2017 has been a challenging year for the UK gaming sector. Negative media has been compounded by an increasingly aggressive regulator. The imminent outcome of the Triennial Review will certainly have an adverse impact on betting shops, as well as placing additional burdens on advertising and social responsibility for all operators. Furthermore, the Budget presents the risk of higher taxes across the board. However, valuations are undemanding vs the market and, as the regulatory overhang clears, winners should emerge. Paddy Power Betfair PLC (LON:PPB) has limited downside to the fixed odds betting terminal (FOBT) debate and Rank may even benefit. Soft gaming companies, Jackpotjoy PLC (LON:JPJ) and Stride Gaming PLC (LON:STRST), are growing strongly and internationally diversified players (eg GVC Holdings PLC (LON:GVC), Playtech (LON:PTEC)) are relatively well positioned. M&A is also highly likely.
Regulatory decisions loom
Against a backdrop of negative media and political campaigns, rising taxes and regulatory obligations are weighing on the UK gaming sector. The Triennial Review announcement is due in late October and a potential £2 stake limit on FOBTs would heavily affect retail operators. Ladbrokes (LON:LCL) Ladbrokes Coral Group PLC ADR (OTC:LDCOY) and William Hill Plc (LON:WMH) appear more vulnerable than PPB, while Rank Group has no exposure to B2 machines. The extension of remote gaming duty (RGD) to ‘freeplay’ will be retrospectively applied from 1 August, forcing bonus-reliant operators to reassess their marketing strategies. In addition, industry commentators are suggesting a potential increase in the general RGD from 15% to 18-20% at the November Budget. All this compounded by high-profile fines for irresponsible marketing and failures surrounding self-exclusion and social responsibility (eg 888’s £7.8m settlement).
Online market growth appears to be slowing…
Estimates from the Gambling Commission and H2 Gambling Capital indicate that previous UK online market growth of c 15% CAGR (2008-15) is now slowing to c 7%. Generally, H117 results highlighted declining retail operations in sports, casino and bingo, as well as heightened competition in digital. However, there were interesting variations among the online operators. While some sportsbook players reported disappointing gaming figures (eg PPB), low-stakes soft gaming operators such as Stride Gaming and Jackpotjoy plc (JPJ) appear to be gaining momentum.
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