FDJ shares plummet over potential gambling tax hike

Lea Hogg October 4, 2024

Despite reassurances from French gaming group FDJ, investor fears mount as speculation of a looming tax hike unsettles markets. French gaming giant, FDJ, saw its shares tumble by as much as 9.7 percent on Thursday, following widespread media reports suggesting that the French government may be considering a tax increase on online gaming and betting starting in 2025. This would be part of broader efforts to boost funding for the country’s Social Security system, causing jitters among investors already wary of potential regulatory changes in the gambling sector. FDJ swiftly issued a statement, attempting to quell market concerns. The company emphasized that, to its knowledge, the upcoming Social Security finance bill (PLFSS) does not include any measures targeting gambling taxes. The company’s statement, sent via email in response to a Reuters query, aimed to reassure stakeholders amid the mounting speculation.

Severe market reaction despite FDJ’s reassurances

Even with FDJ’s reassurances, the market’s reaction was swift and severe. As soon as the reports circulated, FDJ’s stock price took a significant hit, underscoring the fragility of investor confidence in the face of regulatory uncertainty. The stock recovered somewhat but remained deeply impacted, reflecting broader concerns within the gambling sector.

Lucas Excoffier, an equity trader at Oddo BHF Corporate & Markets, commented on the situation, noting that FDJ seemed to have “contacts at the highest level of the Ministry of Finance” before issuing its statement. While FDJ’s assertion attempted to calm market nerves, Excoffier suggested that investors were likely pricing in the risk of future regulatory tightening. “The market reaction is very severe, even though this type of news of course feeds the risk of regulation on the gaming sector, in particular FDJ,” Excoffier said, highlighting the precariousness of the gaming industry in the face of government policy shifts.

Regulatory risks in focus

The sharp fall in FDJ’s share price highlights a broader issue facing the gaming industry: regulatory risk. Investors are increasingly aware that governments across Europe are paying closer attention to gambling and online betting, both for social and fiscal reasons. France, like many other countries, has long viewed gambling as a lucrative source of tax revenue, and recent reforms have seen the government tighten its grip on the industry. While FDJ’s position as the country’s national lottery operator provides it with a degree of stability, the broader gaming and betting sector remains vulnerable to sudden regulatory changes. Any move by the French government to increase taxes could be seen as an easy way to boost revenue, especially as the country grapples with mounting financial obligations in areas such as healthcare and pensions. The current speculation revolves around a potential increase in taxes specifically on online gaming platforms, a sector that has seen tremendous growth in recent years. With the rise of digital betting and gaming, particularly during the pandemic, online gambling has become a more significant target for regulators. For FDJ, which operates in both physical lottery sales and online betting, any changes to the tax regime would have wide-reaching implications.

Delicate balance between regulation and growth

The challenge for France, as with many other countries, lies in balancing the desire for additional tax revenue against the potential risk of stifling an important and growing sector. For companies like FDJ, which have invested heavily in digital transformation and expanding their online footprint, higher taxes could erode profit margins and dampen future investment. Moreover, higher taxes could push more players toward illegal or unregulated betting platforms, complicating efforts to ensure responsible gaming practices and player protection. While FDJ has sought to reassure investors that no immediate tax hikes are in the works, the situation underscores the vulnerability of gaming companies to shifts in public policy. For now, the company can only rely on its contacts within the government to stave off any major changes in the upcoming Social Security finance bill. However, with the broader European trend towards tighter regulation of gambling activities, the future remains uncertain for FDJ and the industry as a whole.

Looking ahead

As FDJ and its shareholders wait for clarity from the French government, the situation remains fluid. While no concrete tax measures have been officially announced, the possibility of a future increase continues to loom large over the sector. The French government has previously introduced measures aimed at curbing excessive gambling, and the sector’s lucrative nature makes it a likely candidate for further fiscal scrutiny. Investors will be watching closely as the details of the Social Security budget emerge in the coming weeks, and any further indication of potential tax hikes could send FDJ’s shares into another spiral.

For now, FDJ has managed to contain some of the panic with its statement, but as Excoffier’s comments suggest, the broader risk of regulatory intervention in the gaming industry is far from resolved. Investors and industry insiders alike will be keeping a close eye on the situation, with many bracing for further volatility in the months to come.