FOBT fall-out begins

Less than a week after the DDCMS’ decision to reduce the maximum stake on FOBTs to GB£ 2 and consequences are already manifesting themselves. 

One major high-street betting firm has written to staff asking for voluntary redundancies and informed them that over the next 18 months hundreds of shops will close.

An independent bookmaker told GBGC that his FOBT revenue has been slashed by half in his shops since the announcement. How has this happened in just a few days? Betting shop customers seem to have assumed that the new lower stake came into force on the day it was announced by the DDCMS Secretary of State, Matthew Hancock MP. 

The Minister’s failure to announce an implementation date could be causing the Treasury to lose tax revenue already, if the bookmaker’s experience is being replicated elsewhere.

If this bookmaker’s customers are not using FOBTs in the same number as before, where has the money gone? Between zero and five percent has gone over the counter (OTC), so the anticipated uplift for horserace betting has not yet happened and might never happen.

A few years ago, I recall one independent bookmaker who ran one of the shops in his estate without a single FOBT for six months to study the effect on the rest of his business.  OTC improved only 20% shared between numbers, lottery, football, greyhounds and horseracing.

As GBGC also stated elsewhere, the GB£2 stake makes the bet uninteresting for customers. Another bookmaker told GBGC that his shop punters are mystified by the decision. The punters’ comment is “what’s the point of having GB£ 2 on an even money shot?”

He reported takings on the “low side” since Thursday but did not attribute it directly to the FOBT decision, saying a clearer assessment could be made at the end of the month.


Bookmakers will no doubt be promoting heavily in their shops to inform punters that the maximum FOBT stake is still £100, until Government decides on a date for implementation. But they have to be careful. The Gambling Commission will not wish to see aggressive marketing when the DDCMS has decided it is in the public’s safety to have stakes cut to GB£2. 

The UK Treasury is likely to receive less tax from betting shops than it previously envisaged, if the decline in FOBT revenue continues even before the new lower stake is enforced.  That is a bad omen for the e-gaming sector, which is being milked as the cash-cow to make up the shortfall.

by Warwick Bartlett

US sports betting potential

In the wake of the Supreme Court’s ruling on PASPA, GBGC presents its view on the potential for sports betting in the US. At present, some 24 states have expressed varying degrees of interest in regulating sports betting. These states have a population of 186 million people.


What is not known, in many instances, are the key factors of the tax rate, integrity fees, and permissible betting channels. Of course, not all 24 states might actually pass sports betting legislation.

There are already extremes in betting tax between West Virginia and Pennsylvania. The prevailing tax rate across the various states will determine the success of the market and how much is recaptured from offshore and unlicensed domestic operators.

FOBTs: tax rise to pay for disastrous decision

The decision on the part of the DDCMS to reduce maximum FOBT (B2) stakes to GB£ 2 will have far reaching effects on the gambling industry.  Those likely to be hit hardest will be the independent betting shop proprietors.   As one old bookmaking friend said to me “I am a third-generation bookmaker, the business was started by my grandfather, handed down to my father and now I have lost it, and through nothing I have done.”

Roulette accounts for the majority of play on FOBTs. Even for a betting shop, a £2 stake is very low with the average being around £8 to £10.  Playing roulette with a £2 stake causes the even-money options (red/black; odd/even) to be an immaterial play. This might encourage the player to bet on single numbers. But £2 on a single number would be like a donation.  A common strategy is to split stakes across several numbers. The limit per spin is £2, so players will be placing bets of 20 pence per number, making it an immaterial play. 

As a result, the B2 machine may as well not exist. They will become B3 machines.  

Current FOBT revenue will go a few different ways:  evaporation out of the betting shop altogether, migration to over the counter (an estimate of 20%), and redistribution to B3 play.  The loss of revenue will be significant.

This comes at a time when costs are rising for media rights, regulatory compliance and now increased taxation through RGD.

Although the independent sector will be hardest hit, the gambling companies listed on the London Stock Exchange will also see a substantial reduction in profits.  Whilst they have given shareholders fair warning on the impact of a reduction in FOBT stakes, what they have not been able to model is the effect of an increase in remote gaming duty because the DDCMS did not confirm the new rate.

It is my view that City analysts have underestimated the effect of the stake change.  Their figures were predicted on a £20 stake because that seemed logical.  I never expected a £2 stake because such a fall would not be reasonable, based on the evidence, nor proportionate.

The government’s decision is bizarre.  Punters in betting shops can still play roulette on their mobile devices and still stake as much as they like.  

