Gambling Stocks Plummet in Light of Potential Operator Tax Hike

On Monday, major UK gambling operators saw their shares drop sharply amid reports that the UK Treasury is considering substantial tax increases on online casinos and bookmakers. By 8:40 AM BST, shares of Entain were down 13%, Flutter Entertainment fell by 7.2%, Evoke was down 13%, and Rank Group dropped by 6.7%.

According to The Guardian, Treasury officials are reviewing proposals from two influential thinktanks, backed by one of the Labour Party's top donors, to double taxes on certain gambling activities. These measures could be included in Labour’s first budget in 14 years, as the Chancellor seeks to address a £22bn fiscal shortfall identified upon taking office.

Sources familiar with the discussions indicated that the Treasury is open to revisiting the UK’s complex betting and gaming duties, potentially raising between £900m and £3bn, despite opposition from industry lobbyists. “It’s definitely on the map. There’s no obvious pushback to it,” one source told The Guardian.

One of the proposals under consideration comes from the Institute for Public Policy Research (IPPR), which suggests doubling taxes on “higher harm” products like online casino games. The IPPR estimates that this could generate £2.9bn in 2025, rising to £3.4bn by 2030. The UK currently levies seven types of betting and gaming duties, which raised £3.3bn last year, excluding lottery taxes.

Under the IPPR plan, taxes on “lower harm” activities like the lottery and bingo would remain unchanged, while the 15% general betting duty, applicable to high-street bookmakers’ profits, and the 21% remote gaming duty, imposed on online operators, would see significant increases. The Social Market Foundation (SMF) has proposed a more moderate plan, doubling the remote gaming duty from 21% to 42%, potentially raising £900m.

The Guardian report drew attention from analysts at Berenberg, who noted that while details remain scarce, the proposed tax changes could pose significant challenges for the gambling operators it covers. Using combined UK and Ireland revenue figures, Berenberg estimated the potential impact of various tax scenarios.

In a scenario where the remote gaming duty is raised to 50%, Berenberg projected that Entain’s 2025 EBITDA could drop by 25%, with earnings per share (EPS) plummeting 75%. Flutter’s EBITDA and EPS could decrease by 18% and 27%, respectively, while Evoke could see declines of 42% and 167%. A more moderate 42% tax increase could reduce Entain’s EPS by 56%, Flutter’s by 20%, and Evoke’s by 121%.

Berenberg noted that Evoke would face the most significant financial strain due to its position, while Flutter, thanks to its diversified operations, would be the least affected. Entain, however, would experience a more challenging financial outlook, compounded by its higher levels of leverage.

The bank also highlighted that industry consolidation is likely in response to higher taxes, as operators struggle to maintain margins. Exiting companies could drive market share redistribution, with larger operators like Flutter potentially benefiting in the long term despite short-term challenges.

The potential tax changes underscore the uncertain landscape for the UK’s gambling industry, with operators bracing for possible shifts in regulation and competition in the coming months.