Adult gaming centres (AGCs) are establishments focused on providing access to gaming machines without involving sports betting. Many AGCs operate constantly, with reports indicating that numerous locations remain open twenty-four hours a day. The closure of betting shops has seen many AGCs move into these vacant premises. Politicians are increasingly viewing AGCs as emblematic of the declining state of high-street businesses, where issues like community deterioration are front and center.
Among the critics is Andy Burnham, the British Prime Minister, who has openly expressed his disdain for AGCs. He views betting shops as indicators of deteriorating high streets, and AGCs are even less favorable in his sight, according to The Times. A Labour source confirmed, “Andy hates adult gaming centres,” and it appears the Treasury may respond to this sentiment.
The government is exploring significant increases in machine games duty (MGD)—the tax on gaming revenue—set to be addressed in the upcoming budget on October 28. The Financial Times reported that John Healey, the Chancellor, is contemplating a tax hike specifically for betting shops and AGCs, putting those businesses that depend solely on machine revenues in a precarious position.
AGCs' role has become more significant politically than economically, according to Dan Waugh, a partner at Regulus Partners, a consultancy. He cited the Gambling Commission’s current numbers showing AGCs capture approximately 4% of gambling spending within the licensed market. When it comes to machines, AGCs account for around 25% of this spending, while betting shops command just under half.
The shift in influence began after the government cut the maximum stake on fixed-odds betting terminals to £2 in 2019. Waugh explained that this decision effectively diminished B2 gaming machines in betting shops, transferring revenues toward casinos, bingo halls, and AGCs, particularly as many betting outlets shut down.
While the changes are noticeable, quantifying them accurately presents challenges. A spokesperson for a prominent UK betting operator, speaking on condition of anonymity, acknowledged the shift: “It’s hard to estimate revenue impact with much certainty.” They emphasized, however, that the revenue narrative is changing: “AGC revenue is growing while betting-shop revenue is declining.”
The viability of AGCs over betting shops can largely be attributed to lower operational costs. As classified hospitality venues for business rates, AGCs have financial advantages. They pay lower statutory levies and do not incur media-rights fees for broadcasting races. Additionally, operational hours and machine variety contribute to the difference; while betting shops typically close by 10 p.m., AGCs attract late-night customers, often filling the void left by pubs. An AGC can host various types of machines, unlike betting shops constrained by limits on higher-stake options.
Political tensions emerge when considering the geographical distribution of AGCs. A report from the Social Market Foundation finds that deprived areas of Britain house, on average, six times more AGCs than affluent neighborhoods. Waugh contends that much of the animosity directed at arcades arises from social elitism, noting lower rates of problem gambling among arcade players compared to pub gaming machine users.
Regulatory authority is divided between the Gambling Commission and local councils, with each venue requiring a premises licence from the local council, which must generally approve applications that meet legal tests. Critics point out that the Gambling Commission has been slow to act; an operator spokesperson noted that AGCs hadn’t faced the same scrutiny as other gambling establishments until recently.
Burnham’s government is seeking to empower local councils further by introducing Gambling Impact Assessments and reassessing the current “aim to permit” framework. Lord Foster of Bath highlighted the need for the community to have greater authority to prohibit new AGC developments. He expressed concerns about the prevalence of high-stake machines and potential violations of existing regulations.
On the other hand, bookmakers want more extensive reforms. The spokesperson from a betting company argues that abolishing the “aim to permit” rule is primarily an initiative to restrict new AGCs, while also calling for the elimination of the financial advantages AGCs currently enjoy, portraying them as “mini-casinos on the high street.”
The looming changes in fiscal policy present a significant concern, as the MGD currently sits at a rate of 20%-25% on most gaming machines, generating an estimated £600 million annually. The SMF advocates for a rate of 40% applicable to a range of establishments, including casinos and AGCs. Healey has yet to confirm any specific increases.
Rachel Reeves, Healey’s predecessor, considered raising the tax rate but ultimately chose to increase remote gaming duty instead. With the government facing tighter finances following volatility in the bond market, Healey might explore more aggressive tax measures.
Stella David, the CEO of Entain, which operates betting brands like Ladbrokes and Coral, has vocally opposed the increases, citing that elevating MGD to 40% would impose an additional £100 million burden annually on her company's UK operations. She highlighted potential consequences from the tax increase, including a projected 1,470 shop closures and nearly 16,000 job losses.
In her comments during a recent earnings call, David pointed out the devastating impact tax hikes might have, noting that the net revenue for the Treasury could actually decline due to such measures. The company is looking into compensation strategies to mitigate these revenue losses.
Bacta, the trade association for the arcade industry, insists that lawful businesses shouldn’t be taxed out of existence for financial preference reasons.
While AGCs prove to be a financially viable model, discussions have emerged about whether betting operators might transform shops into AGCs as an alternative strategy. Reportedly, Betfred contemplated this, although a spokesperson ultimately stated otherwise. They noted that a significant increase in MGD would diminish the appeal of such conversions.
Those operators with stronger financial positions are expected to withstand potential tax increases better than others. However, Waugh warns that a surge in illicit activity could ensue without effective regulatory enforcement from the Gambling Commission. Estimates indicate that £1.6 billion is currently wagered through illegal land-based gambling channels.
As the landscape of high-street gambling shifts, policies surrounding AGCs will play a critical role in determining the future for both legitimate and underground gambling activities.
