The Rise And Fall Of The Betting Shop

It is fair to say that when sports gambling was legalised in the the U.K., it proved pretty popular.

Betting shops were first legalised in the U.K. in 1961, along with casinos and bingo halls. Prior to this bets could only be placed at racetracks, or via illegal bookmakers. And the change in the law created a boon for commercial real estate.

Within six months of being legalised there were more than 10,000 up and running, and in the early 1960s they were opening at a rate of 100 per week.

At their peak in the 1970s it is estimated there were more than 16,000 betting shops across the U.K. In spite of the magnetic effect of online gambling drawing punters away from gambling in person, there are still more than 9,000 today, according to the Local Data Company. They are a huge part of the U.K. retail real estate landscape.

But as of last week they are the latest part of that landscape to come under threat. New regulations limiting the maximum amount that can be staked on fixed-odds betting terminals will severely hit bookmakers’ profits, and thousands of shops could close, leaving further voids on already struggling high streets. To counterbalance this, U.K. firms are looking to take advantage of another piece of regulation elsewhere and expand to a much bigger market — the U.S.

At their best and in their heyday, U.K. betting shops were part of the social fabric of British life and a gathering point for the community like the traditional English pub. At their worst they have been accused of destroying high streets and preying on the poor and vulnerable, as the recent government crackdown on the sector highlights.

The popularity of U.K. betting shops was in spite of regulation designed to ensure they were pretty unpleasant places to visit. Windows had to be blacked out with no signage allowed to indicate what was going on inside, for fear of being too enticing. Inside, no seating was permitted and neither were televisions or radios. You had to put your bet on and leave straight away, with loitering legally prohibited.

“The House of Commons was so intent on making betting shops as sad as possible, in order not to deprave the young, that they ended up more like undertakers’ premises,” Rab Butler, the politician who passed the legislation legalising betting shops, wrote in his memoir.

That started to change in 1986, when brighter interiors and televisions were allowed for the first time, along with the revolutionary concept of seating. But they are still considered unwelcoming and somewhat seedy places. When Irvine Welsh and Danny Boyle wanted a location for the most disgusting toilet in Scotland in their film "Trainspotting," they chose a betting shop.

Some in the U.K. betting industry argue that they once fulfilled that function in the U.K., and it was the proliferation of large chains, with their scale, lack of human touch and too much of an eye on costs, which led to them becoming unwelcoming.

“People used to congregate there, and it was a community,” said Bert Hatcher, who ran a chain of four betting shops in Ipswich in East England for more than 25 years, until he sold out earlier this century. “We furnished shops nicely, we had refreshments on a Saturday lunchtime and we had free tea and coffee. We had seats with their names on for the regulars, and we ran dial-a-ride services for older people who couldn’t make it to the shop. We had ladies coffee mornings: at 11am on a Wednesday the ladies of the town would have a coffee and then stay on and have a bet. The big chains would charge you 35p for a cup of coffee that cost them 3p.”

Not soon after regulations on seating were relaxed, there were further changes that lowered the hurdles on the difficulty of obtaining a license for a betting shop in the U.K., and this combined with the early 1990s property crash meant bookies started to make inroads into new areas and became more of a feature in the U.K. commercial real estate consciousness. It is here that there is another potential parallel for the U.S. retail sector, which would welcome a new kind of tenant looking to expand.

“The previous recession in the 1990s saw an explosion in betting shops going into secondary and edge-of-prime locations,” Colliers International co-Head of U.K. Retail David Fox said. “You saw the growth of convenience retail and schemes being built near where people lived that would be anchored by a supermarket and then have a few other stores like a Domino's Pizza and a betting shop. Couple that with people vacating space and landlords wanting to fill that and offering low rents and you saw a rapid expansion.”

On top of this, for landlords, betting shops have traditionally been a good bet, Fox said. At a time when average lease lengths have been reducing bookmakers have been willing to take 15- to 20-year leases, and they are willing to take small high street spaces that other retailers have been pulling back from, at rents that were higher than other types of retailer — done right bookmaking is a profitable business.

