET’) – and does not explain what would happen to the balance of £42m to £63m
• In assuming that a 1% levy would capture c£150m in payments, Nera neglects to incorporate its own calculations regarding the effect of the PGR reforms (maximum stakes, speed of play and affordability checks) on GGY – reforms that Nera believes may reduce GGY by as much as £2.1bn.
• This may in turn have a disproportionately outsized effect if the smart levy is weighted towards online gambling (which, given the PGR’s hostility towards online gambling seems feasible).
• NERA fails therefore to consider the ease of collecting £150m via an ad valorem levy while at the same time implementing reforms with the conscious aim of reducing gambling expenditure.

17

Inconsistencies II – sponsorship ban

NERA admits (p.26) that it has modelled no negative impacts on the gambling industry as a consequence of implementing a ban on sports sponsorship.
“For revenue effects, we assume that the gambling sector in aggregate will not see a loss in revenue from not being able to advertise their brand via sponsorship of teams.”

• Thus NERA assumes a substantial benefit to the licensed gambling industry as a result of cost savings on sponsorship but assumes no loss of revenue.
• This invites the obvious question that if sponsorship has no effect on consumer spending (and in particular, spending by problem gamblers), why is it considered necessary to ban it?
• In considering the impact on sports leagues and clubs, NERA suggests that foregone sponsorship revenue might be offset by “requiring gambling companies to pay for rights to have bets placed in certain leagues.”
• The cost of this sports levy on the licensed gambling industry is however not included in Nera’s impact assessment.

18

Inconsistencies III – speed of play (slots)

• On page 53 of its report, the House of Lords Select Committee recommended that it should not be possible to play gambling products quicker online than in landbased premises.
• “We recommend the equalisation of speed of play and spin, so that no game can be played quicker online than in a casino, betting shop or bingo hall.”
• By the time that NERA published its report, the BGC had already announced that its members had adopted a 2.5 second maximum spin speed for online slots games – consistent with the regulations for slot machines in land-based venues. The Gambling Commission had also announced that this would become mandatory from October 2021. For reasons which are not sufficiently explained, Nera chose instead to consider the impact of a 5 second maximum spin speed.
• If “equalisation” is the goal then this would suggest that the PGR may plan to recommend a 5 second maximum spin speed for land-based slot machines.
• In the end, NERA elected not to produce any revenue impact assessment for slowing the maximum speed of play for online slots. Instead, it simply assumed

19

Inconsistencies IV – speed of play (table games)

• On page 14 of its report, NERA appears to reinterpret the House of Lords select committee recommendation to “equalise” speed of play by moving away from what is legally permissible to what might be considered typical.
• In so doing, it assumes that most casino games in land-based premises are played at 60 seconds a game or slower – irrespective of the fact that there are no statutory speed restrictions on such games.
• It is unclear what the basis for this change is and no benefits (in terms of harm reduction) are quantified in either the NERA report of the House of Lords Select Committee report.
• This also raises the prospect that – in the interests of “equalisation” – casino table games in land-based premises would also be required by law to restrict play to a maximum of one game every 60 seconds. NERA provides no assessment of the
  impact of such a rule change.

20

Appendix
Detailed critique
Possible questions

21

Detailed critique

Page Statement Analysis
i “We estimate that Government spends £270-£1,170 million in
additional costs on individuals who experience gambling-related
harm, primarily through healthcare costs, primarily through
healthcare costs. It may be possible to reduce those additional
costs through the recommended reforms and an effective RET
programme, though it is not possible to say precisely how much
could be saved on the basis of the evidence reviewed.”

In fact NERA has produced no such estimates. It has simply
repeated estimates produced in a 2016 report from the IPPR.
NERA accepts the IPPR’s estimates uncritically despite the fact that
the report has been criticised by the Government’s Regulatory
Policy Committee and in a Government Regulatory Impact
Assessment. NERA provides no explanation of how the costs might
be reduced.
NERA also conflates ‘problem gambling’ (a mental health disorder)
with ‘harm’ (a much broader and looser concept). This error is
repeated throughout the report and indicates a lack of domain
expertise.

ii
(& 2)
“Throughout this report, we base our analysis upon the most
reliable data available to us. In many cases, especially for data
specific to the gambling industry, the data sources are few and
far between, and may be based on incomplete samples. Where
better data exists in house with gambling operators, this has not
been shared with us, and so we cannot rely upon it. This
qualification also underscores the need for greater independent
research into gambling-related harm, funded by the Mandatory
Levy.”

