EY - UK Betting and Gaming Update Q2 2016
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UK betting and gaming update
Hospitality and leisure
April - June 2016
UK betting and gaming update is produced and distributed by EY quarterly. It is a digest of current news articles about the UK betting and gaming industry. We hope you find it both interesting and informative and we would welcome your feedback. If you would like any further information or would like to be included on our mailing list please let us know. Please contact: Cameron Cartmell Partner, Ernst & Young LLP (UK) EMEIA Hospitality & Leisure Leader Hospitality & Leisure +44 20 7951 5942 email@example.com
Grant Humphrey Assistant Director, Ernst & Young LLP (UK) Hospitality & Leisure +44 1582 643182 firstname.lastname@example.org
Betting and gaming update April June 2016 EY 1
Listed betting and gaming company share price information
(24 Jun 16)
(24 Jun 16)
(24 Mar 16)
Change in price
12-month high date
12-month low date
32Red (AIM Listed) 108m 1.31 1.51 -13% 1.81 01-Mar-16 0.59 24-Aug-15
888 Holdings 747m 2.08 1.99 5% 2.37 03-Jun-16 1.49 02-Jul-15
GVC Holdings 1,651m 5.65 5.01 13% 6.18 03-Jun-16 3.68 20-Oct-15
IG Group Holdings 2,944m 8.05 8.12 -1% 8.40 23-Jun-16 6.79 24-Aug-15
Ladbrokes 1,683m 1.22 1.17 4% 1.38 25-Jun-15- 0.93 29-Sep-15
Paddy Power Betfair 7,331m 87.25 92.98 -6% 110.13 29-Feb-16 55.47 24-Aug-15
Playtech 2,575m 7.98 8.53 -6% 9.36 24-Jul-15 7.03 11-Feb-16
Rank Group 847m 2.17 2.54 -15% 2.97 08-Jan-16 2.08 24-Jun-16
Sportech 118m 0.57 0.61 -7% 0.80 24-May-16 0.50 02-Mar-16
William Hill 2,400m 2.76 3.30 -16% 4.13 25-Jun-15 2.35 24-Jun-16
Source: ThomsonOne.com and other additional EY research. Share price information is presented for the largest 10 listed UK betting and gaming companies by market capitalisation. The companies that constitute the largest 10 are refreshed every six months or when other major changes occur. Disclaimer: The currency referenced in the chart was left as stated in the original source material
Betting and gaming index
The EY betting and gaming (B&G) has outperformed the FTSE Travel & Leisure Index in the last 12 months, primarily due to both positive growth in B&G company annual revenues, impacted by a shift towards new innovative online customer focused platforms and consolidation in the market. The key topic dominating Q2 2016 was the impact of Brexit across markets globally. Volatility of stock prices ensued, with the FTSE100 below 6,000, GBP/USD down 1%, German 10-year yields turning negative for the first time ever and European shares slumping to a three-month low in the week running up to the vote. Such economic uncertainty and the resulting Leave vote has contributed to the gradual and subsequently sharp decline in both the B&G and FTSE Indexes alike, illustrated by negative B&G share price movements in Q2, albeit with a recovery in early July 2016. The betting and gaming index is a snapshot of the performance of the industry compared with the market as a whole. The index is a quick and simple guide: for example, it does not include private companies and small or medium-sized companies. However, we hope that it proves a useful guide to the recent events and emerging trends.
Source: Thomson ONE Banker and other additional EY research. Index price data is as of the end of the last trading day of every week. Index prices are rebased to chart comparative performance of the indices over the last six months.
Betting and gaming update April June 2016 EY 2
The most recent share price information of the largest 10 UK B&G companies saw a gradual decrease in value over the second quarter. Share price performance was almost solely driven by increasing uncertainty, as a decision on the UKs membership with the EU drew close, with the increased market volatility resulting in traders to become more frugal.
Aside from the referendum, the general performance of the majority of firms in the B&G industry has been positive in Q2, with a number of operators recovering from the worst Cheltenham Festival (financially) in history in March by benefitting from a good Grand National and the initial stages of the European Championships.
In our Q2 B&G updated, we focus on key changes to taxation that may have an implication on the B&G industry, both due to Brexit and other key factors.
