Rank faces greatest risk from potential MGD rise, Deutsche Bank says

Deutsche Bank has identified Rank Group as the operator most exposed to a potential increase in UK Machine Gaming Duty (MGD). Its analysis estimates that a doubling of the duty to 40% could cost Rank around £35 million a year after mitigation. The bank also assessed the possible effect on Entain and Flutter, finding a far smaller impact on Flutter’s group earnings. No MGD increase has been announced, so the figures describe a scenario rather than a confirmed tax bill.

Rank’s machine estate drives exposure

Rank’s extensive land-based estate puts it at the centre of Deutsche Bank’s assessment. The estimated £35 million annual cost after mitigation would equal roughly 44% of its forecast 2028 earnings before interest and tax (EBIT).

Before any mitigation, the bank estimates the cost of doubling MGD would amount to around 24% of Rank’s earnings before interest, tax, depreciation and amortisation (EBITDA). It says the pressure could complicate Rank’s plans to increase earnings by adding machines to its venues.

Rank has previously warned that higher taxes could make some venues unviable. Asked about Deutsche Bank’s findings, a spokesperson said the company was continuing to engage with the Treasury and other government departments about the potential effects on its business.

Entain and Flutter face different impacts

Deutsche Bank estimates that Entain would face around £100 million in additional annual costs before mitigation. Entain has already used that figure in its warning to the prime minister about a possible MGD rise, making the bank’s assessment further analysis of a risk you have covered.

Flutter appears much less exposed at group level. Deutsche Bank puts the additional cost for its UK retail shops at less than $20 million, or under 1% of group EBITDA. The bank attributes the smaller overall effect to the scale of Flutter’s wider business.

Why shop operators may struggle to offset the cost

The bank expects retail operators to mitigate around 30% of a gross MGD increase, largely by closing shops that make little or no profit. It says that leaves operators with large machine estates facing a substantial earnings impact.

Online businesses have more options to reduce costs, such as changing promotions or marketing spending. A gaming machine’s revenue, however, depends on a physical venue that also carries rent, staffing and other running costs.

That difference is the key development in Deutsche Bank’s analysis: the same potential duty rise would have markedly different effects across the three operators.

“We are continuing to engage directly with Treasury and with other government departments to set out the impacts that tax increases would have on the industry and on our business.” — Rank spokesperson