Adult gaming centres (AGCs) in the UK primarily offer play on gaming machines, lacking sports betting and often operating 24/7. Recent reports indicate that hundreds of these venues remain open around the clock, even as traditional betting shops have closed. Politicians increasingly view AGCs as emblematic of the decline of high streets, a sentiment echoed by British Prime Minister Andy Burnham. A Labour source revealed to The Times, "Andy hates adult gaming centres," adding pressure on the Treasury to take action.
Officials are considering increasing machine games duty (MGD) for the budget set for October 28. The Financial Times reports that Chancellor John Healey is contemplating a rate hike targeting betting shops and AGCs specifically, suggesting significant financial implications for businesses that rely solely on machine gaming.
In the political sphere, AGCs are garnering more attention than their actual market impact. According to Dan Waugh from Regulus Partners, AGCs account for only about 4% of spending in the licensed gambling market, while competing with bookmakers mainly on machines. Current data shows AGCs claim around a quarter of licensed machine spending, compared to nearly half captured by betting shops for the fiscal year 2024/25.
This shift has been influenced by a 2019 government decision to cut the maximum stake on fixed-odds terminals to £2, which Waugh describes as a move to "effectively abolish B2 gaming machines." This change redirected machine spending from bookmakers to casinos, bingo clubs, and AGCs, particularly as betting shops closed.
Despite the shift in preference, bookmakers find the transition hard to quantify. A representative from a large UK operator, speaking anonymously, stated that while they recognized changes in revenue dynamics, determining precise figures was challenging. What remains crucial, they argue, is that AGC revenues are rising while betting-shop revenues are declining.
The cost-effectiveness of operating AGCs versus betting shops plays a key role in their survival. The representative explained that operating an AGC is significantly cheaper, as they are classified as hospitality venues for business rates, unlike betting shops that are subjected to higher financial-services rates. Additionally, AGCs contribute less to the statutory levy and do not incur media-rights fees for broadcasting racing events.
Operating hours further advantage AGCs. While betting shops must close by 10 PM, AGCs serve late-night patrons frequented by customers after local pubs close. Furthermore, while betting shops may only feature a few higher-stake Category B machines, AGCs can stock a higher proportion of these machines alongside a larger number of lower-stake options, improving their overall capacity and revenue potential.
The SMF (Social Market Foundation), a think tank, highlights that the concentration of AGCs in Britain's most deprived areas—averaging six times more than in affluent neighborhoods—can contribute to stigma. Waugh dismisses this bias, noting that data shows lower instances of problem gambling among arcade machine players compared to pub gamers. AGCs tend to cluster in seaside towns and urban centers, reflecting their appeal to working-class patrons.
Regulatory power regarding AGCs is divided between the Gambling Commission and local councils. While the Commission licenses operators, councils issue premises licenses under the Gambling Act 2005, which mandates them to approve applications that meet legal criteria. Consequently, they have limited ability to refuse new AGCs.
Waugh criticized the Commission for its delayed approach to overseeing AGCs, indicating that while their scrutiny has increased, it was previously insufficient. Burnham’s government seeks to delegate more authority to local councils, including the implementation of Gambling Impact Assessments, and suggested revising the "aim to permit" principle to give communities more leverage in barring new AGCs.
Lord Foster of Bath, chair of Peers for Gambling Reform, expressed concern over high-stake machines, advocating for more community control over AGC development. He pointed out existing breaches of regulations, including issues surrounding machine ratios and unauthorized machine types, urging for enhanced funding for councils to enforce current laws.
Bookmakers are pushing for more stringent regulations, arguing that revoking the "aim to permit" concept is key to halting new venue openings. They urge the government to address loopholes that allow AGCs to operate at lower tax rates, branding them “mini-casinos” on high streets.
Potential financial implications loom large. The MGD, which is levied at rates of 20%-25% on most machines, yields around £600 million annually. Suggestions from the SMF proposing a 40% rate across various gambling venues, excluding pubs, could significantly affect revenue dynamics, with estimates citing the economic cost of gambling-related harm at £2.33 billion. If these changes were enacted, both AGCs and betting shops would face new burdens.
Rachel Reeves, Healey’s predecessor, considered an MGD increase but retreated in the face of industry pushback. She instead raised remote gaming duty to 40%. With current economic pressures, Healey might act more decisively, likely preserving exemptions for bingo halls and pubs.
Market analysts predict that a hefty duty increase would trigger widespread closures among AGCs, bingo halls, casinos, and betting shops, which are already struggling due to inflation and the residual impact of lockdowns.
Entain, which owns Ladbrokes and Coral, has been vocal in opposing potential tax hikes, claiming that such increases would devastate retail revenue and lead to significant job losses and shop closures. CEO Stella David alerted the government in a letter, stating that a rise could cost UK shops an additional £100 million annually, affecting employment with an estimated loss of 15,900 jobs and a net £120 million depletion for the Treasury.
David reiterated her concerns during Entain's recent earnings call, pointing out that around 630 betting shops closed in the last year. Raising the duty would exacerbate the current issues affecting already struggling high streets, she warned, and ultimately reduce the net Treasury take.
Bacta, representing the arcade industry, counters that regulatory and tax measures should not target lawful businesses out of dislike. Meanwhile, speculation arises about bookmakers transitioning into AGCs, as seen with Betfred considering the conversion of some shops. However, Betfred clarified that they have no plans for this change.
Waugh predicts that operators with stronger financial positions will endure any duty increase, while others may succumb, with a resulting uptick in illicit gambling activity. Frontier Economics, referenced in Entain’s letter, estimates that illegal land-based gambling currently accounts for around £1.6 billion annually. Should arcades be pushed out of high streets, empty spaces may inadvertently give rise to bookmakers and underground gambling venues flourishing in their wake.
As Waugh summarizes, an increase in duty could provide brief successes for few, primarily benefiting criminals and prohibitionist agendas.
