Betting and Gaming Market Report 2003

Key Note Publications Ltd, July 2003

This report studies the Betting and gaming industry in the UK and covers the following areas:

-Market Definition

-Market Size

-Industry Background

-Competitor Analysis

-Strengths, Weaknesses, Opportunities and Threats

-Buying Behaviour

-Current Issues

-The Global Market

-Forecasts

-Company Profiles

-Further Sources

Executive Summary 1. Market Definition Report Coverage MARKET SECTORS Economic Trends Gross Domestic Product -Table 1: UK Gross Domestic Product at Current and Constant 1995 Prices (£m), 1998-2002 Inflation -Table 2: UK Rate of Inflation (%), 1998-2002 Unemployment -Table 3: Actual Number of Unemployed Persons (million and %), 1998-2002 Household Disposable Income -Table 4: Household Disposable Income (£ and %), 1998-2002 Population -Table 5: UK Resident Population Estimates by Sex (000 and %), Mid-Years 1998-2002 MARKET TRENDS Investment in Anticipation Technology Betting Exchanges Market Position -Table 6: Expenditure on Games of Chance as a Percentage of Total Consumer Expenditure on Recreational and Cultural Services (£m and %), 1998-2002 A European Comparison 2. Market Size THE TOTAL MARKET Net Expenditure -Table 7: Total UK Net Expenditure on Games of Chance by Value at Current Prices (£m and %), 1998-2002 by Market Sector -Table 8: Amount of Gross Stakes by Gambling Sector (£m and %), Year Ending 31st March 2003 Bookmakers Gaming Machines National Lottery -Table 9: Lotteries (number and £m), Year Ending 31st March, 1998/1999-2002/2003 Casinos -Table 10: Casino Drop and House Wins (£m and %), Year Ending 31st March, 1998/1999-2002/2003 Regional Differences in Drop -Table 11: London and Provincial Casino Drop (£m), Year Ending 31st March, 1999-2003 Number of Visits to Casinos by Region -Table 12: Number of Casino Visits by Region (000), Year Ending 31st March, 1999-2003 Distribution of Drop by Game -Table 13: Distribution of Drop by Game (%), Year Ending 31st March, 1999-2003 Licensed Bingo -Table 14: Number of Bingo Clubs and Amounts Staked (£m and %), Year Ending 31st March, 1999-2003 Multiple Bingo Linked Bingo Football Pools -Table 15: Total Stakes on Football Pools (£m and %), Year Ending 31st July 1998/1999-2002/2003 Other 3. Industry Background RECENT HISTORY Control of the Industry The National Lottery (Lotto) Other Lotteries Casinos Bingo Football Pools On- and Off-Course Betting Gaming Machines Online Gambling HM Customs and Excise Receipts from Betting, Gaming and Lottery Duties -Table 16: HM Customs and Excise Receipts from Betting, Gaming and Lottery Duties (£000), 1999/2000-2002/2003 Gaming Duty -Table 17: Rates of Gaming Duties Payable by Casino Operators (% of GGY), Pre- and Post-Budget 2003 Amusement Machine Licence Duty Bingo Duty Lottery Duty General Betting Duty Pool Betting Duty The Workings of the National Lottery Industry Synopsis -Table 18: Average Financial Performance of Companies Involved in Betting and Gaming Activities (£ and %), 2003 NUMBER OF COMPANIES -Table 19: Number of UK VAT-Based Enterprises Engaged in Gambling and Betting Activities by Turnover Sizeband (£000 and %), 2003 By Employment Table 20: Number of UK VAT-Based Local Units Engaged in Gambling and Betting by Employment Sizeband (number of employees and %), 2003 Regional Variations in the Marketplace DISTRIBUTION Bookmakers Gaming Machines National Lotteries Casinos Licensed Bingo Clubs How Robust is the Market? Legislation The Betting, Gaming and Lotteries (Variation of Monetary Limits) Order 2002 Criminal Records Bureau The Deregulation (Bingo and Other Gaming) Order 2002 2nd European Union Directive on Money Laundering The Gaming (Bingo) Act (Variation Of Monetary Limit) Order 2002 The Gaming Clubs (Charges) (Amendments) Regulations 2002 Gaming Duty The Regulatory Reform (Gaming Machines) Order 2003 KEY TRADE ASSOCIATIONS Association of British Bookmakers The Bingo Association British Amusement Catering Trades Association The British Casino Association The Internet Gaming Commission The Interactive Gaming, Gambling and Betting Association The Pools Promoters Association EUROPEAN ASSOCIATIONS European Gaming Organisation Gaming Regulators' European Forum 4. Competitor Analysis THE MARKETPLACE Bookmaking Gaming Machines National Lottery Operators Casino Operators Licensed Bingo Football Pools -Table 21: Total Stakes received by Littlewoods, Vernons and Zetters Football Pools (£m), Year Ending 31st July 1998-2002 Internet Betting Market Leaders -Table 22: Leading Competitors Involved in Betting and Gaming by Turnover Size (£m) Arena Leisure PLC -Company Structure -Current and Future Developments -Financial Results Camelot PLC -Company Structure -Current and Future Developments -Financial Results Carlton Clubs PLC -Company Structure -Current and Future Developments -Financial Results Coral Eurobet Ltd -Company Structure -Current and Future Developments -Financial Results Gala Group Ltd -Company Structure -Current and Future Developments -Financial Results Hilton Group PLC -Company Structure -Current and Future Developments -Financial Results -Table 23: Ladbrokes Betting and Gaming Turnover and †Pre-Tax Profit (Loss) by Business (£m) , Year to 31st December 2000 and 2001 -Table 24: Ladbrokes Betting and Gaming Turnover by Business (£m), Half Year Ending 30th June 2001 and 2002 Horserace Totalisator Board -Company Structure -Current and Future Developments -Financial Results -Table 25: Financial Results of the Horserace Totalisator Board (£000), Year Ending 31st March 2002 and 2003 London Clubs International PLC -Company Structure -Current and Future Developments -Financial Results Paddy Power PLC -Company Structure -Current and Future Developments -Financial Results Rank Group PLC -Company Structure -Current and Future Developments Mecca Bingo -Table 26: Mecca Bingo, UK Admissions and Spend per Head (£), 2001 and 2002 Grosvenor and Hard Rock Casinos Rank Leisure Machine Services Rank Interactive Gaming Financial Results -Table 27: Financial Results of the Gaming Division of Rank Group PLC (£m), Year Ending 31st December 2001 and 2002 Sportech PLC -Company Structure -Current and Future Developments -Financial Results Stanley Leisure PLC -Company Structure -Current and Future Developments -Financial Results -Table 28: Stanley Leisure PLC Financial Results (£m), Year Ending 27th April 2003 William Hill PLC -Company Structure -Current and Future Developments -Financial Results -Table 29: William Hill PLC Turnover by Business Activity (£m), Year Ending 31st December 2002 OUTSIDE SUPPLIERS Betting Systems Equipment Security Consultancy Services MARKETING ACTIVITY Advertising Policy Main Media Advertising Expenditure -Table 30: Main Media Advertising Expenditure on Betting and Gaming, etc (£000), Year to June 2002 and 2003 Clubs and Associations -Table 31: Main Media Advertising Expenditure on Clubs and Associations (£000), Year to June 2003 Lotteries and Telephone Lines -Table 32: Main Media Advertising Expenditure on Lotteries and Telephone Lines (£000), Year to June 2003 Bookmakers -Table 33: Main Media Advertising Expenditure on Bookmakers (£000), Year to June 2003 Football Pools Sports -Table 34: Main Media Advertising Expenditure on Sports (£000), Year to June 2003 RECENT PROMOTIONS Camelot Mecca Bingo Sponsorship Exhibitions International Casino Exhibition and the Amusement Trade Exhibition International Amuse UK G2E Global Interactive Gaming Summit and Expo Euro Amusement Show 5. Strengths, Weaknesses, Opportunities and Threats TOTAL MARKET Strengths Weaknesses Opportunities Threats BOOKMAKERS Strengths Weaknesses Opportunities Threats GAMING MACHINES Strengths Weaknesses Opportunities Threats NATIONAL LOTTERY Strengths Weaknesses Opportunities Threats CASINOS Strengths Weaknesses Opportunities Threats LICENSED BINGO Strengths Weaknesses Opportunities Threats FOOTBALL POOLS Strengths Weaknesses Opportunities Threats 6. Buying Behaviour HOUSEHOLD EXPENDITURE By Gross Income Decile Group -Table 35: Average Weekly Household Expenditure on Gambling Payments as Part of Expenditure on Recreational and Cultural Services by Gross Income Decile Group (£ and %), 2001/2002 Expenditure by Age -Table 36: Average Weekly Household Expenditure on Gambling Payments by Age of Household Head (£), 2000/2001 and 2001/2002 Expenditure by Region Expenditure on Lotto -Table 37: Weekly Expenditure on the Lotto (% of respondents), 2003 FREQUENCY OF PARTICIPATION IN BETTING AND GAMING The National Lottery -Table 38: Frequency of Participation in the Lotto (% of respondents), 2003 Participants of the Weekly Saturday Draw by Age and Social Grade -Table 39: Participants of the Weekly Saturday Draw by Sex, Age and Social Grade (% of respondents), 2003 Other Leisure Activities -Table 40: Participation in Leisure Activities (% of adults), 2003 7. Current Issues MERGERS AND ACQUISITIONS Betinternet Blue Square Coinmaster Gaming PLC Crown Sports Done Bookmakers Gala Group Ltd IG Index Top Ten Bingo BOARD AND SENIOR MANAGEMENT CHANGES Attheraces Camelot Group PLC Horserace Totalisator Board Littlewoods Gaming London Clubs International PLC Paddy Power PLC NEW PRODUCTS Lottery Games Littlewoods Gaming International Game Technology INVESTMENT PROJECTS THE CASE FOR AND AGAINST DEREGULATION FIXED ODDS BETTING TERMINALS BETTING LEVIES A POSSIBLE BAN ON SMOKING IN WORKPLACES 8. The Global Market SIZE OF THE INDUSTRY World Lottery Sales by Jurisdiction WESTERN EUROPEAN MARKET THE US MARKET Profile of American Casino Gamblers Lotteries THE AUSTRALIAN MARKET -Table 41: Turnover of the Australian Betting and Gaming Industry (A$m), 2000 and 2001 Lotteries -Table 42: Australian Lottery Sales by Jurisdiction (A$m), 2000/2001 THE ASIAN MARKET SELECTED INTERNATIONAL COMPETITORS Harrah's Entertainment Inc Park Place Entertainment Corporation MGM Mirage Boyd Gaming Corporation Casinos Austria Centrebet Global News 9. Forecasts ECONOMIC GROWTH FORECASTS 2003 TO 2007 -Table 43: Projected Value of the UK Betting and Gaming Industry (£m), Year to December 2003-2007 Future trends 10. Company Profiles Arena Leisure Plc Camelot Group Plc Hilton Group Plc London Clubs International Plc The Rank Group Plc Stanley Leisure Plc WILLIAM HILL PLC 11. Further Sources Associations General Sources Bonnier Information Sources Government Publications

