Investors in betting companies with UK-exposure had a dire year in 2018, almost entirely due to Government intervention. The stakes on Fixed Odds Betting Terminals (FOBTs) will be reduced to £2 in April 2019, accompanied by a 6-percentage point tax increase for internet gaming, and a plethora of regulation bringing forth new fines.
All of this has taken its toll on the capital values of the companies. Just over a year ago GBGC wrote about how difficult it would be for gambling companies to maintain their positions in the FTSE 100 and FTSE 250 index.
GVC Holdings entered the FTSE and was listed in 78th position on 4 September 2018. At the time of writing GVC is now 97th – a fall of 19 places. This means that the other companies in the index have generally done better and so have the industries in which they trade. Investors have choice and can invest in any company and will choose to invest where the returns are greatest. How a company performs against the rest of the market is a clear indication of where it sits in the wider economy. The story in 2018 was not good for gambling companies, and they have been punished because of it.
It is not only GVC. William Hill is now number 210. I recall them sitting at 94 when David Harding was the Chief Executive. Paddy Power Betfair was ranked 64 on 27 February 2018 and now it is 82nd, a drop of 18 places.
What makes the investment in gambling worse relative to the market is the FTSE in general has performed badly when compared to the Dow and the S&P 500, the latter being 17% higher over three years. It is generally acknowledged that the FTSE has been oversold because of the protracted negotiations caused by Brexit and the economic uncertainty caused by it. To perform badly in an index that is performing badly itself is hardly reassuring.
There is much talk that gambling companies are making too much profit but when judged against the wider market this is not the case.
Written by Warwick Bartlett