- Bookies’ incomes expected to dive due to FOBT limits
- Mergers and deals held up due to valuation uncertainty
Britain’s bookmakers face an uncertain few months are they anxiously await the results of the government’s gambling review, which could lead to a dramatic cut in potential earnings for those operators.
Major bookmakers and gambling groups are making contingency plans ahead of the review’s publication, possibly informally discussing or sizing up deals with rivals and engage in acquisitions and mergers to strengthen or consolidate their respective market positions.
However, the implications of the report on bookmaker earnings makes it almost impossible to put a value on a gambling company right now – causing potential deals and mergers to be placed on hold until after the report is published.
Predicted FOBT limits to harm bookies’ bottom lines
The government report is expected to place a strong focus on FOBTs.
Up to two million players in the UK are thought to be addicted or at risk.
Politicians and campaign groups have called for the maximum stakes on FOBTs to be reduced to just £2 ($2.65), down from £100 ($130), in order to decrease the risk to players.
Though bookmakers have argued that closing down one form of betting will just push problem gamblers to another kind of gaming, they accept that player protection should come first, if evidence suggests it will be measurably improved.
There is no doubt that a reduction in FOBT stakes will harm betting operators’ bottom lines.
The industry could lose up to $1.3 billion annually, estimates Bloomberg, and analysts say this could force the closure of one third of the UK’s high street betting shops.
The Association of British Bookmakers believes half of the 9,000 betting shops could close.
Around 19,000 jobs would also be threatened by FOBT reform. With some of the nation’s biggest operators taking more than half of their revenue from FOBTs, the implications for the industry are very serious.
Rivals scramble to form partnerships
If the betting industry wants to survive a harsh cut to its profits, operators may need to find partners they can share the market space with – or consider purchase or sale deals to combine assets and interests.
GVC Holdings and Ladbrokes Coral are said to be moving towards an acquisition deal, reports the Financial Times, and groups including Rank, Paddy Power Betfair and William Hill are reaching out to smaller brands who could join their portfolios and boost their market share.
Many deals are been drafted ahead of the review, ready to be enacted if needed as soon as the review is published.
However, these operators seeking security after the review face challenges because of it. Until the extent of FOBT reform, and industry reform as a whole, is made clear, placing a value on a British gambling company is an extremely difficult job.
Analysts have told investors and brokers to plan for the worst case scenario – a £2 maximum FOBT stake – and to base their deals on the company’s potential in that circumstance.
This will make it hard for smaller companies to get a good price in a takeover deal – but it could benefit larger interests hoping to secure their mergers right after the review is published.
Want to try an online casino?
Choose an approved casino from our carefully selected list. VIEW CASINOS