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Bookmaker Futures on the Line as Billion-Pound Review Looms

Updated on
  • Betting shops resigned to reduction in maximum machine stakes
  • Outcome of review seen as key to future industry consolidation

For British bookmakers, the stakes couldn’t be much higher.

More than 1 billion pounds ($1.3 billion) of revenue will be on the line when the U.K. government publishes its three-yearly review of the roulette and blackjack machines situated in thousands of betting shops around the country.

After a delay caused by the country’s snap election earlier this year, companies including Ladbrokes Coral Group Plc and William Hill Plc are braced for an announcement. Most are resigned to a reduction in the maximum amount customers can wager, though the extent of the cut will be key in determining both future profit and the likelihood of more mergers and acquisitions in an industry that’s already undergone significant consolidation.

“A severe restriction on machines would lead to a huge drop in revenues,” said Gavin Kelleher, a Dublin-based analyst at Goodbody Stockbrokers. “The companies most affected are the ones that will probably take part in M&A.”

So-called fixed-odds betting terminals have become increasingly important to betting-shop owners in recent years as their share of traditional betting has been eroded by online operators. U.K. Gambling Commission figures show that 4.5 billion pounds was wagered online in the year ended March 2016, compared with the 3.3 billion pounds bet in shops.

Dubbed the “crack cocaine” of gambling by opponents because of concerns over addiction, the terminals can accept a maximum bet of 100 pounds every 20 seconds and earned the industry about 1.17 billion pounds in the 2016 fiscal year, according to Investec estimates.

Prime Minister Theresa May’s government is considering whether to cut that maximum stake, a move it would need to justify on grounds of helping reduce problem gambling. More than 2 million people are problem gamblers or at risk of addiction, the opposition Labour Party said last month, citing data from the Gambling Commission.

Some lawmakers are calling for the amount to be slashed to just 2 pounds, a move that Investec analyst Alistair Ross estimates could lead to more than a third of betting shops closing down, putting about 19,000 jobs at risk.

“Investors should focus on a 2 pound staking-limit scenario, which some industry players have dubbed an Armageddon scenario,” Ross said. 

Shareholders are under no illusions. An Investec survey of 37 institutional investors showed that, on average, they expect the maximum stake to be cut to 14.50 pounds. Investec itself sees the limit being set at 10 pounds.

Such an eventuality has weighed on share prices, with William Hill falling 35 percent and Paddy Power Betfair Plc 15 percent since the end of 2015.

Those close to the industry expect an announcement from the government as early as this month, although the Prime Minister’s spokesman James Slack said there’s nothing in the diary for this week. The exact outcome may not be known until next year, with recent reports suggesting the government will first publish a range of possibilities, including an unchanged maximum as well as reductions to 30 pounds, 20 pounds and 2 pounds.

On Hold

For bankers, a resolution can’t come soon enough. A period of consolidation, including the mergers that created Ladbrokes Coral and Paddy Power Betfair Plc, has been on put on hold as bookmakers await their fate.

The bigger the cut in company revenue resulting from the review, the greater will be the prospect of further mergers and acquisitions. One possible deal that is the subject of growing speculation is a takeover of Ladbrokes Coral by GVC Holdings Plc. The former has hired advisers to look at possible merger options once the outcome of the review becomes clear, the Sunday Times reported last month, citing unidentified people.

“Every company in the sector has been keeping an open mind in terms of consolidation and you can’t rule any of them out,” Goodbody’s Kelleher said.

— With assistance by Alex Morales

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