Tax cut fails to boost bingo

In March 2014 the UK Chancellor announced a major tax cut for the bingo sector in his Budget. The decision gave bingo halls the lowest gaming tax in the UK sector at 10% of gross profits. But in the years since that tax cut the bingo sector has failed to capitalise on it.


The Bingo Association stated that a lowering of the tax would allow bingo halls to “invest in their future” with more jobs and more “thriving bingo communities”.

Data from the Gambling Commission, however, shows that between March 2014 and March 2017:
•    The number of employees has fallen from 14,069 to 12,433, as the number of clubs has decreased.
•    Bingo turnover has fallen from GB£ 1.148 billion to GB£ 1.095 billion.
•    Bingo GGY has fallen from GB£ 378.5 million to GB£ 368.8 million.

Rank, which runs Mecca Bingo, has seen its bingo visits decline from 12.6 million in FY 2013/14 to 10.5 million in FY 2016/17. But it has managed to increase the spend per visit from GB£ 18.19 to GB£ 20.93 in the same period.

Mecca’s revenues have fallen from GB£ 229.3 million to GB£ 213.6 million between FY 2013/14 and FY 2016/17.

Rank has spent around GB£ 9 million per year in capital investment in Mecca since 2014 but it is not substantially higher than the amounts spent prior to the tax cut e.g. GB£ 12.5 million in 2011/12, GB£ 9.6 million in 2012/13 and GB£ 5.9 million in 2013/14.

Tax is usually one of the key influences on the success of a gambling sector. But, so far, UK bingo has not managed to use the lower tax rate to reverse its fortunes.

 

M&A activity: spreadsheets never disappoint

If you had invested in Warren Buffett’s Berkshire Hathaway in 1965, that investment would today have grown by 2,404,748% or a compound annual gain of 20.9% a year. With a track record like that, when the “sage of Omaha” speaks people listen.  


In his 2017 letter to shareholders he talks about mergers and acquisitions. His comments are as relevant to the gambling sector as they are to other businesses.

This is what he said:

“That last requirement (to make investments) proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers.

Why the purchasing frenzy? In part, it’s because the CEO job self-selects for “can-do” types. If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.

Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. Subordinates will be cheering, envisioning enlarged domains and the compensation levels that typically increase with corporate size. Investment bankers, smelling huge fees, will be applauding as well. (Don’t ask the barber whether you need a haircut.) If the historical performance of the target falls short of validating its acquisition, large “synergies” will be forecast. Spreadsheets never disappoint.

The ample availability of extraordinarily cheap debt in 2017 further fuelled purchase activity. After all, even a high-priced deal will usually boost per-share earnings if it is debt-financed. At Berkshire, in contrast, we evaluate acquisitions on an all-equity basis, knowing that our taste for overall debt is very low and that to assign a large portion of our debt to any individual business would generally be fallacious (leaving aside certain exceptions, such as debt dedicated to Clayton’s lending portfolio or to the fixed-asset commitments at our regulated utilities). We also never factor in, nor do we often find, synergies.”

[GBGC emphasis]

Betting shops’ costs increase in 2018

Overheads for the UK betting shops are set to rise in 2018 along with most other costs associated with “High Street” trade. The betting shops, along with other employers, face a rise in the minimum wage and an increase in both employers’ and employees’ payments to the Workplace Pension Scheme. GBGC estimates this will add £3,000 a year to the costs of a single-manned shop.  


Additional costs specific to betting shops are those associated with media which will add about £8,400 a year, including VAT.

Shopkeepers in shopping centres have noticed an increase in service charges that are billed by landlords. Rents are fixed according to the lease and upon renewal it is not hard to negotiate a lesser rent than one paid during the lease term, with all the high street shop closures. Inflating service charges seems to be a landlord’s unfair option and one difficult to dispute.

