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.
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Need to offset
As we saw at bwin.party 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
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