Paddy Power-Betfair earnings could take a 3%-6% hit if the UK government imposes maximum betting restrictions on gaming machines in bookmakers’ British shops, analysts have warned.
Shares in all the major players took a hefty hit as investors braced themselves for a worst case scenario outcome to the UK’s ongoing review of fixed odds betting terminals (FOBTs).
The latest moves in the UK coincide with Fianna Fáil calling for Irish gambling regulation to be strengthened.
“Uncontrolled gambling has become a scourge on communities up and down this country and is often masqueraded as harmless socialising or enjoyment,” said Fianna Fáil TD Jack Chambers.
Fianna Fáil recently brought forward comprehensive legislation setting out a clear basis to regulate the industry, protect vulnerable people, and restrict the advertising and sponsorship of gambling.
The bill, co-sponsored by Fianna Fáil TDs Anne Rabbitte and Jim O’Callaghan, will be moved in the Dáil on May 9th.
Regarding developments in the UK, meanwhile, British chancellor Philip Hammond has, reportedly, accepted recommendations for the top bet on slot machine- type machines in UK betting shops to be reduced to £2. Currently, punters are allowed to stake up to £100 every 20 seconds on FOBTs. The UK government has been looking, for some time, at lowering that maximum stake amount to between £2 and £50.
Analysts see the likely harsher-than-expected restrictions as having severe implications for the earnings power of the major bookmaker chains.
“A cut in the FOBT staking limit to £2 would shrink William Hill’s [earnings] Ebitda by 25%, GVC’s by 18%, and Paddy Power-Betfair’s by 3%,” said Davy analyst David Jennings, who also warned investors may start to wonder whether changes to the UK’s existing point-of-consumption tax could also be on the cards.
“Were the point-of-consumption tax on gaming products to be increased to 25%, the impact would be 6% on William Hill, 5% on GVC, and 4% on Paddy Power-Betfair,” said Mr Jennings.
Goodbody predicted Paddy Power’s earnings to be hit by closer to 6% if the £2 restriction were to become a reality.
Morgan Stanley analyst Ed Young said Paddy Power-Betfair could take an additional hit of around 8% to earnings per share should the UK impose additional tax on online income to make up its tax shortfall.
William Hill is the most exposed bookmaker to tighter FOBT regulation and a reduction in the maximum betting stake on the machines could see its earnings fall by over 40% and nearly 3,000 of its shops close down, according to Goodbody analyst Gavin Kelleher.
William Hill’s share price fell by nearly 13% yesterday. Shares in Ladbrokes owner GVC fell by over 6%. Paddy Power-Betfair saw its share price slump by close to 4%.
Regarding Irish law, Mr Chambers said the importance of regulation “cannot be overestimated”.
“The rapid growth of internet gambling, alone, means we need effective laws to protect vulnerable people placing bets online. The fact that there’s no physical exchange of cash makes it even more dangerous. It is time that emerging trends in the gambling industry are more stringently regulated,” he said.