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UK Brexit Referendum and What it means for Gambling and UK Gaming Stocks

By: Russell Potvin , Wed. Jun. 22, 2016

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Bookmakers in the UK have stated that this week's Brexit referendum is set to be the biggest wagering event in the history of the country. It is expected that at least $20 million will be wagered on the outcome.

On Thursday, Brexit will take place and voters will take to the voting booths to decide whether or not the UK should remain a part of Europe. Opinion at this stage seems sharply divided and the polls last week suggested that leaving the EU has pulled out in front.

Last week, though, it was the Remain in Europe camp that were out in front and the polls suggest that the new surge of support has been because of the shocking murder last week of Pro-EU Member of Parliament Jo Cox, by a right-wing fanatic.

Ask The Bookies For The Truth

If you really want to be able to predict the outcome of this political event, or indeed any event, you need to ask the bookies. The betting industry has proved time and time again that they can call these events with a far greater level of accuracy than those who calculate the polls.

Bookies have a greater number of respondents offering their opinions. You must think of every wager as an opinion. Bettors tend to put their money where their mouth is and they generally bet on the outcomes that they would like to see happen. Poll respondents are different and quite often they lie because they don't want to admit that they haven't gotten around to registering to vote, or because they are more interested in giving the answer that they think they should not their own opinion.

The Bookmarkers have the "Remain in the EU" party leading the way but the Brexit markets have been described as "volatile" by William Hill last week. Their spokesman Graham Sharpe told the Press Association that 66 percent of all the money his company had taken on the referendum had been placed on remaining in Europe, but 69 percent of all individual wagers were for leaving the EU, which makes predicting the winner all the more confusing.

It looks like a late surge of betting has tipped the balance in favour of the Remain group and the betting industry seems to believe that Britain will remain an EU member after the vote takes place this week. It is still going to be close though and the Remain group is only leading by around 56.7 percent.

Sharpe said, "We are expecting to see a big flurry of betting on Thursday, that's what happened in the Scottish independence referendum."

Is it Time to Exit UK Gaming Stocks?

There are a number of things that gaming investors need to keep in mind about Brexit. In fact, there are three specific things they should look at before they make any investment decisions. The first of these is that the likelihood of Brexit is very small. Betfair have put the odds at 78% to remain in the EU. The reason the chances are small is because the European Union already has a number of terminal stress fractures that will eventually doom it, and letting any one of these develop into a bona fide breakage will put an end to the political union fairly quickly. The powers that be are going to do everything they can to keep things together until the money runs out, and they are not going to let a silly thing like a referendum get in their way.

Even if the British public voted to leave the EU, Parliament would still have to approve the Brexit and you can bet that some crisis would suddenly pop up demanding "national unity among European" and the UK's exit, even if it gets passed on Thursday, would be indefinitely postponed for "national security" reasons. Brexit will be halted. The horrific murder of Jo Cox over the weekend almost did derail the entire vote as it is.

The second thing is that whether or not the UK votes to stay or leave, gaming stocks will continue to do what they have been doing before this vote. The third this is that no matter the result of the vote, gaming regulations will only be tightened, because that's what governments do. So if you were hoping that Brexit would lighten regulatory burdens on bookies, you can forget it.

Licensing specialist David Clifton, said just this during a panel session at the conference of the International Association of Gaming Advisors in Malta this month:

"In short, in my view at least, Brexit will not result in an exit from continuing robust regulation of UK gambling operators. Indeed, as some across the English Channel might express it, 'plus ça change, plus c'est la même chose'."

Clifton did however say something else that was quite revealing. He revealed that in Europe, mutual recognition of gambling licenses issued in the EU Member States is now a long-lost dream. Co-operation rather than harmonisation seems to be the way forward and that does not demand membership of the EU club, as Alderney and the Isle of Man have effectively proven.

What this means, is that the European Union has not helped streamline gaming regulation one bit, and breaking up the EU won't make things any worse.

Far more interesting than Brexit is something that happened in the UK in March of this year.

The M2 money supply reported by the Bank of England showed an enormous drop from February to March that is unprecedented. If this were any other country, it would be a green light to going short. The Bank of England also reports another number called M3 that includes long term deposits as well whereas M2 only counts short term deposits. The M3 situation doesn't look as bad.

What we can see is that the UK money supply plus long term time deposits has not changed much in the past 6 years. Neither has the FTSE 100:

What will happen next with UK stocks depends on how much access and how quickly capital markets can access long term time deposits, because for some reason all the money lost in the M2 report seems to be going there, as the money missing is showing up in M3.

If you own any UK gaming stocks or any UK stocks beside committed very long term holds of companies that are actually growing, you should hold off until Friday morning and liquidate positions on a "Remain" rally. You should aim to significantly lower you UK stock portfolio by the end of the month.

It might also be a good idea to sell some UK stocks now because a Brexit vote could inspire ill will among European politicians who may want to punish UK companies especially gambling companies.

If Britain votes to leave the EU, get ready for some strict enforcement of regulatory laws, especially against companies that it is politically correct to scorn.