Deloitte: The full picture - 2nd edition. Measuring the economic contribution of the British Betting

March 2013

The full picture – 2nd editionMeasuring the economic contribution of the British Betting Industry

association of british bookmakers ltd

Contents

Executive summary 1

1. Introduction and scope 7

2. Definitions and framework 9

3. Quantified economic impact 13

3.1 Direct impact of the British Betting Industry on the UK economy 14

3.2 Total impacts in 2011 16

3.3 Changes in economic contribution: 2008-2011 20

4. Wider impacts 21

4.1 Links with other industries 22

4.2 Earnings and employment 23

4.3 Regeneration and placemaking 24

4.4 Tax burden 26

4.5 Corporate and social responsibility 26

5. Industry trends 29

5.1 Market structure 30

5.2 Trends in betting 31

5.3 Consumers 34

5.4 Perceptions of the industry 37

5.5 Taxation 37

5.6 Legislation and regulation 38

Contacts 40

Photo credits:

Cover (centre to right)

•Action Images/Henry Browne Livepic•Action Images/John Marsh Livepic

This report, commissioned by ABB, uses imagery supplied by their members. This includes images provided by Action images under the terms of their contract with Ladbrokes.

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The full picture – 2nd edition Measuring the economic contribution of the British Betting Industry 1

Executive summary



2

The report shows that the industry now directly accounts for £2.3 billion in Gross Value Added (GVA) and 38,800 full-time equivalent jobs.

Over the three year period since the previous research was conducted, the economy, and betting, has continued to weather the storm. Despite this resilience, over this period the British Betting Industry has contracted by 1,900 direct FTE jobs and £0.7 billion in direct GVA terms.

While the economic downturn has undoubtedly had an impact on retail operators through reduced employment and profitability, the size of the UK-based industry has declined mainly due to growth in betting with online operators, most of whom are located in low tax jurisdictions such as Alderney, Malta or Gibraltar. In spite of this, the industry continues to contribute significantly to the wider economy and society. The broader economic footprint of the sector (also including business-to-business purchases and consumer spending effects) extends to £5 billion in GVA terms and c. 100,000 FTE jobs in total.

The industry continues to contribute to local economies in the provision of flexible working arrangements and in providing a meeting place for members of local communities to partake in an enjoyable pastime. For some people, however, this can lead to problems of gambling: the industry works hard to minimise the risk through proactive measures as well as contributing to communities through charitable and corporate giving.

Executive summary

Key messages

1. The British Betting Industry remains a key contributor to the UK economy, having directly supported around 38,800 FTE jobs in 2011 and, in doing so, generating £2.3 billion toward GDP.

2. However, the sector is smaller than it was in 2008, both in terms of FTE jobs and GVA contribution. This is due to industry specific factors such as a shift to remote betting, and competitive factors making operators move remote functions offshore.

3. Nonetheless, the ABB survey shows that the retail component of the industry still contributes an equivalent level of tax to the exchequer as it did in 2008.

4. The effects of the recession and a move to offshore betting may have been significantly worse for LBOs had machines not increased in popularity over the last few years.

5. The Industry has a far reaching impact on the rest of the UK economy, with a total economic footprint (including the indirect effects of business-to-business purchasing and induced consumer spending) of £5 billion in GVA terms.

6. The industry as a whole faces a number of challenges from macroeconomic and regulatory factors, such as the proposed ‘point of consumption’ tax. There appears little doubt that the industry will continue to contribute economically and socially.

The report shows that the industry now directly accounts for £2.3 billion in Gross Value Added (GVA) and 38,800 full-time equivalent jobs.

This report, conducted by Deloitte on behalf of the Association of British Bookmakers (ABB), provides an update of the January 2010 report ‘The Full Picture’ to demonstrate the value of the Betting Industry to the British economy.




Study context and methodThe definition used in the research remains consistent with the one used in ‘The Full Picture’. Again, therefore, the figures presented in this report (unless otherwise stated) exclude Online Gaming, Bingo, Poker, Casino and Spread Betting.

The report quantifies the economic contribution of the British Betting industry in terms of GVA and jobs across three types of impact, using a model of the UK economy:

•Directimpacts– those directly related to Betting in retail outlets, online or other remote sources;

•Indirectimpacts– those arising from spending in other sectors which support the Betting Industry throughout the supply-chain; and

•Inducedimpacts–those arising from consumer spending that results from the wages paid to (and spending patterns of) employees in the industry and beyond.

The report also considers wider socio-economic impacts such as regeneration, social and economic inclusion, as well as skills and employment.

The economic contribution of betting

The direct contributionThe British Betting industry generated around £3.5 billion in Gross Win in 2011 – of which £2.8 billion related to retail premises and £0.7 billion came from remote betting.

The direct impact of the industry in economic terms is better represented, however, by betting’s contribution to GDP and its role as a generator of employment.

This analysis suggests that the British Betting industry was directly responsible for 38,800 full-time equivalent (FTE) jobs in 2011 as well as contributing £2.3 billion in Gross Value Added (towards UK GDP).

Whilst this is a major contribution to the economy, it should be noted that employment levels have fallen from the levels estimated in 2008 for the first ‘Full Picture’ study. Then, the industry was responsible for 40,700 direct FTE jobs, meaning over the intervening three years, 1,900 direct FTE jobs have been lost.

High street shops(including betting

premises machines)

On-track

Telephone

Internet Sportsbook

Internet Exchange

Premises

Core Betting Industry

Remote

Supplychain

Sports(including

horseracing,football and

other)

Gaming, Bingo, Poker,

Casino

Overview and definition of the Core Betting Industry

It is worth noting that ‘headcount’ employment is broadly flat, which infers that there has been a move towards a greater number of part-time workers in the industry, with a fall in the number of full-time workers. This is in keeping with trends toward part-time working at an economy wide level since 2008.

Lower levels of profitability, as well as lower labour cost bases (due to the relative shift to part-time working) and offshoring have contributed to a significant reduction in the industry’s GVA contribution – over £700 million from a base of £3.1 billion in 2008.

These reductions are indicative of the challenges faced by the industry, but it is worth noting that in spite of this the retail industry’s contribution to exchequer revenue (including taxes both paid and collected) remains at c. £900 million, as it was in 2008.

… exchequer revenue (including taxes both paid and collected) remains at c. £900 million, as it was in 2008.



4

The indirect and induced impact of the British Betting IndustryThe direct activity supported by the British Betting industry gives way to indirect and induced effects on the rest of the UK economy. These are approximated through an Input-Output model constructed for the study.

Indirect effects refer to the business-to-business effects through the upstream supply chain (when UK businesses supply goods and services to the betting industry).

Induced effects refer to the impacts seen due to the consumer spending arising from wages paid to workers in the betting industry and beyond.

Together these indirect and induced effects account for £2.8 billion in GVA and support a further 61,500 FTE jobs in the wider economy

The indirect and induced GVA contribution is some £300 million lower than the equivalent estimate in 2008, and indirect and induced FTE jobs are 800 lower than previously estimated in 2008.

The total economic footprintAdding together the direct, indirect and induced contributions of the British Betting Industry gives a total economic footprint of 100,300 FTE jobs and £5 billion in GVA. These represent falls of 2.6 and 16.7 per cent from equivalent levels in 2008 from the ‘Full Picture’.

The schematic below summarises the contribution to this total economic footprint:

Direct GVA Impact of British Betting (£2.3bn)

Indirect GVA B-2-B Impact of British Betting (£1.1bn)

Induced GVA Consumer Spending Impact of British

Betting (£1.7bn)

Direct Employment Impact of British Betting (38,800 FTE)

Indirect B-2-B Employment impact

of British Betting (26,000 FTE)

Induced consumer spending Employment

Impact of British Betting(35,500 FTE)




Wider benefits and costsIn addition to the quantified contribution from the model, other benefits associated with the British Betting industry include:

Economic and social inclusionThe industry provides flexible working in the form of entry-level part-time roles requiring few (or no) formal qualifications. These can fit around wider commitments and aid work-life balance for employees – many of these roles are taken by female workers.

Regeneration impactsThe high footfall levels that are associated with betting retailers help to attract consumers to other retail businesses and generate critical mass effects. In addition, the existence of betting shops in otherwise degenerating areas can boost the level of economic activity. There is evidence that the industry supports employment in rural areas, in particularly indirectly through betting’s links to the UK horseracing industry.

Links to sport and mediaThe close links between betting and horseracing remain, and over 50 per cent of OTC Gross Win in LBOs still relates to horseracing, but football betting is increasing in importance. Between 2008 and 2011 football OTC Gross Win held steady at £220 million, whilst total Gross Win across all betting dropped by £330 million. Football’s share of Gross Win has thus increased from 13 per cent to 16 per cent over the period. Only overseas horseracing and other non-sports betting have increased OTC share over this period.

Advertising investmentThe investment made by betting firms in advertising can generate positive externalities through marketing for sports events and the broadcast networks that show sporting events – this is in addition to the advertising effects that are included in the supply-chain analysis quantified for the study.

