Industry weighs Triennial Review ‘double whammy’

17 May 2018

The industry could face an extra annual tax burden of £200m on top of the devastating impact of the FOBT’s on UK bookies’ profits if the remote tax is raised to 20% from 15%, analysts have warned.

The UK government today confirmed the maximum stake on fixed-odds betting terminals (FOBTs) will be cut to £2 with Remote Gaming Duty raised to fill the corresponding hole in the pubic finances.

Paul Leyland of Regulus Partners, ex of William Hill, said in a note this morning that the combined impact of the changes would see: “Sector profitability reduced by 66% at the EBITDA level.”

Lads Coral owner GVC this morning modelled the EBITDA impact at £160m in the first year, reducing to £120m after two, with Hills suggesting an EBIT reduction of £70m-£100m. Paddy Power Betfair stated this would have equated to a £35m to £46m revenue impact in 2017, representing 2.0% to 2.6% of group revenue.

PPB boss Peter Jackson continued to adhere to the company line set out by predecessor Breon Corcoran that the reputation of the wider industry had suffered due to “widespread unease” over FOBT stake limits.

“We welcome, therefore, the significant intervention by the Government today, and believe this is a positive development for the long-term sustainability of the industry," said Jackson on a note to the markets this morning

GVC, which has structured the eventual price it will pay for Ladbrokes Coral based on the outcome of today's Triennial Review, said it was "disappointed" by the outcome but added that Government announcement "marks the end of uncertainty on FOBT staking limits" and that it was confident the retail business was "well placed to face these structural and regulatory headwinds"

William Hill boss Philip Bowcock highlghted the "tough challenge" ahead, adding that it would take some time for the full impact to become clear. 

Cenkos Securities’ Simon French, who has long argued that a rise in RGD was coming down the line, also refused to rule out a rise to gaming duty beyond the expected 20%. “We expect this will be an increase to 20%, although there is a coherent argument it should rise to 25%, in line with Machine Gaming Duty”.

With shop closures estimated at circa 3,700 with independents and Betfred hit the hardest, according to Regulus, horse racing will also be hit to the tune of £50m over the period of the shop closures.

But Leyland said this impact would be partially mitigated by the £35m in additional levy and also “potential for additional streaming from channel shift.” Each LBO in the UK currently pays up to £30,000 in media rights for streaming horse racing coverage into the shops.

As well as focusing on mitigating the impacts, bookmakers with a US footprint such as William Hill and Paddy Power Betfair “will focus on potential upside from sports betting” there, French said.

He also argued that a more unified lobbying approach from the industry going forward was needed, in contrast to the “unedifying spectacle” that characterised the campaign over FOBT stakes, with Leyland stating they needed to learn lessons from this “long-term disaster we believe the LBO sector largely brought upon itself”.

With recent high-profile failings in responsible gambling and player protection obligations by the likes of William Hill and Sky Bet clearly having influenced the hard line taken by the government, GVC acknowledged that the industry needed to show competency in this area going forward.

"As a responsible business, we re-iterate our commitment to work closely with the Government and our regulators to ensure that both our retail and online offerings are places where customers can enjoy gambling in a safe and secure environment."

The industry will now engage with the government over as yet undefined provisions such as the level of RGD and the time stakeholders are given to prepare and plan for the shop closures that will arise, including attempting to mitigate the impact of resultant job losses.

On this front, “the ball is firmly in the industry's court” when it came to entering constructive dialogue with government over the steps from here, said French. With Leyland arguing that the required "recalibration" of relations with government needing “to be seen very much as the beginning of an era, not the end of one.”

Lads Coral owner GVC confirmed this morning that it did not intend to seek a Judicial Review of the decision, with its listed peers also expected to steer clear of a challenge due to the low chance of success.