With Tiger Roll set to go off as the shortest-priced favourite in the Grand National since Red Rum in 1975, bookmakers will take a bashing if the popular Irish horse scoots home for a second straight year.
But they face an even bigger challenge away from the track as legislation comes into force.
The maximum stake for fixed-odds betting terminals (FOBTs) in bookmakers’ shops – dubbed the ‘crack cocaine’ of gambling because of their addictive nature – was cut from £100 to £2 on Monday, in a move aimed at protecting punters. For the bookies, that is a big hit.
The share prices of the big bookmakers – Ladbrokes Coral owner GVC, Paddy Power Betfair, William Hill and 888 – have fallen in the past year as analysts slashed earnings forecasts
Research carried out for the Association Of British Bookmakers has warned that up to 4,000 betting shops could be forced to close, out of a total of between 8,000 and 9,000. They claim around 21,000 jobs are on the line.
The stock market is alert to the situation. The share prices of the big bookmakers – Ladbrokes Coral owner GVC, Paddy Power Betfair, William Hill and 888 – have fallen in the past year as analysts slashed earnings forecasts to reflect an expected drop in income from the casino-style gaming machines.
City number-crunchers have pencilled in a combined drop in net profit of some 25 per cent for 2019 across these four bookies.
This is because FOBTs accounted for such a big proportion of earnings – £1.8billion of profits last year compared with £1.3billion from bets placed over the counter, according to Racing Post.
But the cut to FOBT stakes is not the only thing likely to send profits plunging – firms are also being hit by higher tax rates.
The Government has increased duty from 15 per cent to 21 per cent on online betting, to make up for lower tax revenues expected due to the drop in takings on gaming machines.
It will take some time for the full effects to become clear, not least because the £2 limit does not apply online, which looks like a glaring loophole in a law designed to protect gamblers from what can be hefty and rapid losses. So it might not be all bad news for the bookies.
Battle-hardened punters will also remember that Red Rum lost in 1975, beaten by L’Escargot.
Tiger Roll could help to replenish the bookies’ satchels if he fails to become the first repeat winner since ‘Rummy’ in 1974, which would not be the biggest shock despite his strong form.
Only eight favourites have obliged in the great race since 1960.In addition, regulatory changes elsewhere are creating fresh opportunities.
This is especially so in America after last year’s repeal of 1992’s Professional And Amateur Sports Protection Act.
That has opened up a potentially huge, though highly competitive, market, and the big British bookies have already begun to jockey for a piece of the action.
The maximum stake for fixed-odds betting terminals (FOBTs) in bookmakers’ shops – dubbed the ‘crack cocaine’ of gambling because of their addictive nature – was cut from £100 to £2 on Monday
Paddy Power Betfair has bought fantasy sports provider Fan Duel; William Hill is building on its existing presence in Nevada and also at New Jersey’s Monmouth Park racetrack via a partnership with Eldorado Resorts; GVC has teamed up with MGM to add to its existing Stadium Technologies business and 888 has launched 888sport in New Jersey.
Analysts expect the bookies’ profits to start to recover in 2020. There is also the possibility that the FOBT stakes limit prompts a further round of consolidation within the betting industry.
William Hill and 888 have been involved in failed bids before, including for each other. There is always a chance that the falls in their share prices lure a predator once the effect of the FOBT stakes reduction becomes clear and the US market begins to settle down.
Investors may be particularly intrigued by William Hill, even if trading remains tough. The firm has added to its existing businesses in the USA with several shrewd strategic partnerships.
It has also begun to raise its game online here in the UK and its shares have fallen the furthest out of the four quoted firms, meaning the tide may be ready to turn.
Another with potential is JPJ, a UK online bingo and overseas online/casino group that looks very cheap, though it has a large debt pile.
Caution is in order with Paddy Power Betfair, which is a ‘hold’ at best. It’s rarely a good sign when a long streak of dividend increases comes to an end, and that is what happened last year.
888 is the other bid candidate. The share price performance has been awful. It may not be cheap enough for a predator yet but is getting there. GVC has more than halved in six months, not helped by demotion from the FTSE 100 and executive share sales that went down rather badly.
If you think we’ve seen the worst of the regulatory push for now, at least, it may be worth a flutter.
Russ Mould is investment director at AJ Bell
Popular Shares – EasyJet
How do you make a small fortune in the airline business? Start with a large one.
Or so the old joke goes. But the success of EasyJet and Ryanair has defied that sceptical view of the industry as a jumbo-sized money pit.
EasyJet is increasing the number of seats it is flying by around 10 per cent a year. Profits have been bolstered by extras that passengers pay for, too, from hold baggage to paninis.
The bankruptcy of competitors has also played into EasyJet’s hands, as did Ryanair’s pilots strike.
However, things aren’t universally rosy, and the airline had to warn the market this week that it’s seeing weaker consumer demand thanks to economic concerns and – of course – Brexit.
Both EasyJet and Ryanair are continuing to increase capacity, which will put downward pressure on ticket prices and profit margins.
That’s likely to push weaker operators to the brink and the survivors can pick up the pieces.
In the meantime, however, rising costs, such as fuel prices, could weigh on EasyJet’s profits and its share price.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.