In 2002, net expenditure — that is gross stakes less winnings — on betting and gaming in the UK had increased by more than 8% on 2001, having been fairly static since 1998. Gross stakes paid over to bookmakers, meanwhile, rose particularly sharply in response to a change in the tax system favouring punters that came into force at the end of 2001. The bookmaking sector also benefited from the introduction of lucrative fixed odds betting machines, although their legality in betting shops is to be questioned in the High Court in 2004. Stakes paid into the casino and licensed bingo sectors also increased in the year ending 31st March 2003 compared with 2002. Other trade figures show a fall in spending on football pools and on the National Lottery, particularly the main twice-weekly game. Camelot, however, is to lose its lottery monopoly in a bid to halt years of falling sales and inject new life into the game. The company was badly damaged by scandals over controversial grants and bonuses paid to directors. The UK betting and gaming industry is currently regulated by some of the strictest gambling legislation in the world, now considered archaic in these more liberal days, especially given the growth in remote gambling — whether via the Internet, mobile phone or interactive digital television. The industry has therefore greeted with some enthusiasm the proposed deregulatory measures outlined in the Budd Report of July 2001 and largely endorsed by the Government. A Gambling Review was originally intended to be included in the Queen's Speech in autumn 2003 followed by a Royal Assent in the last quarter of 2004. However, the UK Sports Minister Richard Caborn's warning, in June 2003, that it would be delayed for up to 12 months because of legislative congestion in Parliament, will have been a source of disappointment to the industry which was eagerly waiting to benefit from relaxed rules on betting and gaming. Among the most significant changes will be the abolition of a 24-hour `cooling off' period between joining a casino and playing in it, so that a visit to a casino can be one of impulse. The obligation to prove demand for a casino in any particular area is also to be removed so that, to avoid a proliferation of 'corner shop' casinos springing up on the high street, the Government has decreed that new casinos must have a minimum floor space of 5,000 square feet, paving the way for the Las Vegas-style casinos that it is hoped will revive seaside resorts. Indeed, the Gala Group Ltd has already announced its intention of setting up eight super-casinos in the UK in partnership with the US company, Harrah's Entertainment Inc. The future looks good for the industry, although it remains to be seen whether the public in general either need or want increased opportunities to gamble. There is every chance that deregulation may result in a social backlash, such as that seen in Australia, whose population now lose more per capita than any other country in the world.

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Betting and Gaming Market Report 2003

Key Note Publications Ltd, July 2003

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