What’s Going On In The Gambling Sector?

10:41am by Graham Neary

5 comments 173 reads

One of the bombshell announcements of the recent budget was Rachel Reeves’ decision to impose much higher duties on the gambling sector.

In a budget whose overall market impact was limited, these duties were one of the standout pieces of news, and they immediately affected many share prices.

In this article I’m going to take a look at the changes to the tax regime, how these changes will affect various gambling firms, and hopefully reach some conclusions at the end.

For disclosure, the only gambling stock in my portfolio is, unfortunately, Evoke (LON:EVOK).

What has changed?

HMRC produced a policy paper on the day of the Budget, so that’s a good place to start.

Remote gaming duty: as the name suggests, this applies to online casinos where the player isn’t present in the physical location where the bet is taking place.

Rachel Reeves has almost doubled RGD from 21% to 40%.

The rationale? Apart from raising money, the policy paper says:

The government has targeted the biggest increase in tax on remote gaming (for example online slots and casino games), which is generally considered to have lower operating costs and to be more harmful than other forms of gambling. The intention of the Remote Gaming Duty rate increase is to disincentivise gambling companies from pushing consumers towards what are considered more harmful products.

General betting duty: this applies to bets made with a bookmaker, regardless of whether it’s in person or online. These are typically sports bets.

GBD has also massively increased, from 15% to 25%, but only for bets made online.

Both Remote Gaming Duty and General Betting Duty are charged on the operator’s gross gambling profits, not total revenue or net profits. The taxes are supposed to apply whenever the customer is based in the UK.

Interestingly, the GBD increase does not apply to bets made in-person at licensed betting premises, only to bets made online.

And it does not apply to horse races, or to spread bets (I'm long IG group (LON:IGG) and its share price surged on Budget day).

Turning again to the government’s rationale for raising duties on online bets:

The government has sought to balance evidence and views that remote betting is not as…

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snowdrop

11:14am

Needs some typos spell check changing para 13? Really useful. Send to your MP?

rmillaree

12:00pm

I can’t say I understand the rationale which justifies the duty increase on the basis that online betting has lower costs compared to retail operations: if one way of doing business is more cost-efficient than another, does that immediately suggest that the cost-efficient method should be taxed more? I don’t see it!

I cant understand how anyone doesnt get that online is free lunch compared to physical locations.

rates , rent building insurance and maintenance - higher staff costs (local workers) - higher costs for staff travelling to work and lunch whilst there etc

one big issue is that physical stores provide something much more useful to the community too ref keeping towns going (not having empty boarded up shops etc)

the powers that be should have years ago moved to getting a fair share of "where uk consumers spend their money" - from ten organisations that receive then mney -

we all know google facebook amazon indeed UBER and the like pay as little as they can in the uk system - and they really dont contribute anything useful to the country beyond soem token inmvestment they might make in he uk - they suck it all out abroad - leaving less proper "uk land based companies" to pick up teh tab for everything

beyond crazy imho

i would say gambling companies are an easy target so ref the specific concern here - obviously labour are creating a story to justify the extra tax increases - that they know will be less unpopular than other similar targetted stuff.

Graham Neary

2:31pm

Can you let me know specifically please Snowdrop? Thank you.

3:07pm

I've sent it through a proper spell check now, thanks!

Cayman69

12 mins ago

I have very little sympathy for these pure play gambling companies.

Back in the 90s, telephone credit accounts were the main off-line option for punters who couldn't make it to a shop or the racecourse. Gambling debts weren't enforceable at that time so it was in the interest of the bookmaker to ensure players were betting at an affordable level. They did this well, all whilst allowing a decent sized bet and a fair amount of winnings before small and reasonable staking restrictions and rarely account closures (so rare that it was a badge of honour). Their customer service was excellent and I felt they genuinely cared about the relationship.

The reality for the last 10-15 years is that showing any sign that you may win (even small amounts) results in stake restrictions, often down to pence. Traders decision. And no, you can't challenge it or have it changed. You can, of course, stake as much as you wish on casino games as long as you stay within the affordability limits (the maximum they can take off you without falling foul of regulators).

I know companies need to make a profit and they always managed that whilst also offering the chance to make a few quid if you put in the hard work. It feels like they've squeezed and squeezed until the only customers they want are new ones, existing small staking acca punters chasing a jackpot win or problem gamblers with high levels of affordability. If your business model is to restrict an ever higher percentage of your less profitable customers you're always going to need an increasing number of new ones to replace them. Eventually you'll run out of newbies.

Any business that treats its customers poorly for any length of time will eventually hit problems. No matter how good the tail winds in their market, eventually the tide turns and there will be head winds like now. That's when you see the benefit of customer loyalty if your treatment of them has earned it. Does anyone remember Ratners famous gaff in the early 90's?

Not all in the sector are bad though. I receive great service from IG group (LON:IGG) and love their products so much I'm a shareholder too. That's the way to do it, win-win.

What’s going on in the gambling sector?

What has changed?

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Graham Neary

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