Interview | Wednesday, 06 May 2009

Remember Mario Galea?

Seven months and 60kg lighter since the day he tendered his resignation, former LGA CEO Mario Galea talks to DAVID DARMANIN on the way he influenced gaming regulations worldwide

A recent iGB ACES survey confirmed you as one of the most 40 known names in the gaming industry worldwide. You are also known among European players, as one of the foremost people in the industry. Most of your considerable achievements while you were CEO of the Lotteries and Gaming Authority in Malta are publicly known, but what have you done before?
I started as an IT consultant in 1996 – when internet in Malta was hardly known. At the time, I had set up an online financial database with the Malta Financial Services Corporation which Microsoft ranked among the top seven websites of the time.
In 1998 I was approached by the Finance Ministry to draw a report on the foreseen areas of economic potential by use of internet. Once completed, the document outlined in extensive detail the economic potential in three main areas which were the most promising outside the dot com bubble: Payment Gateways, Online Gaming and Pornography.
Obviously, government was not interested in pornography. But the other two areas were looked into. Whereas MFSA had followed payment services itself, the Ministry had given me consultancy jobs to determine what we can do with iGaming.
Within the next year, we drafted the Offshore Sports Book Offices Regulations – which was included as a legal notice a year later. The new law was clearly intended to attract gaming business to Malta.
But also prior to the publication of this notice, in 1998, the government had engaged me to create the technical framework to reform the problematic issue of amusement machines - which at the time were cropping all over the island. I dubbed them in my new report as VLTs (Video Lottery Terminals) and even though this was not the way they actually functioned, the name stuck. In 2001 – VLTs were included in the Lotteries and Gaming Act, and schedule 5, which is the part of the act that specifically regulates VLTs came into force at the end of 2007. This means that in these last two years, these machines started being regulated properly. However, due to a number of reasons, the solutions applicable at the time, are no longer valid for this day and age.
In my consulting capacity, my primary task was to attract foreign gaming operations to Malta. Internet in Malta at the time was still in its very early days – and it was still very expensive and unpopular. For this reason, I had started assisting companies in capitalising on online business activities. I am proud to say that whereas at the time, these companies were mere start-ups – nowadays, some have been sold at amounts of €100 million and over. Some of the owners of the other companies I consulted are nowadays listed by Forbes as the richest people in online business.
In 2001, the UK elections brought with them the promise of the removal of the gaming tax in England, so within six months, 45 locally based operators disappeared – leaving us with only six iGaming companies here. Attracting companies with tax incentives is not viable – and this was the first lesson we learnt. Meanwhile, as the new legal notice came into force, we were finding huge problems in establishing it and enacting it since this required a massive culture change. We must keep in mind that up until then, the government was an operator of a lottery – and besides that, there was practically nothing.
The new law established with it the LGA as the new gaming regulator.
By the end of 2003, a vacancy for a CEO at the authority had arisen and I decided to pitch for it. The process was fair and square and I had been chosen only after being interviewed with 35 other candidates.

You have recently resigned from the LGA. Are you proud of what has been achieved while you were CEO of the authority?
If you are asking whether I am proud of what I did at the LGA, then yes, certainly. If you are asking me whether I am proud of what Malta achieved on an international scale in those five years, then it’s also a yes. On the domestic side however, we could have done so much more. When I came in, the law still had eight parts which were not yet enacted. In the five years I was there, only two of these eight came into force.

Why so?
Malta has a long gaming history, and we were tasked with introducing new gaming concepts such as responsible consumption and social responsibility. These two concepts were treated separately for a good reason. Whereas responsible consumption deals with the player – the more we enforced this, the more social responsibility issues arose.
Over the years, most of the economic benefits involving gaming in Malta were reaped by the church, NGOs, band clubs and football clubs. We had calculated that about 64 NGOs would not exist if it was not for funding through gaming. About half of the lotto booths that existed were somehow combined with a non-profit organisation of sorts. If we had to make an immediate clampdown on such organisations, we would have directly affected the social fabric. At the time, the gaming industry sustained 120 families.

Have other countries managed better than us in regulating their stakeholders?
During my term at the LGA, I had come up with a model that identified three main stakeholders in gaming: the operator, the regulator and the player within their respective domains: the industry and the consumers respectively. These parties make up the essential foundations for a solid regulatory system, wherein all three keep each other in balance by forces of influence. If one collapses – the whole system collapses with it. Each party has its own interests to defend, and it cannot do so without the reciprocal involvement of the other two stakeholders. This model, which Malta adopted in 2004, has since been associated with me. Most governments eventually adopted their regulatory model based on ours. The pity is that as much as it seems to have worked on an international front, the model did not work as much as it should have in Malta because we did not manage to fully penetrate the operator’s domain. Also, we did not build enough influential forces on the consumer domain - which includes the family, the church and NGOs. When keeping the importance of the social fabric in mind, how can government enforce? Rather than taking into account the word of the law, in this case, the spirit of the law was the main focus. Ultimately a bingo at a coffee morning never ruined anyone’s life.