In the early 1990s and the early 2000s there was something of a space race, Fox said.

“I wouldn’t say they were overpaying, but if you had two bookmakers competing for the same store then you could charge a competitive rent.”

But that proliferation onto high streets and neighbourhood retail schemes led to a backlash. They became a marker of social decline for an area, with the perception that they swooped in after other more respectable retailers had moved out or gone out of business. Retail broker Harper Dennis Hobbs uses the number of betting shops as a metric for ranking the worst retail areas in the U.K., and it was national news when it emerged that a single street in a less-affluent area of London had more than a dozen betting shops within a small area.

“I wouldn’t say landlords have a moral aversion to them, but in city centres or areas where landlords have a large holding they may want to manage bookmakers out to improve the tenant mix,” Fox said. “But that is dependent on there being a fast-casual dining or grab-and-go food tenant to replace them.”

The more morally questionable side of betting shops was brought into focus this week when the U.K. government passed legislation to reduce the maximum stake punters can place on fixed-odds betting terminals — electronic gambling machines which now make up a major part of bookmakers’ revenues, and have been strongly linked to problem gambling.

Gamblers can now stake a maximum of £2 every 20 seconds, compared to a previous maximum of £100 every 20 seconds. William Hill, the largest bookmaker in the U.K., said the change meant that around 900 of its stores would instantly become unprofitable, putting “a proportion” of them at risk of closure. Overall, Matthew Hopkinson of DataIntel estimated that around 3,000 of the U.K.’s 9,000 betting shops could become unprofitable and face closure once leases expire.

Fox said stores in secondary and tertiary locations might be more resilient, given many of them would be paying rents of £30K or less. But those stores on prime high streets at higher rents would be at risk. Stores are unlikely to just be closed, Fox said, but leases will not be renewed when they come to an end. In many cases that could be sooner rather than later given that much of the expansion of bookmakers’ footprints occurred around 15 to 20 years ago.

That is bad news for U.K. landlords, but bookmakers might not be distraught as a result of another regulatory decision: two days before the U.K. government decision, the U.S. Supreme Court passed a decision that essentially gave individual U.S. states the option of legalising sports gambling.

It is worth noting that shares in the large listed U.K. bookmakers rose more on news of the Supreme Court decision than they fell on news that their U.K. profits would be hit by new legislation. A new frontier has opened up.

Estimates put the size of the illegal gambling sector in the U.S. at between $80B and $380B, and a retail presence is one way of accessing that massive prize.

Whether sports gambling becomes part of the U.S. retail landscape will depend on the legislation enacted by individual states. So far 32 states have laid the foundations for legalising gambling within five years, and 14 of those could be ready to go within two years.

And as gambling opens up in the U.S., much of it will occur online rather than through storefronts.

But where it is possible, it seems that big betting companies will try and take sports gambling to the people.

William Hill bought a U.S. betting operation in 2012 and had been preparing for years for the change in regulation made possible by Tuesday’s Supreme Court decision.

It already has 108 sports books in Nevada, and U.S. Chief Executive Joe Asher told Bloomberg in April it intends to be in every state as soon as the law allows, and that it wants the brand to be as recognised in the U.S. as it is in the U.K., where it has around 2,300 shops.

How any William Hill U.S. retail presence might look or be positioned is likely to be very different to the average U.K. betting shop, which is a product of the historical and social moment at which it was born.

Many of William Hill’s Nevada sports books are attached to bars or burger joints where gamblers can watch games in comfort while laying a bet. Its first facility outside of Nevada is likely to be a 100-seater restaurant-cum-sports book at the Monmouth Park racetrack in New Jersey, the state which led the charge to overturn previous U.S. gambling laws.

“If you were going to do something today you wouldn’t follow the English model of making them quite dingy places where people leave the pub and go to put a bet on,” retail investor Ellandi Chief Executive Mark Robinson said. “You would want to make them more social.”

U.K. betting shops might be set to close in huge numbers, but the companies that run them could be gearing up to reinvent the concept for a new audience.