There have been some big shake ups over the last few years int the gambling industry. The main area has been that of problem gamblers and as the numbers rose, the pressure started to mount on both the gambling companies and the government to take a firmer stance.
More and more reports in the news have outlined that the epidemic is spreading in the UK and tens of thousands are now reported to be “problem gamblers”. Within these reports have lead to the root cause, with one of the main problems coming from FOBTs.
The Domino Effect of Reduced FOBT Bets
FOBTs are otherwise known as Fixed Odds Betting Terminals and they are essentially machines that offer a wide range of casino games that are located within high street betting shops. Under previous laws, the limits on these machines were up to £500 for one spin, which meant a player could burn through thousands of pounds in seconds. They often got labelled as the “crack cocaine” of gambling.
To prevent these games from taking so much money, the UK Gambling Commission announced that the maximum bets would be reduced to just £2 a spin. This obviously has had a huge effect on the amount of money that bookmakers then earn, which hasn’t gone down too well with them and mass reports of significant drops in earnings. If you want more info on the impact of the reduction in stakes of FOBTs then check out this article, explaining why the limit is now in place and what effect it has has on the gambling industry.
What Is the Remote Gaming Duty & How Has It Changed?
The Remote Gaming Duty is basically the tax that is charged by the government for gambling sites. The “remote” part includes things like online and mobile but would exclude things like high street betting. This is because that there are different duties that are applied to each section of the gambling industry. Some of them include lotteries, machine games duty (MGD), General Betting Duty (GBD), Gaming Duty, Bingo Duty and Pool Betting Duty (PBD).
The reason they are split up like this is that each sector works very differently from the other. To have a blanket tax or set of rules would remove any flexibility for different games or for different parts of the gambling industry that are often needed. The lottery would be a prime example of this as a percentage of the money is distributed to causes throughout the country, so the overall “takings” aren’t the same as the money that is taken per ticket. The most recent changes for the RGD were announced in 2018 and outlined that there would be an increase of 6% from 15% to 21%.
Why Has the Change Taken Place?
The reason that we spoke about FOBTs at the start of the article is the main link to the increase in Remote Gaming Duty. The lowering of the maximum stake on FOBTs machines means that they are set up to take less money. If they take less money, then the bookmakers make less money. If they make less money, then they pay less in taxes.
Basically, the government was going to significantly be out of pocket in terms of money that was paid from the industry due to the decrease in stakes. The increase has been set to offset any potential losses that the government would take from their taxes. Initially, reports stated that the increase could be up to as high as 25%, but the final figure was set at 21%, which has had mixed reactions from within the industry.
Industry Impacts
It’s never easy to see black and white figures within the gambling industry of the impact of changes like this. Bookmakers and gambling companies have been able to work around them previously and they will likely do so again.
But, in terms of numbers, the Gambling Commission have released predictions on their part from the increase. It may seem like a 6% increase would not be able to cover bets that were initially up to £500 per spin reduce to just £2 per spin. However, the increase actually sees a significant rise in the amount of money taken by the government.
For the first year (2019-20) it is estimating that they will see an increase of £130 million thanks to the tax rise. By 2023-24, they are predicting that this number will rise to £290 million. The UK Gambling Commission also state there will be no significant economic or individual impact.
The Reality of the Increase
The bookmakers aren’t just going to lie down and take two pretty massive kicks to the stomach in the decrease in revenue from FOBTs and the increase in Remote Gambling Duty that they now have to pay. They will make changes that will help them long term.
Odds in Sportsbook
The biggest change and the easiest change that they can make will be the odds that they set in their sportsbook. What will happen is that they will simply decrease the odds for a huge range of bets or potentially their whole bookmaker to make more money from this. We aren’t going to dive too deep into how bookmakers’ margins work in this article, but here is a quick run through so you get the idea.
Basically, the bookmaker sets up markets, so they come out on top on all results. They can adjust the amount they take from the margin on a market. To do this, they alter the odds on offer.
Widening the Margins
As a quick example, if you look at a coin toss in a cricket match. We know that the true odds for this are 50/50, heads or tails, which is even money or 2.00. But the bookmaker won’t offer you this price and instead they will offer odds of 1.90 on each result. This means they make money regardless assuming the same amount of money staked on each. A bookmaker would simply adjust these odds further, to say, 1.85 and this create a bigger margin for this market and, in turn, more money.
As a punter you are likely not going to notice a huge shift in the change of the odds as they may be as small as just a couple of percent. But, it will play a big part overall for the bookmaker and the most likely way that they will make up the deficit. William Hill have already stated that this will cost them around £25 million a year, which even for them, is not an insignificant sum.
Moving to Foreign Markets
The other alternative they have is to move to other markets around the world and outside of the UK. Countries like Spain are one of the fastest growing markets for online betting, with an almost 15% year on year growth and lower tax rate. Portugal, Germany, Sweden and the US are other alternative counties that some may look to target.
How Will It Affect Other Parts of the Gambling Industry?
It’s likely going to filter through all parts of the industry at some point. Horse racing is a sport that is going to suffer quite a bit due to the horse racing levy being hit. The levy is where the bookmakers have to pay a tax on their gains taken from betting on their sport.
The reality is that the numbers are already starting to decrease as a result of the decline of FOBTs and people attending high street betting shops. But even online punters are going to be shrewder about the odds that they take and then will work harder to move around from bookmaker to bookmaker to get the best price.
Less money taken means less money for the levy, which has been proven in the 2019 as reports of a £17 million decrease in levy funds on the previous year – a number that will be damming for the industry.