VDAI BUSINESS PRESS CONFERENCE -16th January 2012, Düsseldorf, Industrie-Club e.V.

– The spoken word shall prevail –

Amusement and Gaming Machine Industry 2010

Existential fears in insecure political environment
Attempt to annihilate an entire industry
Accumulation of burdens
Excessive regulations favour illegal gambling

“2011 has been characterised by the ‘hounding’ of the commercial AWP industry. The states are brutally trying to repress commercial AWPs in order to secure their own gambling monopoly. However, if states create a monopoly, themselves trade as economic participants, then furthermore act as their own controllers, collect taxes and levies, also distribute these and even possess the competency to destroy competitors – then conflicts of interests are pre-programmed”, state the Chairmen of the German Amusement and Vending Machine Industry Association Paul Gauselmann and Uwe Christiansen.

Existential fears in insecure political environment

The amusement and vending machine industry attained an aggregated turnover in all three divisions of 5.365 billion euros in 2011. The increase was at 4.3% distinctly weaker in 2010 than 2009 at 5.8%. The manufacturer turnover increased less at 4.4% than the turnover in the arcade division (gross gaming revenue for AWPs as well as amusement machines) at 4.7%.

The turnover with AWPs (gross gaming / cashbox revenue) amounted in 2011 to 4.14 billion euros (+5.1%) in absolute figures. The long-term turnover comparison in the arcade sector must take dramatic structural changes into account that took place in the course of the amendment to the Gaming Ordinance (SpielV) in 2006. At the end of the 1990s, players were continually turning away from the (at that time) technically antiquated AWPs. Following pressure on innovation ensued and so-called Fun Games with token payout came to market which were similar to AWPs but offered a more attractive game play as was the standard at that time already abroad and in casinos. Consequently, turnover shifted from the classic German AWPs to this new gaming form. However, as these machines were misused to allow for illegal gambling, they were forbidden upon the change to the Gaming Ordinance on 1st January 2006. A total of 80,000 units had to be removed from the market. These were successively replaced by new generation AWPs made possible by the amended Gaming Ordinance. It thus followed that the number of AWPs in operation grew strongly and thus the turnover attained from these as well. The short-term distinct growth is nevertheless deceptive and does not represent reality as turnover that had shifted from AWPs to Fun Games was now successively shifting back to the new attractive AWPs.

Revising the numbers for the structurally related shifts in turnover between the two forms of gaming, then an average annual increase in cashbox takings between 2005 and 2011 is established at 5% on the operator side. The industry was able to record indeed healthy growth since the amendment to the Gaming Ordinance.

The increase in turnover in 2011 at 4.3% continues this long-term trend. This can indeed to seen as pleasing in the light of the current political discussions and increasing political unpredictability. The further development is characterised by many uncertainties right up to existential fear in the light of the stated intention of the states to massively repress commercial AWPs.

Number of AWPs in operation less than 1995

In 2001 there were 278,750 amusement machines with and without payout possibility in Germany in operation. This is almost 10% less than in 2005 (308,600 machines) but almost 30% less than in 1995 (390,500 machines).
The number of commercially operated AWPs amounted to approx. 245,000 in 1995 and fell to approx. 183,000 in 2005. If the so-called Fun Games are included to this number that were temporarily replacing classic AWPs, then a total number of 263,000 machines ensues for 2005. The decree to remove the approx. 80,000 Fun Games took pace in 2006. The majority was replaced by the new AWPs once available – legal and certified by the German certification body Physikalisch-Technischen Bundesanstalt (PTB). The number of AWPs in operation at 242,250 at the end of 2011 still lies below the value of 1995, even with the cumulative machine number of 2005 (including Fun Games). If some industry critics see turbulent growth of the industry contrary to these numbers, then this does not correspond to reality as the abolition of the Fun Games has not been taken into account.
The continually sustained moderate growth is in accordance with the resolution of the Economic Ministers’ Conference from 17th/18th May 2000. Here it clearly states: “Commercial gaming has to be offered perspectives to be able to exist in competition alongside state and internet gambling”. This resolution illustrates an essential goal of the Gaming Ordinance that came into force on 1st January 2006: increasing revenues from legal, commercial AWPs was politically intended.

