Revolution at the bookies

THEY are the sort of numbers the National Lottery could only cross its fingers and dream about. Getting on for £20bn wagered annually, producing £500m a year in bottomline profits for bookmakers, the inexorable rise of the touch-screen roulette machine is transforming the economics of the nation's betting shops.

A staggering figure, £500m profit from these machines alone is all the more extraordinary for the fact that, less than three years ago, they barely existed.

Middle England may be fretting over the introduction of Las Vegas-style casinos or the tens of thousands, many of them women, playing and losing on casino games and poker on the internet, but it is betting shop roulette that is raking in megaprofits, a boon threatening to deliver better earnings than horse and dog racing.

The slick banter of the bookies would have you believe that good weeks at the Cheltenham Festival in March, and June's Royal Ascot meeting, in the eternal battle with punters and a fleecing of the football fanatics who lost all on 100-1 outsider Greece winning at Euro 2004, is stoking their recent massive rise in profits.

Don't believe a word of it. Deep within the profit and loss accounts of these companies is the true picture.

Labroke love affair

AT Ladbroke, Britain's biggest bookie, operating profits have soared 51%, the majority of growth coming from roulette machines or, in industry argot FOBTs - fixed-odds betting terminals.

Ladbroke's love affair with such machines has seen it triple their number in a little over 15 months to nearly 6,000.

There is little wonder why. Each machine makes, on average, £564 profit per week from punters sitting in its betting shops looking for something to do before, between and after the horse and dog races. It is the single most important reason why, for the first time in a generation, the number of betting shops is on the rise just five years after many argued that the march of internet-based gambling spelled the end of the licensed betting office.

Ladbroke's greatest rival, William Hill, wants to grow its betting shop estate by 30%, adding another 500 shops.

Coral is chasing hundreds of new sites to add to the 30% expansion in the past 18 months which has taken it to 1100 shops

Stanley Racing is expanding at a rate of 50 new shops a year.

Victor Chandler, the king of the internet betting boom, has now opened on the High Street planning 50 shops by the year-end.

Ladbroke would like to have more shops, but is very aware the Office of Fair Trading is closely monitoring its market dominance. Hills, with profits up 30% and shareholder dividends soaring 57%, says the pure profit on its existing 5000 machines is £400 per terminal per week calculated, unlike Ladbroke, after deducting the 15% tax levied by Government and the operating costs of its commercial arrangements with machine suppliers. It is believed privately-owned Coral's profit per terminal is even higher.

Staggering gains

EXTRAPOLATE these figures across the industry and the true amount of losses to punters and the extraordinary gains being made by the bookies become apparent.

There are currently 17,000 roulette machines in the country's 8,800 betting shops - an average of almost two machines per shop. After Government fears about such proliferation, the industry last year voluntarily agreed to restrict the number of gaming machines in each shop, including old-fashioned slot machines, to no more than four.

The industry has quickly latched on to what a good deal it has brokered.

Not only have the bookies been ramping up the number of roulette machines, they have been taking out slot machines to make way for them.

In an 18-month period ending this Christmas, Hills will have added more than 3,200 new roulette machines - to average 3.3 machines per shop - and sent 2000 slot machines to the knacker's yard.

These rates of growth are likely to continue across the industry as the smaller players start catching up. Peter Greenhill, of market-leading machine and software maker Cyberview, which has more than 50% of the market via its supply relationships with Ladbroke and SIS, the supplier of racing pictures to independent bookmakers, has few doubts: 'The 17,000 in betting shops at the moment could easily get up to 25,000, with perhaps a maximum of 28,000.'

With economies of scale increasing profits, the net take per week for the bookmaking industry could easily soon rise to £10m, or some £500m a year.

The rise of the machine is the by-product of Chancellor Gordon Brown's decision to tax the bookies on their gross win, rather than by transaction, at the same time that the technology had advanced to produce these roulette machines operated by remote computer servers.

That allowed the bookies to argue that punters are effectively playing in cyberspace, getting them round the law that bans roulette from everywhere other than the licensed casino.

Regulatory intervention

BUT the bookies could be in danger of killing the goose that is laying the golden egg.

The Government has put the industry 'on probation' over its voluntary code. Yet the industry is ploughing on. 'We are planning to maximise the number of units per shop,' says William Hill's David Hood. 'If we can get four in each, we will.'

Ladbroke's Alex Pagett says: 'We have signed up to a voluntary code of conduct which allows the monitoring of our activities to ensure we are not encouraging gambling addiction. Clearly it is not in our interests to have a problem.

'However, at the same time it would be foolish not to take advantage of something that our customers clearly want.'