This is critical as it highlights the speculative nature of the data
used by NERA. The report fails to reveal the extent to which NERA
sought better data from operators or others.
The linkage between the unreliability of NERA’s data and the need
for a Mandatory Levy is not explained – indeed, NERA’s proposed
Levy would not necessarily involve any increased funding for
research.

22

Detailed critique

Page Statement Analysis
ii “As Figure 1 shows, online gambling is increasingly prevalent as
a driver of industry-wide GGY, though its growth in the Figure is
distorted by a change of regulations in 2014 that required
online gambling operators to hold a licence with the Gambling
Commission.”

This is a confused explanation. The distortion (which makes
comparison of GGY before and after 2015 problematic) is down to
the fact that the Gambling Commission only collected GGY data
from domestically licensed operators prior to November 2014 – at
which point it became mandatory for all operators to hold a
domestic licence.

Iii
(&5)

“The online segments have been subject to comparatively less
scrutiny than their terrestrial equivalents. For example, there is
no maximum stake that can be placed on a single draw of an
online slot machine, while terrestrial equivalents have a
maximum stake of £2 or £5, depending on the type of machine
and its location.”

It is questionable whether online gambling has in fact been subject
to less scrutiny (particularly in the light of a thematic review by the
Gambling Commission, a slew of parliamentary reports and an
online-weighted Government review of gambling legislation.
In any event, stake limits are structural controls rather than an
example of scrutiny.
NERA offers an over-simplistic description of stake limits here as
they can be set at 10p, 50p, £1, £2 or £5.

iv “In all scenarios, we assume that a Mandatory Levy is imposed
on gambling operators that will recover £150 million per annum
across the sector, or roughly 1 per cent of current GGY. We
assume that this will be levied on a “polluter pays”-basis, in
which potentially more harmful products pay a higher rate.
Revenue from the Mandatory Levy would be used to fund a new
Gambling Ombudsman and new Research, Education and
Treatment of gambling-related harm.”

NERA does not explain how a smart levy would be constructed
(which is necessary in order to determine impact by sector) – nor
how the “pollution” would be attributed.
Later in the report, NERA suggests that with the exception of a
payment to fund an ombudsman, the funds raised would not be
hypothecated – meaning that there would be no guarantee of
funding for research, education and treatment.

23

Detailed critique
Page Statement Analysis
Iv – v
(&6)

“A 2018 study on gambling-related harm in UK online gambling
by ResPublica found that 24 per cent of the online sector’s
revenue came from “problem gamblers” and a further 17 per
cent from medium-risk gamblers. Therefore, our estimated GGY
reductions are broadly consistent with a mechanism that
prevented all and only high- or medium-risk gambling
activity.”

The Respublica report was not a study but rather a report
commissioned by the Campaign for Fairer Gambling (and was
therefore also funded by Derek Webb, who funded NERA’s report).
The claim with regard to the distribution of revenue is incorrect
and in fact based upon a Landsman Economics (also funded by
Derek Webb) extrapolation from a PwC report in 2017.
A detailed explanation of the problems with the Respublica
estimates may be found on slides 11 & 12.
NERA seems to suggest by association that its projected impacts
on industry revenue reflect a reduction in spending by problem
and medium risk gamblers. This is inconsistent with the way that it
has modelled the effects of legislative tightening – particularly in
relation to likely substitution effects.

vi “This would be a substantial increase on the existing expenditure
(£19 million funded through voluntary contributions from the
industry), but fall short of the £106.5 million needed which we
estimate would bring gambling treatment on par with treatment
of drug and alcohol addiction. Government could of course
achieve this level of expenditure if it chose to, but at a loss to the
Exchequer of £20-£38 million.”

NERA offers no explanation for why per capita treatment costs for
problem gambling should be the same as for two very different
disorders (alcohol dependency and drugs).

