eGaming Review January 2014 - Page 21

NEWS > ANALYSIS DIGGING DEEP >> Betfair’s investment in sustainable growth both at home and abroad is a clear example of how all operators will have to adapt to survive in 2014 by Tom Washington O n the back of impressive H1 profit growth reported in December, Betfair laid out its blueprint for growth, with an expensive US venture and an exchange launch in Italy crucial to those plans. But while exits from unregulated markets such as Greece and Germany and a focus on growing its business in “sustainable” jurisdictions gives it a more focused feel, the UK’s imminent point of consumption (PoC) tax is just one of the many serious challenges on its horizon. And it is not alone in needing to dig deep in 2014. Every operator, large or small, will feel the hit of new UK legislation which means investment in new markets, new products and marketing is increasingly vital. Europe holds potential for a few, yet success in Italy and Spain, for example, has proved to be challenging at best. Meanwhile the US is arguably the most exciting growth market, but also by far the most expensive. Need to offset As we saw at during 2013, remoulding the strategy of a global egaming firm takes a great deal of time and effort. Betfair is right in the middle of that process which is why, despite reporting a 6% decline in overall H1 revenues, there was no hint of doom and gloom from CEO Breon Corcoran. Profits soared by 56% to £32.5m and are expected to be between £82-87m in 2014, with regulated territories accounting for 77% of that figure. Yet Betfair’s current reliance on the UK and Ireland means the UK government’s proposed 15% PoC tax looks set to be extremely damaging and Corcoran estimated it would have cost £17m had it been in place for the H1 period. This means there is even greater pressure on Italy, the US and its fledgling sportsbook product to perform well. Another firm with a strong reliance on the UK market is 888, which has recently made moves to try and increase its market share there. 888’s launch of a new advertising campaign, as it attempts to grow its UK sportsbook business prior to the football World Cup, will take some serious investment to be a success in a very mature market. Yet with its casino and poker products bringing in the cash, CEO Brian Mattingley knows that strengthening its weaker areas – namely sports and bingo – is the only way forward. 888’s sports betting vertical accounts for just 2% of its overall revenues and currently boasts a miserly 0.3% market share in the UK. To grow that number it must not only compete with the likes of Paddy Power, Hills and bet365, but also the BetFreds of the world, which has recently spent almost £10m on a TV ad campaign for its sports betting site. There is no cheap way to succeed and Mattingley will therefore hope his prediction that the US starts to attract material revenues during 2014 comes true. “I think the UK sports betting market is going to be very tough,” says Peel Hunt analyst Nick Batram. “We have already seen an increase in marketing and with the World Cup coming up that is only going to intensify, meaning the cost of acquisition will be very high. Established brands 19