SBC News £1bn cost of FOBT stake slash to bookmakers and horseracing

£1bn cost of FOBT stake slash to bookmakers and horseracing

Warwick Bartlett and Lorien Pilling from the Global Betting & Gaming Consultancy (GBGC) have been looking at the implications of the reduction in Cat B2 gaming machine maximum stake from £100 to £2.  It doesn’t make pretty reading for retail bookmakers or the sector’s associated stakeholders.

From 1 April 2019 the maximum stakes on FOBTs will be drastically reduced to £2 a spin. In anticipation of this event, a trial has been conducted in a number of betting shops in the Birmingham area with the new lower stakes in operation.

It is rumoured that bookmakers have seen a drop in gross win of up to 55% across the shops taking part in the trial. If accurate, this equates to an industry-wide loss of around GB£1bn.

Independent bookmakers in the area who did not take part in the Birmingham trial reported an upsurge in machine revenue. It seems punters have not engaged as well as expected with the new machines intended to mitigate the lower stakes.

What was noticeable was that “over the counter” (OTC) business in both the independents and the major bookmakers did not materially increase during the trial. This has significant implications for horse racing, SIS and even the Racing Post.

It was supposed that the internet would be a major beneficiary of the stake restrictions. But it appears that shop customers have been prepared to travel to shops outside the trial just to play the unrestricted FOBTs. It could be the appeal of betting in cash or perhaps some customers have no access to a bank account (estimated to be 1.5 – 2 million people in the UK). Betting shop companies that offer a cash card to the unbanked thus enabling internet play could do well.

Interestingly, clothing and furnishing Next plc announced its results in March and said it planned to shut stores in favour of the move to internet sales but that some high street shops would remain open at a marginal loss to enable “click and collect” sales. Retail outlets, including betting shops, still have a purpose.

There remains the inconsistency, however, that after 1 April 2019 a gambler cannot bet more than £2 per spin on a FOBT in a betting shop but that restriction is not in place online. And if the government was hoping to see an increase in OTC horseracing stakes, early results suggest it will be disappointed.

Announcing the restriction on FOBT stakes in May 2018, then Culture Secretary and MP for the constituency which includes Newmarket, Matthew Hancock, piously stated that “horse racing should not be financed on the back of this [FOBT] misery”. He went on to claim that “horse racing is a wonderful sport that can, and will, pay for itself”. But words are cheap and in his political desire to appear virtuous Hancock did not say how racing would pay for itself. Some racing trainers are now finding that you can’t eat virtue.

Since the start of the year UK racing has turned on itself – trainers versus Arena Racing Company (ARC); trainers versus trainers; trainers versus journalists – in quite unseemly fashion.

The sequence of events that has led to this runs as follows:

  • The DCMS restricted FOBT stakes to GB£ 2 (applies from 1 April 2019) because it needed to look tough on something.
  • Some betting shops become unprofitable to run without the FOBT income.
  • Bookmakers decide to begin a programme of shop closures – could be thousands across the sector.
  • Racing media rights are based on a per shop basis – fewer shops means less media income.
  • ARC, as a rights holder, is anticipating the shop closures and the loss of income. It has cut prize money at some of its courses, particularly in lower grade races, and will not put the funding in to release further prize money.
  • Trainers don’t believe ARC is as strapped for cash as it makes out.

The manifestation of the dispute is that some trainers have boycotted ARC races. This has resulted in some races being walkovers, whilst others have had only a few runners. Other trainers have continued to enter runners and have been criticised for doing so.

The boycott causes further funding damage because small fields generate less betting interest and less Levy, which is still an integral element of the funding of UK racing. In a year which has already seen a week’s abandonment because of equine flu, it is not helpful.

At the time of writing, there are discussions taking place about resolving the issue but nothing definitive has been announced.

For the betting shop staff faced with redundancy, the high street landlords losing tenants, racecourses losing income, and the trainers and owners competing for lower prizes, the political posturing over FOBTs has left a total mess. And neither Hancock nor former Sports Minister Tracey Crouch are in post to take responsibility.

  • GBGC provides practical and insightful consultancy, data and market reports for the global gambling industry. GBGC’s consultancy and advice is based on more than 50 years’ experience in different areas of the gambling sector. Founder Warwick Bartlett is a member of the Sports Betting Hall of Fame.

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