24

Detailed critique
Page Statement Analysis
vi “Additionally, if the proposed reforms are successful in reducing
the incidence of gambling harm, Government could achieve
further savings in reduced expenditure associated with gambling
harm. On behalf of GambleAware, the Institute for Public Policy
Research estimates an excess fiscal cost associated with these
individuals of between £270 million and £1,170 million annually.
If the assessed reforms are effective in reducing harmful
gambling activity, some of these excess fiscal costs could be
reduced. These savings may be more likely to occur through a
more robust RET programme, with an increased standard of
treatment for gambling harm.”

NERA appears to consider whether the reforms are effective in
reducing harm as a side issue (“additionally, if the proposed
reforms are successful…”) when it is in fact a primary
consideration.
The IPPR cost estimates are highly speculative and the report has
been widely criticised.
Furthermore, it is far from clear how spending more on something
will reduce costs.

vi “The gambling industry could lose between £696 million and
£974 million as a result of the proposed reforms, but industry
profits are most likely higher than this at present.”

NERA fails to mention that its cost impact estimates fall heavily on
online gaming and online sports betting in Great Britain – whereas
its profit estimates are both multi-national and multi-sector (i.e.
not online-only). To assume for example that online gaming could
sustain a 76% reduction in revenue and remain a viable
commercial business – and that unlicensed operators would not
benefit substantially from this decline – is fanciful.

1 “Following the release of Committee’s report, the all-party Peers
for Gambling Reform (PGR) was created with the purpose of
implementing the recommendations contained in the Committee
Report.”

It is surely not the role of a group of peers to implement
legislation.

25

Detailed critique
Page Statement Analysis
1 “Funding for this report has been provided by Derek
Webb, a benefactor of PGR.

This seems a remarkably reductive description for a man who has funded
gambling reform activism in Great Britain for more than a decade.

5 “industrywide GGY has grown by around 40 per cent since
2013-14, driven almost entirely by the implementation of
the Gambling (Licensing and Advertising) Act 2014, which
required online gambling operators to hold a licence with
the Gambling Commission. Before 2014, the Industry
Statistics omitted a large segment of legal gambling
activity – since then, all legal gambling activity is captured
in the Industry Statistics.”

This is wrong. GGY did not grow by c40%. What happened was that from
November 2014 onwards, the Gambling Commission started collecting
GGY data from all licensed online operators. It would have been more
accurate to write that “the reported growth in GGY was the result of
changes to legislation that required all online operators to be
domestically licensed and thus allowed the Gambling Commission to
collect GGY data on a more comprehensive basis.
It is only from 2015/2016 (and not “before 2014” as NERA states) that
total market GGY is collected.

6 “According to the Government’s written submission to the
Select Committee, approximately 340,000 individuals, or
0.7 per cent of the adult population of Great Britain
experience gambling-related harm.”

NERA conflates ‘problem gambling’ (a mental health disorder) with
‘harm’. This is incorrect.

“Incidence of harmful gambling is higher amongst younger
players – 2.0 per cent of boys between 11-16 (too young
to gamble legally) are classified as such…”

This is incorrect. It is perfectly legal for boys aged 11-16 to gamble – on
Cat D slot machines for example, playing cards or having private bets
with family members and (for 16-year-olds) buying National Lottery
tickets. These are also the most common gambling activities for those
aged 11-16 years. Also, the problem gambling classification referred to
here is distinct from adult ‘problem gambling’ – something that ought to
have been made clear. 26

Detailed critique

Page Statement Analysis
10 “Following the publication of the Committee Report, the Social Market
Foundation (SMF), a think tank focussing on economic and social fields,
released a report further developing some of the recommendations of the
Committee Report…We rely on this report to further clarify what an
affordability check could look like in practice.”

NERA fails to disclose that this report was also funded by the “PGR
benefactor”, Derek Webb who also funded NERA’s report.

10 “Dr Philip Newall et al conducted an experiment of the effect of minimum
speed of play in UK online roulette, in which UK gamblers were invited to
play an online roulette game designed to look and feel like a typical online
roulette game, and with real money at stake…We rely heavily on this
research to define our assumptions regarding the revenue effect of placing
a maximum play speed on online table games.”

