In the wake of today’s FA cup final and Royal wedding, we ask are UK bookies still worth a punt, as the government proposes stricter regulation. Many infrequent gamblers enjoy a bet on which colour hat the Queen shall wear or indeed the number of goals scored on cup final day, however, there is a dark underbelly to gambling in the U.K, identified in today’s article.
This week saw the UK government cut the maximum permitted stake on fixed-odds betting terminals (FOBTs) from £100 to £2. The change, which is subject to a parliamentary vote slated for 2019, has been sought after for years by critics of FOBTs, who claim the machines are addictive, can lead to massive losses, and have links to money laundering.
Although the cap will cut the government’s tax take from FOBTs, the real losers will be the UK’s high street bookmakers, who were already having to shut locations en-masse thanks to overwhelming online competition. According to The Guardian, high-street bookies derive more than half of their revenue from the FOBTs, with each of the UK’s 33,611 machines taking more than £53,000 from gamblers every year.
Interestingly, just days before the UK government’s decision these same firms were thrown a bone when the US Supreme Court announced its decision to overturn a nationwide ban on sports betting that has stood for 26 years. The decision to unlock the sports betting market in the world’s largest economy has sparked a race among bookies to win over American punters and added more than £1.5bn to their collective value.
Here, we will take a look at how some of the major players in the UK’s gambling sector have reacted to this week’s roller-coaster ride and decide whether it is time for investors to stick or twist.
William Hill (LSE:WMH)
The bookie called the FOBT changes ‘unprecedented’ when they were announced and issued a damning forecast that said total gaming net revenue would fall by 35-45pc. This hit is expected to result in around 900 William Hill shops becoming loss-making, with a proportion of these set to close soon after the cap’s introduction.
William Hill’s full-year operating profit is also expected to come in between £70-100m lower, although the firm does not plan to change its current dividend policy, which sees it pay out 50pc of underlying earnings. Nicholas Hyett, an analyst at Hargreaves Lansdown, said the cap had negated the positive effects of the firm’s recent attempts to boost its online presence through a revamp of its app.
William Hill’s shares fell nearly 6pc on the day of the announcement after rising by as much as 10.7pc earlier in the week on news of the reversal of the US sports betting ban. However, Hyett questioned how likely it is that William Hill will benefit from the changes, despite the fact it already has a foothold in the US after making three acquisitions in 2011. He cited the firm’s previous efforts to expand internationally into Australia, which ultimately failed and ended up costing the company around £500m. At its current 331p share price, some are asking whether William Hill looks vulnerable to a takeover.
In a marginally more positive announcement, Ladbrokes Coral-owner GVC said it expects to be able to reposition its business within two years following the FOBT cap. Despite this, it has forecast a £120m hit to group earnings in the meantime, and said it is braced for store closures and a significant re-engineering of its machines and gaming software.
Shares were down 5pc on the day of the announcement, despite the firm expecting to ultimately retain a profitable and cash generative UK High Street Business. Although Ladbrokes Coral generates the majority of its revenues in the UK, GVC may be somewhat protected as a whole thanks to its considerable international focus.
Hargreaves Lansdown calls the business a ‘serial accumulator’, having recently completed the successful integration of bwin.party. Hargreaves said this had enabled GVC to leave the anticipated £100m worth of cost savings from the Ladbrokes acquisition unchanged for the time being. Given GVC’s relative independence from the struggling UK high street, it will be interesting to see how it approaches the developing German gambling market and the US sports betting sector.
Paddy Power Betfair
The £6.5bn UK gambling giant was more welcoming of the FOBT cap, with chief executive Peter Jackson calling the move a ‘positive development for the long-term sustainability of the industry’. Shares looked reasonably robust on the day of the announcement, with the firm claiming that reduced gaming duty, the development of substitute products and market consolidation have reduced its reliance on FOBTs.
In fact, of all the stocks analysed here, Paddy Power Betfair looks the best positioned to benefit from the newly-opened US sports betting market. Shares soared 12.2pc on the day the Supreme Court’s decision was announced. This move is down to the fact that Paddy Power Betfair has already confirmed that it is in talks with web-based fantasy sports fame firm FanDuel ‘to create a combined business to target the prospective US sports betting market’.
Websites like FanDuel have been slipping through the net in the US for years as they are viewed as games of skill rather than chance – but a tie-up with Paddy Power could change this. According to the Guardian, the deal could be worth considerably more than the £35.6m Paddy Power paid for FanDuel’s smaller rival Draft last year. With this in mind, the business looks to have deftly manoeuvred the recent turbulence in the global gambling market. Shares could be worth a punt.