Government 'fudges' decision to cut stakes on gambling machines

In its long-awaited triennial review into the gambling industry, the government set out several proposals that aim to reduce the potential for large losses from fixed-odds betting terminal machines and raised the possibility of intervening on other games in the future too.

Department for Culture, Media and Sport minister Tracey Crouch asked the Gambling Commission for more information about "how better tracking and monitoring of play on FOBTs can help with interventions to protect players and also if spin speed on games such as roulette should be looked at".

Crouch's department has launched a 12-week consultation on FOBTs, kicking the final decision down the road until 23 January, but confirmed a package of measures to strengthen protections around online gambling and gambling advertising.

There was no mention of a review of the location densities of machines in betting shops, which some industry analysts had been predicting.

The government also rejected calls for a relaxation of regulations on other machines, which casino companies had been hoping to benefit from.

"It is vital that we strike the right balance between socially responsible growth and protecting the most vulnerable, including children, from gambling-related harm," Crouch said.

"Given the strong evidence and public concerns about the risks of high stakes gaming machines on the high street, we are convinced of the need for action. That is why today we have set out a package of proposals to ensure all consumers and wider communities are protected.

"We have seen online gambling grow rapidly and we need to protect players in this space, while also making sure those experiencing harm relating to gambling receive the help they need."

Shares in William Hill, Ladbrokes Coral and Paddy Power Betfair were higher on Tuesday, with traders in the City pointing to some relief that a 12-week consultation had been launched rather than announce an immediate cut to the maximum stakes, as thought.

The government "fudged its decision" on the Triennial Review, said broker Canaccord Genuity, still believing a £20 maximum stake is significantly the most likely outcome - "one which we believe would be greeted favourably by investors".

Delaying the conclusion for 12 weeks, taking the process well into 2018, is "unhelpful" for betting companies, the broker said earlier in the week, but suggested a positive angle.

"We understand the Treasury is heavily involved, suggesting a more pragmatic approach, and see the delays reducing the likelihood of a worst-case scenario. We still view £20 as the most likely outcome; and with implementation likely to be in 2019, we believe LCL/WMH balance sheets can absorb any scenario without cutting dividends."

If a £2 max stake is introduced, Canaccord predicted Ladbrokes and Hills would close 1,700 shops, around 20% of the national estate, with phased cost benefits up to 2022.

At a £30 max stake, analysts forecast a 26% hit to the two bookies' earnings, before shop closures, while at £2, EPS was estimated to fall by an initial 62%, but reduce to around 45% by 2020 after shop closures.

Paddy Power's own analysis is that a £20 maximum stake would have a 19-27% impact on machine revenues, a £10 stake would results in a 26-36% hit, while a £2 maximum would reduced revenues 33-43%.

The company said this was a cautious outlook, as it has some confidence of being able to mitigate the effects through other opportunities, such as new games development, substitution to sports betting and market consolidation.

Analysts at HSBC forecast that in the short term, betting shops will remain open "so consolidation benefits will not be high".

"Meanwhile, it will likely take time to warm machine punters to spend more on horses/ dogs and, at a worst case £2 staking limit, it’s hard to see how games can be better tailored."