How is the Loss of FOBT Revenue Being Offset?

Posted by Harry Kane on Thursday, January 7, 2021

Back in April 2019, the UK government finally rolled out its controversial FOBT cap, which reduced the maximum wager permissible on such machines from £100 to just £2.

It’s though that this regulatory measure has hit UK bookmakers to the tune of more than £200 million, with the FOBT yield thought to account for 56% of all betting shop profits recorded in the year ending 2018 alone.

It has also created a significant revenue shortfall from the perspective of the gambling industry as a whole. But how is this considerable loss being offset, and what role is online gambling playing maintaining viable levels of growth?

The Latest Figures – How is the FOBT Loss Being Offset?

According to the latest figures unveiled by the UK Gambling Commission (UKGC), there was a 0.6% decrease in the total gross gaming yield (GGY) produced by the UK gambling industry in the year ending March 2020.

As a result of this, the sector generated a total of £14.2 billion during this period, with this representing the second consecutive annual decline within the industry.

Given the widespread impact of the FOBT cap, however, a nominal contraction of just 0.6% seems relatively positive, with this having been initially offset by increased activity in offline lottery participation nationwide.

To illustrate this, the GGY minus lottery participation fell to £10.2 billion overall, with this representing a total decline to 4.5% overall. During the reporting period, National Lottery ticket sales increased by a healthy 10.4% to £3.4 billion, while other lottery draws saw a hike of 13.2% to an impressive £611.6 million.

In conjunction with online lottery sales, this gambling niche accounted for 28.2% of the industry’s total GGY and provided some much-needed respite for a market that has been gripped by stringent regulatory changes over the course of the last 18 months.

The Role of iGaming in Bridging the FOBT Cap

As if this wasn’t enough, the sustained growth of the iGaming market in the UK has also helped to fill the considerable void left by reduced FOBT activity across the length and breadth of the country.

This is despite the fact that online casinos and sportsbooks have also faced tough regulatory changes since 2018, alongside a 6% hike in the remote gaming duty (RGD) payable (which was rolled out alongside the FOBT cap in April last year).

The growth of online gambling verticals in the UK also represented something of a recovery, with the iGaming GGY having also experienced a nominal contraction in the year ending September 2019.

To put this into context, the online gambling segment grew by an impressive 8.1% in the year ending March 2020, reaching a total value of £5.7 billion in the process. As a result of this growth, iGaming has now evolved to account for 40% of the gambling industry in the UK, as it continues to inch towards being the most dominant revenue contributor on these shores.

But which verticals are leading the renewed growth of iGaming in the UK? Somewhat surprisingly, it’s virtual sports betting that drove the single biggest increase, growing by 15.5% to a total of £2.33 billion.

This growth was partially driven by the fact that the opposite results from bettors generated enough to overcome a reported 4.3% in turnover, with this representing a unique scenario that has boosted the iGaming market significantly.

The online casino GGY saw comparatively modest (albeit consistent) growth of 3.7%, with this segment increasing to £3.175 billion during the reporting period. Conversely, online bingo stagnated somewhat with just 0.5% growth, and while it achieved a cumulative value of £176.8 million, its expansion fell short of the 12.7% rate recorded in the six months between March and September of last year.

If we delve deeper into these statistics, we see that slots dominated the largest share of the online casino market, accounting for a staggering 69.7% of the total GGY. This percentage share was up from the 64.5% recorded in December 2017, with this vertical continuing to grow in terms of its diversity and popularity.

Interestingly, participation in other verticals (including table games and live casino gameplay) increased by 18.5% during the reporting period, with these entities having also played a significant role in offsetting the FOBT losses within the industry.

From the perspective of iGaming, even poker recorded modest growth, with this having declined to account for just 5.9% of the casino GGY in 2018. In March, poker revenues increased by 2.7% overall, more than offsetting minor declines in roulette and poker.

The Last Word – Overcoming the Impact of the FOBT Cap

These figures are incredibly insightful, while they also highlight the flexibility of gambling operators in the wake of sustained regulatory and legislative changes.

More specifically, we can see that the industry has been able to offset sizeable FOBT losses by facilitating increased lottery sales and revenues, while multi-channel operators such as William Hill have also overcome a decline in turnover by investing in higher levels of activity and spending amongst online players.

In some respects, this simply represents the continuation of a trend that has been prevalent over the course of the last decade, which has seen online gambling grow consistently overall and account for a growing share of the larger marketplace.

However, the latest figures seem to suggest an acceleration of growth in the iGaming space (following a small but noticeable contraction in September 2019), with this having been inspired in part by the FOBT cap and a proactive decision to direct players online.

On a slightly more negative note, there’s no doubt that the FOBT cap has had a significant impact on the number of active betting shops and people employed within the offline industry.

More specifically, the number of betting shops open in the UK fell by 639 in the year ending March 2020, from 8,320 to 7,681. Although this represents the sixth consecutive annual contraction in this regard, the vast majority of closures this year were directly attributable to the sharp decline in FOBT revenues.

This has undoubtedly accelerated the trend towards iGaming in the UK, while hastening he decline in offline gambling and forcing operators to prioritise online activity across a number of different verticals.