View from the City: Budget to bring more pain for operators
Bertie Berger from Hudson Sandler analyses the latest movements in the market including the impact of the looming rise in remote gaming duty
The Budget will be announced this afternon, but, the industry is already feeling its effect. On 22 October, hints that the Chancellor could increase Remote Gaming Duty (RGD) to 20% or even 25% sent the share prices of most operators and providers tumbling.
According to a government insider speaking to the Financial Times, the increase in duty is expected to raise more than £1bn over five years, plugging the hole in tax receipts left after maximum FOBT stakes fall from £100 to £2. A 5ppt increase in RGD would cost the industry c £180m in 2019 – or likely c. 10% of UK-related profits for exposed companies, according to Regulus Partners.
Although the FT article stated that the rise will “infuriate” operators, analysts at Berenberg and Goodbody were quick to highlight that an increase in RGD to 20% is “expected” and already factored into forecasts for all operators with a UK presence. The figure that would have surprised a few people would have been the potential increase in RGD to 25%, however Berenberg noted that the “the dominant operators would likely benefit in terms of market-share grabbing”.
Canaccord said the 25% mark would represent “a triple tax hit for the industry,” with appropriately £200m in additional taxes per annum and limited political resistance. One City source said the 20% rate was much more likely, with 25% only floated to make 20% see more palatable.
The government has targeted the industry for tax rises as departments jostle for extra funding ahead of a planned increase in spending after years of austerity. Meanwhile, the UK Gambling Commission is using a “risk-based approach… leaving operators unclear on the parameters for tackling KYC requirements and harmful gambling”.
As a result, the barriers to entry will become higher, with a greater emphasis on consumer protection. The operators that invest in effective responsible gambling processes, that seek out new solutions to enhance consumer protection, and develop the most advanced technology for monitoring player behaviour, will come out on top in a competition that few companies can afford to lose.