Recently, the UK gambling industry faced a significant development as the government announced an increase in machine games duty from 20% to 25%, effective 1 April 2027. While this figure is less drastic than the 40% rate sought by the Social Market Foundation, it still imposes challenges for operators dependent on physical venues. Although analysts have welcomed the increased tax as a clearance moment for the sector, they anticipate consequences such as venue closures and reduced investments, particularly among struggling competitors who may find it hard to absorb this additional financial burden.
David Brohan from Goodbody, commenting on the budget, 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." The rising duty represents a significant shift, but even so, it is not expected to severely impact the group earnings of diversified operators. Conversely, businesses reliant on physical betting establishments may face tough decisions regarding which locations can remain operational.
The changes specifically affect machines with a maximum stake above £1 or maximum prize above £100, with HMRC estimating that the increase will generate an additional £135 million in 2027-28, followed by £130 million for the next four years. This projection totals around £655 million over five years, impacting approximately 5,100 operators and 12,400 premises.
Regulus Partners expressed concerns about how to assess affordability in the industry, suggesting that while the additional tax bill seems manageable against the backdrop of over £5 billion in industry revenue, it could hugely affect cash flow. They estimate annual costs to range from about £11,000 per betting shop to upwards of £100,000 for casinos. Such amounts are significant in an industry notorious for thin profit margins and high fixed costs.
Entain, which owns Ladbrokes and Coral, is looking to navigate this new tax structure efficiently. They project an annual increase in costs of £25 million to their UK and Ireland retail operations but believe they can fully offset these expenses by the end of 2028. Their strategy involves streamlining operations and potentially capitalizing on opportunities as competitors reassess their positions in the UK market. Despite reassurances, Chief Executive Stella David highlighted the need to protect jobs and sustain a viable retail presence while acknowledging that the tax hike might exacerbate attrition toward illegal gambling operators.
Goldman Sachs has taken a more measured view, predicting about a 1.5% impact on Entain’s 2028 group EBITDA, assuming some cost mitigation occurs. They note that the shares of Entain have fallen about 11% since early September, attributing part of this decline to budget risk.
JP Morgan predicts an overall pre-mitigation EBITDA impact of approximately 3% across Entain and Evoke for FY2027, with operators likely responding by shutting down unprofitable locations. They estimate that retail accounts for roughly 22% of Entain’s FY2027 sales, with gaming machines forming about half of this segment. Meanwhile, Morgan Stanley identified Entain's unmitigated cost at around 12% of UK retail EBITDA, estimating that closures will account for a significant share of mitigation efforts.
Rank, a prominent player in the sector, is forecasted to see a larger earnings adjustment compared to diversified betting groups. It is estimated that an increase of 30% mitigation could lead to a 5% cut to Rank's adjusted EBITDA for FY2027, a notable difference from Entain.
Analysts from Regulus have cautioned that the impact of this tax increase might not be immediately visible but will gradually unfold as operational costs rise and lease pressures mount. They anticipate that this policy could lead to approximately 2,750 betting shop closures over five years, contributing to job losses and reduced incomes for the racing industry.
The Betting and Gaming Council has echoed these concerns, indicating that almost 9,000 jobs could be lost, with nearly 1,000 betting shops and casinos in jeopardy. BGC chief executive Grainne Hurst criticized the tax hike as "a deeply damaging decision." As the industry grapples with these changes, the real question will be how sustainable the Treasury's additional revenue will be amidst the anticipated adjustments.
