Bookmakers feel brunt of Budget tax hike
"The pips are squeaking" at Ladbrokes as surprise FOBT tax hike compounds PoC rate to send share price tumbling
Bookmakers were hit hard by changes to the UK tax regime revealed in yesterday’s Budget, with many recording share price slides as the government launched a two-pronged raid on industry revenues.
A 5% increase in machine game duty to 25% only served to compound confirmation the Point of Consumption tax rate will stand at 15%, a level the industry has long criticised for being commercially uncompetitive.
And eGaming Review understands that operators received no warning of the surprise increase in machine duty despite meeting with government officials in recent weeks.
“In essence it appears the UK government has taken c£75m away from bookmakers and handed c£40m to bingo clubs,” Simon French, executive director at Panmure Gordon, said in reference to a cut in the tax on bingo clubs.
Of the UK bookmakers Ladbrokes has undoubtedly been hit hardest by the surprise increase and saw its share price tumble to its lowest level in more than two years.
Having stood at around 160.1p prior to chancellor George Osborne’s announcement, the bookmaker’s share price slid 16% to as low as 133.5p in morning trading, substantially lower than the 297p price CEO Richard Glynn needs to achieve by 2015 if he is to receive a £12m windfall.
Speaking to eGR this morning a Ladbrokes spokesperson confirmed that the increase in machine tax would cause a hit of around £20m at a time when the bookmaker is only just recovering from the £14m hit caused by MGD last year.
“The pips are squeaking and we urgently need some stability,” the spokesperson said. “We will be engaging with government to urge a rethink on this tax grab.”
William Hill has fared slightly better despite being forced to upgrade its machine game duty loss estimate to £22m from the previous guidance of £16m. Shares slid from a price of 377.7p at 12:30pm yesterday to a low of 342.2p this morning, a fall of 9%.
The difference in impact between the bookmakers highlights the differing success the two have had in building their online channels. While William Hill Online has transformed the company and allowed them to compensate for such a hit, Ladbrokes is still more reliant on retail revenue and has been hit much harder as a result.
Paddy Power, which derives 79% of its profits from online channels, saw its share price fall just 5% in the wake of the announcement before rebounding this morning.
The slump has not been limited to just operators however with suppliers also feeling the pinch. Shares in Playtech have fallen by 4% to 694p in morning trading, reflecting the potential impact on its business.