NERA fails to disclose that Dr Newall was an expert adviser to the House
of Lords Select Committee on the Gambling Industry (and has claimed
publicly that he influenced the report).
The study itself is a simulated gambling experiment that has not been
replicated, has not yet been published in any journal, has not (to our
knowledge) been peer reviewed and which contains no statement of
funding (the experiment will have cost several thousand Pounds as a
minimum) or conflict of interest.
Despite all of these factors, NERA “relies heavily” on the paper.

10 Dr Naomi Muggleton analyses detailed, anonymous individual-level
financial transactions from 6.5 million UK customers of Lloyds Banking

Group. Dr Muggleton correlates each customer’s volume of gambling-
related transactions with various markers of financial, lifestyle and well-
being outcomes (e.g. the customers with the highest amount of gambling

activity are most likely to take out a payday loan, and spend the least
amount on education). We do not directly rely upon Dr Muggleton’s work
in this report, but note its contribution to the understanding of gambling
harm.

NERA fails to disclose that Dr Newall (see above) was also involved in
this study.
NERA fails too to acknowledge the fact that this report has been
discredited as a result of a number of methodological flaws – the
principal error being a failure to consider cash inflows alongside cash
outflows (which resulted in a substantial – c200% – overstatement in net
gambling expenditure)

27

Detailed critique
Page Statement Analysis
13-14 “This analysis does not seek to quantify any substitution effects which
players could adopt in reaction to a new maximum level. For example,
players could respond by playing longer sessions. Alternatively, a player
who previously placed their stakes both above and below the new
maximum stake may increase their lower bets towards the new maximum
level.”

This is a surprising omission. Forrest & McHale for example found that
maximum stake reduction on gaming machines in betting shops
resulted in longer sessions at lower levels (with no net reduction in
spending).
NERA fails to acknowledge the risk that forcing people to play at lower
stakes may result in riskier (i.e. longer odds) play.

14 “We assume that online slots will have a minimum play speed of 5
seconds per play, and online table games will have a minimum play speed
of 60 seconds per play.”

It seems likely that NERA means “maximum” rather than “minimum”
speed of play.

14 “…it is apparent that at least some play on online slots occurs at a rate
faster than once every 5 seconds, but it is not possible to estimate how
much. We therefore do not estimate the amount of revenue lost from the
introduction of a minimum spin speed for online slots.”

It is unclear why NERA is considering a 5 second/spin maximum game
speed when a) land-based machines operate on a 2.5 second maximum
speed; and b) the House of Lords report recommends “equalisation”.
To propose a different spin speed on a seemingly arbitrary basis and
not to attempt to estimate impact is strange.

14-15 “Dr Newall’s report summarises a range of evidence showing that average
play speed for roulette played in a casino is around 60 seconds. This
average depends on the number of players at the table, with a one-player
table having an average speed of 32 seconds. However, casinos rarely run
roulette tables with only one player, as this is not economical. We
interpret Dr Newall’s 60 second assumption to reflect the Committee
Report’s recommendation that no table game can be played faster than it
would be in its terrestrial form.”

NERA shifts here from proposing that online technical standards should
be set at the same rate as offline (as the House of Lords report
recommended) to the idea that online technical standards should be
set in reference to typical play in land-based venues.
In any case, the assertion that casinos rarely run roulette tables for a

single player is incorrect. It is relatively common for example in high-
end casinos. Also, it is a mistake to assume that blackjack, poker or

punto banco are played at the same speed as roulette. 28

Detailed critique
Page Statement Analysis
18 “From the Forrest and McHale distribution, we estimate that
around 80 per cent of total non-slots revenue comes from players
with a net expenditure of greater than plus or minus £100. These
players would be subject to an affordability check, although many
of them would not ultimately be affected by it.”

NERA fails to explain why someone winning £100 would be
subject to an affordability check.
NERA fails to acknowledge that the non-slots data may
represent only a small part of an individual’s gambling
behaviour.
NERA seems to define ‘not being affected’ by an affordability
check as ‘being allowed to continue gambling’. In fact, research
indicates that a large proportion of gambling consumers would
be affected by an affordability check (in terms of loss of privacy
etc).

18 “The ONS publishes distributions on equivalised household
disposable income… The median annual income by this measure is
£29,000 and the mean is £36,900. We assume that this distribution
is reflective of the annual income of online gamblers.”

NERA fails to recognise that data from Health Surveys shows
that online sports betting participation is weighted towards
people on higher than average incomes.

