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