The development in the field of AWP operation has been characterised in the recent past by a considerable structural change. The trend is towards larger arcade complexes with several concessions. The interior decorating and exterior architecture became more professional; service was greatly improved. Furthermore, the locations are chosen often in industrial estates and areas near the motorway (e.g. motorway services).
The larger entertainment complexes live up to the expectations of the customers who expect a diverse, well-packed offer. A new customer base was won with approx. 30% female players. All arcade operators try to get well qualified personnel. The larger complexes in particular always have qualified personnel and stand out through the best possible compliance to legal regulations, such as adhering to displaying information on problematic gaming behaviour (cf. field study of Jürgen Trümper, Arbeitskreis Spielsucht (Gaming Addiction Work Group), 2011 ).

Securing monopoly by annihilating private competition

After the Lottery State Treaty was toppled in 2006 by the Federal Constitutional Court, the Interstate Gambling Treaty came into effect in 2008. The states spent almost two years discussing an amendment to this latter treaty. The discussion received considerable dynamics through the judgements of the European Court of Justice (ECJ) on 8th September 2010. In the view of the fact of the prohibition of private sports betting companies, the ECJ affirmed an incoherence of the regulations of the German gambling and gaming markets. The opinion of the court was focused on the massive lotto advertising campaigns that are not allowed according to the State Treaty as well as the growth of casino offers and the expansion in the field of commercial AWPs.
Let it be understood: Commercial AWP gaming is neither a ‘scapegoat’ nor ‘perpetrator’ for the ECJ. The development in this sector is for the court an indication of the defectiveness of the Interstate Gambling Treaty in the realms of coherency. A limitation of commercial AWP gaming has not been expressly demanded by the ECJ. Irrespective of this, the ECJ judgements have been interpreted in a different intent against the amusement machine industry by concerned parties.

f. l. t. r.: Dr. Hans-Günther Vieweg, ifo-Institut, Prof. Dr. Friedhelm Hufen, Johannes Gutenberg-Universität Mainz, Paul Gauselmann, Chairman of the VDAI, Dr. Jürgen Bornecke, Managing Director of the VDAI, Christian Trenner, Chairman of the VDAI Department for Vending and Service Machines
f. l. t. r.: Dr. Hans-Günther Vieweg, ifo-Institut, Prof. Dr. Friedhelm Hufen, Johannes Gutenberg-Universität Mainz, Paul Gauselmann, Chairman of the VDAI, Dr. Jürgen Bornecke, Managing Director of the VDAI, Christian Trenner, Chairman of the VDAI Department for Vending and Service Machines

Despite of massive constitutional and European legal concerns, the states intend – with exception of Schleswig-Holstein – to maintain their gambling monopoly and allow private sports betting to a limited extent. However, all states want nevertheless to drastically curtail commercial AWP gaming. The states only reacted to the objections of the EU Commission at the beginning of December 2011 after having been admonished by the Commission in summer 2011. The First Amended Interstate Gambling Treaty was signed on 15th December 2011 by 15 heads of states despite the lack of a final position of the Commission concerning the notification. The states have thus expanded upon the content and distribution forms for the gambling offers – as for example the introduction of a Euro Jackpot with winning sums of up to 90 million euros and the sale of lotto tickets via the internet and the broad allowance of sports betting. At the same time they are restricting the private industry – such as commercial gaming as well as horse racing betting – in an intolerable fashion. Commercial gaming is to be repressed to threaten our existences by a whole bundle of measures in the framework of the First Amended Interstate Gambling Treaty through

– forbidding multi-concessions,
– introducing minimum distances between arcades,
– drastic limitations on advertising,
– lengthening closing times which is out of touch with reality,
– a specific legal gambling permission as well as
– limiting inventory protection to only five years for existing commercial arcade allowances, even though these were allocated for an unlimited period of time.

What are the intentions of the political agents? To prevent problematic gambling behaviour and/or the channelling of natural gambling instincts? In the era of internet that is globally available at any time of the day, this is not possible to guarantee through monopolies. The truth lies in fiscal interests, positions, power, influence and the repression of unwelcome competition. The assumption that state-controlled gambling is less problematic than commercial gambling can only be stated to be a misbelief. Particularly when it is taken into account that commercially organised gaming is only allowed according to strict state-enacted benchmark data and is only allowed upon the certification through the German test house, the Physikalisch-Technische-Bundesanstalt – and in contrary to state casinos only with small stakes.

