Did minister's change of heart delay gaming licences?
Former gaming authority CEO Mario Galea talks about how the roll-out of licences for gambling halls was effectively stopped soon after Tonio Fenech became finance minister
Matthew Vella A picture of contradictory government policy is emerging from the cacophony of angry voices in the gambling hall business. On the one hand, there's the creation of the industry itself in 2005, which turned a partly illegal business of gambling machines into a regulated sector under the watchful eye of the Lotteries and Gaming Authority. On the other hand, there's the push by government to dismantle the sector, at least by creating onerous conditions that experts and operators say will make it unfeasible to operate. But why?
The former chief executive officer of the LGA, Mario Galea, speaks out: “everything changed after March 2008.”
According to Galea, who resigned in October 2008, it was soon after Tonio Fenech became finance minister (having previously served as Lawrence Gonzi’s junior minister) that matters at the LGA came to a standstill.
But what had exactly changed?
Galea is the architect of the gaming laws that established Malta as a destination for online gaming and which today generates millions in taxation and licensing revenues for the economy.
But it was the regulation of gambling machines – today known as VLTs (video lottery terminals) – that seems to have eventually pushed him out of the authority.
“It was an unregulated business that generated Lm50 million in revenues from around 6,000 machines. It had to be brought into check, with monitoring and licensing,” Galea says.
So the LGA stepped up the game. Firstly, it wanted VLTs – modern gambling machines which could be tagged, registered, and monitored by a central computer – at the LGA itself. Secondly, it wanted to license operators, by issuing strict conditions on running the business: anti-money laundering rules, the payouts by the machines, prohibiting entry to minors… all set against harsh penalties for breaching the conditions.
“It was an expensive process for the operators. That is why they had to take out their gambling machines from the social clubs and kazini, and invest in their own gambling halls. There they could hook up their machines to the central computer, so that the LGA could monitor gaming,” Galea says.
The new system obliged the gaming machines to give out a 92% payout. In simple terms, to use the traditional fruit machine combination as an example, a higher payout means that gamers could win on far more combinations of symbols than before. The new regime jolted winnings up from a meagre 40% payout.
Instantly, this meant lower revenues for operators. Together with the €9,000 investment required to buy each new machine, the operators had to cut out the middlemen with whom they shared the revenues – the gaming machines moved out of the bars and into the new gambling halls.
At the turn of 2008, the LGA had already issued applications for operators to file for their licences. Registration of their machines had to be completed by March. “We extended this period, because it would coincide with the general election. By June, we would have registered the machines, and prepared to issue licences.”
But it is at this point – March 2008 – that Galea sensed that policy had changed.
“I can say that while the authority was ready to roll out the licences, by June we were being told to hold things off. The ministry wanted to review things. The roll-out plan, which I had promised to the operators, had to be delayed… during the summer of 2008, things changed.”
Eventually, Galea would resign in October. Chairman Joe Zammit Maempel had already been replaced by Nick Xuereb. Board secretary Michael Gonzi would take over as acting CEO.
And in those 12 months until the shutdown of the gambling halls in June 2009, so did the roll-out plan to license the operators stall. Policy had changed, and government wanted new rules.
But what had changed in the government’s attitude?
At the outset, the mood was clearly in favour of the sector. In 2006, the new licensing system for gaming machines was outlined by Gonzi, then finance minister, in the Budget 2007 speech.
By the end of 2007, the LGA told operators in public meetings that they had to register their machines and file their applications for the licenses. All the authority had to do was to issue the conditions that would govern the licences.
At this point, some 80 gambling halls had mushroomed all over the island. The Malta Environment and Planning Authority was turning to the LGA to advise it on whether it should issue change-of-use permits for establishments to be turned into gambling halls. The LGA presented no objection: until the conditions for the licences were enacted by legal notice, it could not stop operators from applying for MEPA permits.
The enactment of Schedule V in the gaming law, a framework for the LGA to issue conditions for the licensing of gambling halls, was now missing a fundamental component: the licence itself. The draft conditions – on the zoning of the halls, underage prohibitions, due diligence of operators – had been prepared.
But after June 2008, they were not issued.
Galea says that, after the LGA’s initial promises to the operators, the government did not seem keen to go ahead with the roll-out. “Something changed… I felt I was alone in pursuing this plan to go ahead with the licences. The ministry kept asking for time. By the end of October I decided to call it a day.”
If operators sense the invisible hand of big government coming down hard on them, it is because of the licensing conditions that Tonio Fenech is now keen to push.
It was evident that government backbench MPs had already been approached by the gaming operators. That is why the subject was brought up in the heated parliamentary group meeting which outed Fenech for having accepted a freebie trip aboard the private jet owned by casino owner George Fenech.
It was during that meeting that MPs protested against going for a vote on the new gaming laws, without yet knowing what the new licensing conditions for gambling halls would be. If the proposed amendments to the gaming law go ahead, Fenech will then issue the new conditions by legal notice: which require no parliamentary approval.
They include conditions which operators say are designed to put them out of business, such as the prohibition on serving food and drinks, lower winnings per machine, less machines inside the gaming halls, and even lower payouts to 85% from the originally envisaged 92%.
Ironically, they are conditions that can end up becoming a double-edged sword. Limiting the halls to just 10 machines could end up increasing the number of gambling halls. Even the lower payouts will mean less winning combinations for gamers. And pushing the halls to the periphery of villages might as well throw them smack in the middle of lower-income housing estates.
Any gaming operator will tell you that it is the casinos that will profit from their demise. And that is why Tonio Fenech’s ill-fated trip aboard George Fenech’s private jet (Fenech happens to be tendering for the 10-year concession of the Dragonara casino) will leave him open to accusations that will forever taint his political record.
But under the guise of his socially conscious crusade against the evils of gambling, Fenech might well emerge victorious. Popular and righteous it may be, but it undermines any pretension to be committed to free market values and fair regulation.
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On the other hand, there's the push by government to dismantle the sector, at least by creating onerous conditions that experts and operators say will make it unfeasible to operate. But why?
