The Backlash against the Betting Industry in the UK

While sports betting is a relatively new phenomenon to the majority of states (notwithstanding the long standing Vegas operations of course), in Europe it has been much more established and a regular aspect of everyday life.

The UK in particular has often been cited as a trailblazer in this regard. Legal off track betting shops will be 60 years old next year and the 2001 switch from a 9% turnover tax to a 15% gross profits tax model saw business and tax revenues soar. This was later underpinned by the 2005 Gambling Act, regarded as one of the most advanced pieces of permissive gambling legislation in the world.

That doesn’t mean it was perfect though. In 2014 the law was adapted to bring tax revenues onshore in the shape of a point of consumption tax and every year the Gambling Commission (created by the 2005 Act) makes corrections to regulations through its License Conditions and Codes of Practice (LCCP).

This might sound like the perfect environment for a healthy, flourishing industry, but there was a negative undercurrent which is now causing a backlash. Ever since their introduction in 2002, Fixed Odds Betting Terminals (FOBTs) were controversial. These VLT-style machines were able to offer video roulette in betting shops as bookmakers could coherently argue that roulette is actually a fixed-odds based game, unlike the other casino table games which fell into the ‘gaming’ category.

Despite the furore over the machines, the 2005 Act wrote them into regulations with restrictions on numbers (four per betting shop), stake and prize (£100/£500 respectively) and game duration (min 20 seconds). This meant that the 9,000 betting shops in the country could continue operating the machines, which had quickly risen to provide half the profits of every outlet.

But a well-orchestrated lobby group called Campaign for Fairer Gambling, set up by 3-Card Poker inventor Derek Webb, was extremely successful in putting pressure on regulators and politicians to introduce further restrictions on the machines.

The bookmakers did not have the campaign’s media awareness and this month saw the Campaign victorious - with the stakes cut from £100 to £2.

On the face of it, the decision is purely a political one. The regulator, after a lot of consultation, suggested that £30 would be an acceptable cut in order to stem the losses of people with problem gambling. This was deemed inadequate by the media, who by then had smelled blood and howled for the kill. The pressure was too strong for politicians, who see little advantage in sticking up for gambling and the £2 rate was rushed in.

The irony is that since the introduction of FOBTs (frequently dubbed the crack cocaine of gambling in the media), the rates of problem gambling in the UK haven’t changed a bit. It was measured at 0.6%-0.9% in 1999 and it has remained ‘statistically stable’ since then, which suggests that the FOBT product isn’t a cause of the problem and regulating them out of existence won’t do anything to help problem gambling rates.

It is early days to see what the impact is on betting shops, industry estimates suggest half the shops will close without their main revenue source. This will have massive implications for British horseracing, which derives over £100m a year from the UK’s betting shops in the shape of the Horseracing Betting Levy (c10% on profits from horseracing) and selling horseracing media rights allowing their races to be shown in the betting shop environment.

Industry watchers in the UK attribute the defeat over FOBTs to a dreadful public perception, fuelled by the media, and a failure by bookmakers to manage their reputation successfully. Further restrictions are also in the pipeline, including enhanced age checks, a ban on credit card gambling, stake restrictions on online slots. and a potentially statutory tax to fund problem gambling measures (the current one is voluntary).

Some of these are sensible measures, some are overkill, implemented because of the poor perception of the industry. They will all be expensive, which is why markets around the world can still look to the UK for inspiration. Both who to do things, and how not to do things.