UK gambling market comes under siege
Tighter regulation, higher tax and action against problem betting force shake-up of industry
When the little-known betting website, Royal Panda, was snapped up by the Swedish group LeoVegas in 2017, it was supposed to be a gateway to the booming UK gambling market.
But in January the website — which made half of its €9.8m revenues in the UK — abruptly shut down, telling customers they should withdraw funds before the end of the month. As the requirements for safer gambling increased, so did costs, and Royal Panda’s UK operation had become unsustainable.
Two other betting websites, Aston Casino and MaxEnt, also pulled out of the UK last month. Another, Black Type, fell into administration.
The rapid disappearance of small players is a sign of an industry under siege.
Tighter regulation, higher taxes and a barrage of negative media coverage exposing betting companies’ exploitation of vulnerable customers, contributed to the UK gambling sector’s first ever decline last year.
Revenues in the world’s largest regulated gambling market fell from £5.6bn to £5.3bn in the year to March 2019, according to Gambling Commission figures.
“Is the game up? It’s a good question,” said Paul Leyland, an analyst at Regulus Partners. “[The crackdown] is definitely reducing the appetite to be in the UK market.”
Restricting gambling has become a rare cross-party issue in parliament. Already this year the Gambling Commission has banned betting with credit cards and is considering a £2 stake limit on online casino games.
Previous efforts to curb problem gambling include stopping advertising during sports matches and a punitive cut to the maximum stake permitted on highly profitable — but addictive — fixed odds betting terminals.
But many expect a much tougher crackdown is looming.
This week, a House of Lords select committee grilled gambling executives about advertising around sport and controversial “VIP” schemes, used by companies to encourage high-spending gamblers to bet more. Both could be stopped in an upcoming review of the UK’s Gambling Act 2005.
“It is a sector that is under enormous pressure in terms of its licence to operate, because of the damage it is doing. It reminds me of the conversations on cigarettes,” said one major fund manager.
One industry banker said regulatory headwinds had caused a number of UK M&A deals to fall through. “It’s a real problem . . . because there is uncertainty about it people are a bit more cautious,” he said.
A former industry executive pointed to the failure of William Hill, one of the UK’s oldest bookmakers, to secure any major deals since it walked away from a £3bn merger with Rank and 888 group in 2016.
Already larger companies have turned their attention to more lucrative markets — an expansion that has helped boost their share prices despite the tougher UK environment.
GVC, the owner of Ladbrokes Coral, is preparing to expand in Brazil. Bet365 is focusing on unregulated territories in Asia. Flutter and Stars Group, owners of Paddy Power and Sky Bet respectively, announced a £10bn merger — now under review by the UK competition authority — in October with the aim of cracking the newly regulated US market. William Hill is due to announce a partnership with the US TV network CBS this week, according to two people with knowledge of negotiations. GVC signed a similar deal with Yahoo Sports in October.
Many in the industry fear a more severe clampdown would blunt the rapid growth of the UK market, which first legalised bookmakers’ shops in 1961 and now has more than 2,800 licensed operators.
“We’re not worried about credit card bans or shirt sponsorship bans but any blanket restrictions in relation to online stakes would be a concern [for the industry],” said Michael Mitchell, an analyst at Davy.
The UK market accelerated after the Gambling Act 2005 increased competition and allowed betting companies to advertise. In the decade to March 2019, total gross gambling yield — the amount kept by operators after winnings are paid — rose from £8.4bn to £14.3bn.
But as the industry boomed, so gambling addiction grew. The most recent NHS figures show that the percentage of gamblers who identified as problem gamblers increased from 0.9 per cent in 2012 to 1.2 per cent in 2016.
Gambling Commission surveys show some improvement in recent years.
But Warwick Bartlett, chief executive at the research firm Global Betting and Gaming Consultants, said that had prompted a change in direction.
“At the start the Gambling Commission was concerned about addictive gamblers. Now that the industry is succeeding in getting addictive play under control they have shifted the goal to gamblers who may be at risk.”
The big providers argue that sweeping limits on betting stakes will drive punters into the offshore market, which an industry funded report showed accounted for 1 per cent of online stakes.
“Beware the law of unintended consequences,” said Kenny Alexander, GVC’s chief executive. “If licensed operators become less attractive to punters then the size of the black market in the UK will only increase.”
But some investors said the stricter limits would improve the sector’s credibility.
“The industry needs to do more to self regulate. But [it] is clearing up its act and becoming more investible,” said Simon Gergel, chief investment officer in UK equities at Allianz Global Investors.
Already there are signs gambling companies are seeking to skirt legislation.
Some operators have increased the number of self-service betting machines that have few limits to boost flagging retail revenues. Others have been slow to adopt technology that would alert them to potentially problematic customers.
Simo Dragicevic, founder of BetBuddy, an analytics tool that monitors gambling behaviour, said many of the operators that buy such software do not use it.
“Even the biggest operators aren’t doing real time intervention with customers, even though the tech exists,” he said.