Online eyes tax hit in FOBT fall out

Online eyes tax hit in FOBT fall out

Friday, September 15, 2017 Posted by Sam Cooke

If the fate of the gambling industry was decided by newspaper headlines alone, then the sector in the UK would be facing a potentially existential threat.

Filling the void left behind by the government dragging its heels on publishing the results of its own triennial review into stakes and prizes and other related issues, the papers have been waylaying the industry for many perceived failings over FOBTs and the prevalence of gambling TV advertising.

In the recent past, both the Observer and the Guardian have published editorials suggesting, in the case of the latter, that gaming machine sin betting shops were “an outrageous racket.”

Meanwhile, the Times took a slightly different tack splashing on its front page on Monday 21 August that children were now exposed to more TV gambling ads than ever. Citing figures from TV ratings researchers at Nielsen, the Times said that the industry had spent over £1.4bn on TV advertising alone since 2012.

In total in 2016, Nielsen said the industry had spent £312m on all forms of advertising, up 63 percent on the figure from 2012, with the amount spent on TV ads jumping 43 percent to £150m. The total spend from online casinos has soared 97 percent since 2012.

The Nielsen research went on to point out that the 9pm watershed – the current restriction on all gambling TV ads apart from those that occur during live sporting events - was not all that significant given that the average age when children begin watching post-9om TV was 11 and ¾.

The wave of news is concerning given the imminence of potential regulatory action and the degree to which both the government and the regulator have been paying closer attention to the sector in recent years.

“It is fair to say the gambling industry has lost the PR war and that is due to a lack of joined up thinking by the different sectors, be it land based and online or betting, casinos and bingo,” said Simon French, analyst at Cenkos Securities in a note to clients.

Worryingly for the UK gambling sector as a whole, French points out that a reference in the Times story to the “cross-governmental process” being undertaken presently likely means that negotiations are underway between the Treasury and the Department of Digital, Culture, Media and Sport (DTCMS) regarding potentially filling the gap in the tax take left by vanished machine revenue duties.

“We believe the Treasury, at the very least, looks at gambling tax revenues as an overall pot rather than by product lines,” said French. “Therefore any fall in one-part of the industry is likely to be counter-balanced by increases in the other, notably land-based casinos and online. This is before a wider debate about welfare costs associated with problem gambling etc.”

Over at Citi, analyst James Ainley made the point that such a move play online off against the high-street operators would “muddle the issue” while at the same time penalising a “different set of operators which do not have retail estates.”

Yet, if the industry is determined not to muddle issue then it arguably has an odd way of going about it. As was pointed out by Dan Waugh, partner at gambling consultancy Regulus Partners, perhaps the biggest blow to the lobbying efforts of the high-street firms within the past couple of weeks has come from Breon Corcoran, the outgoing chief executive at Paddy Power Betfair.

In the wake of the announcement of his departure and the company’s first-half results, he was widely reported as suggesting that the company was “ambivalent” about potential stake reductions. Speaking to analysts at the time of the results, Corcoran said the “more pain” the company’s competitors took “plays strongly to us.” “The only thing we’ve asked government for is clarity,” he added.

Waugh suggested such comments were obviously unhelpful and that the strategic sense might be questioned depending on what else the government might say when it comes round to this year’s budget and any possible announcements on gambling taxes from Chancellor Philip Hammond.

“It has long been rumoured that Paddy Power Betfair was uncomfortable with the level of controversy attracted by FOBTs and feared contagion of gambling more generally (and remote in particular). This certainly seems plausible, but whether Corcoran’s decision to speak out is sufficient to forestall a broader escalation of risk is less easy to judge.”

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