"European gambling industry and the myth of market liberalisation."
In July 2008 Hills announced the sale of the entire issued share capital of its Italian joint venture, William Hill Codere Italia Srl (WHCI) to INTRALOT International Holdings Limited. The gross consideration agreed was 5.5m, which was shared equally between the Group and its joint venture partner, Codere. The sale followed a strategic review of WHCI within the Italian sports betting market.
Hills had been awarded 57 licences in an auction in July 2006, but the company ultimately came to the conclusion that this number was insufficient in scale to provide an attractive long-term return. Moreover, the company concluded that "the cost of acquisitions within the existing uncertain regulatory framework made further investment unattractive". This sale resulted in a loss on disposal of £1.2m, in addition to operating losses of £1.6m incurred in the first six months of the year.
In Spain, where Hills had formed a joint venture with Codere, called Victoria Apuestas, which had 98 locations trading in Madrid and the Basque Country, economic conditions and a lack of regulatory transparency saw Hills take an early impairment charge of £5.4m against the book value of its investment;
"Following the substantive investment of amounts originally committed by each party, we are in discussions with Codere as to the future strategic direction of the joint venture and the levels of future investment expected to be required to develop the business in Spain. In light of this and as a result of the deteriorating economic conditions in Spain, we have reviewed the carrying value of our joint venture and recorded an impairment charge of £5.4m against the book value of our investment in Spain."
In May 2009 Hills announced that it was withdrawing from the year-old joint venture, stating that progress had been hampered by the slow granting of local regulatory consents and slower-than-anticipated regulatory changes within the country's other autonomous regions; "These factors, coupled with the difficult economic situation within Spain, were likely to lead to additional capital requirements and a delay in achieving William Hill's target return for the venture".
When announcing its results for the half year ended 30 June 2009, Ladbrokes announced that it was also going to exit the Italian betting market. The company said that revenue growth had been below expectations "due to the continued presence of a number of illegal shops, the increased competition in the market place and the withdrawal of the protective distance rule".
Ladbrokes said that these factors, combined with the investment that would be required for the estate to achieve critical mass and the associated risk attached to achieving an acceptable return from that investment, had led to its decision to sell it retail business.
As regards Spain, Ladbrokes said that whilst bet volumes and amount staked were running ahead of expectations margins in the first six months of the year had been poor. It said that as of 30 June 2009 its estate numbered 68 corners and two stand alone shops. Ladbrokes said that "the long term success of the business remained dependent on regulatory change in other regions".
In July 2009 Sportingbet announced that it had sold its licensed Italian betting operation to local management for a nominal sum, in the process incurring an exceptional cost of £7.1m.
And then, on April 12 2010 Ladbrokes announced that it had agreed to sell its Italian retail betting and gaming business (head office in Milan, 82 shops and 51 corners located throughout Italy) to an affiliate of Cogetech S.p.A, a leading player in the Italian betting market. The expected cash consideration is 5.25 million payable on completion, whilst Cogetech will assume responsibility for approximately 18m of guarantees currently provided by Ladbrokes plc. In 2009 the it was reported that Ladbrokes' Italian retail business had made a loss of £9.9 million and at 31 December 2009 the carrying value of the business was £26.7 million. Ladbrokes took the decision to exit the Italian retail market in August 2009 due to revenue growth being below expectations, increased competition in the market place, and the high level of further investment required to achieve critical mass.
Then came the mass exit from the so called newly liberalised French betting market. On 14 May 2010 Betfair posted the following message on its forum; "On 6 April the French parliament passed a law relating to online gaming which came into effect on the 13th May, 2010. This law prevents us from allowing customers to access www.betfair.com and associated sites from France. We are considering our options for the future but in the meantime, as a result of this change in legislation, we can no longer accept bets from France or any of its territories. Please note that this restriction also applies to customers that may have accounts registered in a different location but attempt to use their Betfair account whilst they are visiting France."
On May 26 William Hill became the latest international betting company also announced its exit from the French betting market; "following the introduction of new laws relating to online gambling in France, William Hill Online is taking steps to cease accepting online gambling business from clients resident in France. In conjunction with the changes to the regulatory regime in France, William Hill Online is considering whether to apply for a licence to offer permitted online gambling products to French residents."
On Thursday 27 May 2010 Sportingbet said; "Legislation to issue license to permit online sports betting, online horse betting and poker for customers resident in France was adopted by the French Parliament on 6 April, 2010. Online casino and games of chance are not permitted.
In accordance with required procedure, the legislation was notified to the European Commission for review. As such, the enacted legislation is unlikely to be subject to further challenge by the Commission and further recourse to the European Union Courts by operators is therefore limited. The law was enacted on 14 May 2010 and in compliance with the legislation the Group stopped taking wagers from French resident customers. The Board of Sportingbet hope the licensed market, with greater freedom to advertise, along with greater acceptance of the online gaming market will lead to market growth. Subject to concluding on the economic viability of operating under the new licensing and tax regime, the Group intends to apply for licenses to operate sports betting, pari-mutuel horse race betting, and poker. As the license issue process and the detailed regulations are only just being published, it is unlikely that the Group will be able to satisfy the French regulatory requirements until early in 2011. In the 9 month period to 30 April 2010, the Group earned a contribution of £2.6m from £6.0m of Gross Gaming Revenues ("GGR") derived from the Group's French language site. Approximately 60% of GGR was derived from sports betting, 15% from poker and 25% from casino. In total, GGR from France accounted for approximately 3.5% of Group GGR."
