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Does the “High Street” case actually stand up?

There have to be better ways to start your day than being woken up by an argument about FOBTs, but such was my fate this morning. No sooner had my alarm clock radio turned on, than I was listening to the Mayor of Newham and the Chairman of the ABB go at each other about shops on the High Street. It was about 6.40am. There should be a law against it, really.

The reason for the argument was that apparently a group of 93 councils is calling on the government to reduce the maximum stakes on FOBTs from £100 to £2. If this sounds like the same debate as I’ve written about before, that’s because it half is – but apparently only half. When Paul Darling, for the ABB, defended his organisation’s position by saying that there was no evidence to show that such a cut would help problem gambling, the Mayor, Sir Robin Wales, countered that it wasn’t problem gambling that concerned him, but the state of the High Street. There are too many bookmaking premises, he claimed; and action is needed to force the closure of some.

What he was never asked, and what I would love to know the answer to, is why he and the other 92 councils think that a cut in stakes will reduce the number of shops – at least to any significant extent.

You might think that’s a silly question. The implication for years has been that a cut in stakes would impact bookie profitability, and all things remaining equal, I suspect that it would. But the thing is that when changes like that come about, all things do not remain equal; and while profitability might be impacted, the shift in its make-up would end up by not, I think, delivering to Sir Robin the result which he and his fellow councillors intend. Why? Because a B3 machine, which has a maximum stake of £2, has almost exactly the same level of profitability per hour as a B2 machine, with a £50 average stake.

Don’t believe me? Well, have a look at the maths. A B3 machine has an 8-10% margin, against a B2 machine’s margin of 2.7%; and a B3 machine can spin every 2.5 seconds, against every 20 seconds for a B2. So the margin is three times as great, and the spin rate eight times as quick.  Combined, that makes the machines 24x more profitable. But the stake is 1/25th. So, basically quits.

What that means is that if you can guarantee the number of hours played – and bear in mind that every debate about FOBTs always seems to assume that a machine is used to its absolute maximum capacity (which is why people talk somewhat absurdly about being able to lose £18,000 in an hour) – then B3 machines are just as profitable as B2s. Perhaps that explains why B3s are the fastest-growing product on the High Street. If a change in B2 stakes led in turn to a levelling of the playing field between how many B3 machines a bookmaker can have relative to an arcade, as seems likely, it seems to me that profits could be re-couped, and the overall number of shops might barely be impacted at all – maybe even maintained in a manner that undermines Sir Robin Wales’s stated cause.

Of course, there may be other reasons why a £2 stake makes sense. The debate around it will, I am sure, come up on Monday, when the Responsible Gambling Trust publishes its much-awaited Featurespace-led research into problem gambling issues, and those on either side of the debate as to whether a reduction in stake would help stop people developing addictions will doubtless be watching closely. But the interesting thing about this morning’s squabble was the way in which Sir Robin was very clear in stating that he had one agenda and one agenda only in calling for a reduction in stakes: that introducing one would impact the number of shops there are on the High Street.

Maybe he’s right, and it will. He certainly seemed very confident of his case. But he was never actually challenged on it, and it would have been interesting to hear his response to the fact that the maths don’t actually support it.  Next time, perhaps.

Posted in Betting industry, Gambling, My articles, Regulation.

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One Response

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  1. says

    I should clarify this post because someone has pointed out that if I think that a cut in stakes wouldn’t affect bookie profitability, then I am dreaming.

    My point is not that it won’t impact profitability, but that it won’t impact the face of the High Street as a corollary. In fact, it might end up achieving precisely the opposite of what Sir Robin and the 93 councils want.

    Different shops will (obviously) be impacted in different ways, and I suspect that the higher end shops will have their profitability impacted more than the lower end shops. What would the bookmaker response be to such a cut in profitability in those? Assuming that the individual shops stay profitable, it might be to increase B3 product in lower end shops. It might even be to increase the number of lower end shops, purely in order to put B3 machines in them. The impact would be that precisely the areas that are concerned about shop proliferation may well find that they implement a change that exacerbates it. I think this is a classic example of ‘be careful what you wish for’, and as is true of the problem gambling debate, I’d prefer to see solutions that are tailored narrowly to specific problems, rather than sweeping measures that do not address the stated goal.

    My basic point is this: I think Sir Robin made a populist argument without actually having a great deal of knowledge of the underlying facts – and because of its populist nature, he wasn’t called on it. It seems to have become too easy to say “a move to £2 stakes solves everything”, when it appears to me very clear that it does nothing of the sort. I’d have liked him to answer the simple question, “why do you think that a cut to a £2 stake will change the number of shops on the High Street?”, because I don’t think the answer is as obvious as populist understanding might suggest.

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