Bookies: a losing bet?

Shares in bookmakers slipped after the CMA announced enforcement action against a number of online gambling firms. The move highlights the willingness of the regulator to act and forms part of what appears to be a much broader clampdown on the industry after a period of liberalisation. The regulatory trend is working against the industry at present.

According to the CMA, customers are not getting the deal they sign up for and operators are holding on to people’s money when they shouldn’t. A rap on the knuckles is deemed necessary. If it affects any of the big listed players in the sector the chances are it would not have a material effect on earnings long germ, but coming at a time of increased scrutiny on the sector, investors have decided that the bookies are not such a hot bet.

This comes as a review of fixed-odds betting terminals looks set to blow a hole in revenues. This review is critical — these machines account for around half of betting shop revenues. Punters lost £1.8bn on these machines in the year ending September 2016.

The government review is likely to see the maximum stake on these machines reduced from £100 to around £10–20, but it depends on the amount of pressure Labour can exert on the government now the Conservatives have lost their majority — Labour has pushed for a cap of £2.

A £2 limit would amount to a serious problem for bookies and probably hasn’t been reflected in the drop in share prices over the last year. We have to assume that with some Conservative MPs also favouring a £2 limit, the odds of a worst-case scenario playing out have increased. A £10 cap would be bad, but this has already been pretty well reflected in stock valuations which have declined markedly since August.

Bookmakers shares have suffered from a steady decline in the last 10 months. Ladbrokes is down 30% since the late August peak, while Paddypower Betfair is 12% lower and William Hill is down 18%. Online focused firms like GVC and 888 are down a touch more today than the high street bookies for obvious reasons but are going in the opposite direction longer-term — 888 Holdings is up 30 since mid-August, while GVC is up about 10% as the FOBT review weighs on the more traditional end of the sector.

Neil Wilson

Senior Market Analyst

ETX Capital