19 “Furthermore, the introduction of affordability checks and the
imposition of structural game changes (maximum stake or play
speed) are related concepts, and will drive many of the same
revenue reductions. For example, if players are not able to stake
high amounts on online slots, or play online roulette at a very rapid
speed, they will be less likely to reach the levels of expenditure
which would be affected by an affordability check.”

This may well be correct. It does, however invite the question as
to why both affordability checks and structural games changes
are required if they achieve largely the same results.

29

Detailed critique
Page Statement Analysis
20 Extrapolating the unit costs of gambling treatment, RGSB
estimates that it could cost £20 million to treat each 10 per cent of
affected gamblers in a year. RGSB also notes that “30 per cent of
drug users and people with alcohol dependency in England present
for treatment”. We assume, therefore, that an effective treatment
programme would cost £90 million. In total, we assume that an
optimal RET programme would cost £106.5 million per year,
though a more scaled-back programme could still be a substantial
increase on the industry’s current expenditure on RET
(approximately £19 million)

The assumption seems to be that there is a standard unit cost
for treatment of problem gambling – but this is likely to be
incorrect. At present the mean PGSI score for those entering
treatment is 19 out of 27 – illustrating the fact that typically
those with more severe gambling problems present for
treatment.
It is also the case that in jurisdictions with highly accessible
treatment services, problem gamblers present for treatment in
much lower numbers than is the case for alcohol dependency of
substance misuse. Assumptions of parity are therefore likely to
be arbitrary and unreasonable.

22 We assume that all sponsorship of professional football and rugby
league by gambling operators is prohibited. This includes
advertising on kit, sports programmes, at or near sports venues
and of leagues themselves (such as the Sky Bet English Football
League).
We have been advised to focus especially on professional football
and rugby league. We assume that sports with close ties to the
betting industry are unaffected. This includes horseracing,
greyhound racing, darts and snooker.

The assumption here seems to be that one should not advertise
gambling in the streets around Bramall Lane but that it is
perfectly acceptable to do so in the streets around the Crucible
Theatre. No explanation is offered for this.
NERA fails to mention that horseracing will be significantly
affected by the proposed affordability checks. No attempt is
made to model the impact on racing.

30

Detailed critique
Page Statement Analysis
25 “Potential alternative funding models include:
▪ Requiring gambling companies to pay for rights to have bets
placed in certain leagues;
▪ For football, re-allocation of revenue earned at the highest levels
of sport (e.g. the
Premier League) into lower leagues and grassroots football;
▪ Teams may be able to increase jersey sales to the public if
gambling companies are not featured on them: for instance, in
season 2020/21 EFL Championship’s Swansea City has replaced its
previous betting sponsor on its jersey with Swansea University,
seeking the partnership of a ‘local, prestigious brand’.”

NERA raises the prospect of instituting a ‘betting right’ but fails
to include this in industry impact assessment.
NERA also indicates that removing gambling brands may
increase sales of replica kits – but fails to provide any evidence
in support of this.

26 “For revenue effects, we assume that the gambling sector in
aggregate will not see a loss in revenue from not being able to
advertise their brand via sponsorship of teams.”

NERA assumes no revenue impact as a result of a sponsorship
ban.
This invites the question as to why a ban is deemed necessary (if
it is assumed that it would have no behavioural consequences).
This is further confused on page 30 where NERA states that “by
removing the ability of gambling companies to advertise in
sport, the proposed reforms limit the risk of the unintended
negative consequence of a diversion to sports betting.”

28 “All online operators must pay 21 per cent RGD on GGY from
customers who live in the UK. For each £1 reduction in online GGY,
therefore, we assume that the industry saves £0.21 in RGD.”

RGD is set at 21% but this only affects online gaming. Online
sports betting is subject to General Betting Duty which is levied
at 15%. NERA however applies 21% RGD to all of online
gambling revenues

31

Detailed critique
Page Statement Analysis
30 In response to Government’s 2018 announcement of the reduction
of FOBT stakes from £100 to £2, the Association of British
Bookmakers (ABB) released a statement that “we expect
over 4,000 shops to close and 21,000 colleagues to lose their jobs”.
We have not assessed employment patterns in the two years since
the £2 maximum stake has been in place, but according to Industry
Statistics, there were 639 fewer LBOs at the end of FY 2019-20
(7,681) than at the end of FY 2018-19 (8,320), before the new limit
went into effect.

