Year in Review: The impact of FOBT regulations

It has proven to be a very tumultuous year for the retail betting sector, with 151 stores closing to the public between March and September.

The big four – Ladbrokes Coral, William Hill, Betfred and Paddy Power continued to dominate the retail scene, holding 87 per cent of betting shops in Great Britain. Generally, however, stores have been struggling to absorb the impact of the proposed cuts to maximum stakes on fixed odds betting terminals (FOBTs) that are due to be implemented in April 2019.

In May, the Government announced that it will be reducing the maximum FOBT stake from £100 to £2 in a move to combat what has been described as “gambling-related harm”. The Government had originally announced that the cuts to stakes would take place in April 2019 so that it may coincide with the start of the financial year.

FOBTs have been a significant driving force behind the revenues shared by retailers in recent years, with Gambling Commission statistics suggesting that on average there is £5m per day being wagered on FOBT machines. Reports surfaced in June, however, suggesting that the cuts may be delayed until 2020 due to concerns that the Treasury would lose money to Machine Games Duty.

Findings from the Centre for Economic and Business Research suggested that delays until 2020 would have seen the Treasury be at a loss of between £98m and £132m per year – most of which is was a result of increased taxes against online operators and tax revenues generated by substitute products such as FOBT machines.

Conversely, the same report stated that bookmakers will be at a profit of between £348 million and £540 million a year from the FOBT revenues whilst the delays would be ongoing.

Tracey Crouch, Minister for Sport and Civil Society stated: “While we want a healthy gambling industry that contributes to the economy, we also need one that does all it can to protect players.

We are increasing protections around online gambling, doing more on research, education and treatment of problem gambling and ensuring tighter rules around gambling advertising.”

Crouch resigned from the Department for Digital, Culture, Media and Sports (DCMS) in relation to the government’s delay in implementing its £2 FOBTs stake reduction.She had served as Sports Minister since 2015, and had led the government’s relations with the UK betting and gambling sectors.

A spokesperson for the Association for British Bookmakers stated that: “Recent announcements by major operators reveal the true impact of this decision, that thousands of betting shops will close and there will be thousands of job losses. Betting shops are now focused on the future of their staff, customers and suppliers.”

The Gambling Commission later issued a recommendation to support the DCMS’ review of gaming machines and its social responsibility measures. The Commission stated that collaborative measures between the government, the Gambling Commission and betting operators is fundamental to reduce the risks to consumers and that while this should include a stake cut, the Gambling Commission report recommends that: “a precautionary approach should involve a stake limit at or below £30 if it is to have a significant effect on the potential for players to lose large amounts of money in a short space of time”.

The Commission recommended that stake levels on FOBT gaming machines be cut to £2 for slot-based games, whilst non-slots games such as roulette should be cut to £30 or below – and not the £2 stake that the government will implement. The recommendation will allow for the number of player losses to be significantly reduced, whilst allowing for profitability for betting operators and tax revenues for the treasury to be maintained.

Gambling Commission Chief Executive Neil McArthur said: “We’ve put consumers at the heart of our advice – advice which is based on the best available evidence and is focussed on reducing the risk of gambling-related harm. In our judgement, a stake cut for Fixed Odds Betting Terminals alone doesn’t go far enough to protect vulnerable people.

“That is why we have recommended a stake cut plus a comprehensive package of other measures to protect consumers. We have proposed actions that will tackle both the risk of harm and provide solutions that are sustainable in the longer term.”

The biannual report issued by the Gambling Commission highlighted that while employment in the betting industry has increased by 0.6 per cent during 2018, the number of betting shops has fallen by 1.8 per cent between March and September. 63 per cent of the losses were accounted for by Ladbrokes Coral which, according to the Gambling Commission report, have closed 96 stores since March 2018.

Independent betting stores also suffered in 2018, with 25 operators being forced into closure. For years, the independent sector has been complaining that shifts towards online betting combined with increasing regulations is making it ever more difficult for the independent bookmaker to even exist on the high street, never mind thrive.

Independent stores have been unable to withstand the change in retail behaviour towards the online market, and the increasing prices of media rights and the gambling commission statistics have clearly shown this. Betting shops have been unable to show as much racing as they have previously shown, and with the larger operators giving customers access to mobile apps that can place live in-play bets at the touch of a button, the independent sector has suffered as a result.

The gross gambling yield for the gambling industry as a  whole has experienced a 4.2 per cent increase compared to 2017, however the non-remote GGY has fallen by four percent since March last year. And with Chancellor of the Exchequer, Philip Hammond, announcing that the UK treasury will be increasing Remote Gambling duties from 15 per cent to 21 per cent on ‘online games of chance’, it is expected that betting operators will either continue to shut their doors to the public, or take their business elsewhere.

Hammond told Parliament: “I can confirm that we will increase Remote Gaming Duty on online games of chance, to 21 percent in order to fund the loss of revenue as we reduce FOBT stakes to 2 pounds.”

The increased duty is said to be a ‘nightmare scenario’ for stakeholders in the gambling industry, and will act as a further barrier to entry for those wanting to enter the retail scene.

The impact of the FOBTs policy is yet to be fully seen, however it is expected that bookmakers will have to find alternative sources of revenue or to close. From the Gambling Commission report, it can be assumed that we are more than likely expecting the latter.