- 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.
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|Primary Credit Analysts:||Omri Stern, London (44) 20-7176-7117;|
|Natalia Arrizabalaga, London + 442071763289;|
|Additional Contact:||Industrial Ratings Europe;|
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