The UK gambling sector has become the latest victim of “pre-Budget anxiety”, says Tom Saunders in The Times. The news of a potential £3 billion tax raid on the sector has wiped billions off the value of its biggest players. Entain, which owns Ladbrokes and Coral, and Evoke, which runs William Hill, both saw their stock drop 16% on Monday. Flutter Entertainment, which owns Paddy Power and Betfair, and Mecca Bingo-parent Rank Group retreated by 8%. More than £3.5 billion was erased from the sector’s collective market value.
The Treasury is looking at two separate proposals, one from the Social Market Foundation (SMF) to increase online gaming taxes by £900 million, and another from the Institute for Public Policy Research (IPPR), which would increase a range of duties by £3 billion, says Rob Davies in The Guardian. The SMF advocates doubling the tax on online gambling companies from 21% to 42%, while the IPPR thinks the Chancellor should double taxes, such as the 15% general betting duty levied on high-street bookmakers’ profits. Analysts think that while the government is unlikely to opt for the higher range of duty, the sector is “facing tougher regulation and taxes”.
UK gambling sector: how are markets reacting?
The market’s reaction to the plans looks “overdone”, says Cristina Gallardo on Morningstar. The most likely outcome is an increase in remote gaming duty of between 3% and 5%. Given that UK tax rates on gambling companies are still “comparatively low”, such a hike “shouldn’t prove to be an existential crisis for the sector”. While small-scale bookmakers might “struggle” to absorb the costs, larger firms will simply “cut marketing and promotion costs, reduce sports sponsorship and offer less favourable odds to customers”.
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It may be harder than you think for firms to pass on costs to consumers through poorer odds, since this is a “competitive and largely undifferentiated industry”, says Lex in the Financial Times.
So, while the “knee-jerk” share price moves may be an “overreaction”, they reflect justified fears about “an unpopular sector still on the watch list of regulators and governments”. The “contentious” nature of gambling makes it a soft target, especially since the “lightly staffed” nature of the online sector means a reduced risk of job cuts. Both Sweden and the Netherlands recently raised taxes on the sector.
The fact that the UK gambling industry is in the “firing line” is particularly “problematic” for those companies still highly dependent on British gamblers, says Yawen Chen on Breakingviews. For example, Evoke gets about 70% of group earnings before interest, tax, depreciation and amortisation (Ebitda) from the UK, while Entain and Flutter still derive most of their money from Britain.
Entain shareholders are now probably feeling “pretty downcast” about management’s 2021 decision to reject an approach from US group MGM Resorts, with whom it has a US joint venture. With larger firms keen to sell UK assets and smaller ones wanting to “couple up”, gambling bankers will be watching the Budget closely.
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