Scale will win in UK, but black market is the real risk says Flutter MD
H2 Capital’s Josh Hodgson set the scene at the SBC Summit in Lisbon last Wednesday, where the backdrop for a panel discussion was the UK’s remote gaming tax, which rose from 21% to 40% on 1 April.
Tier one operators already hold around two-thirds of the UK market, Hodgson said, and that share could climb to as much as 80%. Is this, he asked, the moment when “scale and balance-sheet strength become the decisive factor”?
Richard Clarke, managing director at Flutter-owned brands Paddy Power and Betfair painted a serious picture: “We’re expecting a £500 million impact from next year. That impact has already started to come through this year, so it has to be managed, and we’re working on that.”
He does not want to disclose what his company’s response will be exactly, but looking at how another big operator Entain has reacted, it could be expected to see a restructuring that will result in job cuts.
Tier ones also hit hard
Entain Plc has announced plans to lay off approximately 400 customer care positions across 11 countries, including the UK, Gibraltar, Ireland, and mainland Europe. That represents about 20% of its customer support workforce. This marks the company’s second major workforce reduction, following an earlier round where Entain cut 500 corporate, product, and technology roles.
Entain and Flutter are of course not alone. The aggressive tax hikes have squeezed profit margins across the sector, prompting massive structural shifts and matching job cuts or branch closures from rivals like Evoke and Bet365.
Speaking to iGB after the panel discussion, which also included Andy Wright, MD for UK and Ireland at LeoVegas Group, Clarke said:
“We’re not ready to share any of our plans. I talked on stage earlier about the four dimensions we can optimise around, and we’d like to see that play out over the next few months”.
Small operators will be worse off
Clarke said parts of the UK’s regulatory and tax burden fall more heavily on smaller businesses because “some of those costs don’t scale”.
“We’re a big business, and there are things we can do with one or two million that give us an advantage,” he said. “So I’d agree with the general point that scale matters here, and we’d expect to take market share as a result of the squeeze.”
Asked whether, with Flutter absorbing the gap left by exiting operators, he was in a sense happy about the tax because it has created more room for his company in the market, Clarke responded by pointing to the soaring irregular market in the UK: “Absolutely not. If we end up in a situation where Flutter grows market share while the black market grows faster than the regulated industry, that can’t be something anyone should be happy about. We should be focused on addressing what drives the black market.”
Tipping point
Clarke said Flutter’s stance on regulation had not changed. “We’re big supporters of well-thought-out, proportionate regulation,” he said. “The risk at the moment, and it’s more of a risk than a tax concern, is that the balance starts to tip in favour of the black market.”
Flutter has 550 people working full-time on safer gambling. Clarke described the group’s strategy as “holding up a mirror to the lack of protection in the black market”.
On Financial Risk Assessments, which are expected to be implemented shortly, he said operators must work closely with the Gambling Commission to make the checks work for customers. “But the jury’s still out until we get through the next phase.”
What needs to change
“The actual consumer experience of being a black-market customer is horrific,” Clarke said.
Research commissioned by Flutter UK&I last year, first reported by the Racing Post, shows what he means.
Alex Wood, a convicted fraudster turned counter-fraud adviser and co-host of BBC Radio 4’s Scam Secrets, spent two weeks testing unlicensed sites. He needed no VPN, finding them through app stores, social media and search engines, often advertised as outside the GamStop self-exclusion scheme.
With Curaçao-based GodOdds, for example, Wood opened an account as a 213-year-old Charles Dickens and placed a £50 bet on a horse at Lingfield. A second account, registered to a seven-year-old “Bo Peep”, was used for a £50 basketball bet. He lost hundreds of pounds in minutes but struggled to withdraw.
He urged the Gambling Commission to do more, and called on the Financial Conduct Authority to target payment providers that make UK black-market gambling possible.
Clarke set out three conditions for the regulated market to keep winning: the industry must keep improving customer protection, regulation must be proportionate, and there must be real progress against unlicensed operators.
He said recent conversations with the Gambling Commission marked “a different tone from the past”.
The regulator was earlier int he year awarded a £26 million grant to fight the growing threat of illegal gambling.