Part 2: The UK – a taxing time
Still, as analyst Victoria Pease at Edison points
gross impact on EBITDA from the combination
out, further regulatory pressures are bearing of regulatory, tax and product fee changes in
down on the sector regarding marketing and the UK, Australia and Ireland would have been
social responsibility, particularly following recent approximately £115m.”
Gambling Commission findings against a number
of operators for a variety of AML and source of Going Green
funds failings. This will provide a further push As if on cue, the news of the tax hike was swiftly
towards consolidation. followed by the announcement that William
“All this is likely to lead to a continued market
Hill was buying Mr Green. Pointedly, William Hill
shakeout, with dominant players likely to benefit. made much of the diversification achieved by
We note that, as a result of its Ladbrokes acquisition, the acquisition, which sees the proportion of
GVC is the largest online gaming operator in the UK the company’s total global revenues coming
and remains particularly well positioned.” from international sources rise to 21%, while the
percentage of online revenue rises to 47%.
Immediate impact
As is evident from the Paddy Power Betfair
The increase in tax rate next April certainly isn’t assessment above, geographic diversification
catastrophic for any operator and it is certainly brings its own regulatory risks. But for any largely
less harmful to bottom lines across the sector UK-facing brands, the necessity of expanding
than the impact of the stakes cut. geographically is arguably all the greater now that
Pease estimates that for GVC, for example,
it will mean £30m taken off the EBITDA figure
the UK has imposed a higher rate of tax.
The data from the Gambling Commission
annually. Further calculations will no doubt comes with a lag of at least a year and given the
be issued in the months to come as operators new tax won’t be introduced until October next
communicate their calculations to analysts. year, its initial impact on the market will only
The only company to confirm the expected
be open for assessment in 2021. As the Market
impact to date is Paddy Power Betfair, which said Monitor for the second quarter pointed out, the
in its third-quarter results statement, released latest data from the Commission suggests growth
days after the budget announcement, that has already slowed from high-teens earlier in the
annualised the impact would be an additional decade to single figures for 2017.
£15m of duty payable.
As Davies points out, while the political rhetoric
has certainly been ratcheted up in recent years,
The evidence from the UK-listed operators
provides a mixed picture.
This is merely a sample of the market, albeit
“concerns over the level of deterioration even in from the top end, so caution should be applied
the UK may have been overstated”. He adds: “And when drawing any conclusions. The period
rising taxes/regulatory costs will likely create a includes the first month of the World Cup, which
catalyst for another wave of consolidation.” will have provided a revenue boost to the sports
An indication of the extent of the catalyst came
betting-led brands. In the case of 888, where
from Paddy Power Betfair. In rounding up the the decline is steepest, the company explicitly
various regulatory moves affecting the business, namechecked greater regulatory scrutiny for
the company said that at least it now had clarity. its UK revenue decline and also said it was
“These announcements (regarding the UK, switching its marketing efforts into “higher
Ireland and Australia) mean that we now have
better visibility on the significant regulatory
growth” jurisdictions.
Such efforts might well increase across the
and tax changes facing our industry within our market. All of the larger operators in the UK have
key markets,” the company said. “Had they at least one eye on developments in the US, a
applied throughout 2018, we estimate that the greenfield opportunity that has been the cause
iGaming Business Market Monitor • December 2018
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