UK bookmakers: downhill slog Premium
Betting shops are heading in the same direction as other high street participants
UK high-street bookmakers are giving short odds on a Conservative election victory next week. That outcome may only limit the pain from a government review of restrictions on lucrative fixed odds betting terminals (FOBTs).
Ladbrokes Coral and William Hill together have over half of the 9,000 UK shop estate. Each face the problem of a declining business that owns too much property. Betting on horseracing has been moving into cyber space, where sports wagering is buoyant but punters fickle. Retail bookmaking is a race to the bottom where the winner will be the one best able to capture customers online while managing shop closures.
Over half of retail profits now come from FOBTs, which the opposition Labour party believes should pay out no more than £2 per winning bet. Lobbyists claim a much lower cap set by either party would be the coup de grâce for almost half of existing shops. With jobs at stake any compromise will probably bring closures in the hundreds rather than thousands.
As the pool of traditional punters shrinks, operators face the same choice that has hit other businesses with real estate; margin or market share. Consider first-quarter results. Wagers placed at Ladbrokes Coral shrank 7 per cent. At William Hill they rose 2 per cent. While gross win margins — the money the bookies keep — grew at the former, they shrank at the latter. Offering better odds brings customers, but magnifies losses when they win.
Operating margins for high-street divisions are equally gloomy, losing 5 percentage points at both Ladbrokes Coral and William Hill since 2014 to hit 10 per cent and 16 per cent respectively at the end of last year. Shares have fallen accordingly.
Both companies are growing online but a reliance on bricks and mortar for earnings leaves them vulnerable. A damaging decision on FOBTs would merely accelerate the decline of betting shops along a trajectory traced by pubs and music shops. The stock of traditional bookies should appeal only to punters with a taste for long odds.