In 2008, the government gave operators a 75% discount on registration fees to set up the gambling hall business. Now they risk losing everything.
OUT OF LUCK
How the finance ministry created the gaming hall business, and then left investors gasping for air
Matthew Vella Gaming hall operators are accusing the government of devising new rules that will make it impossible for them to stay in business.
They say it was the finance ministry, then headed by Lawrence Gonzi (with Tonio Fenech as his parliamentary secretary), which offered them discounted registration fees on new gaming machines.
Now they claim that Tonio Fenech is planning new rules that will curtail their opening hours and increase registration fees on gaming machines.
“They offered us a 75% discount on registration fees so that we buy the gaming machines and switch over to the new gaming regime,” operators told MaltaToday.
“They wanted us to buy the video lottery terminals (VLTs) so that the LGA could hook up the machines to a central system. So they offered us a discount on the registration fee. Now they want to put us out of business.”
Additionally, the LGA has not yet processed applications from gaming firms to issue licences for the operation of gaming halls, this newspaper has learnt, as a picture is now emerging of how government encouraged the business, allowed it to proliferate inside quite residential pockets, and now plans to clip its wings.
Fiscal incentives Efforts to regulate gaming machines started in 2005, by encouraging owners of amusement machines to switch over to a new computerised regime.
Traditionally, amusement machines were operated in bars and clubs on a revenue-sharing basis. In a bid to curb any illegal businesses, the LGA authored a new regime of VLTs.
The strict licensing would push the machines away from social clubs and into dedicated gaming outlets, and the VLTs would be able to have limits on winnings, and be monitored by the LGA through a central system.
In 2007, the authority announced it would issue licences for the gaming halls. In public meetings held in October, the LGA announced that since it wanted an early registration of the machines, it would bring registration fees on each machine down from €1,000 to €250, if operators registered machines before June 2008.
“The LGA was suggesting that operators would be better off importing VLTs before the cut-off date,” an operator said. These included the €750 discount on registering each machine, and also a 12.5% tax on gross gaming revenues instead of a monthly €250 fee on each machine.
Breakdown in regulation By 2008, all operators were left out in the cold, not knowing what to do and what was expected out of them. The people we had been in contact with from the LGA were removed, replaced or had resigned,” one of the operators told MaltaToday.
Nicholas Xuereb became the new LGA chairman, replacing Joseph Zammit Maempel. Chief executive Mario Galea, considered one of the main architects of the gaming laws, resigned in October 2008, and an acting CEO, Michael Gonzi, was appointed. Reuben Portanier was appointed CEO in March 2009. To date, neither the licences nor the conditions for operating gaming halls were ever issued.
“During one meeting, the LGA was asked whether they had received any applications for a ‘VLT Operator License’. The LGA explained it had decided to delay this process, and was not accepting these applications, and that two applications it had received had been returned,” the operator said.
Free-for-all With the lull in licensing, gaming shops started to sprout across Malta in what became a free-for-all, ostensibly blessed by government.
Nested inside residential areas, and sometimes in the vicinity of schools, some 100 gaming outlets were opened because all that was required for these establishments was a ‘change-of-use’ permit from the MEPA, and a trading licence.
According to Pinnacle Gaming director Johann Schembri, who had spoken to MaltaToday back in April 2009, in 90% of the cases the LGA never presented an objection to MEPA.
“It is this situation that has allowed so many individuals to open up gaming shops everywhere you go, even next to schools and churches, because there are no licence conditions being imposed,” Schembri said.
But despite the authority’s power to issue a licence with rigorous conditions, the initial applications were never processed. The LGA posted application forms on its website, but the processing of these applications seems to have never happened since then.
Luck runs out In February 2009, Fenech received a judicial protest by Malta’s four casino owners, claiming losses due to “unfair competition” from the gaming halls. It was at this point, that calls for the regulation of the gaming hall business started to grow louder.
One of the casino owners, the Tumas Group chairman George Fenech, would later become embroiled in the freebie controversy that saw finance minister Tonio Fenech accept a trip aboard his private jet to watch Arsenal play Villareal in April.
Tonio Fenech had already sounded a warning signal to gaming hall operators in February: “All I can tell the investors, who have put their money in these places, is that just because you have opened does not mean you have any legitimate right to remain there.”
On 7 August, police swooped down on Malta’s 80 outlets in the massive clampdown that shut them down – just a week before government issued a tender for a 10-year concession to operate the Dragonara casino.
Operators were baffled by the unexpected clampdown, especially after Tonio Fenech himself had told parliament back in April that he could not close down the gaming halls.
Even Assistant Commissioner Michael Cassar, testifying before the parliamentary social affairs committee in March, said that “the confiscation of gambling machines would be considered to be an abuse of power under present laws.”
Despite Tonio Fenech accusing the gaming hall sector of being “mired in legal loopholes”, it is clear there was never any effort to stop the proliferation of the gaming halls.
Even MEPA carried on processing the applications, stopping only just before the June shutdown.
It was only in May 2009 that its development control commission (DCC) stopped approving the ‘change of use’ applications, because it had started to consult the LGA on the applications, something it never did before.
The DCC started to defer applications, and for the first time started to “ask for guidance” from the MEPA board on how to process gaming applications “when regulations by the Gaming Authority have not yet been issued.”
But these regulations – such as the zoning of gaming shops away from schools – have been in draft form for over two years, and have never been approved by the LGA. Applications to the DCC were now being refused on the grounds of “bad neighbourliness”, citing the Structure Plan’s guidelines.
In the meantime, operators now claim that all their revenues have been diverted back to the casino industry.
“Revenue has shot up by 30% inside the casinos since the gaming halls were closed down,” operators told MaltaToday. “As things stand we are still in the dark over the new conditions that will govern any future licences. We think they are designed to make us shut down: registration will be more expensive, and reduced opening hours will mean less customers. How will we ever recover our investment?”
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