UK gambling firms have avoided the feared increase in machine games duty that analysts initially anticipated. This week's budget announcement, while seen as a clearing event by some financial analysts, also highlights potential shop closures, reduced investments, and advantages for struggling competitors as companies adapt to the new tax landscape.
The duty on machines with a maximum stake over £1 or maximum prize exceeding £100 is set to rise from 20% to 25% starting 1 April 2027. This increase is markedly less than the 40% rate recommended by the Social Market Foundation. Preliminary evaluations indicate that the impact on diversified companies’ group earnings will be limited; however, those reliant on physical venues may face challenging decisions regarding which locations to keep open due to a manageable earnings downgrade.
“There’s never a good time for a tax hike, but a 5% increase is at least manageable and could serve as a clearing event for the industry,” noted David Brohan of Goodbody, referring to the 25% increase in the duty rate itself.
Regulus Partners cautioned that although the tax increase might seem mild, it will significantly affect cash flow, threatening the viability of many marginal venues.
The adjustment applies specifically to machines with certain stake and prize thresholds. According to HMRC's policy paper, this change is expected to yield an additional £135 million for the Exchequer in 2027-28 and approximately £130 million annually for the subsequent four years, totaling £655 million over five years. The report notes that about 5,100 operators and 12,400 venues will be impacted by this adjustment.
Regulus argues that focusing solely on revenue fails to capture the true financial strain of the increase. Although the land-based industry generates over £5 billion in revenue, an additional tax burden of around £130 million represents nearly one-third of the free cash flow after capital expenditures, which is estimated to be £392 million.
On average, the annual cost per shop is estimated to be around £11,000 for betting shops, £20,000 for adult gaming centers or bingo arcades, £50,000 for traditional bingo halls, and £100,000 for casinos. Regulus emphasizes that these amounts are significant for land-based businesses already operating with narrow margins and high fixed costs.
Entain illustrates the gap between the immediate cost of the tax and its longer-term earnings consequences. The owner of Ladbrokes and Coral projects a £25 million increase in annual retail costs in the UK and Ireland before any mitigation strategies are implemented but expects to fully offset these impacts by the end of 2028.
Their approach includes streamlining operations, optimizing resources across the group, and potentially gaining market share as competitors reassess their positions in the UK. Entain maintains its forecasts for FY2026 and anticipates reaching £500 million in annual adjusted cash flow by 2028.
However, this optimism does not eliminate the challenges. CEO Stella David stressed, “Our priority is to protect jobs wherever possible while ensuring a sustainable retail presence on UK high streets.” She warned that the new tax could push more customers towards illegal gambling options and exacerbate the impact of previously increased tax rates.
Initial analyses from banks present more conservative views compared to Entain’s optimistic projections. Goldman Sachs estimates a 1.5% impact on Entain’s group EBITDA for 2028 under their conservative scenario, which assumes that 30% of the added costs are mitigated. They project a 2% equity-value impact by applying their retail valuation multiple to the earnings reduction.
The Goldman team highlights potential strategies for mitigation, including shop closures and market share adjustments, especially as smaller rivals face greater challenges under the new tax structure. Notably, retail gambling has fewer options to cut marketing expenses since those costs are already considerably lower compared to online operations.
Entain's shares have dropped roughly 11% since early September, with some of this decline attributed to budget uncertainties, meaning the potential damage from the tax increase is somewhat reflected in current valuations.
JP Morgan anticipates a pre-mitigation EBITDA impact of roughly 3% in FY2027 for Entain and Evoke, predicting most of this impact will be mitigated through closures of unprofitable betting shops and increased reliance on sports self-service betting terminals to balance out weaker machine performance.
They estimate that UK retail accounts for approximately 22% of Entain’s FY2027 sales and EBITDA, with gaming machines comprising nearly half of that. Evoke's figures present retail as roughly 26% of sales and 18% of EBITDA, making machines about 45% of their mix.
Morgan Stanley calculates that the unmitigated cost for Entain amounts to around 12% of its UK retail EBITDA and 2% of its overall EBITDA, positing that around 10% of shops could become unprofitable. This analysis suggests that Entain, with its larger estate and greater investment in stores, is better positioned to adapt compared to smaller competitors.
Deutsche Bank similarly highlights the potential to mitigate impacts, estimating that around 30% could be managed through closures or increased market share. Their projections indicate annualized pre-mitigation EBITDA impacts of approximately 3% for Entain and 6% for Rank, holding their forecasts steady for now in light of uncertainties.
Rank is likely to face more substantial earnings adjustments under these new regulations. Brohan from Goodbody predicts that, assuming a 30% mitigation, the increase could reduce FY2027 adjusted EBITDA by about 5% at Rank, contrasting with around a 2% decline for Entain and less than 1% for Flutter.
Subsequent estimates from Peel Hunt include an estimated £9 million hit to annual operating profit for Rank before any mitigation is applied. Analysts adjusted their expectations for FY2028's operating profit by £9 million, leading to a roughly 13% decrease in earnings per share while keeping FY2027 forecasts unchanged.
“It seems Rank can still achieve a solid growth trajectory despite the machine games duty increase,” stated Ivor Jones, an analyst at Peel Hunt, who maintained a Buy recommendation while lowering the target price from 175p to 155p, with a reassessment due after interim results in January.
For Rank, the closures of competitor venues could provide some relief, as noted by Jones: “Every estate of casinos and bingo venues has weaker locations, and closures in these spots benefit their local rivals.” He also pointed to investment returns and opportunities to optimize additional gaming machines allowed since mid-2025. However, Deutsche Bank warns that the tax increase may disrupt Rank's plans for medium-term investments.
Looking ahead, Regulus challenges the notion that manageable earnings impacts translate to the policy’s affordability, arguing that pressure will escalate as leases expire and costs rise. Their five-year analysis predicts approximately 2,750 betting shop closures, recognizing that about 1,000 may close due to existing economic pressures. Their model suggests potential job losses of 19,000 and a £57 million reduction in annual income to racing from media rights and the levy.
Regulus asserts that the initial success of the MGD increase could quickly dissipate, noting that while the tax rises abruptly, its repercussions may unfold over a significant period. A drop of 20% in affected Category B machine revenue could negate the anticipated tax increase. For adult gaming centers, smaller operators could face heightened vulnerabilities compared to larger estates. Goldman Sachs also highlighted the elimination of business rates relief for adult gaming centers starting April 2027.
The Betting and Gaming Council cited EY projections suggesting nearly 9,000 job losses and around 1,000 betting shops and casinos at risk of closure. BGC CEO Grainne Hurst described the tax hike as “a deeply damaging decision.”
Analysts' relief appears largely attributed to the manageable scale of the increase and the diminished economic uncertainty. While Entain may strive for full mitigation, and Rank could maintain a feasible growth outlook, the anticipated closures and cuts will still impact the industry significantly. The pivotal question lies in how much of this added revenue for the Treasury will endure through the adjustments triggered by the new tax structure.
