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Big revenue drops predicted by big three bookmakers from imposition of worst case scenario stake limit

Paddy Power Betfair PLC estimated that the direct, pre-mitigation, impact of this new stake limit would be a 33% to 43% decrease in its total machine gaming revenue.
Gaming machines
William Hill PLC estimated that the annualised impact could be a reduction in total gaming net revenue of 35-45%

The UK’s three biggest-listed bookmakers all saw their shares fell on Wednesday as they predicted big revenue drops from the proposal by the UK government to implement a new stake limit for gaming machines of £2, which was the worst case scenario expected by the industry.

In its reaction statement, FTSE 100-listed Paddy Power Betfair plc (LON:PBT) estimated that the direct, pre-mitigation, impact of this new stake limit would be a 33% to 43% decrease in its total machine gaming revenue.

READ: Bookies to suffer as UK government confirms cut in maximum stake on FOBTs to worst case scenario of £2

The Irish group said, in 2017, this would have equated to a £35mln to £46m revenue impact, representing 2.0% to 2.6% of Group revenue.

Meanwhile, FTSE 250-listed rival William Hill plc (LON:WMH) estimated that the annualised impact of a £2 staking limit could be a reduction in total gaming net revenue of 35-45%.

William Hill warned that, at this point, preliminary estimates suggest that the stake limit could result in around 900 of its shops – circa 38% of ts existing retail estate - becoming loss-making.

The bookmaker added: “A proportion of these would be at risk of being closed within a relatively short time of the proposed staking change being implemented and, for the remainder of the estate, we will monitor the actual impact on the estate and performance over the medium and long term.”

The group said it currently estimates that this could reduce William Hill Retail's annualised adjusted operating profit, following mitigation measures by around £70mln-100mln.

Notwithstanding this change, William Hill said its current intention is to retain its existing dividend policy to pay out approximately 50% of underlying earnings.

Certainty welcomed

And fellow FTSE 250-listed firm GVC Holdings PLC (LON:GVC) – which recently completed the takeover of merger betting shops chain Ladbrokes Coral – said it anticipates a fully mitigated impact of around £120mln on group underlying earnings (EBITDA) within two years of implementation.

It added that in the first full year the impact on group EBITDA is anticipated to be in the region of £160mln.

The firm said its offer for Ladbrokes Coral envisaged the possibility of a £2 maximum stake and added that today's announcement has no impact on the minimum targeted synergies of at least £100mln per annum.

GVC said: “Whilst we welcome the certainty provided by the announcement, we are disappointed with the outcome, particularly given the previous independent evidence on stake cuts published by both the Gambling Commission and the Responsible Gambling Strategy Board.”

The firm added: “It is now important that the industry is given an adequate implementation period to help prepare and plan for the shop closures that will arise, including attempting to mitigate the impact of resultant job losses. Significant re-engineering of the machines and gaming software will also be required to effect these changes.”

Tough challenge

William Hill’s chief executive officer, Philip Bowcock, commented: “The Government has handed us a tough challenge today and it will take some time for the full impact to be understood, for our business, the wider high street and key partners like horseracing.”

And Peter Jackson, Paddy Power Betfair's CEO, said: "We have previously highlighted our concern that the wider gambling industry has suffered reputational damage as a result of the widespread unease over stake limits on gaming machines.

“We welcome, therefore, the significant intervention by the Government today, and believe this is a positive development for the long-term sustainability of the industry."

Shares all three firms fell back in early morning trading, with Paddy Power Betfair down 1.3% at 8,.140p, William Hill losing 1.4% at 313.1p, and GVC shedding 2.4% at 893.5p.

Bookmakers got a boost earlier this week after a US Supreme Court decision to sanction the lifting of the ban on sports betting in the country.

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