Regulated entertainmentRegulations ensure that industry remains transparent and competitive. As the report acknowledges, the industry is committed to reducing social costs and crime associated with illegal betting through a number of initiatives.

Industry dynamicsAgain, this report considers some of the key trends in the industry and a number of issues for the future, which are likely to influence the economic contribution of British Betting over the medium-term. Key areas assessed include:

Areas of stabilityWhilst the number of betting shops has been broadly stable, many remain vulnerable to economic headwinds and legislative change.



6

The mix of available betting products has protected the industry, to an extent, from the economic downturn; with overall retail spend increasing slightly. This resilience is attributable to a shift toward consumer usage of machines in the retail environment. However, as shown by the modelled analysis there has been a significant fall in overall levels of Gross Win as a result of the offshoring of remote functions (driven by both a move to remote gambling and competitive disadvantage for firms) as well as the decline of telephone betting due to technological advancements.

This instability has outweighed the stability in retail and has led to the significant reduction in Gross Win, FTE employment and GVA contribution.

Areas of changeThe key components of revenue generation have shifted, with machine revenue generating just under half of all betting shop revenue in the UK market – the growth of this sector (20 per cent since 2009) has become a key driver for the industry, with OTC spend remaining largely static over the same period.

While OTC has remained broadly static, the proportion of OTC spend has continued to shift away from horse-racing and towards football betting, possibly driven by the 2010 World Cup and the popularity of new products such as ‘in-play betting’.

Future growth driversContinuing improvements in public perceptions of the industry are an encouraging sign for betting operators, who are now able to appeal to a wider market base and age range.

Advancements in technology are at the forefront of factors set to shape the industry over the coming years – in particular, increases in smartphone penetration will provide operators with a greater reach, allowing them to provide convenient, location-independent betting services to a wider range of demographics, ‘decoupling’ betting from the licensed betting office we are familiar with today.

With social media companies opening their advertising platforms to gambling operators and allowing real-cash based gambling applications, this could provide significant growth opportunities through the online and mobile channels over the coming years, as well as increased competition. This focus on technology will continue to drive this industry, with the introduction of near-field-communication (NFC) providing another potential growth driver in the coming years.

Future growth constraintsWhilst a level of regulation remains essential to the ongoing development of the betting industry, excessive regulation can also limit growth, innovation and investment. Proposed changes to the existing tax regime could have harmful effects on key sectors of the industry. In particular, the introduction of Machine Gaming Duty (MGD) with effect from 1 February 2013 will reduce the profitability of an increasingly essential segment of the industry. Similarly, the tax regime amendments in response to the offshoring of remote betting arms could result in the loss of UK consumers to providers on the ‘grey market’, if the correct balance between tax rate, regulatory provision and enforcement is not achieved.




1. Introduction and scope



8

Introduction and scope

Measuring the economic contribution of the British Betting Industry AimThe aim of the study is to provide a comprehensive overview of the current contribution of the British Betting industry relative to the 2010 ‘Full Picture‘ report, and to inform key industry and policy stakeholders for decision-making.

ScopeAccordingly, and in keeping with the 2010 study, the report undertakes to determine:

• the value of the British Betting Industry to the British economy; and

• how the Betting Industry interacts with, and contributes to, the socio-economic fabric of Great Britain.

Broadly the analysis has sought to:

• quantify the current value of the Betting Industry and its contribution to Great Britain – including the traditionally defined economic impact in terms of direct, indirect and induced impacts;

• consider influencing factors impacting the industry, that are beyond the control of stakeholders;

• understand wider policy barriers to success through primary research;

• examine broader impacts and externalities as a result of the Industry in Great Britain.

MethodThe method employed in this study is, to all intents and purposes, the same as that employed in the 2010 ‘Full Picture’ Study.

Briefly, this consists of:

•Stage1: Data Collection: the sourcing of data from ABB, other stakeholders and secondary/official sources to underpin the research.

•Stage2: Framework Recap: a re-appraisal of the study framework developed for the ‘Full Picture’ to ensure that it is still representative of the Industry.

•Stage3:EstimatingtheIndustry’sContribution: in both quantitative terms through Deloitte’s model of the Great Britain economy and in softer terms (outwith the modelling analysis) from other data and qualitative information.

•Stage4:StakeholderConsultations: the inclusion of stakeholder opinion to provide a narrative to industry developments – particularly in chapter 5, Industry trends.

•Stage5: Reporting: the analysis was synthesised into this report, which was then agreed by Deloitte and ABB to represent an objective view of the industry and its contribution.




2. Definitions and framework



10

Definitions and framework

IntroductionThis section recaps the definitions and framework used in the study, and includes:

•Definition–outlining the specific types of betting and highlighting the elements this study includes and excludes.

•Structuraloverview– presenting the segments within the Betting Industry and how these link to other sectors.

•Stakeholdermap–outlining who holds influence on, or can be impacted by, the Betting Industry.

•IndustryEconomicImpactFramework– developed to guide the analysis by considering effects on an a-priori basis.

Definition of bettingThe Gambling Act 2005 defines betting as:

“… making or accepting a bet on the outcome of a race, competition, or other event or process; the likelihood of winning anything occurring or not occurring; or whether anything is or is not true.”

The descriptions below define specific types of betting and highlight that this assessment is focused on those regulated by the Gambling Commission.

General bettingGeneral betting licensees are able to offer facilities for betting as premises-based bookmakers (off-course) and on tracks (on-course), as well as by remote means (for example by telephone or over the internet). Additionally, betting premises are licensed for four machines per site. Each type of operation requires a different licence type and it is possible that operators will require more than one licence. All licence holders must comply with the requirements of the Gambling Act 2005 and the LCCP.

Pool bettingPool betting incorporates racecourse pool operators, football, other sports pool operators and manyofthe‘fantasyfootball’typecompetitions.Itcanbeconductedinperson,forexampletheTote which accepts pool bets on tracks and in high street betting shops, or remotely, for example aninternetbettingsiterunbyoneofthefootballpools’operators.

Betting intermediariesBetting intermediaries provide a service designed to facilitate the making or accepting of bets between others. Remote betting intermediaries, often called betting exchanges, generally operate through the internet. An example of a non-remote betting intermediary is a tic-tac, who normally works within a betting ring on a horse or greyhound racing track.

Spread bettingSpread betting is any of various types of wagering on the outcome of an event, where the pay-off is based on the accuracy of the wager, rather than a simple “win or lose” outcome, such as fixed-odds (or money-line) betting or parimutuel betting. Spread betting is not covered by the Gambling Act 2005, or regulated by the Gambling Commission. Regulation of spread betting is undertaken by the Financial Services Authority.

Regulated by the Gambling Commission

Premises-based betting includes activities which take place in high street betting shops (including machines in betting premises). For purposes of clarity, on-track betting is also included in the Premises-based definition.




Structure of the Betting IndustryThe industry can be segmented into two areas – ‘Premises’-based ‘retail’ betting in LBOs and remote betting. Both are included in the definition used for this study, and ‘industry’ refers to the two in aggregate, unless otherwise noted.

Premises-based betting includes activities which take place in high street betting shops (including machines in betting premises). For purposes of clarity, on-track betting is also included in the Premises-based definition.

Remote betting includes internet sports book, telephone and exchange betting. UK bookmakers who have ‘offshored’ retain elements of staff support in the UK and these are included in the estimates for remote gambling.

There is a distinction between betting and gaming. Online gaming is excluded from the core definition of betting in this study, however, the strong link/ co-dependency between this and the sports industry – particularly horseracing – is recognised.

High street shops(including betting

premises machines)

On-track

Telephone

Internet Sportsbook

Internet Exchange

Premises

Core Betting Industry

Remote

Supplychain

Sports(including

horseracing,football and

other)

Gaming, Bingo, Poker,

Casino

Overview and definition of the Core Betting Industry

Key stakeholders in the betting industry

Key stakeholders

Bookmakers

Consumers

Industry TradeAssociation

Machineproviders

Shareholders

Competition(other gambling)Gambling

Commission

IndependentBetting Arb.

Service

ResponsibleGambling

Strategy Board

Responsible Gambling

Trust

Departmentfor Culture Media

& Sport

HM Treasury

HM Revenue& Customs

Industry suppliers

Betfred Coral

William Hill Ladbrokes

Small and medium

sized firms

Remote Operators

Key stakeholdersThe figure below outlines industry composition with the four large high street players from the British Betting market (Betfred, Coral, Ladbrokes, and William Hill). The Tote was acquired by Betfred between the time of the Full Picture and this refresh.



12

Economic impact frameworkThe framework from 2010’s ‘Full Picture’ report is repeated here to illustrate the type of impacts the industry has on the British economy.

The development of this framework drove the research conducted for the 2010 study and replicated in this refresh report.

A number of the impacts embodied in the framework, represented in dark blue in the centre of the diagram, are quantified in the modelling analysis in direct, indirect and induced terms. The analysis here accounts for leakage due to unregulated markets outside the scope of the study and direct and import leakage arising from betting with firms domiciled outside the UK and overseas supply-chain purchases respectively.

