Broker snap: New taxes could affect gaming industry

21st Mar 2011 10:32

Peel Hunt does not expect any significant changes to gaming taxation from this week's Budget, but notes that the chancellor may throw down a marker that could have significant implications for parts of the gaming industry in the long term.The previous government gave gaming companies the option of being physically present in the UK and paying 15% gross profit tax (GPT) or situated offshore and paying low single-digit rates of tax. While Peel Hunt thinks that it is highly unlikely that the Budget will contain new taxation rates, it highlights the potential impact if the government were to introduce a 15% tax on remote gaming:In the short term, the broker would expect the larger companies to invest in the margin to put pressure on smaller players and squeeze them out of the market. "There would be some short-term pain, but ultimately Ladbrokes and William Hill could be beneficiaries, as could Paddy Power and Rank (who benefit from strong brand awareness in the UK and the ability to leverage their land-based retail operations)."Peel Hunt thinks the biggest potential loser would be 888, which generates the greatest proportion of revenues from the UK of any other peer. "888 already operates on relatively low margins and a GPT would put serious pressure on the business.""We believe that Sportingbet would consider its strategy in the UK should a remote gaming tax be introduced, but this would have little (if any) impact on profits," says the broker.Finally, Peel Hunt says that while Playtech is a complex situation - with around a quarter of revenues generated from the UK through a combination of its licensee base and its investment in William Hill Online - as a business to business provider it could be insulated from the full impact of a GPT, although not completely.