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NEWS

U.K. Gaming Operators Ratings Under Pressure As Stakes For Betting Terminals Plunge


U.K. Gaming Operators Ratings Under Pressure As Stakes For Betting Terminals Plunge



KEY TAKEAWAYS
  • On May 17, 2018, the U.K. government announced its decision to reduce the maximum stakes on fixed-odds betting terminals to £2 from £100.
  • The change will affect one of the main sources of revenues for the U.K.'s biggest retail gaming operators.
  • As more information on how operators will react emerges, we plan to review how this change could affect our ratings.
LONDON (S&P Global Ratings) May 17, 2018--The U.K. government has been 
reviewing possible options for limiting the maximum stake on fixed-odds 
betting terminals (FOBT) to £50, £30, £20, or £2, from the current £100. 
Today, the government announced its final decision: to limit bets to just £2. 
This is expected to have a considerable impact on operators' revenues. The B2 
gaming machines that are affected by this decision are one of the main sources 
of revenues for the largest retail gaming operators in the U.K. The change is 
unlikely to be implemented before 2019.  

In the coming weeks, we plan to review the effect of this decision on the 
business and financial profiles of rated land-based operators in the U.K., 
after reviewing the operators' strategic responses to this decision. 
Specifically, we plan to review our forecast earnings and profitability for 
companies including William Hill PLC (BB+/Watch Neg/--) and GVC Holdings PLC 
(BB/Positive/--). 

We placed our 'BB+' rating on William Hill on CreditWatch with negative 
implications on Nov. 3, 2017, based on our view that limiting stakes to £2 
would hit the group's financial performance. 

William Hill expects the £2 limit to cut its annual total gaming net revenue 
by 35%-45% and cause a fall in its annualized adjusted operating profit for 
the retail division of about £70 million-£100 million, even after mitigation 
measures. Such a deterioration in the company's profitability could weaken 
credit metrics and might trigger a downgrade. We will assess the impact and 
the company's mitigating measures further as more details emerge.

We raised our long-term issuer credit rating on GVC Holdings to 'BB' on April 
19, 2018, when it completed its acquisition of Ladbrokes Coral Group. The 
positive outlook depends on the group maintaining its S&P Global 
Ratings-adjusted debt to EBITDA ratio well below 4.0x, even after the effect 
of the triennial review. 

The group announced that it estimates that implementing the £2 limit will cut 
group EBITDA by £160 million in the first full year. That said, the Ladbrokes 
Coral acquisition incorporated a contingent value rights mechanism, which we 
anticipate will mitigate the effect of the £2 limit, reducing debt and 
supporting leverage. We will assess the effect of the government's decision on 
our rating when it becomes clear whether cost-cutting initiatives such as shop 
closures and staff rationalization will enable the company to maintain its 
metrics at a level consistent with the current rating.

The U.K. Gambling Commission also decided that the loss of tax income 
resulting from the stake limitation on FOBTs will be mitigated through an 
increase in remote gaming duty (RGD) paid by online gaming operators. This is 
"to cover any negative impact on the public finances, and to protect funding 
for vital public services." Although an increase in RGD could erode the 
financial performance of online gaming operators in the U.K., the details and 
timing are still unclear. Until we have more information about the extent and 
timing of the increases in duty, we cannot quantify their impact.


RELATED RESEARCH

  • Online Gaming Operator GVC Upgraded To 'BB' From 'BB-' On Ladbrokes Coral Acquisition; Outlook Positive, April 19, 2018
  • U.K.-Based Gaming Operator William Hill 'BB+' Rating Placed On Watch Negative On Suggested Change In Regulation, Nov. 3, 2017
Only a rating committee may determine a rating action and this report does not 
constitute a rating action. 
S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's 
leading provider of independent credit risk research. We publish more than a 
million credit ratings on debt issued by sovereign, municipal, corporate and 
financial sector entities. With over 1,400 credit analysts in 26 countries, 
and more than 150 years' experience of assessing credit risk, we offer a 
unique combination of global coverage and local insight. Our research and 
opinions about relative credit risk provide market participants with 
information that helps to support the growth of transparent, liquid debt 
markets worldwide.
Primary Credit Analysts:Omri Stern, London (44) 20-7176-7117;
omri.stern@spglobal.com
Natalia Arrizabalaga, London + 442071763289;
Natalia.Arrizabalaga@spglobal.com
Additional Contact:Industrial Ratings Europe;
Corporate_Admin_London@spglobal.com

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