Those betting on the outcome of the UK government’s consultation on fixed-odds betting terminals now have some clarity. The Department for Digital, Culture, Media and Sport has decided that the maximum amount that can be bet in each go on the machines should be reduced, with a 12-week consultation into the level of the limit now under way. The reduced maximum stake will fall from £100 to somewhere between £50 and £2, and the Gambling Commission will also consider how better tracking and monitoring of play can help reduce the incidence of problem gambling.
Ladbrokes Coral (LCL), William Hill (WMH) and Paddy Power Betfair (PPB) are set to be the most exposed to the change in regulation. Analysts at UBS estimate that a reduction to a £50 limit would wipe 9 per cent off forecast 2019 operating profit at Ladbrokes Coral to £284m, a 6 per cent cut at William Hill to £291m, and a 1 per cent reduction at Paddy Power Betfair to £470m. If the maximum stake were to be £2, UBS estimates 2019 operating profit at William Hill would contract by 85 per cent to just £47m, fall by 62 per cent at Ladbrokes Coral to £118m, and drop by 9 per cent at Paddy Power Betfair to £431m.
Stifel analysts think a maximum stake of between £20 and £30 would represent more of a political compromise, since a drastic cut to a £2 stake might not lead to a “material reduction” in problem gambling. Stifel believes it would instead lead to significant collateral damages, as the likely shop closures would put staff out of jobs and cut tax revenues. Around £2.7bn in tax was generated by the betting and gaming sector in the year to September 2016, £663m of which came from duty on machine gaming.
A stake reduction is also likely to lead to more consolidation in the industry. In August, GVC Holdings made a fresh approach for Ladbrokes Coral for a rumoured £3.6bn. Canadian company Stars Group, previously known as Amaya, has in the past made an approach for William Hill. Paddy Power Betfair could eye another target in the UK gambling sector after its own merger in 2015, although it's the least exposed to the cut in stakes. Chief executive Breon Corcoran said the bookie is "well positioned to respond to any regulatory changes", although retail turnover increased 12 per cent to £85m during the third quarter, including 8 per cent growth in machine gaming revenue.
