Gloom and speculation in UK market as industry reacts to Flutter restructure

Darkening autumnal skies in the UK seem to be mirroring the mood on the ground in Britain’s gambling sector as the industry mulls over Flutter’s major UK & Ireland restructuring plans.

Flutter announced this week it would be cutting up to 1,400 roles across its UK&I division, spanning Leeds, Dublin and offshore hubs in Porto and Cluj-Napoca.

Leadership placed the blame squarely at the feet of the UK exchequer after major hikes to remote gambling taxes that the NYSE-listed company says will cost it $540 million in adjusted EBITDA next year.

UK&I CEO Kevin Harrington said the business “cannot fully absorb a rise of this magnitude” without reducing its fixed cost base, claiming the “dramatic level” of the planned layoffs is a direct consequence of the hikes.

Cuts to be expected

The industry has met the announcement with little surprise. After all, rival operators Evoke, Bet365 and Betfred have also made job cuts and store closures since the rise, albeit not to the same extent. More is to come, QMH Advisory founder Steve Donoughue tells iGB.

“Unfortunately the redundancies coming from Flutter will not be the last. This industry will be decimated, thousands out of work, little tax revenue from gambling… all because we have an ideological puritanical crusade based on bad science and faulty data.”

Donoughue paints quite the extreme picture, but reasons for pessimism abound. Britain’s unprecedented remote gaming tax hike – which has only partially come into effect – comes amid intense speculation over a separate touted hike to Machine Game Duty (paid on physical slot machines in the UK) in Britain’s upcoming budget. MPs and think tanks have suggested this could be doubled from 20% to 40%, although The Times has reported a smaller rise to 25% is now being considered instead.

BGC warns against further tax raids

Grainne Hurst, chief executive of the Betting and Gaming Council, says the warning signs of Flutter’s restructuring could not have been clearer and ministers must recognise the damage already being done to Britain’s regulated sector.

In a statement sent to iGB, Hurst used the news as an opportunity to warn policymakers against additional tax raids. “Any further tax increase would heap more pressure on an industry already facing substantial tax rises, threatening jobs, high streets and vital funding for British racing,” Hurst says.

“These are not hypothetical warnings. We have already seen betting shop closures at Betfred, further job cuts proposed by Entain and Bet365, and Flutter’s announcement this week that up to 1,400 jobs could be lost.”

The controversial rollout of Financial Risk Assessments (FRAs), and the government’s decision to overturn the “aim to permit” principle to grant councils more power to deny new gambling premises, have added to a sense that the domestic market’s horizon is looking grim.

More than just tax?

While it may not have come as a surprise, the scale of the redundancies have caught some by surprise. H2 Gambling Capital managing director Ed Birkin tells iGB the potential redundancy figure is higher than he was expecting.

But some in the industry have questioned whether the full extent of Flutter’s role restructuring can be attributed to tax rises alone. Alun Bowden, SVP of strategic insight at advisory Eilers & Krejcik Gaming, argued on LinkedIn that while tax increases were the “big driver”, there are likely other factors at play.

“We’ve also seen generally the industry contracting both in terms of growth and the number of operators, with several mergers and acquisitions over the past few years,” Bowden noted.

“Most of this M&A was supposed to generate efficiency savings and a lot of this is always a reduction in headcount.”

Consolidation on the cards

There are nods to consolidation in Flutter’s press release. Despite the restructure and its $80-$90 million associated cost, UK&I CEO Harrington nonetheless claimed Flutter was “well placed to benefit from share gains given our position as the largest scale operator in the UK.”

Ollie Woodward, corporate finance director at business advisory firm BDO, similarly argues that UK operators have used the remote duty hikes as a broader opportunity to reevaluate their cost bases and consider M&A opportunities.

“I would say some of the larger, more established players are really looking at their people, their technology and saying, ‘How do we evolve this, right-size this? There must be a margin benefit there’, he tells iGB.

“Many of our clients and operators feel that if they can stay strong in this period, there will be market opportunities with some smaller players not being able to effectively live with these tax changes,” he says.

Woodward also notes that the automation of roles with AI could have been relevant in motivating the extent of Flutter’s restructuring, alongside margin pressures from the tax hike.

“Operators are rolling out AI efficiencies across different areas of the business, from coding right through to customer support and CRM. This is having a direct impact on the shapes of those teams,” he tells iGB.

Challengers put agility to the test

But Flutter’s plans may not just be about saving money. The ascendancy of high-growth challenger brands in the UK such as Midnite and Mr Q show there is room for innovation, which inflexible market behemoths like Flutter may see as a threat.

“[Britain] is a market without any meaningful growth in a long time and no sign of much in future,” Bowden continued in his LinkedIn post.

“[But] it is still a very very large market, where there are huge opportunities for businesses that can adapt to new conditions but is that easier as a tier 2 firm or an historic tier 1 with huge overheads and limited agility?

“The challenge then for tier 1 firms is to reduce overheads and become agile. I just hope that they don’t just focus on the first one.”

A new normal?

The impact of the Flutter restructure will reverberate across the UK sector as employees come to grips with job losses and the business adapts to a significant shrink in capacity.

Time will tell if this is an anomaly or there is more to come as UK players small and large settle into a gloomy new normal.