For some time now GBGC has been assessing the way Government action has had an impact on the gambling industry through the introduction of regulation and taxation. GBGC has developed a clock-style chart to capture the cycle of cause and effect.
This is how it works:
2. The white core is the gambling industry reaction after the government or economy has had an influence upon it.
3. Starting at twelve o’clock: on the outer circumference there is a decline in GDP leading to a fall in employment and inflation (one o’clock – two o’clock). For gambling, trading becomes more difficult as margins become tight leading to lower profits.
4. Three o’clock – five o’clock: with inflation falling, the economy (outer circle) sees the currency appreciate making exports more expensive.
5. Government is seeing tax receipts fall and, at this point in the cycle, the gambling industry (along with other sin sectors tobacco and alcohol) may be the subject of a tax increase. The industry’s lobbyists go into overdrive.
6. The gambling tax take increases, creating a further profits fall (inner circle).
7. Six o’clock: the currency now starts to fall having been overbought, exports improve and the cycle is now approaching the final two years toward an election. Margins improve for the gambling industry, creating more competition and new businesses enter the gambling market. Public companies produce better results.
8. Seven o’clock – eight o’clock: interest rates fall, Government spending increases and there is monetary stimulus.
9. Government becomes concerned at the level of gambling and brings forth more social responsibility measures.
10. Nine o’clock: M&A begins on better profits and rising stock markets. Gambling companies take on more debt.
11. Ten o’clock – eleven o’clock: The economy is in the midst of a boom which inevitably leads to a bust. The process starts over again.
Of course, the big question is where gambling is on this cycle now?
As we move from 2016 into 2017 GBGC argues we are at 12 o’clock for the UK economy.
It is early in the election cycle (nine o’clock – twelve o’clock), with a general election in 2015 and the next one not due until 2020 (although the Article 50 vote could trigger an early election). The stock market – FTSE 100 – is at new highs (ten o’clock) and unemployment is at record lows (rising unemployment begins at one o’clock).
There has been lots of gambling sector M&A in the last few years and some good profits from gambling companies (nine o’clock). Several firms, however, do have high levels of relatively expensive debt (ten o’clock – eleven o’clock).
GBGC has been developing the attached summary of the economic, political and gambling cycle.
It is subject to fine tuning but we thought we would share it with you because it may help with your strategic planning for your own particular jurisdictions.
But GBGC would also appreciate your input and comments:
– Is the cycle of use to you in your business?
– Have any key factors been omitted?
– Would you be interested in updates on GBGC’s views as to where we are on the cycle?