Market expecting 'negative intervention' on gaming machines

The stock market is expecting government action over gaming machines, an analyst of the sector said on Wednesday, a belief reflected in the share price of Ladbrokes-Coral and William Hill.

In October the government issued a call for evidence as part of its review of gambling that includes a review of the stakes and prizes on gaming machines, including those in betting shops also known as fixed odds betting terminals (FOBTs).

There have been calls for the maximum stake on the machines, which provide more than half of betting shop operators' profits, to be cut to £2 from £100.

While such a major cut is thought unlikely there have been warnings that significant action could be taken, with former culture secretary John Whittingdale this week warning bookmakers to brace themselves for bad news.

Shares in Ladbrokes-Coral and William Hill fell by 2.2p and 1p respectively when the stock market opened on Wednesday morning but soon rose again.

Stock market taking a view

However, Gavin Kelleher, an analyst with Goodbody, said: "If you look at the share prices of William Hill and Ladbrokes and how they have underperformed over the last number of quarters, I think it's safe to say the stock market is taking a view that there will be some form of negative intervention on gaming machines.

"The problem is – a bit like with Mr Whittingdale's comments – it is very hard to know exactly what people are pricing in because it is very difficult to know how severe the fall in profits would be at William Hill or Ladbrokes if the government made a draconian change."

The Association of British Bookmakers has warned that a major cut in stakes could potentially lead to half the UK's betting shop estate closing by 2020 and the loss of as many as 21,000 jobs.

It also claimed there would be a major impact on the horseracing and greyhound industries.

Kelleher added: "If there is a severe reduction in machine staking levels there are likely to be severe economic and financial consequences, including lost taxes and duties, shop closures, and job losses. It would also have a severe indirect impact on the horseracing industry.

"There are economic and financial impacts here. No-one knows what the exact impact is, but I think it's safe to say the stock market is pricing in a change."

The government has said it would publish the results of the call for evidence shortly, with the expectation that the announcement will come in April.