How will the RGD increase impact the industry?
The RGA, City analysts and consultants assess the impact of yesterday’s RGD rise on the UK online market
UK Chancellor Philip Hammond yesterday confirmed that Remote Gaming Duty (RGD) would increase to 21% with effect from October 2019.
The rise will coincide with the delayed introduction of a £2 maximum stake limit on fixed odds betting terminals (FOBTs).
Here’s what key industry stakeholders had to say:
Julian Buhagiar, co-founder RB Capital
“The rate rise announcement was not unexpected, but this doesn’t take away from the further pain many UK-facing operators are going to have to prepare for. In addition to the fallout from changes in Brexit-related legislation, this industry is constantly adapting to wave after wave of regulatory changes and, because of today’s announcement, some operators will feel like throwing in the towel.
“We’ve already seen a spate of mega deals with the likes of GVC and the Stars Group completing major M&A transactions. The rate rise will only mean one thing: that life will get tougher for smaller operators and they will either be forced to downsize UK operations, shift market focus elsewhere or sell to the highest bidder.”
Eilers & Krejcik
“The UK’s 21% RGD rate places it at the higher end of the major European regulated markets with Denmark, Spain and Italy at 20%, while Sweden’s new regulated market will have a tax rate of 18% of GGR. As such it may have a small negative impact on investment into the UK from operators who may prioritise investment in other European markets. Along with a recent increase in regulatory oversight this could act as a catalyst for further M&A as the cost burden rises for sub-scale gaming operators.”
Clive Hawkswood, CEO, Remote Gambling Association
“The final rate of 21% was slightly higher than our modelling had indicated was necessary to fill the tax revenues that will be lost by the FOBT reforms, but there is certainly a feeling that it could have been worse if HM Treasury had included a bigger margin for error and gone for 25%. We had also been working on the basis that the increase would come into effect next April, so the October date provides a small crumb of comfort.
“However, the bottom line is that 21% represents a stiff hike and will take an additional £250m or so out of the online gaming sector. That on top of the still recent extension of RGD to freeplays and increasing regulatory burdens will make the British market a much more challenging environment for everyone.”
Warwick Bartlett, CEO, Global Betting and Gaming Consultants
“I think the industry expected that the duty increase would reflect the off course MGD rate at 25% so there was a slight sigh of relief when 21% was announced. However, I expect it will raise between £225m to £250m in a full year. The UK remains a competitive market, so mitigation will not be easy, although it is easier to build margin in casino products as opposed to sports betting. This comes on top of a lot of damaging regulation and compliance that has seen operators having to change their business models to something worse rather than enhancing profitability.”
Simon Davies, Cannaccord Genuity
“There will have been an audible sigh of relief from the Online Gambling industry at the news…considering widespread calls for the changes to be implemented from April, and newspaper articles pointing to a possible 25% RGD rate, it could definitely have been a lot worse.
“Clearly, the political/regulatory scrutiny of the sector is not over, but the share prices had been hit hard ahead of the Budget, and should see a modest relief rally.”
Paul Leyland, analyst, Regulus Partners
“In terms of the rate, the choice of 21% as the new rate for RGD is something of a case of false precision, in our view.
“For the competitive landscape, the bonus benefit to unlicensed operators has been increased slightly and this could see a small (but impossible to measure) increase in leakage to the black market; within licensed operators, the gradual pace of gaming consolidation is likely to be nudged along slightly (making the UK even less attractive to small operators which hope to turn a local profit but which offer limited differentiation – i.e., most licensees).”