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Before UK chancellor Rachel Reeves stood up in parliament to deliver her long-awaited Budget on Wednesday, the government was scolded by the deputy Speaker for leaking its plans over the preceding weeks and months. One upside, at least, was that it gave investors plenty of time to adjust: UK gaming groups’ shares have fallen at least a fifth since a gambling tax raid was first floated in August.
The declines reflect the fact that, however much groups try to mitigate the impact, profits are going to shrink. For an industry already leaning towards tie-ups as gaming goes global and moves online, the new taxes are another reason to get together.
One change will lift taxes on online betting from 15 per cent to 25 per cent in 2027. But the more painful move raises remote gaming duty from 21 per cent to 40 per cent as of April next year. Of the £12.6bn in gross gaming yield the industry generated in the last tax year, nearly £8bn came from remote casino games, growing at a 13 per cent clip. Government estimates suggest its total tax take from gambling will now increase by about a third in the coming years, approaching £5bn by 2030.
Global gaming giant Flutter, owner of Paddy Power and PokerStars and which gets a third of its revenues from its UK and Ireland businesses, reckons that cost cuts could reduce its total hit by about two-fifths to $495mn over the next two years. Even after its efforts, that’s still a 7 per cent drop in its total forecast ebitda over that period.
Entain, home to operations including Ladbrokes and a half-stake in US operator BetMGM, will lose between 6 per cent and 12 per cent of its 2027 ebitda, depending on the scale of offsets that different analysts reckon it can find.
The more dramatic way to cut costs would be through combinations. It is a trend already under way, with UK lottery operator Allwyn creating a €16bn group in October with a bid for control of Greek group OPAP only weeks after buying PrizePicks, a US fantasy sports platform. In the same month Banijay, owner of France’s Betclic, bought Germany’s leading sports betting site Tipico.
Small operators make up about a quarter of the UK online gaming market, UBS estimates. These groups will struggle more with the new taxes than their bigger rivals, for whom they could become fodder. Operators with higher debt levels, too, might become vulnerable. Evoke’s shares have fallen by more than a fifth over the last two days, giving it a market capitalisation of £137mn on year-end expected net debt of £1.7bn.
In the world of online gambling, mergers do make sense. Tech platforms can be scaled more easily than physical venues. Reeves dealt the industry a blow this week, but investors should shrug off their losses and start calculating the odds of a comeback.