Regulus finds MGD hike puts £92 million of horse racing income at risk

The UK government risks exacerbating the decline of British high streets and losing significant tax revenue if it proceeds with plans to double the Machine Games Duty (MGD), according to analysis by consultancy firm Regulus Partners.

The firm also predicted that the horse racing industry would face a loss of around a third of its annual revenue – £92 million ($121.6 million) – should the duty rise. 

Friday’s warnings come ahead of Chancellor John Healey’s forthcoming autumn budget, which is scheduled for later this month.

Tax rise adds nearly £45,000 in costs per shop

Regulus reported that increasing MGD to 40% would make many betting shops financially unviable. 

The analysis estimated as many as 4,000 betting shops could close within three years if no mitigating measures are implemented. This would reduce the nationwide estate to just 1,500 shops, which would be approximately a quarter of today’s total.

Regulus pointed out that betting shops currently generate average annual revenues of about £440,000 each, sourced equally from category B gaming machines and betting activities. 

The financial breakdown highlighted that around 30% of revenue is spent on staff (supporting approximately 35,000 full-time equivalent jobs). Approximately 20% is paid to the government in duties and VAT and rent while business rates consume 7%-10% of revenues. Around 6% supports British horse racing through media rights and a statutory levy.

An increase in MGD to 40% is projected to add roughly £45,000 in costs per shop annually, eradicating free cash flow and triggering closures. The consultancy forecast approximately 1,500 shops would immediately become loss-making and be forced to close.

An additional 1,000 shops could become loss-making within two years amid flat revenues and rising fixed costs.

Limited revenue redistribution

Regulus cautioned that shop closures would not simply redistribute customers to remaining locations.

Today’s market operates with limited spare capacity and a customer base less inclined to switch shops. Since 2014, horse racing revenues linked to betting shops have “effectively flatlined” growing only 0.7% annually, while revenue per shop rose a modest 1.8% per year. Both these figures trail inflation. 

Therefore, revenue that is lost due to shop closures is likely to be permanently lost.

‘We strongly urge the government to consider the impact’

This potential loss has prompted a strong reaction from the British Horseracing Authority (BHA). The regulator’s statement describes the modelling results as a “stark warning” to the industry and the government. 

Regulus estimated that doubling MGD would cost horse racing about £92 million annually. This would equate to around one-third of its betting-derived income and would threaten critical investments in funding and research.

“We strongly urge the government to seriously consider the secondary impact on horse racing of a tax hike on betting shops, and also urgently explore measures to ensure that British racing – and the 85,000 jobs it supports – is put on a long-term and sustainable financial footing,” said Greg Swift, the BHA’s director of communications and corporate affairst. 

Questioning the government’s revenue projections

Both Regulus and the BHA challenge the Treasury’s assumption that doubling MGD would increase tax receipts. 

Regulus forecast a potential 32% decline in MGD revenues to approximately £155 million if predicted closures materialise.

The consultancy additionally estimated around 28,000 job losses across the wider economy, with related supplier and local trade impacts potentially reaching £500 million annually.

More and more pushback

Regulus’ blog joins a string of pushback from the industry towards the proposed MGD hike. Recent analysis from Deutsche Bank found that the operator Rank Group would face the greatest challenge if MGD rose, due to its extensive land-based footprint.

The bank estimated an increased duty cost of around £35 million per year, equating to roughly 44% of the company’s forecasted 2028 EBITA 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.

Entain CEO Stella David 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.

David further emphasised the impact such a tax rise would have on high street workers and communities.

“They are people losing their jobs and communities losing long-established high street businesses,” David wrote.

Betfred owner Fred Done said the MGD hike would lead Betfred to close 495 of its shops within a year, resulting in the loss of 2,575 jobs and roughly £67 million in foregone tax revenue.