Who is responsible for the situation?
If we had to point fingers, I do not think it is either the fault of the LGA, of government or of any of the operators. I think the blame should ultimately be laid onto those individuals abusing the system. For example, the majority of large scale non-profit bingos are organised with the intention of raising funds for good causes – so no tax is charged. However, these are more often than not organised by commercial institutions using church or NGO-owned licenses for a tax-free operation, of which they receive a cut. When one sees that in a particular bingo session, an organisation almost effortlessly takes in groups of 800 people and when that is compared to the efforts made by operators of fully licensed commercial bingo halls, who honestly pay a license fee and gaming tax, in trying to fill in a hall of 300 – it is not difficult to see in whose detriment such abusers are working.

It is not just bingo that remains unregulated. What about the fruit machines saga?
In 1998, fruit machines in Malta numbered over 10,000. I do not believe the number has changed since. What happened was that until I came on board, the way business was conducted involved the importation of the machine in parts and its assembly in Malta. It never cost more than €800 to build one. Suppliers would then make arrangements with bar owners to split the proceeds of such machines. This could no longer go on since it was working against the interest of slot machines in casinos, which were properly regulated. I am not saying that fruit machines were illegal as such – but at best they were operating in a gray area. In any case, since this had to come to an end, I had called a meeting with all suppliers in 2005 to inform them that there would be a clampdown on the system adopted and that things were about to change. The operators had complained vehemently because they saw no way out, but regardless - the end result was positive. The new system, as adopted, obliges operators to install specific types of machines with different features. Firstly, the new machines favour the players in a much fairer way. Whereas most of the old machines gave out some 40 to 60 per cent of the turnover in winnings – the new machines give out 92.5 per cent. Secondly, the cost of the new machines starts at €9,000 and may add up to €18,000 in all. Thirdly, the machines’ features are not designed for gambling but rather for entertainment. This means that whereas, for example – an old machine would give the player a gaming experience lasting two minutes on a €5 spend, for the same amount of money – the new machines give the player a 10 minute experience. These machines are also enabled to be connected to the LGA in real-time – which would have allowed a tighter reign. But whereas other countries adopted this real-time connection idea, again inspired by the Maltese, we have sadly never put this in place ourselves.
With higher investment and less return for the new equipment, the end result was that many operators found it more convenient to lease the equipment from the suppliers and giving them a share rather than fork out the money themselves. The profits went down – and at whose detriment? The bar. The machines swiftly moved out of bars and became present in betting shops. So what we saw was a mere shift in location – disappearing from bars and moving into such outlets. With regard to enforcement – the market is automatically spitting out the old machines in bars as these give such a low return that a player will find it more convenient to play on one of the new machines.

But casinos are complaining about loss of business due to the new gaming shops. You previously said that the number of VLTs has not increased in particular. How do you explain the slump in business at casinos?
There are several factors that affected the casino business. The exposure of slot machines in the streets has certainly affected their business, but it was the smoking ban that gave casinos the biggest blow. When compounded with the fact that more casinos mushroomed around the island, as well as the global economic situation and dwindling tourism figures – I would not be surprised to hear that a casino is making a loss. But where Maltese casinos stand to gain is that they are the only ones in the world with a hybrid license – which means that they can do both land-based betting as well as online. In order to improve their position I had proposed a serious of measures by capitalising on their unique licence. One idea could be the placement of a webcam on a casino table – which would allow an unlimited number of players to place their bets remotely on a live table. One other area they could venture in is a combination of live and online gaming. It has become common for poker amateurs to start off by playing online in order to save themselves the embarrassment when making mistakes. But some of these players become very good in time and as a result, they would want to show off their skills. There could easily be a poker tournament starting online and ending live at one of our casinos. Conservatively, we have the potential to attract 300 players and 200 guests per tournament. We can hold as many as five tournaments every two months.

Do you regret resigning from the LGA?
The position was indeed challenging and I had gone into it heart and soul. For a whole five years of my life, I practically lived at and for the authority. I worked an average of 18 hours a day – including weekends. When I took the post I weighed just over 90 Kg, but by 2004 – I put on another 40 Kg because I was so engulfed by the job that I had lost interest in anything else – including my health. But I overdid it. In 2007, I collapsed at the office – and my health was being seriously affected by the job. In April 2009 I decided to regain my life and this was when I had decided to move on and change my life habits. It worked. Although my contract was due to expire in February 2009, I left the authority in October 2008, and within a year – I lost 60 Kg and regained my health. It was very tough there.

