A series of gambling regulatory reforms put forward by a House of Lords group could reduce industry profits by as much as £974m – but lead to a significant uptick in tax revenue and funding for research, education and treatment.
The costings were set out in a report compiled for Peers for Gambling Reform, carried out by Nera Economic Consulting. It estimated that the fiscal impact of the reforms set out in the group’s July 2020 report, Gambling Harm – Time for Action, would impact industry profits by between £696m and £974m annually.
The report notes that post-tax profits for the largest operators – Entain, Flutter, Bet365, William Hill and National Lottery operator Camelot alone total £697m, at the bottom end of the estimated impact.
The 2020 report urged a root-and-branch overhaul of British gambling regulation, centring around five core goals.
It called for stake limits for igaming products and a standardisation of play speed across physical and digital products, as well as the introduction of affordability checks to ensure players did not gamble beyond their means.
In addition, it called for a “smart” mandatory levy on the industry to fund research, education and treatment of gambling-related harm, with the most harmful products subject to higher rates. Finally, peers recommended a ban on direct sponsorship of sport by gambling operators, and to classify video game loot boxes as a form of gambling.
The Nera-authored follow-up report looks to quantify the impact of these reforms on the industry.
Impact of stake limits and spin speeds
The report deals first with slot stakes. It assumes that any stake cap would be set at between £5 and £1.
Nera estimates that, based on 2017 analysis of slot stakes, customers wagered £1.38bn on the virtual machines. Should a £5 limit be applied, this would reduce amounts wagered by 14%, to £1.19bn.
A £2 limit, meanwhile, would widen the decline to 23%, reducing stakes to £1.06bn, while a £1 stake cap would take slot spend below £1bn, cutting amounts wagered by 36% to £891m.
However, the report noted, it does not look to quantify any substitution that may occur, such as customers playing for longer, or increasing lower bets to the mandatory limits. Nor does it look to estimate the effects of a spin speed limit. A mandatory 2.5 second limit was set by the Gambling Commission and is due to come into effect in October this year, while Peers for Gambling reform proposed the five second limit.
For table games, however, researchers considered the impact of time limits on table games, namely roulette. By setting a minimum spin duration of 88.6 seconds, players would increase their stake amounts, but bet place fewer stakes per session.
This, Nera said, would reduce amounts wagered by approximately 52%, based on a spin speed of 21 seconds, and as much as 76% if a spin speed of more than one minute was applied.
Impact of affordability checks
For affordability checks, the report analysed the impact of enhanced due diligence in a number of scenarios. It assumed that individuals would be allowed to make deposits of up to £100 – or 10%, 15% or 20% of their monthly disposable income, whichever is greater.
This based the threshold at which affordability checks would be triggered on the Office of National Statistics’ estimated median annual income for the UK of £29,000, and a mean average of £36,900.
This was then extrapolated to balance the number of people falling into, below or above this bracket, with the number of online players in the country who would be subject to the new checks.
It found that based on checks being triggered by people spending more than 20% of their income, gross gaming yield for online casino would be reduced by 32%, or by £1.00bn. The decline was smaller for sports betting, for which revenue was estimated to fall by 22% (£505m).
For checks triggered by spending above 15% of their income, online casino yield would decline 38% (£1.20bn), and online betting 26% (£604m).
The biggest decline would be caused by affordability checks once customers look to spend more than 10% of their income, with casino yield down 45% (£1.44bn), and betting yield declining 31%, by £727m.
A mandatory levy on gambling to fund research, education and treatment (RET), meanwhile, is estimated to be set at 1% of industry profits, or approximately £150m.
According to the Responsible Gambling Strategy Board (RGSB), annual funding “if there was a commitment to making a real difference” in gambling harm would comprise at least £4.5m for research; £12m for education and “significantly more” than the £6m currently spent on treatment.
While optimal funding could be as high as £106.5m, with an effective treatment programme similar to that available for drug and alcohol services costing an estimated £90m. However, the report said that even a scaled-back version would mark a “substantial increase” on the industry’s current RET funding of £19m.
Furthermore, at least £20m would need to support a gambling ombudsman, something else recommended in the Peers for Gambling Reform report. This, however, would help offset the additional costs incurred by the government on individuals that experience gambling-related harm, estimated between £270m and £1.17bn.
Loot boxes as gambling
Further costs would be incurred, however, by the need for the Gambling Commission to take on oversight for loot boxes. This would require the regulator to hire new staff and develops significant expertise, the report noted.
In total it estimated the cost of regulating loot boxes at £20m per year, though this would likely decline if the video game mechanic was not as widely used in console games.
“Similar to the fees that gambling operators pay to cover the Gambling Commission’s costs of regulating gambling, we assume that video game companies with loot box content would be assessed a fee that would cover the Gambling Commission’s costs in regulating loot boxes,” it added.
Sports sponsorship ban
One of the more controversial elements of the Peers’ report was a proposal to ban direct sponsorship of sports by gambling operators.
Nera estimated that front-of-shirt sponsorship deals with gambling businesses tended to be worth double a non-gambling sponsor, while Sky Bet’s sponsorship of the EFL brought in £40m per year. This, it said, meant that the total amount of revenue lost across the EFL Championship, League One and League Two would total £26m – factoring in replacement sponsors – or 2.4% of annual league revenue.
The biggest decline would be for the Championship, which lose around 2.6% – or £21m – of its yearly revenue, compared to £4m for League One and £2m for League Two, in both cases 1.9% of the divisions’ revenue.
The Rugby Football League, which is sponsored by Betfred, could lose between £500,000 and £950,000 of annual revenue.
To offset this, the report suggested introducing fees in exchange for the right to offer betting on the competitions, as well as a better distribution of revenue earned at the highest levels of sport such as the Premier League.
For that top tier, the report noted that only two clubs – recently-relegated Fulham and West Ham United – were sponsored by British bookmakers. Other clubs with gambling sponsors, it said, featured white label businesses on their shirts, which did not target British customers and would therefore be exempt from the ban.
Impact on other entertainment and hospitality sectors
The report goes on to claim that revenue diverted away from gambling would be diverted into other sectors. It assumes that 100% of gross yield no longer going into gambling would instead go to retail trade; food and beverage; creative, arts and entertainment activities, and sports, amusement and recreation.
This, it added, could well be an over-estimate, especially if a player was spending unsustainably on gambling. They may also divert some revenue into other legal – or illegal – gambling activities, Nera noted.
This could then have a knock-on effect on revenue generated by these non-gambling forms of recreation and refreshment, which in turn could increase revenue, employee salaries and taxes, to offset decline in gambling tax revenue.
Nera estimated that this could ultimately lead to the creation of up to 30,000 new jobs and £400m in employee earnings, by diverting spend to more labour-intensive industries.
“This report clearly sets out the economic benefits of reforming the gambling industry with tax revenues looking set to increase, jobs that could be created and a boost to funding for research, education and treatment,” Peers for Gambling Reform chair Lord Foster of Bath commented. “The evidence base and now the economic case for reform have now been made.
“This Government now needs the resolve to get on with it.”
One of the group’s vice-chairs, the Bishop of St Albans, said the report clarified the “fiscally responsible nature” of its original recommendations.
“By getting on with reform and expediting the introduction of legislation, we have a chance to save the thousands of lives ruined by gambling related harm each year.”