UK Gambling Tax Increases Spark Speculation of Industry Consolidation
Tax Hikes Could Trigger Increased Merger and Acquisition Activity
Experts are warning that upcoming tax increases on gambling in the UK might prompt a surge in mergers and acquisitions within the industry. This shift could revive interest from major players, including MGM, in acquiring companies like Entain—an acquisition MGM previously attempted but did not complete. With operators such as Sky Bet already taking steps to mitigate the impact of these tax changes, significant restructuring in the UK gambling market appears likely.
MGM’s Potential Acquisition of Entain Faces Obstacles
Equity analyst Andrew Tam, as reported by industry sources, suggests Entain could become more susceptible to takeover attempts as the government looks to unify tax rates across the sector. MGM, which previously offered approximately GBP 8.2 billion (around $10.8 billion) for Entain in 2021, may consider making another bid at a lower price given the current circumstances.
Entain rejected MGM’s initial offer due to its undervaluation, yet the company continues to experience share price challenges. Although acquisition rumors persist, MGM’s CEO Bill Hornbuckle has repeatedly denied plans to pursue Entain. That said, with around $5 billion in available funds after withdrawing from the New York casino license competition, MGM might reconsider its position in the near future.
Despite external pressures, Entain has maintained a confident stance. Their recent quarterly report confirmed steady progress with company restructuring and upheld their full-year financial forecasts. CEO Stella David credited a diverse business portfolio and prior investments for the company’s resilience but acknowledged that tax restructuring poses unavoidable challenges.
UK Operators Brace for Heightened Challenges Amid Tax Review
The UK gambling market is facing escalating pressure as the Treasury Select Committee evaluates potential tax increases targeting betting companies. Advocates for higher taxes argue the sector should contribute more due to its social impact, while industry representatives caution that excessive taxation may push players towards unregulated platforms, worsening the problem long-term.
Recent developments have already prompted strategic maneuvers within the market. Notably, Sky Bet, owned by Flutter, has relocated its headquarters to Malta to reduce tax liabilities, potentially saving millions annually. Financial analysts have modeled outcomes where a unified tax rate between 25% and 30% might reduce Entain’s earnings before interest, taxes, depreciation, and amortization (EBITDA) by 12% to 22% before any countermeasures. A more severe tax rate nearing 50% could have devastating effects on the sector’s sustainability.
Market sentiment has turned bearish in anticipation of these tax changes. For example, shares of operators such as Evoke have fallen nearly 50% since August, reflecting historic patterns observed in markets like the UK and Australia. There, abrupt regulatory shifts often resulted in increased consolidation as companies sought economies of scale and cost efficiencies.
