Gambling stocks tank on report of potential £3bn tax raid

At 0840 BST, Entain shares were down 13%, Flutter Entertainment was 7.2% lower, Evoke was 13% weaker and Rank Group was down 6.7%.

According to The Guardian, Treasury officials are understood to be weighing up proposals, put forward by two influential thinktanks and backed by one of the party’s top five individual donors, to double some of the taxes levied on online casinos and bookmakers.

Measures could be included in this month’s budget, Labour’s first in 14 years, as the chancellor tries to plug the £22bn "black hole" she claims to have founded in the finances after taking office.

The Guardian said sources familiar with the discussions said the Treasury had yet to make a decision but appeared receptive to tweaking the UK’s complex regime of betting and gaming duties to raise extra funds of between £900m and £3bn, despite opposition from industry lobbyists.

A source familiar with Treasury thinking told the paper: "It’s definitely on the map. There’s no obvious pushback to it."

It was understood that one the tax plans that Treasury officials are looking at comes from the Institute for Public Policy Research (IPPR). A report by the thinktank estimates the government could raise £2.9bn next year - and up to £3.4bn by 2030 - by doubling taxes on "higher harm" products such as online casino games.

The UK levies seven types of betting and gaming duty, including on the national lottery, with the exact rate varying depending on the type of activity. Last year, the taxes raised £3.3bn, or about £2.2bn excluding lottery duty.

Under the IPPR’s proposals, the Treasury would leave duties untouched on "lower harm" activities, such as the lottery and bingo. But the proposal would involve doubling taxes such as the 15% general betting duty, levied on high-street bookmakers’ profits.

Remote gaming duty, which affects online operators, is charged at 21% but would be raised to 50% under the IPPR’s plan.

According to The Guardian, another thinktank - the Social Market Foundation - is working on a more moderate proposal that would double the tax on online gambling companies from 21% to 42%, raising about £900m.

The SMF is expected to point the Treasury to the example set in other jurisdictions, such as several states in the US, where online gambling taxes are far higher than in the UK.

Commenting on The Guardian report, Berenberg said the detail is light but several key elements of what is being discussed could present a potential headwind to the operators in its coverage.

The bank said it had to make several assumptions to ascertain an estimated impact on the operators in its coverage.

"Firstly, most operators report their UK and Ireland revenues together. We use these combined figures for this analysis," it said.

The bank also pointed out that gross gaming revenue (GGR) is not reported by operators, but said it does know the net gaming revenue (NGR) for the UK for each of the operators.

Berenberg said that if it assumes that bonusing/promotions equate to 20%, it can attain a GGR number for each.

In scenario one, a 50% remote gaming revenue (RGR) tax would affect Entain’s FY25 EBITDA/EPS by 25%/75% respectively, Flutter’s by 18%/27% and Evoke’s by 42%/167%, it said.

In scenario two, a 42% RGD tax would affect Entain’s FY25 EBITDA/EPS by 18%/56% respectively, Flutter’s by 13%/20% and Evoke’s by 30%/121%.

In scenario 3, a 25% RGD tax would affect Entain’s FY25 EBITDA/EPS by 3.4%/10.8% respectively, Flutter’s by 2.5%/3.8% and Evoke’s by 5.8%/23%.

In scenario 4, a 25% RGD tax and a 25% remote betting tax would affect Entain’s FY25 EBITDA/EPS by 6%/19.2% respectively, Flutter’s by 7.6%/11.6% and Evoke’s by 13.4%/53.1%.

"The clear conclusion here is that higher taxes would be most impactful for Evoke both in terms of magnitude but also given its financial position," Berenberg said. "Despite being the market leader in the UK, owing to its diversification, Flutter would be the least exposed, while Entain would be materially affected and, given its higher levels of leverage, could also face a much tighter financial position."

Berenberg said it was worth highlighting here the medium-term impact of potential tax increases on the industry.

"When taxes are raised, margins deteriorate, and the industry would normally experience consolidation as some operators exit and others look to be acquired.

"Naturally, to maintain a margin, other cost lines must be reduced, namely marketing. So, the usual playbook is taxes reduce margins initially and drive a wave of exits and consolidation. Exiting operators then drive a redistribution of market share to those players with scale which choose to remain in the sector.

"Marketing spend is then usually reduced, allowing for margins to be recovered. As the number one player, Flutter would benefit the most, gaining share into the medium term despite the short-term earnings impacts."