French online betting giant FDJ (Française des Jeux) saw its shares fall as much as 9.7% on Thursday after media reports suggested that the French government may be considering a tax increase on gaming and online betting from 2025.
This would be part of broader efforts to increase funding for the country’s social security system, causing nervousness among investors already wary of possible regulatory changes in the online betting sector.
Severe market reaction despite FDJ guarantees
The FDJ quickly issued a statement, attempting to calm market concerns. The company emphasized that, to its knowledge, the Social Security Funding Bill (PLFSS) does not include any measures aimed at taxes on online gambling.
The company’s statement, emailed in response to a Reuters query, was intended to reassure interested parties amid growing speculation.
Even with the FDJ’s guarantees, the market reaction was quick and severe. As soon as the reports circulated, FDJ’s share price took a significant hit, highlighting the fragility of investor confidence in the face of regulatory uncertainty. Shares recovered somewhat but remained deeply affected, reflecting broader concerns in the online gambling sector.
Lucas Excoffier, equity trader at Oddo BHF Corporate & Markets, commented on the situation, noting that the FDJ appeared to have “contacts at the highest level of the Ministry of Finance” before issuing its statement.
While the FDJ’s statement attempted to calm market sentiment, Excoffier suggested that investors were likely pricing in the risk of future regulatory tightening. “
The market reaction is very severe, although this type of news, of course, feeds the risk of regulation of the gaming sector, in particular the FDJ”, said Excoffier.
Regulatory risks in focus harm FDJ
The sharp drop in FDJ’s share price highlights a broader issue facing the online betting industry: regulatory risk. Investors are increasingly aware that governments across Europe are paying more attention to online gambling and betting, for both social and fiscal reasons.
France, like many other countries, has long viewed online betting as a lucrative source of tax revenue. Thus, recent reforms have caused the government to reinforce its control over the sector.
But while FDJ’s position as operator of the country’s national lottery provides it with a degree of stability, the gaming and betting sector in general remains vulnerable to sudden regulatory changes.
Therefore, any move by the French government to increase taxes could be seen as an easy way to raise revenue. France is currently facing increasing financial obligations in areas such as healthcare and pensions.
Current speculation revolves around a possible increase in taxes specifically on online gaming platforms. This is a sector that has seen enormous growth in recent years.
Therefore, with the increase in online betting and gaming, especially during the pandemic, online betting has become a challenge for regulatory bodies. For FDJ, which operates both in the sale of physical lotteries and online betting, any change in the tax regime would have far-reaching implications.
Delicate balance between regulation and growth
The challenge for France is balancing the additional tax revenue with the potential risk of stifling an important and growing sector. Therefore, for companies like FDJ, higher taxes could erode profit margins and reduce future investments.
Additionally, higher taxes could push more gamblers towards illegal or unregulated betting platforms. This would complicate efforts to ensure responsible gaming practices and the protection of players.
But, although the FDJ sought to assure investors that there is no immediate tax increase expected, the situation highlights the vulnerability of online betting companies to changes in public policy.
For now, the company can only rely on its contacts within the government to avoid any major changes to the next Social Security financial law. However, with the wider European trend towards tighter regulation of online betting activities, the future remains uncertain for FDJ and the sector as a whole.
Looking to the future
Although no concrete tax measures have been officially announced, the possibility of a future increase continues to loom over the sector. The French government had previously introduced measures aimed at curbing excessive online betting.
In other words, the profitable nature of the sector makes it a likely candidate for closer tax scrutiny. Investors will be closely watching Social Security budget details emerge in the coming weeks.
Therefore, any further indication of possible tax increases could send FDJ shares into another spiral. For now, the entity has managed to contain some of the panic with its statement.
But the broader risk of intervention in the gaming sector is far from resolved. Investors and industry experts alike will be keeping a close eye on the situation, and many are bracing for greater volatility in the coming months.