Do you think your term may be described as controversial?
Yes, the job was controversial in many respects. First of all, because I hailed from the industry a lot of people thought that I could have conflicts of interest – but this was not the case since there was never a gaming market at the time I went in. I believe I answered all the claims made against me by now – and nobody came out trying to prove otherwise. But besides, and perhaps more serious, there was an international controversy. I introduced remote gaming in the EU and this lead to the fear and resistance of practically all states – whose governments all thought that online gaming was bad since the gaming business traditionally belonged to monopolies. It was a tough role to defend Malta’s position and overturn the tables. Luckily, the EU is now getting there.

Was not there a case where some managers in the iGaming industry were arrested by the French government on remote gaming?
Yes, the French government issued arrest warrants against a number of people involved in gaming and arrested an iGaming CEO of a Maltese company. But the law the French government was following was archaic – enacted by Napoleon in 1893, so you can imagine. I was also on the list to be arrested.
This was not the only incident. I regarded what the Italians had done when they blocked access to the LGA website in Italy for example, as a diplomatic incident. The times were tough. Every time I passed through an international airport I made sure to call my wife to tell her that I had not been arrested. This was the kind of atmosphere my family and I had to put up with those years. People say that I built myself a name thanks to the LGA, but ultimately it is because nobody dared stick his neck out. The only support I found was through former chairman Dr Zammit Maempel – who convinced me to hold back from throwing in the towel a number of times. Otherwise, threats were coming from all fronts Operators went as far as threatening my family. My car was also vandalised and I was attacked twice during public meetings. Until this very day, my wife makes sure to put our children to sleep in the same room under lock and key whenever I’m abroad. This is to be expected though. Gaming is an industry where very big money is involved – and with it come people and organisations involved in criminality. Understandably, many of these will do their utmost to destroy whoever is trying to make it right.

What are your views on the concept behind the Good Causes Fund, where a share of gambling proceeds is invested in social and charitable initiatives?
I have my reservations on the Good Causes Fund because, whereas rules are there to promote the notion of transparency, the rules regarding the transfer of a percentage of national lottery proceeds to this fund is not necessarily transparent. We do not know what percentage of national lottery proceeds is transferred to it. In the UK, all tax collected from the National Lottery is invested in a fund similar to ours, but I disagree with this concept in general. Gambling should not be justified by good causes and social responsibility. Until 1998, in Iceland, VLT licenses were only issued to the Red Cross and University for this same reason. In Canada, most of the education budget is covered by levies collected from gambling. This leads to the promotion of gambling in order to fund social initiatives – making one dependent on the other. In Malta, we decided to act more responsibly and only dedicate part of the proceeds to the Good Causes Fund – but this still begs the question: how large is the percentage that goes into the fund?

It also seems that the UK is mulling over the idea of imposing a levy on offshore companies marketing their services in England. It seems that the money gained from this tax will be invested in sporting initiatives. Do you disagree with this concept too?
One of the problems we have with gambling is game integrity. It is within the responsibility of the operator to keep gaming as transparent as possible and keep games free from corruption, fraud, money laundering and terrorist financing. But when gaming also involves sports, and sport integrity comes in with it too – great pressure is put onto the sporting regulators because of gaming. Corruption in sports due to gaming happens more often than one thinks. When for example, a bad tennis match is justified by an elbow injury – there is a good chance that there would be nothing of the sort. The match would probably be rigged. It is technically within the responsibility of sporting regulators like ITF, FIFA or UEFA to ensure that sports integrity is maintained – but gaming is adding a greater burden onto them. It is therefore more than justifiable that a sporting authority demands that part of the proceeds from gambling are forwarded to them so they can invest in tightening sporting regulations and enforcement.
The British Horseracing Board has a long history in the adoption of this system. A large number of horse tracks depend on a dividend share from betting to survive. Without it, horses will not eat and tracks will not get cleaned. But since those operators without a British license operating overseas have stopped paying this levy, the sport has inevitably started suffering. Because of the same situation, out of 320 horse tracks in France – 80 shut their doors because they were unable to make ends meet. I was never against what the UK is proposing – it’s only fair.

What are your business involvements now that you resigned from the LGA?
Nowadays I am a consultant living out of a travelling bag. Over the past five months I made a full circle round the globe starting from China to the US. My client portfolio is mostly made up of policy makers, regulators and very large gaming operators. I consult on both land-based gaming as well as online.

In retrospect you seem to have been tough enough in curtailing many international abuses in gaming and your work has greatly influenced regulation worldwide. Why is it then, that Malta showed weakness in clamping down a handful of abusers using NGOs and the church for their own profit, to the detriment of more honest operators?
Firstly because of the fact that the authority does not yet have the sufficient resources to enforce or to report cases of abuse. But gaming has made such big steps over the years that we often come at a point where the market outpaces regulation. I also often found myself in situations where I kept ahead of operators, but operators kept ahead of government – leading to the ones responsible to bring about such change lagging behind everyone else in the game.



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06 May 2009

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