UK Gambling Tax Hikes Stir Talk of Consolidation as Operators Brace for Impact

Analysts are raising alarms that the next wave of UK gambling tax hikes may lead to a new wave of M&A activity in the sector. Such a development could reopen the door for MGM’s ambitions to acquire Entain, a company it once failed to buy. With operators like Sky Bet already taking preemptive measures to avoid the tax increases, the UK gambling scene could be up for a significant restructuring.

An MGM Buyout Remains Unlikely

According to a research note from equity analyst Andrew Tam, highlighted by Next.io, Entain’s position could become increasingly vulnerable as the government moves towards harmonizing tax rates. Tam speculated that MGM, which made a GBP 8.2 billion ($10.83 billion) bid for Entain in 2021, could use the opportunity to submit a new offer at a lower price.

Entain ultimately rejected MGM’s initial proposal due to its low value. However, the company’s share price continues to struggle. While rumors of a potential acquisition surface often, MGM CEO Bill Hornbuckle publicly rejected the notion on several occasions. However, the operator now enjoys a surplus of funds after stepping down from the New York casino license race. With about $5 billion in liquidity, MGM may reevaluate its position.

Entain has maintained a strong public front despite mounting pressure. Its latest quarterly update was solid, reaffirming the company’s full-year guidance. CEO Stella David noted that Entain’s restructuring efforts were on pace thanks to a diversified portfolio and anticipated returns on prior investment. However, analysts warn that the company cannot fully avoid the impact of structural tax changes.

Operators Could Face Substantial Challenges

The pressure in the UK market is increasingly palpable. The Treasury Select Committee is examining whether betting firms should face higher taxes, with proponents arguing that the gambling sector should contribute more to the economy due to its societal harms. Meanwhile, industry representatives claim that higher taxes could drive bettors to unregulated sites, creating a greater long-term problem.

Market tensions have already caused market shifts. Flutter subsidiary Sky Bet recently moved its headquarters to Malta, potentially saving tens of millions in taxes. Rothschild & Co Redburn has modeled several possible scenarios. With a 25%-30% harmonized rate, Entain could face a steep 12% to 22% EBITDA drop before mitigation. However, a more aggressive tax regime of around 50% could have dire consequences for the entire sector.

Market sentiment has already shifted in anticipation of the tax hikes, bringing a broad bearish outlook. According to analysts, Evoke’s shares have dropped almost 50% since August, and other operators have also lost ground. These movements broadly mirror historical trends in the UK and Australia, where sudden regulatory changes led to mergers as companies sought scale and cost savings.