Rank to bear brunt of potential UK MGD increase, Deutsche Bank says

The UK government’s planned increase to the Machine Gaming Duty (MGD) may weigh heavily on some operators more than others, according to a new analysis from Deutsche Bank.

A potential MGD rise was first reported in The Financial Times, as Chancellor John Healey is allegedly looking to raise the tax, on the recommendation of the Social Market Foundation, which proposed the increase in a recent report. 

Deutsche Bank’s analysis utilised Gambling Commission data, revealing a GGY of approximately £2.7 billion ($3.5 billion) for gaming machines industry-wide. Category B machines account for the majority of this figure. 

Rank at risk

Deutsche Bank identified three major publicly traded operators to illustrate the potential impact.

As the operator with the most extensive retail presence, Rank Group would face the greatest challenge according to Deutsche.

The bank estimated an increased duty cost of around £35 million per year, equating to roughly 44% of the company’s forecasted 2028 EBIT and approximately 17% of EBITDA in the nearer term, even after partial mitigation. 

Prior to mitigation, Deutsche Bank estimated the doubling of MGD to 40% would increase costs to approximately 24% of EBITDA.

Rank’s plan to escalate earnings through machine deployment in venues, aiming for a £100 million EBIT target, would be jeopardised. 

The company has already publicly stated that many venues could become “unviable”, signalling potential job losses.

The bank reiterated its ‘hold’ rating for Rank in light of these conditions, having downgraded the operator from ‘buy’ in January this year.

iGB has reached out to Rank for comment.

Will Entain remain?

Entain would incur an estimated £100 million in extra annual costs before mitigation. This was confirmed in a letter addressed to Prime Minister Andy Burnham earlier this month. Entain also warned that a sharp rise in MGD could prompt customers to migrate out of the regulated market, estimating that up to £1 billion in gambling stakes could shift to the black market. 

The extra annual costs represent about 10% of Entain’s projected FY27 EBITDA and 20% of its FY28 free cash flow goal.

Deutsche Bank noted Entain’s shares are trading near multi-year lows, suggesting the market has partly priced in these risks. 

The company has warned of operational impacts, including staff reductions within its UK operations. Entain already confirmed around 400 customer care roles within its 2,000-strong UK team would be lost following a consultation process. 

Despite this, Deutsche issued a “buy” rating as it remains “supportive of the longer term investment case which includes strong UK online growth momentum, exposure to the US iGaming market through the BetMGM JV, the continued optimisation of its portfolio (including the sell-down of its Entain CEE stake) and the inflection point for FCF generation in 2028”. 

Flutter won’t flutter

With its market value largely tied to the US business FanDuel, Flutter stands as the least affected by the MGD increase out of the three operators. 

The bank estimated the additional duty would add less than $20 million to Flutter’s cost base for its UK retail shops, amounting to under 1% of group EBITDA , rendering the impact minimal for the company’s broader earnings profile.

Land-based hit harder

Deutsche Bank expects that mitigating the tax rise will be considerably more challenging for physical retail operations than for online gambling businesses.

According to the bank, online operators have managed to offset about half of recent online tax increases through strategies such as reducing promotional offers (e.g., fewer and smaller free bets), cutting marketing expenditure, streamlining workforce numbers and achieving supplier efficiencies, while still aiming to expand market share.

Conversely, retail shops face a higher fixed-cost structure involving rent, staffing and overheads. Reducing marketing or shifting customers online is not a straightforward solution, as revenue from gaming machines is inherently tied to physical premises.

Given these factors, Deutsche Bank forecasted a baseline mitigation rate of roughly 30% of the gross cost increase, primarily through the closure of loss-making or marginally profitable shops.

However, even after closures, the net profit impact is expected to remain substantial for those with large retail machine estates.

Domino effect

A string of operators have pulled away from the UK retail landscape in recent months. Betfred has already shuttered 132 outlets this year, following last year’s RGD increase. 

Its CEO Fred Done cautioned that additional tax hikes could result in widespread betting shop closures, harm related sectors such as horse racing and accelerate the decline of the high street. 

Evoke also closed 200 of its William Hill stores in April of this year for the same reason.