Shares in bookmakers William Hill plc (LON:WMH) and Ladbrokes Coral Group PLC (LON:LCL) plunged today following reports the government plans to cut the maximum stake on fixed odds betting terminals to just £2.
Culture secretary Matt Hancock is expected to announce this week that the government will impose the lowest maximum bet proposed in a review into the gambling industry.
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The government has recommended lowering the maximum pun on FOBTs from £100 to between £2 and £50. It had kicked off a 12-week consultation into the sector, which ends on Tuesday.
“If maximum stakes are cut to £2 it would be a negative surprise for retail exposed UK gambling companies,” said Barclays Capital.
“This scenario is not factored into the share prices of retail exposed bookmakers in our view. We think shares of William Hill will likely come under the most pressure tomorrow.”
In late afternoon trading,William Hill were down 12.3% to 294.9p, while Ladbrokes fell 9.2% to 165.65p.
Ladbrokes CEO says stake cuts will fail to address problem gambling
In response to the speculation, Ladbrokes chief executive Jim Mullens noted that there has been constant rumour about potential outcomes of the triennial review since it began.
“It should be noted that the current call for evidence is yet to conclude and industry responses have not yet been submitted to government,” he said.
Mullens added: "We are very clear that stake cuts will fail to adequately address any issue of problem gambling.
“The industry has also always made it clear that a cut to stakes will have serious consequences - resulting in shop closures which will ultimately affect jobs, tax revenue and the funding of racing.”
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Impact on Ladbrokes and William Hill earnings
The two companies are expected to take the biggest hit among the UK's top bookmakers.
Analysts at Credit Suisse expect William Hill and Ladbrokes earnings would be slashed by 40% and 50%, respectively, in the worst-case £2 scenario.
Credit Suisse also sees around 1,000 betting shops being closed on the back of the reform.
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