‘Broader’ economic effects – to the right of the diagram – are considered ‘off-model’. In some instances the analysis is inclusive of quantitative evidence – such as workforce composition – whilst other aspects – such as Corporate Social Responsibility are non-quantifiable.

Finally, the study is also cognisant of key market and policy influencers which shape industry fortunes, and which are considered as part of the Industry Dynamics analysis in Chapter Five.

Direct

Leakage

Indirect(Supply-

chain)

Induced

Market and policy influencers

Market conditions Win rate

‘Broader’ economic effects

Innovation

Unregulatedmarket

Loss toInternational

markets

Economic impact framework of the betting industry

Governmentpolicy

Tax policy(Corporate

& individual)

Corporate & Social

Responsibility

Unregulatedbetting

Industryperception

Industryperception

Workforce composition

Socialimpact

Spacialdimension

Employment

Turnover

Output (GVA)

Tax Earnings

Initial economic effects

Betting industry




3. Quantified economic impact



14

Quantified economic impact

This chapter details estimates of the direct, indirect and induced economic contribution of the British Betting industry in 2011, explaining how estimates have been made, and how they differ from the original work carried out in the ‘Full Picture’ looking at 2008.

3.1 Direct impact of the British Betting Industry on the UK economy Employment estimatesThis study makes use of the 2011 annual survey of ABB members conducted by RSBM to obtain an estimate of direct employment in the retail component of the betting sector. This gives full consistency with ‘The Full Picture’ report (2010), which estimated the impact of the industry in 2008.

Other estimates of employment are available from the Gambling Commission and a recent study into the sector by the Centre for Economics and Business Research (CEBR).

The ABB survey gives a 2011 headcount of 44,300 jobs with full-time equivalents (FTEs) – an adjusted estimate of employment accounting for part-time workers working fewer hours – of 35,800.

Gambling Commission data suggests an FY 2010-11 headcount of 54,300 in shops, with 6,100 remote workers. The Gambling Commission does not provide data on an FTE basis for comparison but adopting the same ratios as seen in the ABB Survey allows an estimate of the likely levels of FTE employment. On this basis, FTEs amount to 43,900 in retail and 4,900 in remote betting.

Finally, CEBR’s 2009 headcount is 55,000, with 41,000 FTEs. CEBR does not provide an estimate of workers from remote betting.

ChangesABB data shows that total retail staff numbers are broadly level with 2010 estimates but FTEs have fallen by 3.9 per cent – showing that the number of full time roles has fallen – in keeping with the broader pattern across the UK economy, where employment has remained broadly static in the face of falling GDP.

In 2008, the year on which ‘The Full Picture’ was based, the ABB Survey indicated retail employment of 36,700 in British Betting. The latest estimate of 35,800 FTE jobs therefore represents a 900 job reduction (2.5 per cent).

Gambling Commission estimates show that headcount employment in retail dropped from 60,300 in FY 2008-09 to 54,300 in FY 2010-11. The drop of c. 6,000 represents a 10 per cent decline over this 2 year period.

Even allowing for methodological and timing differences, both ABB and Gambling Commission estimates suggest that there has been a significant drop in retail employment over the last 2 to 3 years.

This could be partially attributed towards consumer habits over the course of the recession; Lottery-based gambling increased its share of consumer wallet by 8 per cent over the period. Additionally, the shift in consumer behaviour towards online and mobile channels may be negatively affecting the retail sector.

However, as subsequent analysis shows, levels of expenditure in retail have increased. While the decline in OTC betting has impacted on employment levels, revenues have been sustained by increases in machine revenues.

More significantly than shop-based employment, remote employment figures have dropped 32 per cent over the period according to the Gambling commission; again, this can be attributed to the competitive pressure-induced relocation of many remote gambling arms to offshore locations, the decline of telephone betting, and efficiencies.




Direct EmploymentOn the basis of the ABB survey and other evidence from the Gambling commission and public sources the model uses the following direct employment inputs:

• 35,800 full-time equivalents (FTEs) in retail betting;

• 3,000 full-time equivalents (FTEs) in remote betting; giving; and

• 38,800 full-time equivalents (FTEs) in British betting.

The estimate of 3,000 FTEs in remote betting is some way short of the 4,900 implied FTEs from Gambling Commission data. The data used here in this analysis includes a 40 per cent reduction in our own estimate of remote betting to account for the fact that a significant proportion on those employed in remote betting are also employed to work on remote gambling, which is beyond the scope of this study.

Both Gambling Commission and Deloitte estimates are consistent in terms of the direction of travel. Each suggests a fall in remote employment of over 25 per cent since 2008.

Direct expenditureAccording to the Gambling Commission, the British Betting Industry generates expenditure of £3.6 billion for the British economy. This consists of £2.95 billion generated from betting premises (which includes licensed betting offices or LBOs) and the remainder from telephone, internet and exchange betting organisations.

The figure is based on the latest data from the Gambling Commission analysis of the UK regulated Betting Industry. This shows that the retail betting sector has grown 1 per cent since 2008. The breakdown of retail expenditure is shown in the adjacent pie chart and shows that a large proportion (57 per cent) is made up from betting. This includes betting on horseracing, greyhound racing, football, other sports and other events. However, 37 per cent of spend in retail is now generated from machines.

UK Betting Expenditure (GGY), 2008 – 2011

GGY, £m

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Remote

2008/2009 2009/2010 2010/2011

Retail

2,903 2,808 2,945

641462

492

3,543

3,2703,436

Year

Source: Gambling Commission Industry Statistics, 2008-2011

Despite this increase in retail expenditure, the overall contribution of the Betting Industry has fallen since 2008. This has been due to a fall of 17 per cent in UK-regulated remote betting expenditure over the period, as estimated by the Gambling Commission.

This decline comes as many UK based betting companies relocate their remote arms overseas. Whilst there are numerous drivers for off-shoring the main driver is unarguably the significant tax benefits in certain off-shore locations, such as lower (if any) betting taxes and the removal of irrecoverable VAT. This can be confirmed by comparing the UK consumer remote betting market which has grown at 23 per cent over the period, which matches the growth rate for global remote betting expenditure.



16

The expenditure data used for this study again comes from the ABB survey:

• £2.8 billion in expenditure terms (gross win) in retail establishments;

• £0.7 billion in expenditure terms (gross win) in remote betting; giving

• £3.5 billion in expenditure terms (gross win) in British betting.

This total is some 6 per cent lower than the expenditure estimate used in ‘The Full Picture’ and reflects a fairly flat revenue stream in retail but a significant fall in remote revenues: a fall of 23 per cent over the intervening three years. This is in keeping with the fall in remote revenues published by the Gambling Commission.

Direct GVAGross Value Added (GVA) is a measure of economic output analogous to GDP.1

The direct GVA data used for this study is based upon ABB survey data for retail and the levels of expenditure shown above and industry average ratios of GVA per unit expenditure for remote betting.

This gives the following estimates of direct GVA:

• £1.8 billion in GVA terms in retail establishments;

• £0.4 billion in GVA terms in remote betting; giving

• £2.3 billion in expenditure terms (gross win) in British betting (total not summing due to rounding).

For the retail betting industry this represents a fall of c. 16 per cent from the 2008 results, and comes as a result of falls in both profitability and employment costs over that period.

The fall in remote GVA since 2008 is much more significant, at 45 per cent. This is also due to falling profitability and employment costs, but the latter is much more significant for remote betting, because the level of employment has fallen by c. 25 per cent as more organisations have offshored – a percentage fall 10 times faster than the retail betting industry.

Direct impact summary

1 If the Value Added generated by each sector of the economy is aggregated across all sectors it gives national GDP, save for minor adjustments for certain taxes and subsidies. It is important, however, that the contribution of each firm or sector is not double-counted in this process. By simply aggregating the revenues accruing to each firm or sector, economic impact would be overstated: what we are interested in is the ‘ValueAdded’byeachfirm or sector at their level of production. This Value Added consists of the returns on resources employed, namely: profits generated, wages paid and (relevant) taxes paid It excludes everything else composing a firm’srevenue–i.e. itexcludes non-labour costs: the value of intermediate inputs to production (goods and services) sourced from other organisations up the supply-chain. These inputs feature in the Value Added of organisations in the supply-chain, and to include them would be to double-count.

2011 2008

Direct Employment (FTE)

38,800 40,700

Expenditure (£m)

3,500 3,700

Value added (£m)

2,300 3,000

3.2 Total impacts in 2011As well as the direct impacts outlined in the previous section, the British Betting industry also generates employment and economic activity elsewhere in the economy – both upstream and downstream.

Using a bespoke Input-Output model of the UK economy the analysis estimates the level of upstream economic activity in the business-to-business supply chain and due to related consumer spending from the direct, day-to-day activities of the British Betting Industry.

