UK Budget Raises Machine Games Duty to 25%, Operators Plan Mitigation

The UK government will increase the machine games duty rate from 20% to 25% starting on 1 April 2027.

The change applies to machines with a maximum stake above £1 or a maximum prize above £100.

HM Revenue & Customs estimates the increase will affect around 5,100 operators and 12,400 premises and yield an additional £135 million in 2027-28 and £130 million in each of the following four years, totalling £655 million over five years.

Analysts said the five-percentage-point rise, while unwelcome, was less severe than some feared.

"While a tax increase is never welcome, a 5% increase is at least tolerable, and should act as a clearing event for the sector," David Brohan from Goodbody wrote.

Regulus Partners warned, however, that the industry had received "a cut to cash flow that will prove fatal to many marginal venues."

The firm estimated the annual cost would average £11,000 per betting shop, £20,000 per adult gaming centre or bingo arcade, £50,000 per traditional bingo hall and £100,000 per casino.

"These sums are not insignificant sums on land-based estates already on thin margins, high fixed costs," Regulus wrote.

Entain, which owns Ladbrokes and Coral, estimates an additional annualised £25 million cost to its UK and Ireland retail business before mitigation but expects to offset the impact fully by the end of 2028.

Its proposed response includes estate rationalisation, group-wide optimisation and potential market-share gains.

Entain said it anticipated "an opportunity for customer recapture as peers re-evaluate their UK market presence."

Chief executive Stella David said, "Our priority is to protect jobs wherever possible while supporting a sustainable retail presence on UK high streets."

She also warned that the tax changes would compound the damage from last year’s increases and push more customers toward illegal operators.

Analysts at JP Morgan estimated an average annualised pre-mitigation EBITDA impact of around 3% in FY2027 across Entain and Evoke, or approximately 2% within the year.

The team expected operators to mitigate most of the impact, principally by closing loss-making betting shops and increasing the use of sports self-service betting terminals.

Morgan Stanley put Entain’s unmitigated cost at approximately 12% of UK retail EBITDA and 2% of group EBITDA, modelling mitigation of up to approximately 50% largely through closures.

Deutsche Bank similarly saw scope to mitigate approximately 30% through retail closures and market share gains.

The impact is expected to be more pronounced for venue-focused operators than diversified groups.

Brohan at Goodbody estimated that, assuming 30% mitigation, the increase would cut FY2027 adjusted EBITDA by approximately 5% at Rank, compared with around 2% at Entain and less than 1% at Flutter.

Peel Hunt incorporated Rank's estimate of a £9 million annual operating-profit cost before mitigation.

"We believe that Rank can maintain solid operating profit growth despite the machine games duty change," Ivor Jones, an analyst at Peel Hunt, wrote.

He retained a Buy recommendation but cut the target price from 175p to 155p, expecting to revisit mitigation following January’s interim results.

"Every estate of casinos and bingo venues has a number of weaker locations, and site closures benefit their local competitors," Jones wrote.

Deutsche Bank cautioned that the tax increase could affect Rank’s medium-term investment plans.