Endeavour Group (ASX:EDV), Australia’s biggest pub owner, took a real knock as their shares plunged to an all-time low. The cause? The state government’s unexpected decision to crack down on poker machine usage with strict regulations and limitations.
Over the weekend, Victoria, the country’s second-most populous state, dropped the bombshell by announcing that players would now need to register for an ID card before engaging with poker machines. This measure aims to combat money laundering, while they also established pre-set loss limits to curtail problem gambling. Furthermore, they plan to slow down the machines and close most venues overnight.
The impact of these regulations on Endeavour, the largest holder of poker machine licenses in the country, remains uncertain. This uncertainty arises from the fact that the company doesn’t disclose specific details about their poker machine profits in their financial reports. Interestingly, their “hotels” division accounted for approximately 40% of their profit in the latter half of 2022.
Midsession on Monday saw Endeavour’s shares plummet by a staggering 10% to A$5.66, making it the most significant single decline in an otherwise stagnant market.
This move by Victoria also puts pressure on other states, particularly New South Wales (NSW), to follow suit and address the community’s demands for stricter regulations on poker machine gambling. However, the newly elected Labor government in NSW has chosen not to emulate Victoria’s stringent approach.
Analysts from Jefferies expressed their concerns in a note, stating, “We had believed that regulatory risk had diminished after the NSW state election. Today’s announcement by Victoria introduces significant uncertainty.” They further added that quantifying the earnings impact was challenging, but emphasized that the high-margin and low-variable cost nature of gaming meant any reduction in revenue would lead to substantial operational disadvantages.
Endeavour, headquartered in Sydney, acknowledged that it was difficult to predict the exact impact of these reforms. However, they revealed that they were already collaborating with other states that were conducting trials for similar measures.
Australia possesses one-fifth of the world’s poker machine licenses, more than any other jurisdiction outside of Las Vegas. This statistic contributes to the country’s highest rate of problem gambling globally, with over a million people out of its 26 million population at risk of developing harmful betting habits, as reported by public health experts.
Please note: The conversion rate at the time of writing is $1 = 1.4631 Australian dollars.