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High-street bookies must pull out all the stops to boost odds of survival 29/04/2011
Simon Bowers
Betting shops face a real battle to beat the threat of online gambling and keep their doors open UK online gaming companies see big wins as American competitors face illegal gambling charges

To the consternation of his peers, flamboyant Scottish bookmaker John Banks once famously called them "money factories – a licence to steal money". But today, Britain's 8,500 betting shops are shaping up to be the next high-street stalwarts faced with a fundamental reckoning, increasingly under threat from the rapacious spectre of online competition.

Other high-street chains have been crushed, in some cases fatally, by the relentless advance of cyber retail juggernauts such as Amazon, Ebay and Gone from shopping malls are Zavvi, Woolworths and Borders, while HMV and Waterstone's remain on the critical list. In the US, Blockbuster has fallen into bankruptcy.

Could Britain's bookies, who on Sunday celebrate 50 years since betting shops were legalised, be next?

Gambling is already one of the most profitable industries on the internet. Businesses such as and Betfair, fledgling start-ups a decade ago, are now reaching parity with the likes of Ladbrokes and William Hill in terms of stock market valuations.

While online firms have been booming, recent years have seen a considerable financial retrenchment among high-street operators. Gala Coral, the firm behind the 1,600-strong Coral chain, last year completed a tortuous debt restructuring which saw its three private-equity backers depart nursing £700m in losses.

A year earlier, market leaders Ladbrokes and William Hill — running 2,080 and 2,350 shops respectively — both made cash calls on shareholders in order to bolster their balance sheets.

It was a painful business, though it has left Ladbrokes and William Hill in particular far better equipped to fight back against the online competition than once they were, investing heavily in websites of their own, with considerable success. Both have told investors in stark terms, while the shops remain a core business, future earnings growth is most likely to be delivered online.

Their main target is to catch up with Bet365, a roaring online success story started by Stoke-based brother and sister John and Denise Coates while working for their father's small chain of betting shops. The venture, which last year made a pre-tax profit of £100m, has left Peter Coates, the 73-year-old chairman of Stoke City football club, one of the richest men in British bookmaking.

Midlands bookmaker Warwick Bartlett, who started his first bookmakers at the age of 18 in 1965, believes the internet has changed everything. "We're living in an age of iPhones and computers everywhere … If you look at the William Hill website on a Monday or Tuesday, they've got prices up there for 450 soccer matches throughout the world, and there's in-play betting, which means you can bet throughout the game."

Shopping around for the best odds is so much easier online, adds Bartlett, who sold most of his 18 betting shops to Coral in 1984. "The payout to the customer has never been as high as it is today. It is possible now for a gambler, who is in control of his senses and really studies the form, to make gambling pay. In my day you never could," he said.

Fifty years ago on 1 May, the first licensed betting shops opened their doors in Britain, after the politicians at Westminster realised there was little point in continuing to criminalise a pastime that was so widely enjoyed throughout the country. Legislation brought in by Rab Butler overturned the 1853 Suppression of Betting Houses Act. Hard as it is to imagine, for five years their activities went untaxed.

These no-frills, smoke-filled establishments were tightly bound by the guiding tenet at the heart of the 1961 act: that bookmakers not be allowed to stimulate demand for betting activity. That meant the windows were boarded up or blacked out, there was to be no advertising, and even the shop's front door had to remain shut so that passers by might not be enticed by glimpses of goings-on inside.

A sign just three-inches tall reading "licensed betting office" was all that was permitted on the shop frontage, together with the bookie's name. Inside, racing commentary blared out over "the blower" (there were no television feeds until 1986), the prices were chalked up on boards by hand, and winnings were calculated at break-neck speed by an army of quick-witted staff – all of which is automated today. For those caught short, there were no toilets.

"The premises will resemble undertakers' parlours," Butler said, though some recall the atmosphere in the first betting shops with great affection.

Since the 1960s, there has been a steady acceptance of betting shops on the high street as they have come to be viewed affectionately by many as an important element within communities.

By degree, bookmakers have been permitted to advertise across all media, live satellite pictures arrived in shops and transformed the atmosphere, and seven-day evening opening was sanctioned. Meanwhile, bookmakers have developed a bewildering array of sporting events and diversions, other than traditional horse and greyhound racing, on which they offer prices: golf, cricket, virtual racing and football are only the most obvious.

Graham Sharpe, of William Hill, said: "Millions have been riding on what happens during and after the Royal Wedding, and it is incredible to recall that in 1977 I hit the headlines for turning down bets on the sex of Princess Anne's baby as we thought there would be adverse criticism for doing so."

Betting shops have shown they can adapt and reinvent themselves. Never more so than in 2001 when, to the fury of the then Labour government, they introduced a new type of slot machine offering virtual roulette – a game until then thought to be legally restricted to casinos.

Rules governing betting shop licensing forbade betting on events on the premises, but bookmakers had spotted an opportunity to use internet technology that could ensure the "virtual spin" of the cyber roulette wheel, which took place on a computer server at head office, with the result then beamed back to the terminal. Ultimately ministers' objections faded: perhaps as they began to see machines as a tax opportunity. Even the state-owned Tote shops, which are about to be privatised, have embraced the roulette revolution.

Today terminals offering virtual roulette are so popular that they generate about 40% of takings, considerably more than any other product in a betting shop. In effect, betting shops have become part bookmakers, part high-street casino. Without these terminals, most industry insiders agree, thousands of betting shops would have been pushed out of business in recent years.

Whether high-street bookmakers can repeat this kind of coup to keep their prospects rosy remains to be seen.