The UK gambling industry is adapting to the recent Remote Gambling Duty increase, focusing on restructuring and mergers and acquisitions. Operators are assessing their cost structures and exploring new markets for growth. Amid margin pressures, the overall sentiment remains one of resilience and optimism.
As the UK gambling sector grapples with the implications of the April Remote Gambling Duty (RGD) increase, operators are reassessing their strategies and cost structures. Despite the challenges posed by the tax hike, the overall sentiment within the industry is characterized by resilience and optimism, according to insights from industry experts.
During discussions at the recent M&A Summit, BDO corporate finance director Ollie Woodward emphasized the need for operators to focus on the sustainability of their player bases. This comes at a time when many companies are forced to reconsider their operational costs in light of the new tax regulations.
Entain, a prominent player in the sector, recently announced a major restructuring plan that could result in the elimination of up to 500 jobs worldwide. Although the company clarified that this move is not a direct reaction to the RGD increase, it underscores the shifting landscape in which operators must navigate.
In contrast, Bally’s Intralot has taken a more opportunistic approach, viewing the tax increase as a chance to expand. The company recently acquired Evoke, which has been struggling under the weight of the new tax framework. Bally’s Intralot CEO Robeson Reeves noted that this acquisition aligns with their broader strategy for European expansion.
Woodward highlighted that conversations with clients have shifted towards examining their cost structures and determining how to optimize them effectively. Many operators recognize that staying competitive during this challenging period may present opportunities to capitalize on the vulnerabilities of smaller players who may not withstand the tax changes.
He pointed out that the tax increase has coincided with a critical juncture where many businesses were already evaluating their costs through the lens of technological advancements. Larger operators are particularly focused on reassessing their workforce and technological investments to find margin benefits.
Currently, BDO’s M&A team is engaged with several UK gambling businesses involved in significant transactional processes across both online and land-based sectors, as well as the online supplier side. Some operators are even exploring new markets, such as Canada, particularly in regions like Alberta, where online gambling is becoming more accessible.
Understanding the evolution of player cohorts has become a priority for operators in the wake of the RGD hike. Woodward noted that operators are closely analyzing return-to-player (RTP) rates, marketing strategies, and expenditure. Ultimately, the focus remains on ensuring the sustainability of earnings and maintaining a robust player base.
While the RGD increase has certainly put pressure on margins, Woodward reports a prevailing sense of resilience and bullishness among clients as they seek ways to mitigate these impacts.
At the M&A Summit, Woodward underscored the growing importance of differentiating between regulated and unregulated revenues in today’s deal-making environment. From a seller’s perspective, accurately reporting unregulated revenue is vital, as buyers are increasingly drawn to highly regulated operations.
Major industry players like Bet365 and Yolo Group have recently taken steps to exit or reduce their exposure to unregulated markets, further emphasizing this trend. Woodward explained that during due diligence processes, companies often face the challenge of distinguishing their unregulated revenue streams, raising questions about the legality and structure of those operations.
“The ability to ring-fence these operations is crucial when considering a sale or carve-out,” he stated. He also noted that many businesses do not currently track their KPIs to a level that allows for easy separation of these revenue streams, complicating the assessment of their value.
In the current M&A landscape, Woodward acknowledged that regulated revenues are increasingly seen as more desirable. They are easier to exit and often command higher valuation multiples. Many major operators are now aiming for 90% or more of their revenues to come from regulated sources, highlighting a significant shift within the industry.
From a reputational standpoint, companies with historical unregulated revenues are not automatically disqualified from potential deals. Instead, the context of those activities matters greatly. For instance, operators that transitioned from grey markets to formal licensing once regulations took effect may be viewed more favorably than those engaged in outright illegal operations.
“People want to understand the management decisions made at that time and how companies adapted once the markets became regulated,” Woodward concluded.
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