UK Gaming Board, Arcade Operator Clash over New Kiosk

The U.K. Gaming Board wants to bar a new Internet kiosk that enables users to access online gambling services.

British amusement arcade operator The Leisure Exchange recently began testing the kiosk in one of its adult-only venues. The machine functions similar to a computer one would find at an Internet cafe in the sense that customers pay cash to surf the Internet for an allotted amount of time. A customer using The Leisure Exchange's kiosk can surf the same Web sites--including gambling Web sites--as he could from an Internet cafe or from home.

But one of the kiosk's distinctions is that the cash deposited by the consumer goes into an e-wallet that can then be used to access other pay services on the Internet. For example, a customer can download ring-tones onto his or her mobile phone and have the funds deducted from his e-wallet rather than having the funds deducted from a credit card.

The key innovation as far as gaming is concerned is that The Leisure Exchange has signed a co-marketing agreement with the Cherry Group's online casino to give a hyperlink to Cherry's casino preferred placement on the kiosk's display. Players can use the funds from their e-wallets to gamble with Cherry's casino and don't have to pay for Internet usage while playing. Winnings are delivered through a ticket printout, which the player redeems at the arcade's front desk.

Internet kiosks are nothing new, but Cliff Young, a spokesman for the Gaming Board, said this particular device crosses a line.

"The board is of the view that the operation of this machine involves the organizing and management of gaming and that gaming is taking place on the premises," Young said. "Therefore, the board is of the view that the continuing operation of this machine involves offenses under the 1968 Gaming Act. Should these machines continue to be supplied, the board will consider what action it needs to take."

But The Leisure Exchange and its legal team insist that the new kiosk is not covered by the Gaming Act, which, having been drafted in 1968, does not address the technological advances of the Internet.

The Department of Culture, Media and Sport has adopted the view that online gambling takes place wherever the servers of the online gambling sites are located. So in the case of the kiosks, the gambling activity actually takes place offshore, not in The Leisure Exchange's arcade.

"Leading legal counsel in the U.K. has advised us that as we have an offshore server, and we've got a genuine Internet casino site," Stephen Eldred, managing director of The Leisure Exchange, explained. "Even if people actually go onto that site from the U.K., then it is outside the scope of the Act and legal."

Eldred added, "It is a gray area of the law because this technology was not anticipated in 1968. If you put this kiosk into a licensed gaming area like an amusement arcade, or a chip shop or a pub, then our reading--our legal opinion from counsel--is that it is perfectly legal. We have every intention of ensuring these kiosks are only available in over-18 environments, but the Gaming Board is understandably worried because now there is a risk of proliferation."

Eldred said the new Internet kiosk might rescue some of the profits lost by pubs and amusement arcades to betting shops that are now beefing up their numbers of fixed-odds betting terminals.

"The industry has gone from no FOBTs maybe two years ago to upward of maybe 30,000 now," Eldred said. "The net profit is about £8 million a day, and that's all going to Ladbrokes, William Hill and a bunch of other large bookmaking companies. What has happened is that money has shifted to the bookies; it has just sliced the pie a different way. So the pubs and amusement arcades are hurting like crazy because there is only a certain amount of gambling money, and it has all just shifted to the bookies. So you've now got this seismic shift within the industry that the government has sort of caused. Now this Internet kiosk allows some of that shift to be rebalanced."

Despite the potential re-shift, the British Amusement Catering Trade Association, the largest trade association for the gaming and pay-to-play leisure industry in Great Britain, has not offered much help to The Leisure Exchange.

"You would normally expect your trade body to get beside this sort of innovation because its good for their members," Eldred said, "but they've been put under enormous pressure from the Gaming Board and are concerned about possible repercussions under the prospective new Gaming Bill. It is a shame because the British Bookmakers Association does such a good job for their members. In the last few years betting shops have gained fruit machines and FOBT's all at the amusement arcades' expense. We are not even getting the Triennial review due this year. The members are somewhat upset by that because they are getting killed out there."

For now, the debate between The Leisure Exchange's legal team and the Gaming Board continues. The board sent a letter two weeks ago stating that it would prosecute if The Leisure Exchange does not cease operating the machines, but the company is confident that it is doing nothing illegal.

To address the Gaming Board's concerns about proliferation of such machines, the company would like to take the same route that the bookmakers did with FOBTs.

Said Eldred, "I believe that these Internet terminals should be subject to an industry code of conduct, similar to the FOBTs, that enables them to be operated by responsible firms in sites such as adult gaming centers and adult designated areas where age and access is strictly controlled and consistently proven to be so."

He added, "According to our legal team, if the Internet kiosks are illegal, then so are the FOBTs."