BDO corporate finance director Ollie Woodward says UK gambling operators are using April’s Remote Gambling Duty (RGD) increase to re-evaluate their cost base and consider acquisitions, even as the tax rise squeezes margins across the sector.
Woodward made the comments to iGB during iGB Live’s first M&A Summit in July. He said the RGD hike has pushed operators to question the sustainability of their player base, and that restructuring and M&A now dominate the workload of BDO’s gaming M&A team.
Entain announced last week it would cut up to 500 roles globally, though the operator said the move was not a response to the UK tax rise. Bally’s Intralot took a different approach, using the hike as an opening to move on Evoke. It agreed a £243m all-share takeover of the operator after Evoke struggled to absorb the tax increase alongside other pressures. Bally’s Intralot chief executive Robeson Reeves told analysts in April the deal would support the group’s European expansion.
Re-evaluating people and technology
Woodward said client conversations have shifted toward cost base and right-sizing.
“[Client] conversations have evolved to ‘how do we look at our cost base and right size that?’ Obviously, it’s a balancing act and many of our clients and operators feel that if they can stay strong in this period, there will be market opportunities with some smaller players not being able to effectively live with these tax changes,” he said.
He added that the RGD hike has landed at a point when many operators were already reassessing headcount and technology spend against AI.
“[The tax hike] comes at an intersection where I think a lot of businesses would have been looking at their cost base from an AI perspective anyway. I would say some of the larger, more established players are really looking at their people, their technology and saying, ‘How do we evolve this, right size this? There must be a margin benefit there.'”
Woodward said BDO’s M&A team is currently working with around five or six UK gambling businesses on “big transactional processes” spanning B2C online and land-based operators as well as online suppliers. Some are looking beyond the UK for growth, he said, pointing to Alberta’s move to open its online gambling market as one target.
Player cohorts and margin pressure
Woodward said operators are focused on how their player cohorts will evolve over the next year, including return-to-player (RTP) rates, marketing mix and marketing spend.
“Ultimately, it comes down to the sustainability of your earnings and your player base,” he said.
The RGD increase has squeezed sector margins. Bally’s Intralot reaffirmed its €422m EBITDA guidance in April despite the tax hit, one sign of how operators are managing the increase against existing targets. Even so, Woodward described overall sentiment among BDO’s clients as one of resilience and bullishness, as operators look for ways to offset the strain. The UK remains Europe’s largest regulated online market, with the UK Gambling Commission reporting £4.3bn in quarterly GGY in its most recent data, a scale that explains why most operators are cutting costs rather than leaving the market.
Regulated versus unregulated revenue in M&A
Speaking on BDO’s panel at the Summit, Woodward said reporting the split between regulated and unregulated revenue matters increasingly in current M&A processes. Buyers are increasingly seeking highly regulated businesses, he said, which makes clean reporting on the sell side essential.
Bet365 and Yolo Group have both exited or downsized unregulated operations over the past year. Asked how companies handle reporting an unregulated revenue split during due diligence, Woodward said the first question is whether a business can legally ring-fence those operations ahead of a sale or carve-out.
“Otherwise it becomes very difficult to separate those operations,” he said. “But then, from an operational perspective, I don’t think you’ll find most businesses are already reporting on their individual KPIs down to a level where they’re able to quite easily separate those. Actually understanding the value of those different parts of the business can be done quite easily.”
Woodward said regulated revenue is now more attractive to buyers.
“They’re easier to exit. They’re attracting higher multiples. A lot of the big groups are moving towards either 90 plus percent regulated or at least soon to be regulated. So you are seeing this kind of divergence between the operator base.”
He said legacy unregulated revenue does not automatically rule an operator out of a deal. The distinction, he said, is whether a business operated in grey markets ahead of regulation and then secured a licence once rules came into force, versus operating in markets where online gambling is illegal outright.
“It definitely is something that people look at and people want to understand what were the management decisions at that time. Were they made in a sense that they thought these markets might go live, and how did they act actually when they did become regulated?” Woodward said.
With BDO’s team running live processes across roughly half a dozen UK operators and suppliers, Woodward expects the RGD hike to keep separating operators that can absorb the cost increase from those that cannot, feeding a fresh wave of consolidation as smaller players weigh their options against larger, better-capitalised rivals.
Source: iGB & BDO
