The decision on the part of the Department for Digital, Culture, Media & Sport (DDCMS) will have far reaching effects on the gambling industry. Those likely to be hit hardest will be the independent betting shop proprietors. As one old friend said to me “I am a third-generation bookmaker, the business was started by my grandfather, handed down to my father and now I have lost it, and through nothing I have done".
The B2 or FOBT saw 80 percent of play on roulette. Even for a betting shop, a £2 stake is very low with the average around £8 to £10. So, playing roulette with a £2 stake causes the even money options (red, black odd and even) to be an immaterial play. This forces the player to bet numbers, but £2 on a single number would be like a donation. Most players split their stakes between several numbers but because the limit per spin is £2, players will be placing bets of 20 pence per number making it an immaterial play.
So, the B2 machine may as well not exist. They will become B3 machines.
The FOBT revenue will be split between vaporisation, some will migrate over the counter, I would suggest 20%, and some on B3 play. Either way the loss of revenue will be significant.
This comes at a time when costs are rising for media, regulation and now increased taxation. We have written about this before.
Although the independent sector will be hardest hit the companies listed on the London Stock Exchange will also see a substantial reduction in profits. To be fair they have put their hands up to it, and given shareholders fair warning. What they have not been able to model is the effect of an increase in remote gaming duty which is to cover the cost of treasury revenue from the FOBT’s because the rate is not known.
It is my view that city analysts have underestimated the effect of the stake change. Their figures were prediction on a £20 stake because that seemed logical. I never expected a £2 stake because such a fall would not be reasonable, based on evidence, or would such a drastic drop be proportionate.
The decision is bizarre. Punters in betting shops can play roulette on their hand-held devices on line and stake as much as they like.
Hilton hotels in the USA have iPad in hotel bedrooms that are programmed to access only the Hilton website. You can order food, beverage, towels, soap and shampoo without talking to anyone. A bookmaker could put iPad in the shops and access their websites with customers paying cash over the counter. That goes someway to explain the hypocrisy of this decision.
Rising media costs for horseracing, loss of FOBT revenue, increases in taxation, will lead to the closure of shops causing the remaining shops to shoulder the burden of the industries high fixed costs, leading to a downward spiral.
This could not come at a worse time for the industry as the USA has finally announced this week that the legalisation of sports betting is underway. UK bookmakers are best of class for probity, efficiency and working in a regulated environment.
Moving into the lucrative US market will require substantial investment at a time when the industry is being drained of liquidity.There is potential for missed opportunity again.
What lessons can we learn?
- An industry should present a united front to Government. We saw online operators telling Government to impose a low stake. Now they face an increase in remote gaming duty. Don’t say we did not warn you!
- Never ask government for anything, everyone does, and everyone’s case is special and no different from yours. Government is used to saying no!
- Go to Government with a plan where it is in their interests and they are the winners. Ideally operators should have self-imposed a limit of a £20 stake a year ago. But such a move would have been in breach of competition regulations. Hard to do the right thing even if you would like to.
- Do not threaten Government. You will be the loser.