iGB Intelligence reports iGB Market Monitor December 2018 - Page 15

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 12