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