The gambling industry is eagerly awaiting the outcome of the government’s review on gambling machines, and there is tension in the air over who will hold the ace when the cards are dealt. With something of a hiatus on investment since the Department for Digital, Culture, Media and Sport (DCMS) launched its review in October 2016, a year on the gambling industry waits on tenterhooks for the government’s response.

Prompted by claims – hotly disputed by bookmakers and other industry insiders – that fixed odds betting terminals (FOBTs) are highly addictive, DCMS’s review hoped to strike a balance between allowing the industry, which yielded £13.8bn in 2015/16, to grow, and protecting (often vulnerable) consumers. The DCMS call for evidence was wide ranging, seeking views from stakeholders on maximum stakes and prizes for gambling machines, as well as the social responsibility measures operators should be required to implement in order to protect players from “gambling-related harm”.

Originally due to be published in the summer, the review has been delayed, in part by the general election, though there has been speculation that the delay has been caused by Treasury concerns that major regulation of FOBTs would have an impact on tax receipts, which amounted to a record £1.8bn from British gamblers last year. Chancellor of the Exchequer Phillip Hammond MP has responded to the speculation in a letter to the Bishop of St Albans, belaying fears from critics of the sector and assuring them that the review is still underway, with the government scheduled to publish its findings in the coming weeks.

Opposition to FOBTs is relatively widespread in parliament. Labour and the Liberal Democrats are broadly aligned in their opposition, with both parties backing the Campaign for Fairer Gambling and pledging to cut the maximum stake on FOBTs from £100 to £2 in their 2017 general election manifestos. The Labour Party is particularly concerned that the industry targets the UK’s poorest communities, with Deputy Leader Tom Watson MP criticising the sector for collecting data in order to target low-income gamblers. The DUP presents another hurdle. The party has been vocal in their opposition to FOBTs and the dangers of an unregulated gambling sector, and their socially conservative views mean that they are likely to support far reaching reforms. With the Conservative Party lacking a majority in the House of Commons, and the weight of support building behind sector reform, the government faces mounting pressure to intervene.

“Now that the government’s plan for the sector is nearing publication, mergers, acquisitions and expansions are on the cards across the industry.”

Theresa May has spoken often about her consumer protection agenda, highlighting it as a key priority in her first speech as Prime Minister. However, the government has been heavily criticised across the House for not living up to its rhetoric, failing to respond to pressure to intervene to protect consumers in a range of areas.  More recently the government has been burnishing its interventionist credentials including in the energy sector, where they now plan to introduce a cross-market cap. This intervention is particularly notable given it fundamentally conflicts with the traditional free-market ideology of the party and the neo-liberal, market-led approach of May’s predecessors Cameron and Osborne.

Theresa May’s interventions in other markets suggests that it is likely that she will not shy away from introducing more stringent regulation in an industry which is routinely criticised for targeting vulnerable and poorly-informed consumers. This is particularly true if it serves a dual purpose of signalling to the electorate at large that she will not be content as a lame-duck Prime Minister, and one that intends to press ahead with the domestic policy agenda that has been overtaken in recent months by the fallout from the general election, and the ongoing Brexit negotiations.

For investors, the uncertainty around future gambling regulation, and the potential impact on asset values that regulatory reform would have, has meant that deal flow in this area has slowed whilst investors and management teams have been looking for ways to mitigate any potentially harmful effects from the government’s forthcoming review.  Across the industry, investors have set their sights on expanding the scale of their businesses in order to stave off competition from online start-ups and increased regulatory scrutiny. Expanding companies would operate under different brands, but share costs by bringing online systems together on a single platform, sharing marketing spend and unifying back-office functions.

The FT reported over the summer that GVC is lining up a £3.6bn deal to take over Ladbrookes with Kenny Alexander established as Chief Executive of the new group. William Hill is also rumoured to be in discussions with Canadian operator Amaya – a deal which could allow the bookmaker to expand into international markets.

As battle plans are drawn up, there seems to be broad consensus across political parties of all colours that more stringent regulation of FOTBs and the gambling industry more widely would be a welcome intervention, both as a way to protect vulnerable gamblers and to advance their own agendas. Whilst the Treasury is likely to have questions over the tax implications of a £2 maximum limit, government ministers have been clear that a ‘fairer’ limit is needed. However, with speculation that there is disagreement between HM Treasury and DCMS over the level of regulation, or indeed whether government intervention is required at all, there remain question marks over how far the government will go to match their consumer protection rhetoric and appease opposition MPs.