UK Gambling Stocks Yo-Yo in Response to Tax Increases

The stock prices of leading gambling companies in the UK initially took a hit before bouncing back following the announcement of tax increases on the industry in Rachel Reeves’ budget.

A betting industry source described the increases as an “early Christmas present for the black market.” However, the quick rebound of stock prices suggests that worse was expected.

Online casinos have been targeted by the government, with the tax increasing from 21% to 40% from next April. The tax on online sports betting will also rise from the current 15% to 25%, but not until April 2027.

In response, Flutter, which operates a range of betting brands in the UK, including PaddyPower, SkyBet, and Betfair, saw its stock price drop initially by 14%, but this quickly rebounded, and it continues to increase beyond its opening price of 14,855 GBX.

Similarly, Entain, the company behind the flagship UK brands Ladbrokes and Coral, saw its price dip by 3% before rebounding and continuing to rise, opening the day at 747.8 GBX. At the time of this writing, the price had increased by more than 4%.

The price of Evoke shares, the parent company of 888 and William Hill, dropped by over 16% before a slower rebound, still leaving it down for the day.

Mixed Fortunes for Betting Companies

While the initial reaction feared a negative impact on the industry, the quick bounce-back suggests that investors believe the increases are not as severe as first feared. Horseracing has been spared following intense lobbying by the racing industry. Online sports betting will also not face a higher rate until April 2027.

Additionally, retail betting will be exempt from this increase. Several companies, including William Hill, Ladbrokes, and Paddy Power, said they would be closing betting shops in response to the increases. However, they may have a rethink as the government aims to offer tax breaks to companies that remain on UK high streets.

The increased tax rate on online casinos, although almost double its current levy, is not as high as proposed by the Institute for Public Policy Research (IPPR). The IPPR called for a rate of 50% and this suggestion was backed by former Chancellor and Prime Minister Gordon Brown. Brown said the additional taxes could be used to combat child poverty.

Leaked Report Estimates Additional Tax Revenue From Increases

The Office for Budget Responsibility (OBR) mistakenly released the budget before the official announcement by Reeves. It later reissued its report on the post-budget economic and fiscal outlook, estimating that the tax increases will generate an additional 24.3% in revenue next year, up from £4 billion to £5 billion. It projects that the figure will continue to rise and reach £6 billion by 2030-31.

The Betting and Gaming Council (BGC), however, has been vocal in saying that an increase will result in less tax revenue. The organization, which includes the UK’s biggest betting companies, cites the example of the Netherlands, which collected less overall revenue after raising taxes last year.

The reduction was not purely the result of higher taxes, however, as the country also implemented restrictions on the industry, including a ban on gambling advertising in sport, and deposit limits on gamblers.

Lobbying Proves Worth as Exemptions Made

While gambling lobby groups were not able to completely avoid any tax increases, some of the exemptions were a victory for the industry. Horseracing in particular made a concerted effort to dissuade Reeves from including a tax increase on the industry.

The British Horseracing Authority (BHA) took the unprecedented action of going on strike in September in protest against any tax increase. The BHA ran an “axe the tax” campaign, claiming, “This proposed ‘racing tax’ would cost the sport at least £66 million a year and threaten thousands of jobs, from stable staff and farriers to small-town hotels and local pubs.”

The industry is preserved for now, and gambling companies will be evaluating how to deal with the other tax increases. Flutter has already relocated the headquarters of one of its brands, SkyBet, offshore to Malta, while other operators have stated that they will pass on the costs to consumers.

The OBR estimates that “operators will seek to pass through around 90 per cent of the duty increases by increasing prices or reducing payouts, leading to a reduction in consumer demand.” 

The BGC warned that this will have the effect of pushing gamblers offshore to use black market platforms. The OBR admitted that it expects the same, and said it projects that around £600 million could be lost to “potential substitution to the illicit market.”

At the same time, one unnamed UK operator is already under investigation for sending customers offshore, and the quick rebound of stock prices suggests that the industry will not lose out in the long run.