Divided they fall: Is the sector presenting the right argument against MGD hike threats?

The UK’s high-street gambling businesses face a question that extends beyond how much additional tax they can afford: can they defend their future without arguing that somebody else’s premises should bear the pain?

With a possible doubling in machine games duty (MGD) to 40% hanging over the sector, the temptation to distinguish deserving bookmakers from supposedly less deserving adult gaming centres (AGCs) is perhaps understandable.

But Nick Rust, the former British Horseracing Authority chief executive and betting industry executive, doubts that turning those differences into a public argument helps either side.

“I don’t think the public really differentiates between locations on the high street where you can play machines,” he says.

“Whenever you start attacking a subsector within your own industry, you have to think about what that looks like. Whataboutery isn’t going to help anyone.”

The economics of extinction

Warnings about a doubling of MGD abound. Regulus Partners estimates that doubling MGD from 20% to 40% could ultimately leave around 1,500 betting shops operating, with approximately 4,000 closures costing 28,000 jobs and depriving racing of £92 million.

According to Regulus’ model, an average shop generates approximately £440,000 annually, divided broadly equally between betting and gaming machines. After staffing, taxes, rent, racing payments and other costs, its annual net cash contribution is around £44,000.

A doubling of MGD would add roughly £45,000 to the average shop’s costs, eliminating that contribution.

The damage would unfold through lease and refurbishment cycles as well as immediate closures. Regulus also forecasts that betting-shop MGD receipts would fall by around 32%, to £155 million, undermining the presumed revenue-raising purpose.

Rust considers the threat credible. “The 1,500 number rings true to me,” he says. “This isn’t crying wolf now.”

He does not accept every previous industry warning at face value. He believes bookmakers retained machine revenue after the fixed-odds betting terminal reforms more successfully than their rhetoric suggested.

“The industry was perhaps crying wolf at that time, which is why I would say the impact was slightly over-egged.”

Today, his emphasis is on accumulated operating pressures: “I think the damage has been done by general costs, media rights costs and National Insurance rises.”

It isn’t just the bookmakers who are making the case against the doubling of MGD. The Bingo Association CEO Nicole Barrett went on the BBC’s Breakfast News late last week to point out that thousands of bingo jobs would be under threat. 

“Machines are an important secondary income for bingo clubs,” she said. “It’s just another tax increase that could undermine that.” Buzz Bingo CEO Dominic Mansour told BBC Five Live. He said even a 5% increase in MGD would make a third of his business’ clubs unviable. “It would be really, really tough for us,” he added.

Whose machines matter?

Writing in The Racing Post, consultant Vaughan Lewis, formerly of Evoke and now founder of Teise Advisory, sees the tax threat via the lens of racing’s dependence on bookmakers.

His argument is that machine income sustains shops which pay levy and media rights fees. AGCs do not make those racing payments and may be better placed to accommodate machine customers displaced by betting-shop closures. His column consequently warns that higher duty could strengthen arcades while weakening racing’s retail distribution.

But an industry consultant, speaking anonymously, questions the distinction between venues offering the same machines. “On principle, category B machines are either OK or not OK. You can’t separate between an AGC and a betting shop which are offering the same product.”

The consultant argues that “the setting is not that relevant to player safety”, adding: “So, then it becomes a matter of taste.”

The consultant also disputes the assumption that arcades could absorb the increase: “The idea that AGCs are going to be OK with 40% MGD is wrong – they have a bigger problem, not less.”

Regulus’ betting-shop model does not provide an equivalent forecast for AGCs. But potential gains from displaced customers should not be confused with immunity from higher duty.

More fundamentally, the consultant suggests bookmakers risk conceding the Treasury’s argument.

“If betting uses the argument that arcades can withstand this, then that is saying raise the tax. If a tax rise isn’t a problem for AGCs, then your argument has been lost.

“It sounds like special interest pleading and not a real argument.”

Rust advocates an even-handed approach. He recalls the divisions during the FOBT controversy, when, in his account, amusement industry trade body BACTA attacked bookmakers.

“At the time of the FOBT debate, BACTA attacked betting shops, and that didn’t help them.”

Reversing the direction of attack now offers little obvious improvement.

“Will attacking another part of the industry have an impact on the public? No.”

More than a racing cheque

Rust’s concerns also extend beyond racing’s finances. He visits betting shops locally and can envisage his town losing its remaining outlet.

“There used to be two shops, now it is down to one and I can see this becoming a town with no betting shops.”

He fears the loss of another meeting place as other high-street institutions retreat.

“Pubs are closing as well. Where are these people going to meet, and what are they going to do?”

He also warns about customers losing access to licensed environments and the possibility of existing illegal gambling in pubs and clubs resurfacing.

This is a question that the anti-gambling lobby would prefer not to answer, namely that somehow closing a licensed premises makes demand disappear.

But racing has its own uncomfortable questions to answer. Rust argues that it has relied excessively on betting income while failing to develop other sources of demand.

“Racing has remained drunk on the revenues from betting without thinking about what might happen in the future,” he says.

The stronger shared argument concerns what higher duty would actually achieve: the receipts it would generate, the businesses it would close and where customers would go afterwards.

Bookmakers and AGCs need not pretend their interests are identical. But telling government that another licensed sector can afford the tax risks weakening the argument that the increase itself is counterproductive.

Fighting over who deserves to survive could leave the entire gambling high street with a weaker defence.