888 chipped in with its own concerns regarding the French market; "Following 888's application on 21 May 2010 to obtain a licence to operate in the newly regulated French market, it is expected that trading could be further adversely impacted by the mandatory transition of business onto the regulated platform. This transition will require significant marketing investment, which in turn will have a short to medium term financial impact on the business."
In October 2010 the danger of rushing headlong into the partially liberalised European betting market, was once more brought to the fore, with the announcement, that six months after they had formed a headline grabbing joint-venture to enter the French betting market, the duo of Ladbrokes and Canal Plus had shut the venture down, and Ladbrokes have withdrawn from the French betting market.
On August 8 2012, in a trading update, Sportingbet highlighted the impact of regulation and tax
on its European business;
"In line with the sector, our European business has continued to face challenging economic conditions combined with the disruptive impact of newly regulating countries and associated taxation. Additionally, our largest European market, Spain, was closed for the first 35 days of the quarter until the licensed market launched on 5 June. As a result, European NGR declined by 41% year on year (like for like down 18%)."
On 11 September 2012 Betfair released its Q1 FY13 Interim Management Statement. Noting that it had made its exchange unavailable to customers in Spain, until exchange licences are issued, and that it had been forced out of the market in Cyprus, Betfair said that it expects that the on-going impact from these regulatory changes on revenue would be c.£1.5 million per month on a run-rate basis.
Regarding the German market, Betfair said that the introduction of a 5% Federal turnover tax in July, threatened to make its current betting exchange model unviable. Betfair noted that in FY12, approximately 4% of its revenue came from Germany, delivering a contribution of approximately £6 million before costs.
The muddle that is the European betting market was further revealed when Sportinget announced its audited results for the year ended 31 July 2012. During the year, Sportingbet's
European business, saw the disposal of its Turkish language website and the implementation of new regulatory and tax regimes two of its largest markets Spain and Greece.
Sportingbet also noted that difficult economic conditions across Europe had depressed trading. These factors contributed to a 31% decrease in the amount wagered on sports to 814.0m (2011: 1,174.6m). Net Gaming Revenue (NGR) also fell 38% to 103.7m (2011: 166.8m) down 38%.
In Greece, which accounted for 5% of Group amounts wagered, amounts wagered fell by 21% following a decline of 22% in 2011. NGR fell by 37%, partly atributable the company said to the imposition of a new 30% gaming duty.
Sportingbet said that aross Europe, the number of sports bets placed declined 8% to 72.8m (2011: 78.9m) and the number of bets per customer fell to 171 (2011: 184). It also said that the average bet size and the yield per sports active decreased, to £11.28 (2011: £15.01) and £160 (2011: £277) respectively
On 2 November 2012, bwin.party digital entertainment plc released an interim management statement for the period from 1 July 2012 until 31 October 2012, alongside Third Quarter 2012 Pro forma Key Performance Indicators. bwin said that the amount wagered in sports betting had fallen by 8% to €828.3m (2011: €903.5m) following its decision on 20 July 2012 to remove all single bets with odds of less than 1.1 in Germany as short-odds bets were no longer viable following the introduction of the new turnover tax.
On 7 November 2012, Betfair announced that it was withdrawing from the German betting market;
"As previously indicated, in July 2012 Germany introduced a law that applies a 5% tax on stakes on sports betting in the country. A tax at this rate, if applicable, would make Betfair's current exchange model unviable. Following detailed opinions provided by its legal and tax advisors, Betfair believes that, in regard to bets placed on its exchange, it is not an organiser of sports betting under the tax law and is not, therefore, liable for the tax.
Betfair has been working with the relevant tax authorities to seek clarification on interpretation of the law and its applicability to exchanges. The company is disappointed, however, that to date the tax authorities have not been able to agree to an interpretation of the law that would allow Betfair to continue to offer the exchange product. Consequently, Betfair has decided to withdraw its exchange product from the German market.
Following this decision, on-going contribution from Germany is expected to be de minimis and Betfair is reviewing its operations in this market. In FY12, approximately 4% of Core Betfair revenue came from Germany and this revenue delivered a contribution of approximately £6 million before the allocation of central costs.
The company believes that it has fulfilled all of its obligations under German law, including the filing of necessary tax returns. Discussions are continuing with tax authorities regarding the potential tax liability, if any, arising from bets placed on its exchange since the law came into effect."
For years, the UK's leading bookmakers have campaigned for the liberalisation of the European betting market. Indeed, over the past fourteen 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, however, when it comes to tackling international markets, the reality on the ground has proved to be somewhat different to the spin. As any A Level marketing student knows, cultural, regulatory and historical barriers do not fall away overnight. The dominant position of incumbent operators, who, with a long track record in their home markets, enjoy a signifciant competitive advantage in terms of scale and reputation, cannot simply be overthrown at the drop of a hat.
As 2013 dawns, it is fair to say that the walled gardens that surround the European gambling market remain firmly in place. In those situations, where one or two bricks have been removed from the wall, restrictive measures, such as harsh taxation regimes, have ensured that incumbent have generally remained
well protected vis a vis new market entrants. The notion of European betting market liberalisation remains
something of a misnomer.
To cite this article: Niall O'Connor (bettingmarket.com 2012) "European gambling industry and the myth of market liberalisation."