The UK gambling sector has become the latest victim of “pre-Budget anxiety”, says Tom Saunders in The Times. The news of a potential £3 billion tax raid on the sector has wiped billions off the value of its biggest players. Entain, which owns Ladbrokes and Coral, and Evoke, which runs William Hill, both saw their stock drop 16% on Monday. Flutter Entertainment, which owns Paddy Power and Betfair, and Mecca Bingo-parent Rank Group retreated by 8%. More than £3.5 billion was erased from the sector’s collective market value.
The Treasury is looking at two separate proposals, one from the Social Market Foundation (SMF) to increase online gaming taxes by £900 million, and another from the Institute for Public Policy Research (IPPR), which would increase a range of duties by £3 billion, says Rob Davies in The Guardian. The SMF advocates doubling the tax on online gambling companies from 21% to 42%, while the IPPR thinks the Chancellor should double taxes, such as the 15% general betting duty levied on high-street bookmakers’ profits. Analysts think that while the government is unlikely to opt for the higher range of duty, the sector is “facing tougher regulation and taxes”.
UK gambling sector: how are markets reacting?
The market’s reaction to the plans looks “overdone”, says Cristina Gallardo on Morningstar. The most likely outcome is an increase in remote gaming duty of between 3% and 5%. Given that UK tax rates on gambling companies are still “comparatively low”, such a hike “shouldn’t prove to be an existential crisis for the sector”. While small-scale bookmakers might “struggle” to absorb the costs, larger firms will simply “cut marketing and promotion costs, reduce sports sponsorship and offer less favourable odds to customers”.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It may be harder than you think for firms to pass on costs to consumers through poorer odds, since this is a “competitive and largely undifferentiated industry”, says Lex in the Financial Times.
So, while the “knee-jerk” share price moves may be an “overreaction”, they reflect justified fears about “an unpopular sector still on the watch list of regulators and governments”. The “contentious” nature of gambling makes it a soft target, especially since the “lightly staffed” nature of the online sector means a reduced risk of job cuts. Both Sweden and the Netherlands recently raised taxes on the sector.
The fact that the UK gambling industry is in the “firing line” is particularly “problematic” for those companies still highly dependent on British gamblers, says Yawen Chen on Breakingviews. For example, Evoke gets about 70% of group earnings before interest, tax, depreciation and amortisation (Ebitda) from the UK, while Entain and Flutter still derive most of their money from Britain.
Entain shareholders are now probably feeling “pretty downcast” about management’s 2021 decision to reject an approach from US group MGM Resorts, with whom it has a US joint venture. With larger firms keen to sell UK assets and smaller ones wanting to “couple up”, gambling bankers will be watching the Budget closely.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
How to do a mid-retirement MOTYou may have heard of a midlife MOT, but experts say a mid-retirement MOT is also essential to ensure your finances are on track and your pension savings last as long as you do
-
Burberry’s share price surges despite collapsing profits and job cuts announcementBurberry’s share price has soared, despite collapsing profits and around 1,700 jobs potentially set to be cut, as markets assess the turnaround plan’s effectiveness
-
Greg Abel: Warren Buffett’s heir takes the throneGreg Abel is considered a safe pair of hands as he takes centre stage at Berkshire Hathaway. But he arrives after one of the hardest acts to follow in investment history, Warren Buffett. Can he thrive?
-
Who will be the next Warren Buffett?Opinion There won’t be another Warren Buffett. Times have changed, and the opportunities are no longer there, says Matthew Lynn.
-
Will Comstock crash – or soar?Opinion The upside for Comstock, a solar panel-recycling and biomass-refining group, dwarfs the downside, says Dominic Frisby.
-
'As AGMs go digital, firms must offer a new form of scrutiny for shareholders'Opinion Technology has rendered big AGM meet-ups obsolete, but the board still needs to be held to account, says Matthew Lynn
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
-
'Nationalisation is not the answer'Opinion Labour's enthusiasm for nationalising steel was met with approval across the spectrum. Political consensus is a sign that thinking has been abandoned, says Max King
-
Two ways to tap into monopoly profits from airportsMost investors can’t get their hands on airports. Here are two ways you can
-
Fat profits: should you invest in weight-loss drugs?The latest weight-loss treatments could transform public health and the world economy. Should you invest?
