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Bookmakers hit by £2 limit on betting machines

Government deals blow to bookmakers by imposing £2 stake limit on controversial fixed-odds betting machines.

 
Bookmakers hit by £2 limit on betting machines
 

Update: The government has imposed a £2 stake limit on controversial fixed-odds betting machines, dealing a blow to bookmakers.

The decision follows a long-running consultation on cutting the current £100 limit on the betting terminals, which have been dubbed the 'crack cocaine' of gambling.

Shares in bookmakers slumped at the open, but quickly recovered, and by the close of trading were in positive territory. 

William Hill (WMH) was up 4.2% at 330.8p, while Paddy Power Betfair (PPB) gained 1.9% to £84.05 and GVC (GVC) closed the day 5% higher at 961p.

Much of the bad news for bookmakers has already been priced into the shares, with reports leading up to today's announcement pointing to a £2 limit.

Matt Hancock, secretary of state for the Department for Digital, Culture, Media and Sport (DCMS), said the government had 'chosen to take a stand'.

'These machines are a social blight and prey on some of the most vulnerable in society, and we are determined to put a stop to it and build a fairer society for all.'

The move represents a more stringent crackdown than that proposed by the Gambling Commission, which earlier this year recommended a £2 limit be reserved for slot games. Non-slot games, such as roulette, should have stakes limited to £30, it suggested.

Among the investors who will lose out from the news are those who held shares in Ladbrokes Coral before its acquisition by GVC in March.

Under the terms of the takeover, Ladbrokes Coral shareholders were handed 32.7p in cash and one GVC share for around every seven Ladbrokes shares they held. But they were also entitled to a further cash payment of 42.8p based on the outcome of the DCMS review.

The cutting of the maximum stake on betting terminals to £2 now looks likely to have wiped out any further payment.

GVC said earnings were likely to take a £160 million hit as a result of the decision, falling to £120 million within two years.

'Although we are ultimately disappointed with the outcome of the triennial review, it is a decision we accept,' said chief executive Kenneth Alexander.

William Hill said around 900 of its betting shops could become loss-making and placed at risk of closure as a result of the move.

Around 70% of its gaming machine revenue was generated by stakes above £2 in the first four months of the year, and the bookmaker estimated that gaming revenue was likely to fall by as much as 45% with the new limit. Annual profits, which hit £254.9 million last year, were likely to be hit by as much as £100 million, it said.

'The government has handed us a tough challenge today and it will take some time for the full impact to be understood, for our business, the wider high street and key partners like horse racing,' said chief executive Philip Bowcock.

Paddy Power Betfair chief executive Peter Jackson was more welcoming of the government's move.

'We have previously highlighted our concern that the wider gambling industry has suffered reputational damage as a result of the widespread unease over stake limits on gaming machines,' he said.

'We welcome, therefore, the significant intervention by the government today, and believe this is a positive development for the long-term sustainability of the industry.'

The bookmaker said that last year, a £2 limit would have hit revenues by up to £46 million, equating to 2.6% of the company's total, but that reduced gaming duty, development of substitute products and market consolidation would mitigate this.

'Overdone and alarmist' backlash 

Neville White (pictured), head of socially responsible investing policy and research at fund group EdenTree, welcomed the government's move.

'Despite aggressive lobbying by the industry, we welcome the government's decision to put vulnerable gamblers and the social cost of addiction at the heart of a reformed policy on fixed odds betting terminals,' he said.

'Whilst acknowledging the challenges the industry faces in compensating for this move, we view the bleak comments put out by, in particular, William Hill to be overdone and alarmist.'

AJ Bell investment director Russ Mould said the news had sent bookmakers 'back to crisis management mode' just days after their shares had soared on the prospect of a US court decision unlocking the market for sports betting in the world's largest economy.

'Amid this period of turmoil, William Hill is certainly looking vulnerable to a takeover bid, particularly as it already has a foothold in the US,' he said.

'A prior bid from Canada's Stars Group and a joint approach from 888 and Rank may have both foundered in 2016 but Hills' history, its US positioning and the highly cash-generative nature of bookmaking may mean a predator could still run the rule over Hills, whose shares trade nearly 40% below their five-year highs.'

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