Friday 18 October 2019

Samantha McCaughren: 'Paddy Power Betfair takes a Flutter on big US opportunity'

Peter Jackson, CEO of Paddy Power Betfair
Peter Jackson, CEO of Paddy Power Betfair
Samantha McCaughren

Samantha McCaughren

The word flutter brings with it a certain amount of levity. According to the Oxford English dictionary it can mean to fly unsteadily or hover by the light flapping of wings. Or an informal use of flutter can mean a small bet.

Paddy Power Betfair announced last Wednesday that the corporate entity would be renamed Flutter, although its consumer brands would remain intact. Little wonder, given Paddy Power's laddish marketing prowess, which generates admiration and disdain in equal measure.

The change in its corporate identity comes at a time of both challenge and of opportunity.

Regulation is the main thorn in the side of the gambling industry. Like cigarettes and alcohol before it, the attitude towards gambling has soured in recent years. Having that occasional flutter is no longer seen in the playful terms it once was.

The big gambling firms are seeing the impact on this shift in view on the bottom line.

Last week, GVC, owner of Ladbrokes, spoke about how new regulations and other planned changes were impacting on the business, while insisting that the industry is getting to terms with problem gambling.

GVC chief executive Kenny Alexander claimed that the gambling industry has become a political football in the UK, although highly-publicised gambling addiction stories have rightly brought the problem into sharp focus.

He said that a move to reduce bets on Fixed Odds Betting Terminals (FOBTs) to £2 would results in 1,000 betting shop closures. The limit on the machines, dubbed the 'crack cocaine' of gambling, had been £100.

The Gambling Commission is now weighing up more restrictions, including a ban on online gambling with credit cards.

Alexander told the Daily Telegraph he was not supportive of the movie, which could obviously have implications for the vast opportunity presented by online betting.

Meanwhile, Peter Jackson, CEO of Paddy Power Betfair (PPB) - which posted an 11pc fall in profits - said the group had "regained its mojo", with the company beginning to regain market share in the UK last year. But he also flagged that 2018 had been a "challenging year for the sector with regulatory and tax changes''.

The clampdown on fixed odd betting machines will not be a material issue for the company, but other regulations could be. The momentum building in Ireland and the UK - and further afield - for a less tolerant approach to betting will be hard to stifle.

Despite PPB making all the right public pronouncements on problem gambling, regulators continue to up the ante.

In the same week at its results, PPB's Australian subsidiary Sportsbet was convicted and fined for offering unlawful "inducements" to punters to entice their friends to open gambling accounts.

The ad in question showed to men with their thumbs up and the tagline was 'Refer a Friend - Get a $100 Bonus Bet for every friend you refer to join'.

The company was fined AU$10,000 and ordered to pay more than AU$7,300 in legal costs. Sportsbets put its hands up.

"Despite Sportsbet's long-standing record of compliance with advertising legislation across Australia, we accept that in this particular instance, we didn't meet the required standard," a company spokesman told local media. "Positively, the court recognised the one legacy advertisement in question was inadvertently left up, despite Sportsbet's extensive compliance measures."

The message coming from the gambling industry now - and even the choice of the word Flutter for the group's new corporate identity - has echoes of the messaging which came from the alcohol lobby group 20 years ago: it does not wish to encourage excess.

The drinks industry and its responsible drinking taglines have promoted the message that its preferred customers are the moderate drinkers, those who enjoy an occasional tipple.

But just like a flutter, it takes a lot of tipples to generate the sales of regular drinkers.

And regular gamblers - rather than those who enjoy an occasional flutter - are key to the success of any bookie.

For PPB and GVC the big opportunity lies now in the US, although that comes with some big health warnings, for the time being at least.

PPB said in its presentation last week that investment losses were likely to be material in initial years, investment will fluctuate based on timing of state-by-state regulation and a higher market share will equate to higher losses in early years.

It may very well provide a big payday for investors, but some uncertain times lie ahead.

Ivor Jones, an analyst at Peel Hunt in London, said: "The group will continue its US investment in its bid for market leadership. We can't know when, or whether, this will pay off and, medium-term it will continue to be a drag on profits."

And without a clearer picture of what and when the US can deliver, not everyone will be willing to take a punt on that.

Sunday Indo Business

Also in Business