The results of this are summarised in the table and schematic below:

Total impact summary

2011

Direct Employment (FTE) 38,800

Expenditure (£m) 3,500

Value added (£m) 2,300

Indirect Employment (FTE) 26,000


Induced Employment (FTE) 35,500


Total Employment (FTE) 100,300





Direct employment impacts of 38,800 FTEs account for 39 per cent of the total impact. Indirect and induced impacts account for 26 and 35 per cent respectively.

Considering GVA as a measure of economic output the balance is different. In direct terms the industry accounts for £2.3 billion in GVA – 46 per cent of total and 22 and 34 per cent respectively in indirect and induced terms.

This infers that the productivity of workers in the British Betting Industry (GVA per FTE) is marginally higher than the productivity of workers in the supply chain of the British Betting Industry.

Direct GVA Impact of British Betting (£2.3bn)

Indirect GVA B-2-B Impact of British Betting (£1.1bn)

Induced GVA Consumer Spending Impact of British

Betting (£1.7bn)

Direct Employment Impact of British Betting (38,800 FTE)

Indirect B-2-B Employment impact

of British Betting (26,000 FTE)

Induced consumer spending Employment

Impact of British Betting(35,500 FTE)



18

Indirect and induced effects on GVA by sectorThe direct effects of the British Betting industry come exclusively in the Recreational Services sector. The chart below details how the effects of direct activity in the Betting Industry generate knock-on benefits to other sectors of the UK economy – in this case in terms of Value Added (VA).

Recreational services

Letting of dwellings

Retail distribution

Banking and finance

Other business service

Hotels, catering, pubs etc

Market research, management consultancy

Membership organisations nec

Wholesale distribution

Computer services

Owning and dealing in real estate

Motor vehicle distribution & repair, fuel

Architectual activities and tech. consult

Telecommuncations

Advertising

Education

Ancillary transport services

Other land transport

Construction

Insurance and pension funds

0 50 100 150 200 250 300 350

Value added by top 20 sectors (£m), UK, 2011

47

282

191

115

48

126

29

7

87

37

55

65

20

42

20

34

33

40

40

389

11

12

25

25

50

29

52

11

22

59

19

102

91

8

87

27

256

Indirect Induced

Recreational services is the most significant industry in the supply chain. This is due primarily to the Betting Industry sourcing a significant proportion of intermediate inputs from others in the same broad sector.




Spending on rented accommodation, retail, banking and finance and hotels and catering is largely due to the spending of the wages paid by the betting industry to employees.

A number of other sectors benefit from business-to-business purchases by Betting, including business services, market research and management consultancy, membership organisations, computer services, technological services, and advertising.

The chart only shows the top 20 ranked industry sectors benefitting from the Betting Industry, but as all industries and consumers are interlinked, at least some small proportion of revenue in each sector of the economy can be linked back to activity in the Betting Industry.

Breakdown of receipts from betting and gaming duties, 2010/11

24%

11%

14%7%

45%

Betting Gaming Amusement License MachineBingo Lottery

Source: HMRC

Source of tax revenueBetting duties accounts for 24 per cent of all betting and gaming duties to HMRC. Although this is down from the 27 per cent figure observed in 2008, betting duties remain the second largest tax revenue stream after lottery duties (45 per cent). This is shown on the pie chart.



20

Amusement License Machine Duty (ALMD) contributed 14 per cent of the total betting and gaming duties in 2010. This figure has remained consistent over the last 4 years and confirms that machines remain a key part of the betting and gaming industry.

In 2010, the betting industry paid roughly £350m in duties. The majority of this is from general betting activities (94 per cent) and the rest from pool betting activities.

As well as this, estimates from the 2011 ABB Survey show that total VAT paid by the industry in 2011 was £294 million, which includes £240 million collected less £67 million recovered, plus £121 million paid through suppliers. Corporation tax receipts from the industry were £156 million on top of this in 2011.

3.3 Changes in economic contribution: 2008-2011Sections 3.1-3.2 detailed how some of the estimates of direct impact had changed over the course of the last few years.

In summary, direct Gross Value Added fell significantly due to lower profitability and falling employment costs. This latter effect came on the back of falling FTE levels in the industry cutting wage bills. Expenditure levels (gross win) fell by over 5 per cent according to our estimates, driven mainly by falling remote revenues.

2 The Full Picture used ONS 1995 DUM, the latest available, but this has since been updated to provide a 2005 version, which has been used here as it represents a more up-to-date summary of linkages in the UK economy.

2011 2008 per cent change

Direct Employment (FTE) 38,800 40,700 4.7

Expenditure (£m) 3,500 3,700 5.4

Value added (£m) 2,300 3,000 23.3

Indirect Employment (FTE) 26,000 26,600 2.3

Value added (£m) 1,100 1,500 26.7

Induced Employment (FTE) 35,500 35,700 0.6

Value added (£m) 1,700 1,600 6.3

Total Employment (FTE) 100,300 103,000 2.6

Value added (£m) 5,000 6,000 16.7

The table below also shows how indirect, induced and total effects have changed since the 2008 data was published in ‘The Full Picture’.

Indirect effects through the business-to-business supply chain are lower than in 2008, and this largely stems from the changes in direct employment and Gross Value Added.

The major difference is in the Gross Value Added through induced consumer spending, which is 6 per cent higher than the 2008 estimate. The main reason for this is changes to the UK Domestic Use Matrix (DUM) used in the Input-Output model, where the negative effects of a smaller direct contribution from the industry are more than offset by changes in purchasing patterns.2

Even in spite of this, in aggregate the estimates are significantly lower in 2011 than the 2008 estimates. Employment associated with the British Betting Industry is now 2,700 FTEs lower (3 per cent), and GVA is almost 17 per cent lower than estimated in 2008 due to lower levels of profitability and labour costs in the betting industry itself.




4. Wider impacts



22

Wider impacts

4.1 Links with other industriesLinkswithotherindustries–Horseracing The relationship between horseracing and betting continues to be important and symbiotic ... Betting and Horseracing are closely interlinked. As highlighted in the 2010 report, the horseracing and betting industries are mutually beneficial to one another.

Horse racing drives a significant amount of betting revenue – the 2011 ABB survey indicates that horseracing generated OTC gross win in shops of £690 million in 2011, just over 50 per cent of all OTC gross win in shops.3 The bulk of this (£570 million) pertained to UK horseracing.

But the benefits flow in each direction: whilst without horseracing, the Betting industry would not only lose a significant portion of its revenues, likewise, the Betting industry is essential to Horseracing – in 2008, the Betting Industry contributed 15 per cent of Horseracing’s direct annual income4 (Levy, media, on-course betting and sponsorship relationships) and remains an essential part of the ‘racing experience’.

In 2010, bookmakers contributed approximately £130 million to the Horseracing industry, of which £75 million was through the ‘Levy’. (BHA website)

... however, this relationship has reduced in significance over recent years. While Horseracing still accounts for the majority of betting revenues, this proportion has gradually diminished over the last two decades. Betting operators have diversified in response to a decline in horseracing revenues and now customers a far wider range of betting products, encapsulating not only other sporting alternatives but also new platforms such as machines and virtual racing.

This diversification is reflected in gross win figures across the Betting Industry. According to the latest ABB survey, between 2008 and 2011, the OTC gross win from British Horseracing for the British Betting Industry fell from £740 million to £570 million, representing a 23 per cent decline.

This chapter contains insights on the way in which the British Betting industry relates to other areas of the economy.

The Levy is currently charged at 10.75 per cent of gross profits gained from racing. Levy receipts have fell from £115 million to £75 million between 2008 and 2010, representing a 35 per cent decrease over the period.5

This has partly been due to falls in industry profitability (including the effect of betting exchanges on existing bookmaker margins) as well as the relocation of numerous remote betting arms to overseas locations where, much like the GPT, Levy contributions are not mandatory. However, 2008 is not held to be a particularly representative year: one where high-roller revenue was unusually high.

This symbiotic relationship will continue to be important for both industries, and potential future trends are considered later in Section 5.

Linkswithotherindustries–Advertising

The Gambling industries spend on advertising supports the sector directly ...6

Since 2007, when changes introduced by the 2005 Gambling Act were implemented, television advertising restrictions have been reduced for gambling companies. As a result, gambling operators’ advertising spend has increased to £150m in 2010 – its highest level – as gambling companies seek to take advantage of the channel’s reach.

Up until 2007, the majority of above the line gambling promotion was done via Press advertising. However, operators now see television as the most effective form of promotion, with 48 per cent of total adspend in 2010 going via this medium.

Aside from above-the-line advertising, internet-based promotion has increased significantly – by around 350 per cent between 2007 and 2011. This has been due to companies such as Google opening up their platforms to gambling advertising.

3 Mintel–BettingShops2012 suggests that Horse Racing GGY is 47 per cent of over-the-counter GGY in 2011 (£705m out of a £1,481m total), making it the largest component of OTC gross win

4 From DeloitteBHA report, 2009

5 These figures (and paragraph above) are from the BHA website–http://www.britishhorseracing.com/levy/about-the-levy.asp

6 Much of this adspend is conducted by, and raises revenue, for offshore. However, the UK advertising industry still benefits directly from this spend.




