Betting Market

Niall O'Connor argues that cultural and regulatory barriers remain within the "more liberalised" European betting market. "For years, the UK's leading bookmakers have campaigned for the liberalisation of the European betting market. Over the past ten years, many betting industry executives have attended conference after conference, where they were told that the European Court of Justice's rulings in Gambelli and Placanica were going to throw open the doors to a free European betting market. As always, when it comes to tackling international markets, the reality on the ground has proved to be somewhat different to the spin. Cultural, legal and historical barriers cannot be brushed aside over night. Incumbent operators, with a long track record in their home markets, enjoy a signifciant competitive advantage that can not be erased at the drop of a hat. The notion of a European betting market free for all always was nothing more than wishful thinking, in that each of the individual European states was always going to move to protect its domestic industry. No where is this more in evidence than in France, where new gambling industry legislation backed by the French budget minister Eric Woerth is currently working its way through parliament. The French are going out of their way to resurrect barriers to entry, whilst at the same times appearing to liberalise their market. They have stated that companies that currently break French law, will not be looked on kindly when it comes to the granting of betting licences. They are also seeking to introduce a law whereby the organiser of sporting events will be recognised as the rights owner; thus ensuring that they will have the final say as to whether there can be betting on their event. Moreover, it now also seems that the propoased levy payable to France's sporting bodies will be similar to that that is currently paid by Francaise des Jeux. For both Ladbrokes and William Hill, the headlong rush into the European betting market has backfired. It is to be hoped that the lesson will not be lost on other operators."

Ladbrokes said that profit from High Rollers was £40 million but that their activity had recently fallen to de minimis levels. Poker net revenue fell by 2% in what the company once again described as a highly competitive market. Excluding High Rollers, Telephone betting net revenue fell by 5%. Like for like constant currency gross win increased by 4.4%, whilst like for like costs, excluding Turf TV, were up by 5.7%. Blue Square, Rank Group's interactive gambling business said that increasing competition in its core UK sportsbook and bingo markets had held back first half revenue and profit. The company said that whilst revenue grew by 3.1% to £27.0m, the company had experienced a marked deterioration in performance in the second quarter as average stakes declined on both sports betting and games . William Hill announced that its retail channel's gross win had grown by 5% to £421.3m in the first half of 2008, but it said that its pre-exceptional profit had fallen by £1.3m to £123.5m, with the channel bearing incremental costs of £5m relating to the Turf TV contract Sky Bet said that revenue had decreased by 6% on the prior year to £44 million (2007: £47 million). The company said that a fall in underlying revenue offset the benefit of the first full year of consolidation of 365 Media Group plc (acquired in January 2007) and reflected the continued shift from interactive TV betting towards the internet. When announcing interim results for the six months ended 30 June 2008, Paddy power said that a downturn in the economic outlook had caused it to moderate its operating profit outlook for the full year from approximately ?82m to ?75m.

A cursory glance at the results recently posted by a number of the leading online betting companies, reveals a picture of intense competition; reflected in increased operating costs and marketing budgets, high customer acquisition costs; reduced yields per player and reduced revenues and profitability. Online Poker, in particular, is coming under increased pressure, as the trend of more and more players migrating to the big money sites continues. However, some of the fixed odds online betting sportsbooks are also starting to feel the pinch, as the battle to acquire new customers hots up.

Looking ahead, there is however, a strong case to be made, that any future liberalization of the European betting market, rather than providing the likes of Bwin and Unibet with further growth opportunities, will actually serve to usher in more competition, with the likes of Betfair, Ladbrokes Paddy power and William Hill entering their core markets. (A clear case of rising more on expectation than hope.). In the case of France, incumbent operators such as Groupe Partouche, FDJ and Groupe Lucien Barriere, all of whom boast strong brand awareness and customer loyalty, are very well positioned to benefit from any future liberalisation of the betting market, at the expense of non-French operators. When it comes to the liberalisation of the European betting markets, the message for non-incumbent operators may just be, be careful what you wish for.

Looking at the results for H1 2007, we can see that William Hill's turnover in the retail division was significantly greater than that achieved by Ladbrokes. William Hill stated that within the retail estate gross win from over the counter (OTC) increased by 4% while FOBT/AWP (machines) gross win was up 16%. Ladbrokes reported a decline in OTC gross win, partly due, it said, to a substitution effect with its new FOBTs. Ladbrokes said that FOBT gross win had increased by 19% to £651 for the period. In relation to gross win, we see the continuation of a trend, begun in H1 2006, with Ladbrokes achieving better gross win figures in each of the three key divisions; retail, telephone and online. William Hill, however, once more converted a higher proportion of its retail gross win into EBIT. For the first time since our analysis began, Ladbrokes outperformed Hills in the online division, with significantly better Gross Win and EBIT figures, and a higher conversion rate of online gross win into EBIT.

Asked about the decline in horse racing gross win, Chris Bell of Ladbrokes recently said; "UK horse racing is not as relevant to our customer base as it used to be. Customers are much more interested in machines and virtual horse racing. They bet on demand now rather than spending ages studying form in the Sun in the morning." The UK retail market is in the process of structural change, at the heart of which, we are seeing significant substitution taking place between the over the counter business and FOBTs. The government has blindly allowed bookmakers to turn their betting shops into mini-casinos. This, by the bookmakers' own admission, has killed off much interest in the horse racing product. This of course, provided the bookmakers with wriggle room when it came to negotiations over the bookmaking levy. The old arguments regarding Betfair and the over-round simply do not wash. The UK's bookmakers, in pursuit of a fast buck, are single handedly responsible for cannibalising their own high margin products.