Gambling Giant Faces Major Profit Squeeze After Budget Changes
The owner of Paddy Power and Betfair has issued a stark warning about the financial impact of the UK government's decision to significantly increase taxes on online gambling. Flutter Entertainment, which also controls Sky Bet and the US-based FanDuel, revealed that the tax changes announced in Chancellor Rachel Reeves's budget will hit its profits by approximately $860 million (£650 million) over the next two financial years.
Tax Increases and Financial Impact
In Wednesday's budget announcement, the chancellor confirmed that remote online gaming duty would jump from 21% to 40%, while the tax rate on online sports betting - excluding horse racing - would rise from 15% to 25%. Flutter immediately quantified the expected damage to its bottom line, projecting that the increased taxation would reduce its underlying earnings by about $320 million in 2025-26 and $540 million in 2026-27.
The gambling conglomerate has outlined plans to mitigate approximately 40% of this financial impact by 2027 through strategic cost-cutting measures. These include reducing spending on promotions and marketing campaigns, alongside broader efficiency initiatives across its operations.
Market Reaction and Industry Concerns
The announcement triggered immediate reactions across the gambling sector's share prices. While Flutter's stock fell by a modest 1% in early Thursday trading, other companies experienced more severe declines. Rank Group saw its shares plummet by 10%, while Evoke, the owner of William Hill, dropped more than 5% following an 18% slide the previous day.
Kevin Harrington, Flutter's UK and Ireland chief executive, expressed strong disappointment with the tax decision. "This is a very disappointing outcome and will have a significant adverse impact on our industry," he stated. "The chancellor rightly wants to address harm, but these changes will hand a big win to illegal, unlicensed gambling operators who will become more competitive overnight."
Harrington emphasized that black market operators don't contribute tax revenue or invest in safer gambling initiatives. He also noted that at 40%, the UK's remote gaming duty now exceeds rates in countries like the Netherlands, where previous tax increases reportedly led to rising illegal gambling activity and reduced government receipts.
Industry Exemptions and Future Outlook
The budget provided some relief for certain sectors of the gambling industry. The chancellor spared in-person gambling establishments and horse racing from any tax increases, following warnings about potential job losses. Additionally, bingo duty will be abolished entirely from April next year.
Despite the significant financial challenge, Harrington expressed confidence in Flutter's ability to navigate the changes. He cited the company's scale and leading market position in the UK, combined with proactive cost management initiatives, as factors that would help the business adapt to the new tax environment.
The tax increases represent one of the most substantial regulatory changes affecting the UK gambling industry in recent years, potentially reshaping the competitive landscape and profitability of major operators in the world's largest regulated online gambling market.
