Business

$135 In a Slot Machine Every 20 Seconds Is Crazy

British limits on fixed-odds terminal betting will hurt companies and cut jobs, but not by enough to justify letting things carry on.

Forbidden fruit machines.

Photographer: Matthew Lloyd/Getty Images

You can make a lot of money selling unhealthy things, especially when they’re addictive. Tobacco companies, sugary drinks makers and gambling firms enjoy some of the fattest gross margins in the U.K. (up to 80 percent), a sign of high pricing power. So it’s wise to treat corporate protests against more taxation and regulation with a dose of sobriety. The furor over a political clampdown on British betting shops is no exception.

Bad For You, Good For Us

Gross margins for some "sin" stocks are among the 20 highest in the U.K.

Source: Bloomberg

The U.K. government has delivered on its threat to slash the maximum bets on so-called “fixed-odds betting terminals,” the brightly-colored, casino-style games played on a screen in-store. The upper limit will now be 2 pounds ($2.70), down from 100 pounds ($135), every 20 seconds. Politicians have given a very clear and succinct reason for the cap: Problem gamblers are a greater cost to society than to themselves. And, given how easy it is to get hooked, it takes drastic measures to make progress.

The response from the gambling industry — though not entirely uniform — has been to protest at the shop closures, job losses and financial pain that will result. William Hill has said 900 of its stores would become unprofitable immediately, as more than two-thirds of its net revenue from gaming machines came from bets above the 2 pound limit. It said annualized adjusted operating profit would fall by an estimated 70 to 100 million pounds, after closures and cuts.

But it’s hard to get that worked up about the corporate impact. Shares of GVC, William Hill and Paddy Power Betfair rose by 2 to 4 percent on Thursday. The change had been well-flagged this week and the bookies will have a few years to adjust. Gaming machines were a tremendous cash cow, but most future growth is expected to be online anyway. William Hill even rewards executives for business “diversification” as part of their long-term incentive plan. Analyst forecasts for its earnings and dividends have only been adjusted downward by about 2 percent.

The Pips Aren't Squeaking

Shares of betting firms have shrugged off the impact of curbs, given the time to adjust

Source: Bloomberg

Which begs the question: Is it still worth it? If companies can easily shut underperforming stores and sack staff in response, and if the Internet allows people to gamble in all sorts of exotic ways anyway — from games and sports bets to risky crypto-currencies — is it still worth hurting workers?

The answer’s still yes. Defending harmful products in the name of the workforce that sells them seems pretty cynical, considering not just the harm from problem gambling but also the high number of unemployed customers. Jobless people are twice as likely to play fixed-odds betting terminals as those who are employed, according to DJS Research.

The Employment Gap

Probability change in behavior for unemployed gamblers versus those in employment

Source: U.K. Gambling Commission

The idea that local economies suffer because of boarded up betting shops is worth testing. Some local councils have tried in vain to stop their spread anyway, which suggests they don’t see them as an unalloyed good. If these shops are as central to community spirit as their owners claim, they will surely find ways to keep going.

In a world where Bitcoin can be drawn from an ATM and risky CFDs can be traded on your phone, reducing the temptations of betting shops on British streets is a small step in the right direction. The odds of significantly reducing gambling addiction are long, but it’s worth a punt.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Lionel Laurent at llaurent2@bloomberg.net

    To contact the editor responsible for this story:
    James Boxell at jboxell@bloomberg.net

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