NERA ignores the probability that some LBOs were closed pre-
emptively before the reduction of FOBT stakes.

Given the timing of the ABB statement (May 2018), it would be
more accurate to use the March 2018 figure (8,559 LBOs) than
the March 2019 figure (8,320). This would indicate a net closures
figure of 878 rather than 639.
By September 2020, the number of LBOs had reduced further to
6,735 – or a loss of more than 1,824 18 months after the FOBT
stake reduction. This may be partly attributable to Covid
restrictions – but it is impossible to estimate by how much.
The ABB estimates may have been exaggerated but NERA’s
attempt to vindicate its own estimates looks very shaky.

31 “We assume that revenue lost from GGY diverts to the industries
below, in proportion with each sector’s gross output, as reported in
the ONS Blue Book National Accounts:
▪ Retail Trade, Except of Motor Vehicles and Motorcycles (“Retail”)
▪ Food and Beverage Service Activities (“Food/Beverage”)
▪ Creative, Arts and Entertainment Activities (“Creative/Arts”)
▪ Sports Activities and Amusement and Recreation Activities
(“Sports/Amusement”)”

NERA offers no evidence in support of what is an assumption
pivotal to its modelling.

32

Detailed critique
Page Statement Analysis
32 “It is outside the scope of this report to estimate the amount
of revenue that could divert to illegal gambling activities.
Instead, we refer to the evidence submitted by then-CEO of
the Gambling Commission Neil McArthur to the Select
Committee: “There is no great sense of a burgeoning illegal
market”

It seems remarkably complacent to ignore the likelihood of growth in
unlicensed gambling – particularly given NERA’s suggestion that
revenue reduction would occur principally in relation to problem
gamblers (who may be least likely to substitute gambling for coffee).
Based upon comparisons with other jurisdictions, it seems likely that
the limited nature of Britain’s unlicensed market is the result of a
relatively liberal regulated market.

33 &
38

“The revenue from the Mandatory Levy which is not already
allocated t the Gambling Ombudsman is directed to the
Exchequer.”

The implication here is that the Levy will not in fact be a hypothecated
tax but a general tax with no requirement for HM Treasury to allocate
the funds to addressing gambling harms (although NERA dos suggest
that c50% of the funds might be allocated to RET). In other words, this
is simply a new tax with no higher purpose other than raising funds for
Exchequer.
NERA’s calculation of the Levy (table 4.4) fails to show the impact on
any ad valorem charge of a substantial reduction in revenue.
35-36 Macroeconomic Effects Tables NERA uses an unexplained and fixed model of spending reallocated
away from gambling with 59% to retail; 28% to food and beverage; 5%
to creative arts; and 8% to sports/amusements. The implication is
consumers will reallocate fix proportions of their spending to these
categories on a straight line basis.

33

Detailed critique
Page Statement Analysis
37 “Employment outcomes: We estimate that the reforms could add
20-30 thousand jobs and increase total employee earnings (i.e.
salaries and wages) by £276-£399 million.
This positive effect occurs because the gambling sector employs
fewer people and pays them less per unit of expenditure than any
of the four industries examined here. In fact, of 105 industries
listed in the National Accounts, the gambling sector ranks 76th in
terms of employee earnings per unit of expenditure in 2018. The
two largest comparator sectors, Retail and Food/Beverage, rank
22nd and 18th, respectively.”

In determining employment effects, NERA assumes that every
marginal Pound spent in retail, food & drink, creative arts and
sports would create the same number of jobs and salaries as
was previously the case. It therefore assumes no productivity
gains, economies of scale or sunk/fixed costs.
In any case, the use of averages in sectors with huge
heterogeneity is extremely questionable.

34

Q&A

On 29th June, the House of Lords will discuss the NERA report and associated matters as part of a debate (oral PQ) tabled by
the Bishop of St Albans. It may be worth considering whether this analysis provides opportunities for peers to contribute to
that debate in a constructive fashion.
For example…
“How much credibility should be given to a report which demonstrates a misunderstanding of how VAT works?