CALCALIST

The Scourge Of Slots In The UK, And The Internet Billionaire Cashing In

High-stakes gambling machines involve billions of pounds, and prey on the destitute and unemployed. Most of the technology comes courtesy of Israeli billionaire Teddy Sagi.

Virtual roulette wheel, real debt
Virtual roulette wheel, real debt
Yoav Bornstein

LONDON — It only takes 20 seconds for the ball to spin in the roulette wheel. The gambler, a twenty-something man, is sitting on a tall chair holding a wad of cash. The ball stops, and the young man has lost. He bets again, and 20 seconds later has lost again. Within exactly two minutes, he has spent 60 pounds, and walks out of England’s largest casino.

This casino is big, but far from fancy. In fact, it’s divided into 9,000 small branches, or betting kiosks, spread across the United Kingdom. The typical kiosk is a narrow room with an entrance from the street. It accommodates a cashier and four touchscreens — the maximum legally allowed for virtual roulettes of this kind.

This branch is operated by gambling chain Ladbrokes. It is located opposite the town hall of Brixton, a poverty-stricken district in South London with high unemployment. It’s only four in the afternoon, but all screens are occupied.

The game is incredibly simple. You insert a bill, and virtual chips based on the amount inserted appear on the screen. Touching the screen prompts the wheel to spin for 20 seconds, the ball rattles, slot machines ring, and, most typically, you lose your money. For the right target audience, this is addictive.

Based on recently published statistics, residents of the nearby streets would be dropping about 2,000 pounds through this kiosk’s slots by the end of the night. One of its clients, a black guy of about 30, tells me he returned to gambling after a two-year break. “I've lost 60,000 pounds in these machines over three years,” he says.

Temptation on every block

This isn’t the only gambling place in the neighborhood either. Within a five-minute walk, six more kiosks are operated by three of the UK’s leading gambling firms — Ladbrokes, William Hill and Coral.

And these companies all have the same business partner — an Israeli whose company is the designer and distributor of the new addictive game. His name is Teddy Sagi, and he has made billions on Internet gambling sites. The digital roulettes are his newest baby.

Gambling has been an integral part of British culture — and since horse races in the 17th century, also of British economy. It is a 6 billion-pound industry in the UK and is responsible today for roughly 0.5 percent of the country’s economy. It also generates 700 million pounds in taxes a year.

But lately, public opinion about this industry has dramatically changed. And for the first time in centuries, Britons consider this kind of gambling a disease. A new kind of slot machine seems to be responsible for this new mindset. Formally, they’re called Fixed Odds Betting Terminals, or FOBTs. The first units were installed a little bit more than a decade ago, and within a few years British papers characterized them as “the crack cocaine of gambling.”

Core of addicts

Ten years ago, when England had only a thousand digital roulette machines, British newspapers published stories of families who lost everything after one member of the family dropped thousands of pounds through the slot within a matter of days. Now, according to The Guardian, the geographical distribution of England’s 33,000 digital roulette machines coincides with high unemployment rates across the country’s districts.

More than eight million Britons spend billions of pounds each year on these machines. According to data from The Campaign for Fairer Gambling, there is a hard core of 450,000 heavy addicts. Ninety-seven percent of the money that goes into these slots is paid back in prizes shared between a small number of the gamblers. The companies earned £1.5 billion last year — a quarter of the British betting industry’s total revenue.

“The risk in the FOBTs has not been assimilated,” says Adrian Parkinson, formerly a betting industry insider and today a member of the Campaign for Fairer Gambling. Besides the economic harm to the machines’ regular clientele — destitute elderly people and the unemployed — the betting kiosks also have a collateral damage. “You can see it in Newham, Manchester and Glasgow,” he says. “Businesses shut down and disappear, and instead betting shops and check-cashing stores appear. A circle is then created of social-benefit dependents taking a high-interest cash loan, losing it in the next-door FOBTs that take a hundred pounds in 20 seconds, and then go into debt. We call it ‘the rise of High Street toxic economy.’”

Parkinson says that after the 2001 reforms in the betting tax, the market changed completely. “Shops with our machines moved from profits of 400 pounds a week to 15,000 a week. The industry started embracing them, and this is when things got me worried. We started marketing them more and more aggressively, and this was accompanied with total disregard to the risk and influence of these machines. In 2009, I was asked to come up with a market-changing move that would jump the number of slot customers. At this point I decided to leave the field, and I wasn’t the only one.”

Government's blind eye

“Every government loves income from tax,” Parkinson says. “In Australia and Canada, the government assesses and monitors the negative economic implications of betting addiction. Not here. According to an American study that cites one of the treatment centers for gambling addicts, the damage from betting in the UK is close to 3 billion pounds annually. The income from tax that the FOBTs yield is only about 280 million pounds.”

One of the important links in the chain of the digital roulettes is Playtech, the company owned by the aforementioned Israeli billionaire Teddy Sagi. His trajectory to the top has received considerable media attention. At 22, he was arrested for stock manipulation in collusion with employees of the Israel Discount Bank and sentenced to nine months behind bars. Later, he started and closed clearing houses for sex and gambling sites, and was considered another player in the capital market trying to ride the dot-com bubble.

And then he started Playtech. It began in 2002 with a casino website that managed to attract investment despite a deep recession following the burst of said dot-com bubble. It continued as a growing chain of gambling sites.

By 2008, Sagi was already one of Israel’s richest people, and today Playtech is traded in London at a value of about $3 billion.

The British FOBTs were born parallel to Playtech and grew steadily. Specializing in online gambling, Playtech established a division named Videobet in 2004, intended for developing these machines. In 2010, Sagi’s company penned a contract with Global Draw, the daughter company of American slot machines giant Scientific Games. As part of the deal, Videobet became the provider of games for 13,500 machines, and later Global Draw’s 20,000 FOBTs in the UK.

Income from London’s virtual roulettes is rather minor. But what’s impressive is the growth rate of nearly 40 % in income between 2011 and 2012. Meanwhile, betting terminals with Playtech’s roulette wheel have started appearing in Romania, the Czech Republic and Mexico.

“Playtech has a role in each and every betting shop in the UK,” says Parkinson. “It is part of the problem since what it develops leads to an increase in gambling addiction in the country. There are two companies that supply the machines to the UK’s 9,000 betting shops — and Playtech is linked to both.”

Sagi prefers not to comment, but an interesting insight can perhaps be found in an interview that Playtech’s partner, Global Draw CEO Steve Frater, gave to the newspaper Racing Post shortly after signing the deal. “The negative attitude to betting is tiring, especially after decades of paying taxes, creating jobs, providing entertainment to the public and profits for agents,” he said. “I would be happy if the gaming and betting industry got a bit more appreciation. We work hard and we take our social responsibility seriously.”

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