Shares of Ladbrokes (LON:LCL) and William Hill (LON:WMH) have jumped after the gambling commission published its final review into fixed-odds betting terminals (FOBTS). A maximum stake size of £30 is much higher than had been anticipated. It looks like the so-called ‘crack cocaine of gambling’ is still going to be out there on the streets. That’s a good thing for the publicly listed ‘pushers’.
A drop from a £100 to a £30 max stake size is bad news for future gambling company revenues but from the share price perspective, investors have been baking in much worse. Shares of Ladbrokes and William Hill have jumped over five per cent in response to this news because of the direct positive benefit to their bottom line. FOBTs represent a large proportion of revenues. Investors had been spooked after new culture Secretary Matt Hancock had recently indicated that he would prefer a max stake size of £2.
The commission in fact only recommended a max limit of £2 be imposed on slot games, similar to fruit machines.
A recommendation in the upper half of the previously recommended £2 to £50 pound range is a big surprise. And a great result for high street gambling companies like Ladbrokes and William Hill. Symbolically this recommendation show regulators are not on a path to outright ban of fixed odds betting terminals.
The main objective of the government is to stop harm to customers from FOBTs. Harm typically comes from amassing large losses in a short space of time. The report into FOBTs has found that £30 is the level that would stop these huge losses over a short period of time. Smaller losses over a larger period of time are still possible because they have not been deemed to be as harmful.
First impressions suggest this decision represents a good balance between consumer protection and consumer rights. The story is not quite over yet because ministers still need to decide on implementing the recommendations.
Short term, this decision is not such a good result for GVC (LON:GVC) because according to its ‘conditional offer’ it will be paying a higher price for its Ladbrokes Corel takeover. Based on the sliding scale of how to value Ladbrokes Coral under the deal, GVC should now be paying over £3.5bn.
Longer term, GVC are now buying into a much more viable company. Much has been made about the viability of high street stores. The continued availability of fixed odds betting machines with reasonably high stake sizes improves the future viability of the high street betting shops. It’s been a good couple of weeks four GVC, this ruling comes off the back of well received full year results boosted by the acquisition of the Bwin.party in 2015. Looking forward GVC will have both had their online presents and the name recognition of the Ladbrokes Corral high street betting shops.
Disclaimer: The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.