Bookies Can Profit From the Tax Hike on FOBTs in the Long-run

Posted: March 26, 2014

Updated: October 4, 2017

Some experts see the hike in FOBTs taxes as a good thing for the bookies in the long-run.

The United Kingdom Treasury may have altered British gambling laws imposing heavier taxes on the bookies’ FOBTs. However, George Osborne opined that this may serve to the sportsbooks’ advantage in the long run.

When the Treasury has announced the increase in taxes on FOBTs, there was a natural reaction from the market. But some industry experts acted as if they knew something nobody else did.

Right after George Osborne revealed the increase in profit duty on fixed odds betting terminals at land-based betting shops from 20% to 25%, the markets reacted with a decrease in sportsbooks’ share prices. William Hill lost 5%, and the more heavily FOBTs dependent Ladbrokes, lost 11% of their stock prices.

To a more thorough eye, the reaction seems short-sighted. The large sports betting operators will take a hit on the profits, no doubt about that, but it will not happen overnight. Additionally, there’s always an opportunity for the future chancellor to ask for a little bit more.

However, on the other side, sportsbooks gained a powerful ally for their campaign to continue offering FOBTs on high-street locations. Since most of the problem gambling stems from struggling communities, high-street placement of FOBTs will be considered a pretty good solution. Not to mention the other factor in the recently changed laws: horse-racing interests.

Why has the Treasure become bookie’s ally?

After a wide support for reducing the maximum stakes on FOBTs and even banning them altogether, the Treasury’s actions ensured the FOBTs aren’t going anywhere. Sure, the taxes have increased, sure the sportsbooks will have to give up some of the profits. But the important thing is the machines will stay operational, as the Treasury will now rely on these tax proceeds as well.

Can increased FOBTs tax be good for the bookies?

• The recent change in British gambling laws has increased FOBTs levy to 25%

• Some experts say it will be beneficial for the bookies in the long-run

• Revenues stemming from FOBTs provide government’s coffers with steady income

With the elections only a year away, and Ed Miliband has pledged to give local councils the regulating power over local machines. This promise remains the only FOBT-related proposal so far. On the other hand, Conservatives can declare the Labour’s decision to allow machines in betting shops a mistake. And ultimately return them to land-based and online casinos in the United Kingdom.

FOBTs will continue to supply much-needed tax revenue to the government’s coffers. It will become even more difficult for any administration to say no to this revenue stream of simple, and guaranteed cash. The hike in FOBTs taxes surely is bad news for sportsbooks now, but in the long-run it ensures the machines will prevail, providing the bookies with an easy way of making money in the future.

Looking further ahead, the gambling machines could become more attractive to the large sportsbook chains than horse-racing, something which need far more investment and effort to pay off profitably.

More factors to consider

Financial traders in London, who downed the bookies’ shares last week, do know what they are doing. The British horse-racing industry is now an attractive business to invest in. Especially, after the Treasury’s announcement it plans to extend the racing levy to off-shore based bookies. There are also plans for a “Racing Right” which the sport will be able to sell as statutory assistance’s long-term alternative.

The British Horseracing Authority Chief Executive Officer, Paul Bittar, was quoted in British gambling news describing the tax changes as “a major milestone in our efforts to secure the future finances of our industry”.

There have been long-standing plans to move the British horseracing industry on a commercial basis funding. But by the looks of it, it’s not happening just yet, and the new levy as well as the possibility to tax foreign-based bookies will have to supply the revenue for now.

Unfortunately, horse-racing industry still doesn’t seem to be able to sell itself, even though the demand for entertainment is strong as ever and growing constantly.

Sports betting punters are the clients, which will continue to spend money betting on the races. If or when the racing industry could be marketed and sold properly with the help of betting, there will be no more need to ask the bookies to sponsor the industry. Moreover, sportsbooks will be keen on doing that themselves, simply because it will be good for their business.

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