Since the onset of the recession that started in 2008 there have been many High Street casualties. According to the Daily Telegraph 30 major chains have disappeared and they include: Woolworths, Zavvi, Blockbuster, Austin Reed, BHS, Phones 4U, TJ Hughes, Jaeger, Maplin, Tie Rack, and Focus Hardware to name a few.

The closures alarmed the previous coalition government and its solution was to introduce BID (Business Improvement District) where shopkeepers paid into a fund to promote the town. One would have thought the rates they paid would do that but clearly not!

So, an extra burden is placed on an already declining high street. The reality is that the consumer is shopping online because they save petrol and parking costs by staying at home.  A trend that is hitting the high street bookmaker as well as retail shops.

The best and simplest initiative to get people out shopping is to make parking free for the first three hours.  

Survey: high satisfaction with e-gaming firms

Morgan Stanley’s London gambling team has commissioned a survey with Alphasights on the UK internet gambling industry. The striking result of the survey is the high level of customer satisfaction with internet gambling services. When asked if they were “very”, or “quite satisfied” with their choice of internet gambling company, most of results were between 80% and 91%. 888.com (91%) and Bet 365 (90%), produced the best results with Betfair the lowest at 72%.  However, on perception of best odds Betfair came out top.


Ladbrokes is the best-known betting brand with 66% awareness, Coral was fifth at 62%, just above Paddy Power.  William Hill was second just behind Ladbrokes with 65%.

Summary of findings:
•    42% of people surveyed placed bets in the last 6 months. A 3% decrease from the 2017 survey.
•    Retail brands have the highest brand awareness (Ladbrokes in first place), suggesting the potential for omni-channel.
•    Customer churn shows signs of increasing with an average of 48% of people with active accounts indicating they are likely to close them in the next 6 months. While it is unclear if the intention to close actually leads to account closures, this is markedly higher than the survey in 2017 (39%).  However, the survey was conducted after a prolonged period of poor sporting results for the gambler.
•    Price promotions and bonuses are the key drivers to sign-ups.
•    Of the online-only brands Bet365 ranked the highest at 57%.  GVC’s Foxy Bingo 56%, Betfair 51%, 888.com 47%, Skybet 41%.

Source: Morgan Stanley

GBGC’s view

The elevated levels of customer satisfaction, even after a period of sporting results going against the gambler, demonstrate that the internet gambling industry is serving its customers very well, and contrasts with the surveys produced by the Gambling Commission.

Retail brands have the highest customer awareness.  GBGC has discussed this in previous newsletters.  With advertising restrictions being imposed, we predict retail will become more significant.

Bonuses and best odds are still key marketing tools for internet gambling.

Customer churn is increasing and it could be down to one of a number of reasons: confusion over self-exclusion where customers inadvertently exclude; the customer is closing the account after being influenced by all the bad publicity attached to gambling; the customer is fed up of losing and wishes to stop after a bad run of sporting results. The last of these reasons being most likely.

Written by Warwick Bartlett

VAR approved for World Cup 2018

Video assistant referees (VAR) have been approved for use at the summer’s World Cup in Russia and based on the trials conducted in matches so far could offer some interesting betting opportunities.


One of the criticisms of VAR has been the length of time it takes for a decision to be made. But this period of deliberation offers an opportunity for bookmakers to offer betting on the result, especially as the speed of in-play betting continues to quicken.

Of the incidents that can be referred to VAR, “goal/no goal” and “penalty/no penalty” decisions are those most likely to appeal as a betting event.

But before all the “quants” in the trading department start developing VAR algorithms, they would do well to search for “Alex Bird” on their phones.

In the post-war years Bird was a professional gambler who won a fortune on UK racecourses betting on photo-finishes. It is reported that he won 500 successive photo-finish bets by developing a technique which gave him an edge in determining the winner.

If VAR betting is introduced enterprising punters will undoubtedly try to use technology to give themselves an edge in predicting the referees’ decisions. Bookmakers should tread with caution.

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