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The bookie shop is now history, Paddy Power's future is online

THE bookies' 2010 results, published last week, show that Paddy Power is now mainly an online company, with the vast bulk of its business and profits coming from its internet arm. With its UK retail business inherently unprofitable and betting well down at its Irish shops, maybe it's time that Paddy Power went exclusively online.

The company had an outstanding year in 2010. Its operating (pre-interest) profits soared by 56 per cent to almost €104m. However, the 2010 results were very much a tale of two contrasting businesses.

Even when one excludes Paddy Power's Australian operations, of which it took 100 per cent ownership for the first time last year, online operating profits increased by 20 per cent to €57.5m.

Throw in the Australian business, which is exclusively online, and online operating profits were up by 54 per cent to €77m.

Meanwhile, Paddy Power was finding the going much tougher on the high street. Operating profits at its Irish shops rose by just 8 per cent to €17.6m.

Across the water, profits at Paddy Power's UK shops rose by 350 per cent to €7.4m. However, these numbers were flattered by the €24.2m that was earned from in-store one-armed bandits. Without the slot machines, the UK shops would have lost almost €17m in 2010.

Working in the Irish shops' favour has been the rapid reduction in the number of shops servicing the market, with the total number falling from a peak of 1,365 in 2008 to its current level of 1,140.

Among the latest to close were several of Ivan Yates' Celtic Bookmakers outlets, which went into receivership in January.

Unfortunately for Paddy Power, despite reduced Irish retail competition the amount staked in its shops actually fell by 4 per cent to €908m last year.

While its Irish and UK shops remain profitable, one has to wonder if Paddy Power was starting up in business today, would the company bother with retail outlets instead of concentrating exclusively on the online business?

Internet gambling has much lower overheads than retail-betting shops. This means that not alone is it much more profitable for bookies such as Paddy Power, it also allows them to offer punters significantly better odds.

In 2010, Paddy Power's Irish shops paid out 88 cent of every euro gambled by punters. By comparison, its internet-betting operation, excluding Australia, paid out 92 cent of every euro gambled.

However, despite this significantly higher payout to punters, the internet business recorded an operating profit of €57.5m -- more than five cent of every euro gambled -- compared to the €17.6m operating profit generated by its Irish betting shops, which was less than two cent of every euro gambled.

If Paddy Power could persuade its existing Irish and British retail customers to switch their business online, it would, at a stroke, boost its operating profits by a further €60m.

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This combination of higher profits for the bookie and better odds for the punter means that the future of gambling is going to be online. Retail bookmaking is a legacy business that is headed straight for the museum.

So my advice to Paddy Power chief executive Patrick Kennedy is to stop spending money on his shops and move the whole business online pronto.

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