UK gambling companies have managed to avoid the widespread fears of a significant increase in machine games duty that investors anticipated. However, while analysts view the recent budget announcement as a potential opportunity for market adjustment, they are also noting that it may lead to shop closures, decreased investments, and a chance for struggling competitors to recover from the potential financial impact of this new tax.
The duty will rise from 20% to 25% effective April 1, 2027, which, while still a step up, is less drastic than the 40% rate suggested by the Social Market Foundation. Early evaluations suggest that for diversified operators, the impact on overall earnings will be modest. Nonetheless, venues that are more reliant on physical locations could face challenging decisions regarding which sites they keep operational.
David Brohan from Goodbody stated, "While a tax increase is never welcome, a 5% increase is at least tolerable and should act as a clearing event for the sector." This reference to the five-percentage-point rise signifies that while the new duty rate is indeed higher, it is more manageable than previously feared.
Regulus Partners cautioned, however, that this alteration represents a significant “cut to cash flow that will prove fatal to many marginal venues.”
The change applies specifically to machines that have a maximum stake above £1 or a maximum prize of more than £100. According to HMRC’s policy paper, the increase is expected to yield an additional £135 million for the Exchequer in 2027-28, with £130 million annually for the next four years, totaling around £655 million over five years as per the Office for Budget Responsibility’s figures. Approximately 5,100 operators and 12,400 premises will be impacted.
Regulus argues that measuring affordability by revenue isn't entirely relevant. While the land-based gambling sector has over £5 billion in revenue—including food and drink—an extra £130 million tax might seem manageable. But in comparison to an estimated £392 million of available cash flow after capital expenses but prior to interest, it accounts for about one-third of that total.
Cost estimates from Regulus indicate an average annual tax impact of £11,000 per betting shop, £20,000 per adult gaming center or bingo arcade, £50,000 per traditional bingo hall, and £100,000 per casino. These figures vary significantly and highlight the already thin margins that land-based operators typically work with.
Entain exemplifies one operator's path through this change. The company, owner of the Ladbrokes and Coral brands, forecasts an increase of approximately £25 million to its annual costs for its UK and Ireland retail branches. However, Entain anticipates it will entirely offset this impact by the end of 2028 through strategies that include rationalizing its estate, optimizing operations across the board, and potentially capturing market share as rivals reconsider their positions in the UK market. The company expects its fiscal year 2026 guidance and its projection of £500 million in annual adjusted cash flow for 2028 to remain intact.
In making their case, Entain’s CEO Stella David emphasized the importance of preserving jobs while ensuring a sustainable retail presence on high streets in the UK. Yet, she also noted that the tax reforms could compound the challenges generated by last year’s changes and potentially nudge more customers toward illegal gaming options.
Banks’ initial forecasts for the budget implications have tended to be cautious compared to Entain’s outlook, despite differing calculations and premises. Goldman Sachs, for example, estimates that these tax changes could have a roughly 1.5% impact on Entain’s group EBITDA by 2028, assuming they manage to mitigate about 30% of the cost. This translates to a 2% impact on equity value, utilizing the retail valuation multiple.
Analysts from JP Morgan expect an average EBITDA decline of around 3% for FY2027 across both Entain and Evoke, projecting some operators might counteract most of the impact through the closure of unprofitable betting shops and a rise in self-service betting terminals.
The analysts have pegged retail’s contribution at around 22% of Entain’s sales and EBITDA for FY2027, with gaming machines providing approximately half of that mix. For Evoke, retail accounts for approximately 26% of sales and 18% of EBITDA, with gaming machines making up 45%. Meanwhile, Flutter’s involvement in these metrics is minimal.
Morgan Stanley estimates that without any mitigation, Entain's costs from this tax will represent about 12% of its UK retail EBITDA and 2% of group EBITDA. They predict mitigation efforts may go as far as 50% mainly through site closures, estimating that about 10% of shops could become unprofitable under these new regulations.
The outcome will also depend on how competitors fare in managing their estates. Morgan Stanley posits that Entain's size and investment levels make it best positioned to adapt effectively to these changes.
Deutsche Bank's perspective aligns closely, projecting the possibility of mitigating around 30% of the impact through some retail closures and gains in market share. They anticipate annualized unmitigated EBITDA effects around 3% for Entain and 6% for Rank, but are keeping their published forecasts intact pending further clarity.
Rank is expected to experience a more significant earnings impact based on these adjustments. Goodbody analysts estimate a roughly 5% cut in FY2027 adjusted EBITDA at Rank with a possibility of 30% mitigation. Peel Hunt has also revised its forecasts for Rank, anticipating a £9 million annual pre-mitigation cost stemming from these changes, adjusting its expected earnings accordingly.
Ivor Jones from Peel Hunt believes that Rank will continue to show solid operating profit growth despite this new machine games duty increase, maintaining a Buy rating but lowering the target price.
As for closures, Jones notes that consolidations in the casino and bingo markets might benefit remaining competitors by filling the gaps left by weaker establishments.
Regulus contests the narrative that slight earnings impacts suggest the policy is affordable in the long term. According to their analysis, pressures will arise as lease agreements come to an end and costs increase, forcing operators to determine whether renovations can yield adequate returns.
They estimate that the tax increase could lead to about 2,750 betting shops shutting down, on top of around 1,000 that might close due to existing pressures. Potential job losses could reach 19,000, and annual income for horse racing from media rights could take a £57 million hit.
The Betting and Gaming Council has echoed these concerns, with EY predicting nearly 9,000 job losses and almost 1,000 betting shops and casinos facing closures or serious risks. Grainne Hurst, the BGC’s chief executive, called the increase “a deeply damaging decision.”
While some analysts express relief regarding the scale of the increase and the elimination of uncertainty, the reality of enforced closures and cost-cutting measures will inevitably reshape the gambling landscape. The industry now faces the pressing question of how much of the anticipated revenue set to flow to the Treasury will endure the necessary adjustments.
