The UK Government has announced plans to introduce a £2 maximum stake on Fixed Odds Betting Terminals located in High Street betting offices. If the limit is imposed, there will be a significant reduction in tax revenues that will be addressed by increasing the Remote Gambling Duty paid by online operators.
In the UK, there are multiple classes of gambling machines or Fixed Odds Betting Terminals (FOBTs). The most common can be found in casinos (B1), in High Street betting offices (B2), and in games arcades (B3). Each class has its own stake and payout limits, and for many years campaigners have been arguing that the upper stake limit for class B2 FOBTs (£100) is too high and can result in vulnerable gamblers losing too much in one session. By comparison, the upper stake limit for B1 casino FOBTs is just £5.00.
Last Thursday, the UK´s Minister for Sport and Civil Society – Tracey Crouch – announced the maximum stake limit for B2 FOBTs would be reduced to £2 “to help stop extreme losses by those who can least afford it.” To prevent vulnerable gamblers simply moving from High Street FOBTs to online casinos, the Minister also announced plans that will force online operators to implement spending limits on customers until affordability checks had been conducted.
The Financial Implications of the FOBT Limit
According to the UK´s Department for Digital, Culture, Media and Sport (DCMS), the reduction to a £2 maximum stake will cost the bookmaking industry £639 million per year in lost profits. The Stock Market reacted by slashing the share prices of High Street betting office operators such as William Hill, Paddy Power/Betfair, and GVC – the owners of Ladbrokes and Corals. The share price of 888 Holdings also tumbled despite the company not having a High Street presence in the UK.
The reason for 888 Holdings´ share price tumbling is because the UK Government charges 25% tax on profits from FOBTs. If the DCMS has correctly calculated how much the bookmaking industry will lose in profits each year, this means the UK Government will lose ~£160 million in tax revenues. The UK Government plans to recover this shortfall by increasing the Remote Gambling Duty paid by UK-licensed online operators, which currently stands at 15% on Gross Gaming Revenues.
The increase in Remote Gambling Duty will leave less money for UK-licensed online operators to offer promotions and rewards. Online poker players in the UK already pay a higher % of rake for lower rewards, and this situation is likely to get worse depending on how online operators choose to address their loss of income from High Street FOBTs and increased tax burden. We anticipate they will act in unison, despite PokerStars and 888 Poker not experiencing a loss of FOBT income.
There could be Further Tax Increases in the Pipeline
The proposed increase in Remote Gambling Duty is not the only tax increase UK-licensed online operators could soon face. Last September, the Gambling Commission revealed a 30% increase in the number of UK gamblers with a “serious gambling habit” and estimated there were a further two million more “at risk of addiction”. This prompted discussions about a new tax on the gaming industry to fund problem gambling treatment – an issue that reportedly costs the UK Government £1.2 billion per year.
Although online operators will not necessarily have to fund the full cost of problem gambling treatment, other proposed measures designed to reduce the appeal of gambling are likely to be introduced. These will undoubtedly include restrictions on advertising and tighter controls on how online operators manage the accounts of “at risk” gamblers, but could also include the elimination of first deposit bonuses and VIP loyalty programs that could be interpreted as an incentive to encourage gambling.
Unfortunately, it looks as if responsible online poker players will suffer as a result of High Street bookmakers allowing problem gambling on their premises to get out of hand and online operators failing to comply with their responsible gambling obligations. Hopefully future changes to the Remote Gambling Duty will see online poker taxed at a different rate to other online activities (similar to the system being implemented in Pennsylvania) but, at present, it appears the focus of the UK government is on preventing problem gambling at all costs – regardless of the cost to online poker players.