The gambling sector is known for being recession-proof, or at least resilient to economic boom and bust cycles. But for the UK sector, which is already dealing with a cost of living crisis, inflation and recession fears, there are additional economic pressures caused by Brexit.
The argument has long held that the gambling industry is recession-proof, or at least resilient and is able to weather most economic downturns.
The last bout of recession-doomed-industry-thinking hit most recently in response to the COVID pandemic, and before that in 2008, as well as during the recessions of the early 80s and 90s. During those downturns gambling revenues declined marginally and confirmed the theory that the industry was adept at avoiding the worst effects of economic slowdowns.
In these COVID-impacted times it was also one of the first sectors US lawmakers turned to in order to stimulate spending, raise tax revenues and encourage economic recovery.
Economic worth
The scale of the industry is noteworthy and there is a strong likelihood that the general public is not aware of its size. In the UK the most recent figures from the Gambling Commission showed that it generated £14.1bn in gross gambling yield (GGY) and there are 2,419 gambling operators in the market, which is likely the biggest number of operators in any European market. It contributes billions of pounds in taxes to the economy, making it an economic heavyweight, with the ripple effects of revenue and regulatory changes widely felt.
How will the gambling industry fare in 2023?
In 2023, we are likely to witness a very particular set of conditions in post-pandemic, post-Brexit UK.
The industry has been able to innovate and showed itself to be flexible, while the scale of its online expertise was obvious throughout as the casino closures caused by the pandemic lockdowns and restrictions.
However, there are now widespread fears that in the UK, as with the rest of Europe, this year will bring a major recession, affecting all areas of the economy. For the gambling industry, a recession means dealing with consumers who are already under pressure because of the cost of living crisis, inflation and fears of recession. From a responsible gambling perspective this means they are also more vulnerable players.
To this list of issues can be added increased responsible gambling and player protection measures confirmed by the government’s recently published plan for reform of gambling regulation, which operators have already priced into their operating models.
Small spending gets a bigger market share
In times of economic hardship, small-spend gambling, such as lottery tickets and scratchcards, increases – mostly because people hope to win life-changing amounts from relatively low-risk and low-cost gambling. In the UK, this translates into increased lottery sales and lower-cost products such as online bingo.
Online slots continue to dominate
Online slots are a key online gambling product, and industry observers will watch it closely to follow revenues. The most recent set from July 2022 UKGC data shows: “Remote Casino, Betting and Bingo (RCBB) accrued £6.9 billion Gross Gambling Yield (GGY)…online casino games dominate the sector, generating £4.0 billion in GGY, £2.9 billion of which was from slots games”. This slot-centric revenue trend is nothing new and doesn’t break from consistent trends visible since online casinos began.
Moreover, the constant presence of new slot sites offering evermore ways to spin keeps the industry fresh, with tax revenues contributing to the economy and helping hold it up during recession losses elsewhere.
More regulations ahead
Recently, industry stakeholders have argued that greater regulation may push players to ‘black market’ offshore casinos. This has already been evident in Europe and the UK over the last two years, according to BGC research. However, the UKGC has hit back, saying that the threat is overstated and the real concern is the increase in enforcement activity, citing record levels of penalties and an increasing number of repeat offenders.
The strong presence of a regulator who is not scared of derailing economic growth to protect players better is correct; when twined chronologically with a recession, the effects could be felt industry-wide as more rules aimed at protecting players struggling with problem gambling come into force.
Brexit and the impact of the UK’s “special economic conditions”
There is one major difference when comparing the UK with the rest of Europe; the UK’s self-imposed loss of trade and goodwill with the EU trading block through the cancellation of free trade and movement.
In common with other EU economies, the UK is impacted by the rising cost of living, inflation caused by the war in Ukraine, and fears of a recession – it’s even been labelled as having the highest electricity cost per household in the world. However, where it differs is Brexit.
The impact of Brexit has had a considerable impact on the ability of UK firms to do business easily in the European market. Two years on, and it’s now estimated how much the dreams of taking back control have cost the UK economy, and it’s a bleak picture.
According to John Springford at the Centre for European Reform (CER), “I think we can be pretty clear that the hit from Brexit is significant…latest update estimates that Brexit reduced Britain’s GDP by 5.5% by the second quarter of 2022. Put another way, between April and June economic output was £33 billion lower than it would have been had the UK voted to stay in the EU, costing the government around £12 billion in lost tax revenues. In the year to the end of June 2022, Mr Springford estimates the tax loss at around £40 billion.”
The cost to the economy has been felt alongside the rising cost of living in the UK. The broader effects of the loss of trade and economic activity mean fewer jobs and less money circulating in the economy, which one imagines will impact gambling revenues, even if there’s no precedent.
Continued and costly White Paper uncertainty
This unique set of economic constrictions is further compounded by uncertainty in the industry regarding the publication and implementation of the UK’s new gambling reform white paper. Three of the UK’s biggest operators – Flutter Entertainment, 888 and Entain – have already input measures, costing a collective £10-15 million in revenue. The already telling economic costs of tightening regulation and uncertainty are quickly surfacing.
Will gambling be recession-proof in 2023?
Will the UK gambling industry be recession-proof in 2023? It’s too early to say, but the hope is that it will once again be able to navigate these choppy waters. While new regulations and less available money per household are likely to affect overall revenues, the UK gambling industry is creative, flexible and open to the challenges of the market’s changing landscape.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes