Bookies have to learn lessons of Yates' collapse before it's too late
Times are hard in an industry where the customers are fewer but much smarter, writes John O'Brien
Published 09/01/2011 | 05:00
Round our way the word quickly spread that there was a 'bookie' in town who was willing to take bets on a tax-free basis. In 1980s Ireland this was very big news indeed. The premises wasn't in the most conspicuous location, off a lane, off the main street, but it didn't matter, enough found their way. At the time betting tax was a mind-boggling 20 per cent. Even for those who bet in fivers or tenners, it was an alluring concession.
A little more than 25 years on, there's no greater measure of the revolution the industry has undergone. Bookies who felt secure enough that they could bear the punitive tax burdens on behalf of their punters in order to gain a vital edge complain nowadays that the current rate of one per cent is effectively killing their business. The bookie is under attack from all fronts now. The old notions about him never losing have been shredded.
There is an echo of the football industry at work here. Footballers, once treated little better than slaves, now hold the whip hand and have the cars and homes to prove it. The wheel has turned in the betting industry too. The odds were once so heavily stacked against the customer that only the most careless or unfortunate bookie found trouble. Now technology and the easy spread of information have evened the pitch, maybe even tipped the balance in favour of the punter.
As one bookie says: "Punters are more astute these days. The shops are plagued by wise guys." Ivan Yates made the same point when he sent a memo to his Celtic Bookmakers' staff in 2008 warning them to beware of "sharks". And not just the shops. On RTE's Liveline last year, Paddy Power made the revealing admission that winning customers were liable to have their telephone or online accounts closed. Bookmakers are desperate for business, of course, but not to the detriment of their profits.
In the end, the wise guys did for Yates and his 47 shops, at least partially anyway. In being so aggressive in expanding his mini-empire during the boom years, Yates needed to be equally aggressive in finding means to fill new shops. So he offered concessions that outstripped his rivals: juicy bonuses on Lucky 15s and other multiple bets beloved of the smaller punters, guaranteed morning and board prices that helped attract the "each-way thieves" he was so wary of, eating into profit margins already growing alarmingly thin.
"You can get isolated," says one industry insider. "You become vulnerable. The big firms get away with it because they can spread the risk around and they spend more money on surveillance. They make it hard to win. Yates knew he was being targeted. Like, if you want to take on a casino you don't go to Caesar's Palace because you know they have the best security. Instead you go to Binion's or some other small place downtown."
The publicity and sympathy showered on Yates last week was probably excessive. The leaked memo in 2008 perfectly exposed how ruthless the business can be. Beware the clued-in punter who might win, Yates warned, but encourage those who chase losses or are regular losers. In other words, the weak and the vulnerable. Yet, for a business to be sustainable, that is how it must be. If bookmaking becomes too hazardous an enterprise, then the system is in danger of breakdown.
Yates' mistakes were easily identified. Expanding rapidly in favourable times while failing to engage with the reality that, for most major operators, offices are mere shop windows for more reliable telephone and online wings. Yates was slow in rolling out a phone service and either unable or unwilling to grapple with online technology. Yet the former government minister isn't a fool. That he was simply hoping to build a healthy business with an attractive resale value is a possible scenario. The decline he first noticed in 2007 needn't have dissuaded him from that ambition.
"I suppose it seemed a good idea in 2006 and early 2007 when the country was awash with cash," says Sharon Byrne, chair of the Irish Bookmakers' Association. "But if you expand so quickly, you need to have an online presence and that weakened him considerably. And for a lot of that period he didn't have a telecentre. So he had no 24-hour outlet for his product. For someone that ambitious that isn't good enough in this day and age."
For Byrne, who closed one of her 12 shops last year, the loss of Celtic Bookmakers is a result of "natural market settlement." By 2008, she says, the total number of betting shops in the country had risen to 1,250 and, even in a favourable economic climate, the market couldn't sustain such a figure. In the past two years 150 shops have been forced into closure, though that figure must be updated to include Yates' 47 and the 20 shut by William Hill in December.
In one sense Yates' ambition wasn't all that outlandish. Paying €5m for 10 shops in 2006, with high rents attached, seems questionable in hindsight, but what of Ladbrokes' wisdom in paying €160m for Barney Eastwood's 54 shops in 2008? Or Paddy Power's decision to buy eight Belfast shops soon after at €3m a pop? Think of Boylesports which has expanded to an eye-popping 138 shops, four alone in both Navan and Tralee. How, you wonder, can the market bear such concentration?
Among bookmakers there is no appetite for dancing on Yates' grave, because they know they could be next. Ask how optimistic they are for the future and the reply comes through gritted teeth. "I'm not pessimistic," says David Tully, whose family own 35 shops. "Put it this way, will we still be here in five years? I think so anyway." Simple survival is the name of the game now. Keeping your head above water.
For independents, the demise of Yates has certain value. There was surprise and disappointment that Yates didn't mention the one per- cent levy during his many interviews last week because, for the IBA, this is their biggest single grievance. Last year, in talks with the government Byrne singled out one case of a bookmaker who recorded a loss of €19,000 yet still had to pay duty of €320,000. Yates' problems will reinforce their sense of victimhood.
"At his height Ivan was turning over €183m," says Jimmy Finlay of Bambury Bookmakers. "So he was generating €1.83m in betting duty. Even now when his turnover dipped to €90m, he's still paying nearly €1m. He lost €1.3m last year yet still had to pay €1m in duty. How is this fair? Other retail sectors don't have to bear these costs. Are chemists asked to pay into hospitals for example? Yet their profit margins are greater than ours."
In a climate where every sector is feeling the squeeze, the war over the levy gets more serious. Before the budget, the Government came under pressure from Horse Racing Ireland and other sources to increase betting tax, but to the relief of the bookmakers, they resisted the urge. "The HRI are barking up the wrong tree," says Finlay. "There's no further meat left on our bones."
The problem is clear. While the onset of the internet and betting exchanges have revolutionised the betting industry, Irish gambling legislation remains rooted in the dark ages.
This point is conceded by the Government which published a paper last month setting out a blueprint on how the industry might be regulated in the future. The problem, though, is that Dermot Ahern's document is high on aspiration, short on clear strategy.
It is not just the smaller bookmakers who are desperate for action. HRI estimates annual telephone and online turnover at €1.5bn, mostly channelled through offshore operations, and claims the industry is in mortal danger if it isn't guaranteed a fair slice of that cake.
The IBA advocates a licensing system where every strand of the industry -- shops, online, betting exchanges -- would have to pay for the right to trade but, as equitable as it sounds, how it would work in practice isn't clear.
Still Ahern, or his successor in Justice, must find a path through the minefield. If not, more high-profile victims will follow. If Yates' problem was that he was unable to move with the times, the stark lesson for the industry is that it must not follow suit.
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