Inventory protection in a constitutional state

The commercial AWP sector has been working since the beginning of the 1950s on a secure trading basis. In reliance of the constitutional state and the protection of licences that have been granted for an unlimited amount of time, over 5,000 companies have considerably invested in this industry. Over 70,000 jobs have been created – 75% of these for female employees. Furthermore, another 35,000 jobs have come about indirectly. Two independent occupations for the AWP industry exist since 2008 with hundreds of trainees. The companies annually pay over 1.5 billion euros in taxes and social security contributions, of which much more than 440 million euros goes as amusement tax to the local districts.

The First Amended Interstate Gambling Treaty should be enacted on 1st July 2012. This and the executive laws of the states may not be seen in isolation. They must be seen in connection with further planned and already implemented arcade laws of the states as well as the changes already suggested by the states to the Gaming Ordinance. Together with reduced opening times for arcades and increased rates of amusement tax in numerous local districts, this all cumulates in restrictive and burdensome regulations (keyword: multi-tier problem). The realisation of these measures on the industry will factually lead in many areas to company expropriation and fundamentally violates the constitutional guarantee of being able to choose one’s own profession. The consequences are catastrophic:

Destruction of more than 50 of livelihoods and all jobs in the field of the coin-op industry within the transitional period of five years.

The already notified change to the Gaming Ordinance within the AWP industry would lead curtail the attraction of today’s AWPs in an unacceptable way and would paralyse the entire production in the short term. Attractive machines that are already in the market as well as alternatives such as in the internet would quickly lead to a dramatic drop in interest for such less interesting games.

The main beneficiaries would be illegal internet offers. Over 30 million private households have an internet connection in Germany. The expected development via smartphones and tablets should be unlimited.

Missing social controls and game offers without limits on wins and losses (which is strictly regulated in the Gaming Ordinance) would mean that player and youth protection would become just empty words.

The expansion of illegal gambling would furthermore accentuate the financial problems of the state, leading to declining tax receipts as well as a loss in purchasing power and job losses in Germany.

More than 99
of All Adults Play Problem-free
According to existing population surveys, the amount of players who display a pathological behaviour in Germany lies between 0.19% and 0.56% for all types of gambling in the adult population. This value lies at the lower end of the spectrum in European comparison.
A survey carried out by Prof. Peren at the University of Bonn Rhine-Sieg came to the following result: For every 100 million euros spent on gaming and gambling, the amount of pathological players is

6.67 on online gambling,

on roulette and slot machines in casinos,
0.35 on lotto and

on AWPs.

The positive result for AWPs is negated by critics. Measured on market penetration, the risk for pathological gambling (apart from lotto) is considerably less than with other forms of gambling.

The results of the current study of the Emnid-Institute that were released in November 2011 fit in with the large population surveys. The study does away with the prejudice that pathological players are linked with just one certain form of gambling. The player personality has to be at the centre of observation when fighting addictive gambling and not the game itself. Those who fight against a certain form of gambling, thinking this is the way to protect against pathological gambling, are mistaken. Bans do not provide protection.
Bearing the results of the current Emnid survey in mind, the amusement and vending machine industry has chosen a new path for low-threshold help and counselling offers: Thus, the Caritas Association for the Archdiocese Berlin has trained over 1,500 arcade employees since 2011. The goal is to recognise pathological gambling behaviour at an early stage and mediate the affected persons to regional help facilities. In contrast to the casinos, excessive players are not barred. Much more than that, they ‘receive a helping hand’ and offered nationwide qualified help. Information flyers are placed in every arcade whereby players can check their own gaming behaviour. Inside is also contact data of skilled, qualified information and help centres. All AWPs have had the warning advice ‘excessive gaming is no solution to personal problems’ printed on them for decades. Next to this is the number of a telephone hotline that is linked to the Federal Centre for Health Education.
In addition to this, the alcohol ban in arcades is important in the terms of prevention of pathological gaming behaviour. This has been legally mandatory since 1985 after this was first done on a voluntary basis.