This growth can be expected to continue as further platforms allow such advertising; Facebook, the world’s leading social media site, has agreed to allow targeted advertising of land-based gambling venues. Not only will this targeted advertising over social media allow more effective advertising of gambling products, but it can also help reduce exposure of underage and problem gamblers to such promotions.

... and indirectly increases awareness of sports through event-related advertising.

The investment made by betting organisations can generate positive externalities as it also indirectly provides marketing for sports. Traditionally, there have been significant ties between gambling and horseracing, but now other sports have started to catch up. In 2011, 11 per cent of gamblers bet on horse racing and 8 per cent bet on other sporting events.

The sporting sector has become the key focus for gambling promotion year after year; in 2011 alone, 32 per cent of adspend was in the sports sector – the highest of any sector. This shows the sporting sectors increasing importance to the betting industry.

This mutually beneficial relationship has allowed both industries to benefit from one another, and as targeted advertising platforms continue to open up online, the sporting industry can benefit further from targeted and proximity based indirect marketing.

UK Gambling operators advertising spend, 2007-2010

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010

Outdoor Radio Direct mail InternetPress TV

Source: Mintel Gambling Review 2011

4.2 Earnings and employmentEarnings and employment The UK, and therefore Government, is facing high unemployment rates by historical comparisons although there have been tentative signs of improvement of late. Jobs remain scarce and, subsequently, competition for vacancies is fierce. As such, many unqualified and unskilled workers are finding themselves out of work.

The industry provides opportunities for those with few formal qualifications and thus a step on the employment ladder.

Lower productivity occupations and thus lower wage occupations provide a vital step on the employment ladder for many reaches of society for whom other, more skilled roles would be out of reach. The skills profile of employees in the Betting Industry helps to explain the sector’s relatively low performance in productivity and earnings terms.

The Gambling and Betting industry has a relatively high number of its total jobs filled by employees with no qualifications, shown by the chart below.

Selected industry employment, by qualification, 2012

Crop, animal production, hunting

Manufacture of wearing apparel

Manufacture of textiles

Services to buildings and landscape

Domestic personnel

Gambling and betting activities

Insurance, reinsurance and pension

Manufacture of pharmaceuticals

Legal and accounting activities

Computer programming and consultancy

Extraterritorial organisations

0% 20% 40% 60% 80% 100%

Degree or equivalent Higher education GCSE A Level or equivalentGCSE grades A-C or equivalent Other qualifications No qualification

Source: Quarterly Labour Survey, January – March 2012



24

Around 13 per cent of those working in Gambling and Betting activities have no formal qualifications, only 7 of the 89 2-digit SIC industries in the UK have higher proportions, and this is twice the all industry average for the UK.

This suggests that the industry can help to reduce unemployment and boost employment opportunities. An equal proportion (13 per cent) hold a degree or further degree – this is much lower than all but 7 industries in the UK and highlights this has major implications for progression within the firms in the industry.

Without the benefits from the Betting Industry there would be less employment choice for those most in need of work. This highlights how the industry interacts with employability and the social policy agenda through subtle employment benefits.

... with part-time opportunities ... The industry also provides more part-time jobs for both male and females than the Great Britain average. In 2011, the percentage of jobs occupied by female, part-time workers across Great Britain was 24 per cent, compared with 29 per cent in the Gambling and Betting industries.

Part-time employment rates, industry vs total, 2011

0

5

10

15

20

25

30

35

40

45

%

15%

8%

29%

24%

44%

32%

Male P/T Female P/T Total P/T

Gambling and betting Great Britain

Source: Labour Force Survey, JOBS03, May 2012

Thus, the type of job opportunity on offer fits well with the Government’s stated aim of providing employment opportunities for females traditionally less likely to engage with the labour market in a full-time role.

... increasing opportunities for lower skilled workers Further to this, evidence from consultations suggested that where there have been cases of high unemployment, the industry could help to support and develop employment.

This is not just in the traditional sense of additional full-time jobs, as the industry can provide opportunities for students, parents and those not able to fully participate in the labour market who may want part-time of seasonal work. These subtle employment benefits can help increase equity to lower skilled or less able workers.

4.3 Regeneration and placemaking

Therehasbeenamovefrom‘Side-Street’toHighStreet ...

Recently, elements of the retail estate of the British Betting Industry have made the move from ‘side-street’ to high street. An increase in vacant retail space on the high street, due to the recession, has allowed the industry to benefit by moving to more prominent premises. There has been some social commentary suggesting that betting shops detract from an area’s retail offer and may prevent other businesses from taking up vacant space in the vicinity, but there is evidence from planning experts that betting shops actually drive greater footfall on high streets than standard retail units.

... and higher footfall level can help to attract other retail business ...

The betting industry can act as a catalyst to generate critical mass effects – in particular, the high footfall associated with retail betting shops can help increase the level of consumer activity within the surrounding area. As such, other businesses can benefit from locating themselves near these hubs of consumer presence. Consequently, the existence of betting shops in otherwise degenerating areas can increase the overall economic activity for nearby businesses.




... and the industry also supports employment in small rural areas ...

Although industry employment data suggests the majority of Gambling and Betting firms are located within urban areas, there is also evidence to suggest that the industry contributes to employment in more rural areas. This is likely to occur particularly through links to the horseracing industry, which tends to take place in more rural areas.

Population in the gambling and betting industry in urban areas, 2011

Population classified as urban (% total)

Employment in gambling and betting (% total)

East Lindsey

Source: ONS and Deloitte Analysis

0

20

40

60

80

100

3.532.521.510.50

West Somerset

Tendering

Scarborough

Great Yarmouth

These outliers represent headoffice presence

Three RiversHarrow

Hammersmith and FulhamThanet

Southend-on-SeaWindsor and Maidenhead

... but such benefits may be under threat from the increasing prevalence of non-retail gambling channels.

While head offices presence creates significant employment opportunities in certain areas, the increasing consumer shift towards online and mobile channels can negatively impact the local benefits enjoyed by retail-based establishments. Between 2009 and 2010, the penetration of smartphones has increased 30 per cent – presenting additional marketing opportunities for bigger firms, it also gives consumers the ability to bet without needing to visit a betting shop.



26

Additionally, the tax relief experienced by overseas-based remote betting establishments potentially allows them to offer better prices or more attractive marketing to consumers, which will place a continuing strain on small and independent retail-based betting establishments hoping to maintain their customer base.

Participation in remote gambling, by platform, 2006-1010

0

1

2

3

4

5

6

7

8

9

10

%

3%2%

4%

2%

4%3%

2006

Computer Mobile phone

Source: Mintel

2%

8%

3%

10%

2007 2008 2009 2010

4.4 Tax burdenThe British Betting Industry pays more tax in relative terms than the average sector across the economy (measured on taxes paid and collected as a percentage of all turnover, profit or GVA). This is because the industry is subject to specific betting duties and irrecoverable VAT, tax impacts that most businesses are excepted from.

In 2011 it is estimated (from ABB survey data) that the sector contributed just under £1 billion to the exchequer in absolute terms, and this level of tax is equivalent to that paid in 2008.

This represents 41.9 per cent of GVA, 120 per cent of profits and 32 per cent of revenue.

Whilst comparators for all of the above are not easily made, the average amount of tax paid as a proportion of GVA is 33 per cent, some 9 per cent lower than the Betting Industry.

4.5 Corporate and Social responsibilityThe British Betting Industry is a responsible sector and contributes to the CSR agenda through schemes associated with the likes of:

• Initiatives for community involvement;

• Dealing with responsible gambling;

• Fundraising and charitable contributions; and

• Schemes to create employment and improve skills for the underprivileged.

Below are a series of examples from industry stakeholders:

Community involvementABB’s‘SafeBetAlliance’wonaHomeOffice Award in recognition of its innovative crime-fighting projects which helped to cut industry’soffencesinLondonby46percent.The Safe Bet Alliance was launched in March 2010, bringing together the ABB and its members with the police, local authorities, Community Union and the Institute of Conflict Management to address the issue of violence and robbery in betting shops.

In Ealing, the ABB have sponsored a diversionary project established by the Southall Community Alliance. The project, conceived and managed by the Alliance, is a one year positive diversionary project that seeks to give disadvantaged young people from different backgrounds the chance to acquire new creative and artistic skills. It will involve 25 local young people.

In Hackney, the ABB have sponsored a counselling service for people who have to care for loved ones. The service is run by the City and Hackney Carers Centre. The funding will cover 50 per cent of the cost of the counselling which helps people in the Hackney area who act as full or part time carers for relatives or loved ones.




Tackling problem gamblingBookmakers fund and voluntarily contribute to independent bodies such as the RGSB (Responsible Gambling Strategy Board) and RGT (Responsible Gambling Trust). They are responsible for disseminating their funds with thelatestbreakdownoftheRGT’sexpenditurebeing: 8 per cent research, 5 percent education and 87 per cent treatment.