Bookmakers could make devices freely available in shops with access to their gaming sites and enable customers to load up a playing card by paying cash over the counter. That goes someway to explain the hypocrisy of this decision. 

Increasing employment costs, rising media costs for horseracing, loss of FOBT revenue, and increases in taxation will combine to cause the closure of shops. The remaining shops will have to shoulder the burden of the industry’s high fixed costs, causing a downward spiral.

This could not come at a worse time for the industry. Just this week the US Supreme Court has opened the way for sports betting in the USA. UK bookmakers have the expertise and experience of operating in a regulated environment to help develop a successful market in the US. But moving into the lucrative US market will require substantial investment at a time when the industry is being drained of liquidity at home.  There is the potential for missed opportunity again.

What lessons can we learn?

1. An industry should present a united front to Government.  Various factions, including online operators, worked against the bookmakers, telling government to impose a low stake. Now those operators face an increase in remote gaming duty. Don’t say we did not warn you!
2. Never ask government for anything. Everyone does, and everyone’s case is “special”.  Government is used to saying no!
3. Go to government with a plan where it is in its interests and the government is the winner.  Ideally, operators should have self-imposed a limit of a £20 stake a year ago.  But such a move would have been in breach of competition regulations.  Hard to do the right thing even if you would like to. 
4. Do not threaten government. You will be the loser.

by Warwick Bartlett

UK government cuts FOBT stakes

The DDCMS has announced its decision on the reduction in stakes on fixed-odds betting terminals (FOBTs). Minister for Sport Tracey Crouch has said the maximum stakes are to be reduced from GB£ 100 to GB£ 2 “to reduce the risk of gambling related harm”.

The Minister said: “Problem gambling can devastate individuals’ lives, families and communities. It is right that we take decisive action now to ensure a responsible gambling industry that protects the most vulnerable in our society. By reducing FOBT stakes to £2 we can help stop extreme losses by those who can least afford it. While we want a healthy gambling industry that contributes to the economy, we also need one that does all it can to protect players.”

At the same, the DDCMS also announced that there will be an increase in Remote Gaming Duty (RGD) to “cover any negative impact on the public finances” from the loss of tax revenues from machines. 

Top 5 global gambling markets

The 13th edition of GBGC’s comprehensive Global Gambling Report is available now. The report discusses the gambling activity in more than 250 individual jurisdictions, covering every continent.


Find out more about GBGC’s specialist gambling publications here: https://www.gbgc.com/publications

The top five largest gambling markets account for 54% of global gambling revenues, with the USA leading the way.

Global Gambling Revenues by product

The 13th edition of GBGC’s comprehensive Global Gambling Report is available now. The report discusses the gambling activity in more than 250 individual jurisdictions, covering every continent.

Find out more about GBGC’s specialist gambling publications here: https://www.gbgc.com/publications

Globally, casinos are the largest sector, including tribal gaming, followed by lotteries.


Global Gambling Report 2018

The 13th edition of GBGC’s comprehensive Global Gambling Report is available now. The report discusses the gambling activity in more than 250 individual jurisdictions, covering every continent.

Some of the highlight findings are below.

Find out more about GBGC’s specialist gambling publications here: https://www.gbgc.com/publications

Gambling shares rise on PASPA ruling

Shares in gambling stocks rose on Monday (14 May 2018) after the US Supreme Court ruled that the Professional and Amateur Sports Protection Act (PASPA) was not consistent with the US Constitution. The ruling enables individual US states to regulate sports betting if they so wish.

Shortly after the announcement, William Hill’s shares were up 8.5%, Paddy Power Betfair was up 7.4%, GVC Holdings was up  4.2%, and the Stars Group 11.8%. All are seen as companies which could benefit from the regulation of sports betting in the US.

In the US, Scientific Games’ share rose 10.0%, Caesars Entertainment was up 6.1%, Churchill Downs’ shares rose 3.7% and Boyd Gaming 3.2%. But some of the Las Vegas, Nevada based gaming companies had a slight drop in price, perhaps on the view that they were losing their near monopoly on sports betting: LVS down 1%; Wynn Resorts down 1.9%.

US Supreme Court overturns betting ban

The US Supreme Court has voted by a margin of 7-2 to overturn the prohibition of sports betting in the US under the Professional and Amateur Sports Protection Act (PASPA) in a ruling issued on 14 May 2018.

 

The Supreme Court’s ruling can be read here:

https://www.supremecourt.gov/opinions/17pdf/16-476_dbfi.pdf

In summary the judges decided:

The legalization of sports gambling is a controversial subject. Supporters argue that legalization will produce revenue for the States and critically weaken illegal sports betting operations, which are often run by organized crime. Opponents contend that legalizing sports gambling will hook the young on gambling, encourage people of modest means to squander their savings and earnings, and corrupt professional and college sports. The legalization of sports gambling requires an important policy choice, but the choice is not ours to make.

Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not. PASPA “regulate[s] state governments’ regulation” of their citizens, New York, 505 U. S., at 166. The Constitution gives Congress no such power. The judgment of the Third Circuit is reversed. It is so ordered.

The FOBT Decision: GB£ 2 or not GB£ 2?

After years of debate the UK Government will soon impose a limit on stakes for Fixed Odds Betting Terminals (FOBTs, B2). According to the Sunday Times the Treasury and the Department for Digital, Culture, Media and Sport (DDCMS) are close to reaching a compromise agreement. The stakes can be reduced but Treasury wants the inevitable shortfall in tax to shouldered by other areas of the UK gambling industry.


There is certain irony in this result, if it comes to pass.  Casino groups and BACTA have long campaigned to have FOBTs removed or the stakes reduced, in the belief that they and their machines would benefit at the expense of the bookmakers. It was always a precipitous path to tread and one that could come back to haunt them if they now face higher taxes to try and cover the FOBT shortfall.

The question arises as to whether Government has thought through the consequences of such a draconian action of reducing stakes to £2. Politically, the government has nothing to lose in the short term. Opposition parties campaigned on a GB£ 2 stake at the last election and the Daily Mail, Guardian, Channel 4 and BBC would all feel vindicated in their campaigns.

According to the Association of British Bookmakers (ABB) 4,500 shops would close by 2020, leading to a loss of 21,000 jobs, a tax loss to Treasury of £1.1 billion, and £290m in lost levy and media rights.

The ABB may have underestimated the impact.

If the Treasury wanted to make up the shortfall it would have little choice but to increase betting taxes both online and offline to 20%.  A double whammy for betting shops. But also a double whammy for online operators because at the same time Gamstop and tougher regulatory controls are being introduced, along with taxation on bonuses.

That is not all. UK horseracing, through Racecourse Media Group, agreed a five-year deal in September 2015 with SIS, running from 2018 to 2023, to transmit its live televised horseracing to betting shops.

I have no idea what the financial arrangements are but I suspect it maybe a guaranteed figure. Betting shops are currently paying around £38,000 to cover all horseracing on two channels.   If the number of betting shops in the UK were to halve, SIS would have little option but to increase the cost of media rights on those shops that remain, taking the payment to around £55,000 a year.

I suspect this would create more shop closures or bookmakers would opt for smaller premises, offer sports only, with four B3 machines. Horseracing would suffer.

The ABB forecast 4,500 shop closures. This is a conservative figure because it has probably not taken account of an increase in betting tax.  

It does not take account of the effects in the markets on the value of the bonds issued by the public companies, the fall in the share price and loss of value in pension funds held by financial institutions, the liquidation of the small businesses who have invested based on what they knew at the time and what they expect of a well-regulated licensing regime.

Would the Racing Post survive with half of the betting shops to which to sell to?

It is not only horseracing that will suffer. There is considerable oversupply of greyhound racing to betting shops with two services: BAGS Greyhounds through the TRP channel and the separate SIS Greyhound Service.  Greyhound racing is less popular than it used to be, and the spectator numbers show a decline over the last 25 years.  Tracks have closed. If the number of betting shops were to reduce significantly one of these services would be sure to go with major implications for the tracks on that service. Greyhound racing could disappear as a sport in the UK.

Independents will be hit hardest

The small independent bookmakers have invested in their business over the last five years to keep up with the technological change and refurbished shops to make them more attractive. Most shops are held on a five-year lease, so closure will leave a liability for the unexpired term. On average this liability could be £150,000 depending on location. If they have borrowed money from banks to invest in their business they would have been asked to put up security, that could be the deeds to their house. Not only will they lose their living, they could lose the house.

In the office I asked colleagues the question what would have happened to betting shop numbers had FOBTs not been invented.  The answer came back, they would be a lot less than they are today.

I think that is right. The industry, over time, would have adapted to the competition from the internet. Horseracing would have adjusted to less income from media and the horserace levy and the Treasury would have adjusted its budget to meet income.

What we expect of Government

But that is not where we are today. A sudden shock of introducing a £2 stake may win some political points on the day, but it will devastate a betting industry where, let’s be frank, the Brits are best.

It is not what we expect of Government. We expect it to consider the facts and to behave rationally. In spite of everything, I still have sufficient confidence in the system that it will.

By Warwick Bartlett

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