Brexit, betting and Boris Johnson

Brexit has dominated the news agenda in the United Kingdom ever since Britain voted to leave the European Union on 23 June 2016. At the time of writing, the UK is 13/10 with Betfair to leave the EU in October without a Withdrawal Agreement in place, with those odds having plummeted since Boris Johnson became prime minister in July 2019.

The broad consensus among economists is that Brexit will likely reduce the UK’s real per-capita income in the medium and long term, and that the Brexit referendum itself damaged the economy. Elsewhere, The Sunday Times unearthed the government’s Operation Yellowhammer report in August, which concluded that Britain would face shortages of fuel, food and medicine, a three-month meltdown at its ports, a hard border with Ireland and rising costs in social care in the event of a no-deal Brexit.

All areas of business will likely need to be examined and potentially revised once the UK leaves the EU, largely because the UK will no longer recognise the institutions that oversee these areas and will no longer be a part of the EU free trade area.
Bad for business
The issue with Brexit is that not even the UK government knows which route it will take. This creates a huge amount of uncertainty in not only individual businesses, but entire industries. Many of the structural nuances and headaches that occur as a result of Brexit will only come to the fore once the UK has actually left the EU, so planning for eventualities in any kind of detail is extremely difficult.

This is no different in the gambling industry. When pushed on planning initiatives in the event of a no-deal Brexit, the UK Gambling Commission produced this particularly vague statement for EGR: “As part of our routine business planning processes, we have considered potential impact on us delivering our statutory functions post-Brexit.

“Given our Point of Consumption regime and approach to regulation, we are well placed to continue to ensure the UK market is fair, safe and prevented from being a source of crime and disorder in line with our corporate strategy.”

While the UKGC apparently considers itself well placed to continue with business as usual, it could be a different story for operators, particularly if the UK exits Europe without an agreement. Flutter Entertainment CEO Peter Jackson, for one, has voiced concerns that barriers to the free movement of racehorses in Europe could potentially impact race fixtures, which generate more than £11bn in wagers for the industry annually.

Jackson told the Financial Times in August: “I do have some concern about horses being able to travel backwards between the UK and Ireland – it is a real risk to the horseracing industry.” While Jackson’s concerns were dismissed by several horseracing bodies, this is a clear example of the uncertainty surrounding Brexit creating risks to business.

London-listed Flutter posted H1 revenues of £497m for its digital business in August, up 8% year-on-year, but only 1% when excluding the operator’s Adjarabet acquisition. The Dublin-headquartered operator devoted a paragraph to Brexit in its H1 report, noting that “the high degree of uncertainty” around the terms of the UK’s departure from the EU had resulted in “business risk”.

The report continued: “The potential implications of different Brexit outcomes continue to be monitored by members of senior management and internal and external advisors.

“Specific impacted areas considered include legislation and regulation, people, data protection and tax. However, we are a global business, geographically and product diversified, and licensed country-by-country. This is a distinct advantage should data protection conditions in one market change.”

Flutter Entertainment’s rival UK operator GVC Holdings has already registered part of its online business under a Maltese online gambling licence and moved its servers to Dublin as part of Brexit contingency planning. GVC’s Ladbrokes Coral brand is one of several huge gambling firms based in Gibraltar, which will leave the EU when the UK does. “The group’s online business will still be headquartered in Gibraltar and the impact on our employees in Gibraltar is minimal,” said the firm.

Elsewhere, Britain’s biggest gambling company, bet365, announced a “rationalisation” of staff in its Gibraltar office in May and has chosen to move its operations to Malta following Brexit. A spokesperson for bet365 said the firm had been building its presence in Malta following Brexit as it had become “increasingly challenging to efficiently run multisite operations”. “Therefore, to assist with business planning and in order to maintain operational effectiveness, we intend to enhance our Maltese operational hub and relocate certain functionality there,” the firm added.

Above all, Johnson is considered a pragmatist. It is unlikely that he thinks very much about matters of gambling policy – but if he does, it will probably be in terms of the most favourable outcome – Dan Waugh, Regulus Partners
Closer to home
While many of the UK’s leading operators have plans in place in various gambling jurisdictions and tax territories, how will they be affected at home in the UK? The sector has faced significant regulatory change over the last few years, with the FOBT stake reduction, higher online taxes, tighter consumer protection measures and an all-out-attack on gambling advertising.

Will this continue under a new prime minister? Or is Johnson the perfect bedfellow for the online gambling industry? “It is unlikely that the fun-loving Johnson harbours any deep-seated moral antagonism towards gambling,” Regulus Partners analyst Dan Waugh tells EGR Intel. “Instinctively, he seems to be on the side of civil liberty and will probably have little truck with the deeply patronising interventionism of the public health lobby.

“The anti-gambling Iain Duncan Smith may have been Johnson’s campaign manager, but he has not been rewarded with a post in the Johnson Cabinet. Closer to home, the prime minister’s partner, Carrie Symonds, worked as an adviser to John Whittingdale during his stint as a relatively pro-industry culture secretary.”
Waugh adds: “Above all, Johnson is considered a pragmatist. It is unlikely that he thinks very much about matters of gambling policy – but if he does, it will probably be in terms of the most favourable outcome. This presents risk but the opportunity to negotiate with a realist is very much preferable to having to pander to a moralist or seek favour with an opportunist.”

Steve Donoughue, secretariat for the Parliamentary All-Party Betting & Gaming Group, believes the industry will avoid the regulatory screwdriver altogether while Johnson is in office because he is hellbent on winning a general election for the Tories to oust the threat of Labour leader Jeremy Corbyn becoming PM.

“Make no mistake, the Johnson government is about one thing and one thing only,” says Donoughue. “That’s conclusively winning a general election in either the autumn of 2019 or the spring of 2020. No-deal Brexit is just a vehicle to do that. We can be certain of no government initiatives about gambling for at least the next year or three, as no new government gets to tier-two policies like gambling until they’ve been in power for a couple of years.”

He adds: “Also in the industry’s favour is a secretary of state, Nicky Morgan, who doesn’t appear to have been particularly bothered about gambling in the past, combined with a new sports minister, Nigel Adams MP, who, according to my sources, ‘likes a bet’.”

Operators will be pleased to escape further domestic regulatory sanctions under Johnson’s Tory government, but a little good faith will count for very little if his campaign for a no-deal Brexit creates more industry upheaval than ever before. Maybe firms seeking a hedge should be taking some of that 13/10.