According to the BGPS, 2010 problem gambling rates in the UK were 0.7 per cent on the DSM IV measure (360,000) and 0.9 per cent of the population (460,000) on another. One measure showed problem gambling levels unchanged since the last survey in 2007, on the other the increase was said by the study to be ‘on the marginsofstatisticalsignificance’.At theselevels problem gambling in the UK has been almost stable for the last 11 years. Problem gambling levels in the UK are lower than rates measured in other industrialised nations such as France (1.3 per cent), South Africa (1.4 per cent), Hong Kong (5.3 per cent) and the USA (3.5 per cent).

This is testament to extensive industry efforts and voluntary fundraising to promote prevention, education and treatment of problem gambling. During a recent Panorama investigation for the BBC DCMS stated that “The commitments of the gambling industry towards the costs of treatment and research into problem gambling are sufficient” also adding that they are “content with the current voluntary approach”.

In 2011 it is estimated (from ABB survey data) that the sector contributed just under £1 billion to the exchequer in absolute terms, and this level of tax is equivalent to that paid in 2008.



28

Fundraising and charitable contributionsOver the last six years Coral has raised over £2.5 million for a number of staff-selected charities including the NSPCC, Cancer Research UK, Sue Ryder Care and Macmillan Cancer Support through dedicated corporate partnerships.

Jennings bookmakers have raised funds for TheRhysDanielsTrust;Sebastian’sActionTrust; and the Samaritans, amongst others.

Ladbrokes in the Community Charitable Trust has donated over £6.2m to good causes since 2003 to hundreds of charities across the UK including The Samaritans, Childline and the British Association of Adoption and Fostering. Last year the trust funded Christmas Dinners for over 10,000 older people in aid of Age UK.

William Hill contributed almost £1m in charitable donations in 2011, including £74,000 in matched funding for colleagues. Project Africa is their long-term programme in Kenya, partnering with the Island School to supporttheschool’scontinueddevelopment.In October 2012, the first William Hill team helped to build and fit out a library for the 350-strong primary school.

Employment and skillsLadbrokes recently worked with the Coalfield Regeneration Trust (CRT) to provide employment and training for 40 individuals as part of the CRTs drive to regenerate areas which used to be reliant on the coal industry.

Chisholm Bookmakers offer their staff the opportunity to take their NVQ in Gambling Operations, as part a company commitment to ongoing understanding of the Gambling Act and Social Responsibility. 70 per cent of their operational shop staff has this qualification. In addition, every new member of staff undergoes a comprehensive training programme that includes a half day Introduction to the Gambling Act training session followed by a further half day one to one training session with their District Manager. In shop training includes various aspects of social responsibility training which must be signed off before that member of staff is allowed to work unsupervised.

William Hill launched our Retail Academy for developing shop colleagues, conducted a talent review of their top 150 leaders and started a new programme to develop high potential managers. All colleagues now enjoy an extra day off to celebrate their birthday and the new William Hill Foundation provides a hardship fund to support colleagues in difficult times.

Ladbrokes in the Community Charitable Trust has donated over £6.2m to good causes since 2003 to hundreds of charities across the UK …




5. Industry trends



30

Industry trends

This context frames our analysis in terms of future prospects for the industry by considering the structure of the market, the consumer base and regulatory environment.

Marketstructure–presenting the industry profile in terms of gross win and margins.

Trendsinbetting–outlining the impacts of technology, growth in sports and exchange betting.

Consumers– spending patterns amongst consumers of the betting market.

Perceptions– highlighting current views of the industry.

Taxation– how the industry is/may be affected by current and future fiscal policy.

Regulations–how the industry is affected by regulations.

5.1 Market structure

Following the merger of Betfred and Tote, the LBO component of the industry now consists of 4 major players and a number of smaller independent firms and single operators.

According to information from ABB there were 8,722 betting shops as of 2011. This is up from 8,595 in 2010, and – as stated in the last report – up from 8,508 in 2008. This represents an increase of 1.5 per cent between 2010 and 2011, and an increase of 2.5 per cent between 2008 and 2011. These increases represent a return to health for the betting industry, which grew just 0.5 percent between 2007 and 2008 in terms of betting premises.

This chapter contains insights into a number of the current trends in, and issues facing LBOs and remote players in the British Betting Industry.

Betting shops – Total gross win exc. machines (£ million), 2011

10%

1%

89%

Independents (135)Big 4 (1,227)

Source: ABB data

Single shop operators (13)

Total gross margin on machines (£ million), 2011

9.1%

0.4%

90.4%

Independents (131)Big 4 (1,296)

Source: ABB data

Single shop operators (6)




Following the merger of Betfred and Tote, there are now four large players who dominated the British high street betting shop market: Betfred, Coral, Ladbrokes and William Hill, who together make up over 84 per cent of all betting shops, and account for approximately 87 per cent of gross win for the industry.

As was the case in 2008, single shop operators and independents continue to account for a very similar proportion of total gross win (excluding machines) and gross margin on machines, indicating that machines are still equally important to the revenue of all betting premises types.

5.2 Trends in bettingThe growth of mobile As predicted in the last report, increases in internet usage and smartphone penetration has led to significant growth in online and mobile betting.

It is estimated that remote betting GGY will have grown to over £845 million by the beginning of 2012 – an increase of 115 per cent from its figure of £393 million in 2007.8

This has been partially due to a significant rise in the uptake of smartphones. In 2011, the penetration of smartphones had reached 36 per cent of all mobile handsets, with this figure expected to reach 50 per cent by the end of 2012. Between 2007 and 2011, the percentage of adults who accessed the internet via a mobile phone has risen from 8 per cent to 25 per cent. Furthermore, remote connectivity infrastructure is increasing – broadband operators such as BT and Sky now offer hotspot access to their customers in numerous locations throughout the UK, and mobile operators are expanding their mobile data coverage and bandwidth.

Evidence of this mobile growth is already clear – between 2010 and 2011, the proportion of Ladbrokes remote customers betting on a mobile device had risen from 7 per cent to 18 per cent, while Paddy Power experienced a similar rise from 31 per cent to 35 per cent in the first half of 2011. For June 2012, 28 per cent of William Hill’s Sportsbook turnover came from mobile devices.9 Nearly all of this business is conducted offshore.

8 Mintel Online Gaming and Betting 2011

9 William Hill Annual Report 2011

10 Deloitte–Stateofthe Media Democracy Survey, 2012

While the increase in mobile gambling tends to be more prevalent in the younger and higher income demographics currently, this is not expected to remain the case.

Mobile gambling tends to be skewed towards the younger age groups and higher income deciles. While this is to be expected due to the ‘digital native’ status of the younger generations, and indeed the typically expensive nature of many of the smartphone models, there have been significant improvements to the user-friendliness of newer models and these devices are becoming significantly more affordable. As such, increases in smartphone penetration are unlikely to remain ring-fenced within their current demographics. Indeed, over time it might be expected that the demographic usually associated with shop-based betting will increasingly use mobile to place bets.

While tablet penetration rates are already largely similar across all age groups, their high price point and relatively limited practicality and mobility has limited their penetration and, compared to smartphones, their subsequent impact on the remote betting sector will be comparatively limited.10 Indeed, the usage of mobile and PDA devices for bet placing was over 3 times higher (13 per cent) than that of tablets (4 per cent).

The increasing prevalence of the remote betting channels provides a number of new opportunities to reach a wider range of customers more regularly.

Whereas traditional betting methods would require customers to physically visit a venue prior to an event to place a bet, customers can now bet on the move at their own convenience and, for sports, bet during the event itself.

In terms of market segmentation and demographics, there is a clear split in demographic between LBO customers and online customers. Mobile betting overlaps between the two.

Gaming via a mobile device was more than twice as common among those who like to gamble whilst doing other activities when compared to remote gamblers in general.



32

This has presented a number of key opportunities:

A significantly greater reach – with smartphone penetration figures on the rise, any smartphone user is a potential customer. From a sporting bet perspective, any individual watching at a pub is a potential customer, as are any of the thousands in attendance at sporting stadia around the country, or indeed anybody at home listening to an event on the radio or watching it on their sofa. This is a very important phenomenon for the industry.

With in-play betting having generated a stronger interest in sports betting, the betting industry should also be encouraged by increases in Satellite and digital TV subscriptions – having risen 51 per cent and 435 per cent since 2005, respectively – as this shows a significant increase in the number of potential remote customers.11 Furthermore, the increased utilisation of interactive digital TV for sports content provides a greater number of betting opportunities for customers out of betting premises.

A more fluid gambling experience for customers – customers betting using a mobile device have up-to-date access to relevant information that can help inform their betting decisions. Furthermore, with the advent of products such as Sky Player and BBC iPlayer, customers are able to use these mobile devices to view the events on which they bet. Sky Bet also recently allowed the 3G streaming of the Grand National race to those customers who had staked a minimum of £1 on the race.

The social media effect – of all mobile internet usages, social media ranks the highest (57 per cent). This has a number of impacts on the betting industry. Firstly, the decision by Facebook to open up its website to gambling-related advertising will allow targeted and location-specific advertising to a large number of users via the same device that an increasing number of people are using to place bets. Furthermore, the information held by these social media platforms – for example, a user’s interest in X Factor – will allow growth of the non-sports betting sector via targeted advertising which are otherwise harder to market to customers.

In August 2012, Facebook launched its first real-cash gambling app, “Bingo Friendzys”. Although this service is currently limited to Bingo and Slots, it is the first step towards more fully integrated gambling and social media platforms, and sports betting could be a future addition in this space.

An opportunity for partnerships – the rise of the mobile sector has provided an opportunity for betting operators to generate further revenues outside of their premises by partnering with other industries.

Other opportunities that could become more prominent are via the creation of smartphone app partnerships. A large UK betting operator has partnered with Racing Post on an exclusive app which provides the consumer with all of the up-to-date racing information and tips from the Racing Post and links them to their customer account, allowing customers to place bets at the touch of a screen.

Moreover, stakeholders noted in the ‘Red Tape Challenge’ submission, that:

“The current licensing conditions prohibit use of technology in shops. In this day and age it makes sense to respond to popular demand and enable technology to be promoted and utilised. LBO operators are willing to ensure that when customers use their mobile devices (iPads, tablets, mobiles) in shops, consumer protection requirements and taxation are provided to the Government. They also want the ability to market their own online sites to customers inside their own premises to avoid unfair competition.”

There is thus a wider point here about the ability to promote technology/online offerings in their own betting shops, as well as with other businesses, which could lead to industry growth.

11 Mintel Online Gaming and Betting 2011




Horseracing Industry interrelationshipThe aforementioned partnership opportunities are of particular significance to the horse-racing industry, as it allows them to generate income from the remote betting sector which has become more difficult for them following the offshoring of many operators – these remote arms are, much like Gross Profits Tax, exempt from paying the Levy.

As mentioned in Section 4 and the ‘Full Picture’, there is an interdependent relationship between the Betting industry and the Horseracing industry. While the diversification and offshoring of betting operators has impacted on the Horseracing industry in recent years, there have been new developments which could help revive the Horseracing industry and repair the relationship it has with the Betting industry.

Another issue that has troubled the racing industry in particular is that of betting exchanges and the effective exemption of punters from tax on these platforms.

Betfair pay a voluntary contribution of 10.75 per cent of their commission from UK customers on British racing to the racing industry – a move which could be worth up to £40 million over the next five years.12

A key arrangement of this deal is that Betfair has asked racing to deliver a minimum number of fixtures and runners per race going forward. This proposal was originally mooted by the ABB and could be part of a long-term deal between betting operators and racecourses in the future, which would help generate further income for the racing industry.

The Government is consulting around the future funding of racing which will help secure prize money levels over the long term. The receipts gathered from the current Levy are used to invest in the Horseracing industry – for example, infrastructure, veterinary welfare, training programmes and integrity services. If the consultation delivers a mutually beneficial solution to both betting and racing, they will both have long-term certainty and may be in a position to invest further in the development of the racing industry and attempt to arrest its decline.

The advent of NFCOne area that has significant potential to influence the betting and wider gambling industry is the rising prominence of near field communication (NFC), which allows transactions to be made by tapping your NFC-enabled device against a sensor. While this technology is already in widespread use within the UK on Oyster cards and NFC-enabled credit cards, it is the combination of NFC technology and smartphones which provides the real opportunity in the gambling and betting industries.

A Deloitte study predicts that in 2012, shipments of NFC-enabled devices will grow 100 percent to almost 200 million devices. In 2013, there may be as many as 300 million NFC-enabled smartphones, tablets and eReaders sold – this compares to 2010 when fewer than 50 million devices were sold.13

Hardware aside, providers of payment services are developing their offerings to include NFC facilities. PayPal have recently started trialling NFC payments at the point of sale with two Swedish retailers. Furthermore, Android smartphones are compatible with Google’s eWallet.14,15

The betting industry can benefit from this technology by allowing punters to place bets and collect winnings without having to handle a bet slip. It will also help operators keep a better track of customer account activity to help inform marketing and cross-sell strategies, which is more difficult in a traditional OTC environment.

Indeed, there are already some examples of this penetrating the gambling industry. In Greece, Intralot have created a ‘Tap ‘N Play’ NFC-based lottery function, whereby customers can play lottery games without having to hand over cash or worry about a paper ticket. Similarly, NextWallet allows two-way money transfer between Android smartphones and slot machines.16,17

While the penetration of such technology will depend largely on future legislation, it could have significant benefits for the industry as money-handling overheads are reduced and operators are able to develop richer marketing information.

12 http://www.britishhorseracing.presscentre.com/Press-Releases/British-Racing-and-Betfair-Sign-Landmark-Commercial-Agreement-2ca.aspx

13 TMT Predictions 2012, Deloitte

14 http://www.mobilecommercedaily.com/paypal-tests-nfc-payments-app

15 http://www.wired.com/business/2010/11/android-wallet/

16 http://www.nextwallet.org/index.php/9-uncategorised/74-nextwallet

17 http://gamblingupdate.blogspot.co.uk/2012/05/intralot-introduces-tapnplay-solution.html



34

Rise of the machinesIn 2011, just under half of all UK betting shop revenue came from electronic gaming machines.

While revenues on OTC18 products has remained largely static since 2009, revenue from electronic gaming machines in betting retail has grown 10 per cent over the same period, confirming the predictions made in the previous report.19 Considering these growth rates, the machine sector could be pulling in the majority of betting shop revenue before the end of 2012. (Data from Mintel – Betting Shops/Gambling Commission).

As such, the announced introduction of Machine Gaming Duty (MGD) could have a significantly negative effect on the betting industry. While it is estimated that a MGD rate of 15-17 per cent would be a ‘tax neutral’ switch from the current AMLD and VAT tax regime, the proposed MGD rate is 20 per cent.20

While this will have a negative effect on the large high street betting shops who generate a large amount of revenue from these machines, it is the small shops who will feel the brunt of this tax change.

This could lead to shop closures and a change in the make-up of the industry on the high-street.

Football betting becoming more prevalentAlthough horse and dog race betting still account for the majority of OTC turnover, they are both in decline, despite being the only betting product still prevalent in gamblers aged 55 and over. Between 2008 and 2011, horse and dog racing GGY fell 21 per cent and 24 per cent21 respectively.22 This was predicted in the previous report.

However, OTC football betting turnover has increased from £949 million to £1,050 million over the same period, amounting to an 11 per cent rise between 2008 and 2011. This relies to some extent on the major football tournaments to drive GGY – in 2009, the yield in football betting actually declined from the previous year, only to be saved by GGY growth driven by the 2010 FIFA World Cup. These bi-annual football events will continue to be important for driving betting sector expenditure.

In gross win terms Football has held steady in OTC terms, whilst all other betting types have seen a fall in OTC gross win. As the chart shows, at £220 million in 2011, Football now accounts for 16 per cent of OTC gross win – up from 13 per cent in 2008.

OTC gross win, 2011

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2008 2011

740570

130

340

220

80

190

120

250

220

50160

Other betting Other sports bettingUK football betting Greyhound racing bettingOverseas horseracing bettingUK horseracing betting

Source: ABB Survey

However, both UK horseracing and greyhound racing now account for a lower proportion of total gross win than in 2008: 42 per cent down from 44 per cent; and 18 per cent down from 20 per cent respectively

5.3 Consumers

Average household spendData from the Family Spending Survey 2011 highlights the average weekly spend per household across the regions within Great Britain.

The national average spend per week on gambling is £3.30, a minor increase from its 2007 figure of £3.26.

The data shows that London has the lowest level of weekly household spend as a percentage of total yet this is where a large concentration of betting premises operate.

Weekly spending as a proportion of total remains high in the North East (1.1 per cent), but gambling spend is at its highest in the South East, rising 0.5 per cent from 2007 to 1.2 per cent in 2010.

Overall the rate of participation in gambling increases with household income up to around £35,000, above which it declines – this is consistent with insights drawn from 2007.23

18 OTC (Over the Counter) refers predominantly to bet slip receipts. They currently also include figures of the Self Service Betting Terminals (SSBTs), but these are in their trial period and figures are immaterial

19 2011 ABB survey

20 http://www.telegraph.co.uk/finance/budget/9158889/Budget-2012-New-gaming-machines-tax-puts-11000-jobs-at-risk.html

21 2011 ABB survey

22 This could be revenue neutral to operators, as these stakes may be merely placed on machine-based equivalents of each sport.I’venotfounddata that can support this, however. There is potential to mention that operators are incentivised to drive non-OTC (i.e machine/remote) consumption of horse racing to avoid Levy charges

23 DatafromONS–FamilySpending 2011




Weekly spending as a proportion of total increases with age, with people over 65 spending more than twice the proportion of their weekly income compared with people under 50.