Attacks on commercial AWP gaming

Revenues at providers in the state gambling monopoly have been in decline for years. This is mostly blamed on the amusement machine industry. However, there are many causative factors for the decline in turnover of the providers in the state gambling monopoly:

– the expansion of illegal gambling in the internet,
– complete ID controls in the slot halls of the casinos,
– smoking bans,
– the prohibition of casinos having their own internet gambling and
– unattractive, completely uncompetitive small payout quotas at Oddset.

The state providers are putting the pressure on. In addition to this: The coffers of the local districts are empty. This is a cause for the relatively generous approvals conduct for arcades in the recent past through which the local districts have gained about 440 million euros in amusement tax in 2011. At certain places, in particular through larger arcade complexes, the impression of arcade clustering has been evoked. A ‘flood of arcades’ has been talked about although the local districts themselves entirely steer the arcade placements because of the necessary planning permission. The discussion has also been promoted by some scientists and advisers with their own financial interests.

This adverse conflict situation leads – apart from the First Amended Interstate Gambling Treaty – to demands for individual state arcade laws, pressuring the federal government concerning the amendment to the Gaming Ordinance and to lengthened closing times and an increase in the rates of the amusement tax at the level of the local districts. Pressure is being applied from several sides and leads to a classic ‘multi-tier problem’: A cow cannot be milked and slaughtered at the same time. The local districts profit from the establishment of arcades via the amusement tax. The tax screw has often been tightened in many occasions in the meantime. According to the auditing company KPMG, the limit of sustainability of the amusement tax based on the gross cashbox is at 8.82% and at 10.6% of the net cashbox. A constitutional complaint against the amusement tax law in Berlin has already been handed to the Berlin State High Court.

Gambling in the internet around the clock – without limits and without social controls

All commercially operated AWPs in Germany are without exception certified by the German test house PTB and correspond to the regulations of the Gaming Ordinance. A maximum of 12 AWPs may be placed in one arcade concession. Each AWP requires a mathematical floor space of at least 12 m². To prevent playing on more than one AWP at one time, AWPs may only be positioned in groups of two with dividing walls. Inappropriately high losses in a short period of time are excluded by the regulations of the Gaming Ordinance. To ensure this, among other things a highest bet is 0.20 euros every five playing seconds and highest win of 2 euros. Win and loss sums are limited and a playing stop of 5 minutes is also prescribed after an hour of game play. The average loss per hour according to the Gaming Ordinance is set at a maximum of 33 euros. In reality this is between 5 and 15 euros (according to a survey of the Fraunhofer Institute it is 10.89 euros per hour on average).

The internet knows no such limits – neither gambling in the slots halls of the casinos. Even though gaming and gambling in the internet has up to now been forbidden, there are thousands of providers on the net – for practically everyone – regardless of age – around the clock. Stakes for internet gambling that for example resemble those in casinos can be found. There are also games that exactly correspond to those on AWPs. However, the stake and win levels are not limited. Payment to anonymous player accounts are possible with credit cards, prepaid cards, pay safe systems, vouchers, etc.
Excessive curbs on the strictly regulated and controlled AWP gaming has inevitably led to a shift from players to unregulated and uncontrolled gambling providers. The danger there is of undue high losses in a short period of time. There are no social controls. Player and youth protection fall by the wayside.

An extensive set of regulations exists for the commercial AWP sector in Germany, from the Industrial Code through to the Gaming Ordinance and right up to Children and Young Persons Act. There is no regulatory deficit. There is, however, a deficit in controls and implementation.
The companies of the amusement machine industry do not turn their backs on the optimisation of responsible gaming as well as a fine-tuning of the legal regulations affecting them. However, they will make use of all legal measures available to them in all levels of litigation to protect their existence against being annihilated. We will experience a flood of court cases without precedent and immense compensation claims, nationwide up to 4 billion euros!

i. A. Ilka Ahlers
Gauselmann AG
Zentralbereich Kommunikation
Merkur-Allee 1-15
32339 Espelkamp
Tel.: 05772/49-293
Fax: 05772/49-297