Here’s the card: now make sure you play it

I’ve been out all afternoon since the announcement from DCMS that I posted earlier, and it’s getting late; but here are my brief thoughts on what it said.

The obvious point to make, given what the speculation was before the weekend, is that it could have been a lot worse for the industry. Changes to planning laws and restrictions – not even a cap – on play over £50 are hardly life-threatening for them in the way that a £2 maximum would have been, as the share price movement of the big firms attests to. Aside from investors, who you might argue should be the least of anyone’s worries, it also safeguards existing jobs in betting shops, which would certainly have gone with more draconian measures. Not everyone out there agrees, of course, but in my opinion if you can  keep vulnerable people safe without having to impinge on others, that’s got to be a good thing. Baby and bathwater, and all that.

But if today’s recovering share prices are an indicator that the industry has been handed a Get out of Jail Free card (which personally, I think it has), the key thing is whether they decide to play it. Taking into account the level of co-operation that that is likely to require between fierce competitors, that is not necessarily a given – curious though that might seem to outside observers who consider that the solutions have long been staring everyone in the face. The restrictions on planning are the obvious banana skin, because they give an advantage to incumbents over challengers. Some of the latter have the specific strategy of positioning themselves right next door on purpose, in the expectation (or should that be hope?) that market forces will recognise them as better and regulate numbers accordingly; and I’d say it’s entirely possible that legal action is threatened. If it is, the outside world will see the industry as a whole bringing the case, even when it isn’t; and the PR implications of that are not pretty.

What is absolutely vital, therefore, is that in the areas of obvious common ground – helpfully signposted (not to say put out in bright neon lights) in the Government announcement today – the industry makes a step change. As one industry insider commented to me this afternoon, “it is time for us to show that we do take the issues of responsible gambling seriously and show meaningful intent to progress it”.

Words like those might once have seemed hollow: where, critics might argue, would be the sense in a competing commercial operations worrying about something that consistently is seen to impact 0.5% of their customer base? But in the last twelve months, we’ve had the answer loud and clear: 17% underperformance in industry share prices relative to the market over concerns about draconian impending legislation; an 8% climb on today’s news. It couldn’t be clearer: finding a way that addresses problem gambling issues and gets the industry back ahead of the regulatory curve is not an investor conundrum – it’s an investor imperative.

The good news is that it shouldn’t be difficult, because all the tools exist. If they fail to use them, and compete for Best in Class in this area just as they do in others, they will have wasted an opportunity that few expected them to get, and some will feel they don’t deserve. They were thrown a lifeline by the Government this afternoon, but what they do with it is what matters. They can haul themselves out of the mire; or they could yet use it to hang themselves.

 

 

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