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As the UK rolls out new stake limits for online slots, industry experts fear the move may inadvertently push consumers towards the black market, sparking debate over the true cost of the new regulation.

After much speculation, the UK government today (23 February) confirmed a £2 stake limit for 18- to 24-year-olds for online slots, alongside a £5 stake limit for adults aged 25 and over.

Reaction on the public market remained relatively subdued, with stocks of the largest gambling companies largely stable. 

Investors had already factored in the anticipated regulatory changes, suggesting a level of preparedness within the industry. Many UK-licensed tier-one operators had already activated £10 and £5 stake limits.

The government initially considered a range of stake limits during its consultation phase, from £2 to £15.

The Guardian suggested the lower limits could cost the UK gambling industry hundreds of millions of pounds in revenues.

The government’s white paper previously estimated that a stake limit of £8.50, the mid-point of the suggested range, would cost the industry up to £185m. 

“But imposing a limit of £5, or £2 for younger players, is likely to cause the cost to online casino companies to soar beyond that level,” reported The Guardian.  

Not to be seen in isolation

Betting and Gaming Council (BGC) CEO Michael Dugher welcomed the government’s decision while acknowledging the financial impact it would have on both BGC members and their customers. 

“It is important to recognise that measures like this come with a cost to our members and impact their customers,” he stated.

“Nothing in the white paper should be viewed in isolation, but instead be seen as a total package, and I would urge ministers and the regulator to remain mindful of the overall impact all these changes make for BGC members. 

“We must avoid customers drifting to the unsafe, unregulated black market online if we don’t tread carefully and get the balance of regulation right,” he added. 

That point was reinforced by Paul Leyland from Regulus Partners. 

Despite the government’s intention to reduce harmful play, he said questions remain regarding the efficacy of the policy and its potential to drive demand towards unregulated platforms.

In a note to investors, Leyland referenced a 2017 study by professors Forrest and McHale, which examined revenue trends associated with different stake thresholds across the online slots market. 

The study found that spins over £2 generated 49% of revenue, while spins over £5 generated 28%.

A £730m hole

However, due to “a combination of mass market adoption and other regulatory measures,” Leyland estimates the proportion of revenue generated by stakes over £5 has decreased to approximately 23%.

This amounts to around £700m, or 10%, of the online sector. 

“In addition, we believe the revenue at risk from the £2 limit for under 25s is likely to be c. £30m, giving a total revenue risk of £730m,” he wrote.

Furthermore, Leyland predicts that the reduction in stakes above £10 could lead to a loss of approximately 15% of slots revenue, totalling around £460m. 

Black market growth

The ban, Leyland said, falls on two types of customer: those compelled to bet harmfully at high stakes and those who choose to because they can afford it. 

“The key efficacy problem is that both high value and at-risk customers are very well catered for by the growing UK black market,” Leyland added. 

He said: “With nearly half a billion of revenue to go for, there will be no shortage of credible illegal supply.
 
“Once consumers are playing on sites with higher slots limits, it is logical that they will spend on other products also – table games for example, where there is high and easy cross-sell opportunity. 

“Over time, slots limits are likely to drive a UK black market of c. 10% of the total – more than double where we believe it is now,” he said.

He concluded that an increase in black market gambling activity will lead to a rise in problem gambling rates because customers are being directed to sites that lack sufficient protections or ethical standards.

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