It's been a long time coming, but the government is now getting tough on fixed-odd betting terminals (FOBTs) – affectionately known as the crack cocaine of high street gambling.
For more than a decade, gamblers using these casino-style machines have been able to lose £100 in a matter of seconds, but new rules will cut the maximum stake to £2 in a bid to protect vulnerable players and, ultimately, curb addiction.
While the decision has been widely praised (even among some employees within the industry), its got high street betting chains like Ladbrokes, BetFred, and William Hill hot under the collar.
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For years, the bookies have sat back and watched the money pile up. Figures from the Gambling Commission suggest that each year, FOBTs – which make it near impossible for gamblers to win money – have generated revenue of £1.8bn for betting companies.
But the new rule is set to stack the odds against the betting industry.
When the news was announced on Thursday, it walloped the share price of betting companies William Hill and GVC (which owns Ladbrokes).
This is perhaps unsurprising, given the latter generates an astounding 50 per cent of its retail revenues from such terminals (easy money by any means). The betting giant warned that the new rule could result in hundreds of job losses and store closures, claiming the companys revenue could drop by as much as 45 per cent.
The picture no longer looks so rosy for these betting beasts.
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More on the cards
Its not just this change which has got betting companies all flustered.
Limiting the stake on FOBTs sets the tone for a much tougher stance from the government, making it look likely that a string of other rule changes – which form part of a wider consultation – will come to play. This includes a proposed package of measures, such as making sure gambling channels cant be accessed by anyone under the age of 18.
Theres also the indirect impact from the FOBT changes. Currently, these betting machines generate taxes of £400m for the government. In order to recoup the cash lost from the change, culture secretary Matt Hancock proposes increasing the remote gaming duty – a tax levied at certain online gambling games.
We could see tax could jump to 25 per cent – a marked increase from the current 10 per cent, serving as yet another blow to betting firms.
Betting companies have not come to the end of their winning streak just yet
But the bookmakers have also spent millions on extensive PR campaigns. Even when it seemed inevitable that they were going to lose the war, some lobbied right to the bitter end.
It now looks like these hefty PR bills have been money ill spent, and companies would be better off having invested in the prep behind the inevitable overhaul of their industry.
Hitting the jackpot
“The market usually takes away with one hand, and gives with the other,” says IGs Chris Beauchamp, suggesting this valuable trading lesson is now being learned anew by betting companies. “The governments decision on FOBTs threatens a major revenue stream, with only a limited time before their chance to take advantage of the income before this part of the business is shut down.”
However, Beauchamp says that these companies have not come to the end of their winning streak just yet, as the US looks to legalise sports betting.
“The bookies will miss the secure revenue streams offered by the betting terminals, but the bigger gambling tables of the US await, promising a multitude of jackpots, assuming the firms play their cards right.”
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Russ Mould from AJ Bell agrees that while the UKs decision over the maximum stake will hang over shares in FTSE 250 bookmaker William Hill, the company has a good foothold in the US, helped by acquisitions it made in 2011. Bookies with presence in the US (which include Paddy Power Betfair) certainly have a trump card.
But its also the betting houses with a sturdy online presence, such as – Paddy Power, Bet365, GVC and Stars – which leave the likes of William Hill looking outgunned, Mould adds.
Ultimately its the bookies that are preparing for a future without FOBTs which are likely to come out the strongest.
The days of easy money are over; betting companies are going to have to work harder and go back to the roots of their business – that is, betting, not gaming – if they want to be quids in.