Weekly household gambling spend (per cent of total spend), by region, 2008-2011

London

East Midlands

South West

West Midlands

England

Wales

Northern Ireland

United Kingdom

Yorks & the Humber

North West

East Midlands

Scotland

North East

South East

0% 0.3% 0.6% 0.9% 1.2% 1.5%

0.4%

0.5%

0.5%

0.6%

0.7%

0.7%

0.7%

0.7%

0.7%

0.7%

0.9%

0.9%

1.1%

1.2%

Weekly household gambling spend (per cent of total spend), by income decile, 2010

Lowest

Second

Third

Fourth

Fifth

Sixth

Seventh

Eighth

Ninth

Highest

All

0% 0.3% 0.6% 0.9% 1.2%

0.9%

0.9%

1.0%

0.8%

0.6%

0.7%

0.5%

0.6%

0.5%

0.2%

0.6%

1.2%



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Types of gambling

Approximately 73 per cent of the adult population take part in some form of gambling.

About 35.5 million adults, or 73 per cent of the population, take part in some sort of gambling.24

Slightly more men gamble than women (75 per cent of men compared to 71 per cent of women), but this gap has closed since 2007 where the figures were 76 per cent and 68 per cent, respectively.

The most popular form of gambling is the Lottery, followed by the category of bookmaker, Tote and other betting stakes. The Lottery has increased its share of wallet from 62 per cent in 2007 – it was the most resilient form of gambling during the recession.

Bingo remains the only gambling activity which women play more than men (17 per cent and 7 per cent of gamblers, respectively).25

24 Gambling Prevalence Survey 2010

25 ONS Family Spending 2011

Gambling spend breakdown (total weekly expenditure),

7%

1%

70%

Football pools

21%

Bingo stakes (excl. admission)Lottery Bookmaker, tote and other betting stakes

Past year participation in each gambling activity by sex (2010)

National lottery draw

Another lottery

Scratch cards

Horse races

Slot machines

Any other online gambling

Private betting

Bingo

Sports betting

Casino

Footbal pools

Fixed odds betting terminals

Dog races

Betting on non-sports events

Any onlining betting

Online slot machine style games/instant wins

Poker at pub/club

Spread betting

0 5 10 15 20 25 30 35 40 45 50 55 60 65

Men Women

Source: British Gambling Prevalence Survey 2010

Note: Data from pie chart is from ONS family spending 2011 and does not provide any further breakdown for average household spend on gambling




5.4 Perceptions of the industry

The general attitudes towards betting can be negative, although these are improving. The British Gambling Prevalence Survey 2010 shows that there is an unfavourable view of the effects of gambling on society. In particular, perceptions suggest gambling is dangerous for family life, too accessible, and that the benefits to society are negligible. However, the research also shows that people feel that anybody should have the right to gamble, and that there should be no ban on gambling activity.

Overall, men tend to have a more favourable attitude towards gambling than women. Furthermore, attitudes towards gambling become more unfavourable as age group increases.

Despite the general negative perception of the industry, there are universal improvements to this perception between 2007 and 2010 for both genders and all age groups. In particular, older age brackets have shown increasing positivity in their attitudes towards gambling.

While negative perception can restrict growth potential, the improvements in attitudes towards gambling witnessed across these demographics are encouraging for the future of the industry. In the last report, it was predicted that the consumer appeal towards gambling was on the rise.

5.5 Taxation

The proposed changes to the current tax regime could have a significant impact on the UK gambling industry. As discussed in the last report, taxation regime changes as a result of the recession could impact the industry significantly. Tax rates have remained steady for the gambling industry over recent years. However, the Coalition government have proposed 2 significant tax regime changes to the industry:

• Introduction of Machine Gaming Duty (MGD).

• Introduction of point-of-consumption regulation for remote sector.

Machine Gaming Duty (MGD) Machines are currently taxed on a mixture of VAT and AMLD. However, the Coalition government is scrapping this system and implementing MGD with effect from 1 February 2013. This will tax machines based on their takings (similar to the GPT seen in the other sectors).

Comparison of attitudes to gambling, by age, 2007 & 2010

0

5

10

15

20

25

30

15-24 25-34 35-44 45-54 55-64 65-74 75+

2007 2010

Source: Britsh Gambling Prevalence Survey 2010

Score above 24 indicates a favourable attitude to gambling

As mentioned above, the proposed MGD rate is 20 per cent, which is higher than the estimated 15-17 per cent rate needed to maintain revenue neutrality. Due to the increasing reliance on machines to drive betting shop revenues, the ABB estimates that this new tax rate will put 2,600 betting shops and 11,000 industry jobs at risk.

Point of consumption (Poc) regulationAs other EU countries have de-regulated, they have introduced taxation based on where the customer is located rather than where the business is established.

With many UK-facing operators having relocated their remote arms overseas, there is an announced regime change to also introduce point-of-consumption regulation for the UK remote market as early as December 2014. It is envisaged that betting organisations will need to pay PoC tax for UK consumers and also obtain a license from the Gambling Commission. The extent and requirements of the Gambling Commission license remain to be determined. The introduction of this tax is aimed at counteracting the decline in tax receipts caused by the relocation of UK betting organisations overseas and fewer UK-based job roles.

Indeed, research suggests that if the remote profits of William Hill and Ladbrokes were taxed at 15 per cent (the retail GPT rate) as is currently proposed, it would cost the operators £25m – £30m each year. To the extent that there has been displacement from retail to on-line as a result of the current tax advantages, pure retail operations may support a single rate across both retail and on-line.



38

However, critics of the proposed regime have raised concerns that the 15 per cent rate is too steep and will result in a number of effects including, inter alia:

• additional costs being passed on to the consumer, either through less competitive prices or a reduction in promotional bonuses and other marketing;

• a reduction in IT spend;

• a reduction in R&D spend; and

• a reduction in marketing spend.

While this first point is plausible, evidence from other EU states would suggest that betting customers are, on the whole, relatively price elastic (responsive to changes in price). As such, any loss of consumer surplus caused by these regulatory changes could result in shifts in consumer-preference from UK-based operators to the ‘grey market’ offering better prices for their bets.

In other words, because the consumer is price responsive, it will not be possible to pass through any great proportion of the cost of a new PoC tax to the consumer.

If costs are borne mainly by bookmakers some will find it difficult to continue trading and all on-line businesses that are off-shore will be affected adversely relative to today. Accordingly, a lower initial rate may be a sensible move given the current macroeconomic environment.

Effective enforcement to mitigate the risk of leakage will be important. According to ABB research, a weak regulatory solution under a PoC approach could lead to 40 per cent of the market leaking outside the UK.

5.6 Legislation and regulation An effective regulatory environment remains pivotal to the performance of the industry, with gaps in the existing regulatory framework already damaging the sector.

Over the last decade, the betting industry has continued to become more accessible and develop a broader consumer appeal. While this regulation has improved competition between firms and, thus, benefitted the consumer, it is important to recognise that this increased competition has made much of the industry far more vulnerable to future shocks caused by amendments to taxation and legislation.

A good example that has been discussed previously in this report is that of the proposed Machine Gaming Duty, which threatens to damage a large number of smaller bookmakers by reducing margins on an essential income stream.

However, we have also discussed the potential increase in contribution of other forms of taxation being implemented; namely, the Point of Consumption tax that is being proposed for the remote betting arms of UK-facing operators.

As suggested in the previous report, Great Britain has become an outlier in Europe in terms of the regulatory approach to online betting. While online operations outside Great Britain have become more locally defined and regulated, the British gambling industry has witnessed a significant decline in the number of UK-based remote gambling expenditure and a steep decline in the level of UK-based remote gambling employment. This is of particular relevance to the industry now, as the OTC sector is losing out to the popularity of remote betting via online and mobile devices.

As mentioned, this has drawn the attention of HM Treasury and the proposed point-of-consumption tax regime and associated regulatory change is an attempt to recover remote expenditure back within the UK regulated market and to stem the outflow of remote-based gambling employment that has been witnessed in recent years.

The effective ongoing regulation of the British Betting Industry remains of central importance to its ongoing contribution to the UK economy. The next few years will see significant change in the sector, much influenced by public policy. Likely trends include:

• Continued growth of remote betting across demographics – internet and mobile driven by further penetration of mobile devices as they become increasingly affordable and user-friendly. This will continue to ‘decouple’ machine based betting from the physical premises.

• Point of Consumption to regain UK jobs and tax – the proposed PoC tax may help reverse the decline caused by the widespread relocation of betting operators’ remote arms to overseas bases; while this may result in some customer churn to ‘grey market’ operators, it will increase tax receipts from the industry and provide wider employment for the UK’s remote betting industry.

• Social media to drive additional growth – operators will be able to target customers more effectively and using a more tailored approach.

As was the case in the last report, public policy interventions will continue to play a fundamental role in the contribution of the British betting sector to the UK economy.




Notes



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Contacts

Andrew TongSenior Manager, Policy & Regulation, Strategy+44 (0) 20 7007 [email protected]

Simon OatenDirector, Betting and Gaming Sector Leader+44 (0) 20 7007 [email protected]

Thushani LawsonManager, Policy & Regulation, Strategy+44 (0) 20 7007 [email protected]

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Deloitte: The full picture - 2nd edition. Measuring the economic contribution of the British Betting

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