B&G: key changes in taxation
The historic vote for Britain to leave the EU stole the majority of the Q2 headlines; however, there were also a number of additional taxation developments that companies within the B&G industry should be aware of. Following the UKs exit from the EU, the UK will no longer be subject to the EU VAT Directive, which may lead to changes in the UK VAT regime and create some frictional costs of complying with EU VAT rules going forward. Furthermore, the potential for more scrutiny on the border between Spain and Gibraltar post Brexit may also impact businesses based in Gibraltar who have employees living in Spain (currently approximately half of the 3,000 individuals employed in betting and gaming activity in Gibraltar reside in Spain).
The Upper Tribunal released its decision on 2 June 2016 in the appeal by London Clubs Management Ltd. This appeal raised the question of the liability to gaming duty in respect of the playing as stakes in casino games of free bet vouchers or non-negotiable chips (collectively referred to as non-negs) which were provided by the taxpayer free of charge to selected customers as a promotional tool to encourage them to visit its casinos and play casino games.
The Upper Tribunal found in favour of the taxpayer and consequently agreed that the chips and vouchers provided free of charge to players and used for gaming had no value and no liability to gaming duty arose in respect of them.
HMRC has published a consultation document seeking views on proposals to reform the VAT avoidance disclosure regime (VADR). Specifically, the consultation seeks views on proposals to move the primary obligation to disclose VAT avoidance schemes from users to scheme promoters, and considers the extent to which the other requirements of the Definition of disclosure of tax avoidance schemes (DOTAS) regime should be carried across to a revised VAT Avoidance Disclosure Regime (VADR). It also seeks views on proposals to extend the scope of the VADR, which presently deals only with VAT, to include other indirect taxes, in particular, gambling duties and insurance premium tax.
Operators wishing to discuss their position in more detail can contact Sunil Parmar (EY, Director, Indirect Tax, +44 207 951 5469, email@example.com).
Betting and gaming update April June 2016 EY 3
Company and industry news The theme illustrated by many, in the most recent trading updates referred to the continued investment and development of companies respective online gaming businesses. Emerging gaming platforms have been the driving force for industry growth, along with market consolidation, which has seen revenues grow year-on-year.
Following news of the vote to leave the EU on 23 June, it is not yet clear as to the definitive impact that an independent Britain will have on the B&G sector. Analysts have suggested that B&G companies may opt for further consolidation, to mitigate or soften the potential impact triggering Article 50 may have.
Financial results and trading updates
32Reds announced results for the year ended 31 December 2015, achieving record revenue performance in 2015. The strong performance was driven by a combination of accelerated organic growth in their core business (+35% on 2014) and a contribution from the Roxy Palace business that was acquired on 14 July 2015. Ed Ware, Chief Executive, commented. We are confident that 2016 will be another year of strong organic revenue growth as we continue to increase marketing investment in both 32Red and Roxy Palace brands. The online gaming industry continues to grow, driven by mobile devices and regulation We continue to evaluate potential acquisitions that may complement our strong organic growth1.
888 Holdings last communicated financial results were for the year ended 31 December 2015. 888 Holdings achieved like for like (LFL) B2C revenue growth of 14% to $444.2m (from $390.8m in 2014), with LFL Casino revenue up 18% to $261.4m and strong sport growth of 74%. The companys mobile first strategy continued to reap rewards and revenue from mobile devices in the UK rose to represent 47% of UK B2C revenue (2014: 33%). Brian Mattingley, Chairman, commented, 888s success is built on its technological strength in combination with the efficient utilisation of this technology, directed by extensive data analytics. 888s business analytics aims to maximize customer recruitment, increase customer lifetime value and minimize the cost per customer acquisition.2
Gala Coral announced its results for the twenty eight week period ending 09 April 2016, reporting 9% increase in net revenue over the previous year to 271.6m. EBITDA stood at 62.2m (16% higher than the previous comparable period). Carl Leaver, Chief Executive, commented, EBITDA growth of 16% in the first half of the year represents a very satisfactory performance for the Group. After adjusting for incremental regulatory costs, EBITDA was 43% ahead. Sportsbook margins benefitted from improved football results in both the UK and Italy, and a good Grand National result helped offset losses from the worst Cheltenham for the industry since 2003. During the