Markets spooked ahead of UK gambling review

Markets UK Gambling Review
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Investors have been offloading gambling stock through February amid concerns that political appeasement may trump the diligence that a rare rewriting of gambling legislation deserves.


British gambling stocks have still not recovered from a £500m sell-off mid-February, triggered by fears that £2 maximum stakes may also apply online.

This one measure alone is estimated to reduce the UK’s online sector by eight percent (broadly in line with the stock fall) – although given the slapdash approach to gambling regulation at present, analysts are increasingly concerned that this year’s review of the 2005 Gambling Act could beget a far wider contraction.

The offloading of gambling shares was ostensibly precipitated by off-the-cuff comments from the UK regulator, Neil McArthur, mid-February, who said he would “consider” mandating the retail-equivalent limits to online slot games – irrespective of a governmental review.

“At the moment, no decision has been made, but the sell-off in gambling stocks underlines the tension in the relationship between the UK gambling authorities and the gambling industry,” wrote Warwick Bartlett, CEO of Global Betting and Gaming Consultants.

“A £2 stake limit would be disastrous, and not only for gambling companies.”

Asides from a fall in overall tax take for the treasury, sharp corrections to stakes always incur “unintended consequences,” said Bartlett: “Gamblers are used to the freedom of betting within their own level of resources, and to impose such a limit would give rise to illegal internet gambling, or customers would opt for the land-based alternatives.”

The Betting and Gaming Council, which represents 90 percent of the UK industry warned that such a crude limit would push many players to the black market which, according to PwC, is already worth £1.4bn, and frequented by more than 200,000 Brits.

Regulus Partners estimate a £2 stake on slots alone will likely take £650m off the vertical’s current UK yield – 30 percent of which may be recuperated elsewhere in the sector as players shift to other game types; leaving around £480m unaccounted.

Overtime, the development of new and unrestricted products may legitimately circumvent the stake limit, but these could just as soon be covered by further piecemeal and reactionary restrictions. In this sense a rigid, albeit restrictive, Gambling Act may even be preferable.

“The issue here is not so much about online stakes and prizes,” said Regulus. “What is significant is the process for re-regulation that is now being established. We have entered the realms of knee-jerk policy-making where significant changes are made in pursuit of appeasement rather than coherence.”

McArthur’s comments came during a tough line of questioning from UK Lords, and in the context of media accusations of industry-collusion and rising calls for the regulator itself to be reformed.

The latest organisation to join the latter chorus was the National Audit Office, who in late February published a report claiming the regulator was being “outgunned” by online gambling companies.

The NAO, charged with assessing the effectiveness of public bodies, said the Commission in its current form (and level of funding: just £19m per year) was unable to keep pace with the financial clout and technological dynamism of the online sector.

“The Commission’s ability to ensure consumers are protected from these new risks is constrained by factors outside its control, including inflexible funding and a lack of evidence on how developments in the industry affect consumers,” said the report.

Asides from stake limits, the governmental review of the 2005 Gambling Act confirmed for this year, is expected to produce new legislation on high value players, game design, advertising and the use of data.

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