The happenstance of bet365 and Sky Betting & Gaming (SBG) releasing results on consecutive days earlier this week rammed home an important message about the dominance of the market leaders in the UK online scene.
The numbers were mightily impressive. Total net revenues from the gambling business at bet365 comfortably sailed past the £2bn barrier, up a huge 39 percent on the previous year, and with operating profits totalling £503.9m. Amounts wagered was up 27 percent and active customers rose 35 percent.
SBG released scarcely less impressive numbers with group revenue up 38 percent to £516m and total customers rising 31 percent to 2.6 million. EBITDA was up 38 percent to £146m.
The figures put to the sword the notion that the UK online gambling market has been exhibiting signs of a marked slowdown in the growth rate. Between them, bet365 and SBG are the UK market leaders – the first is estimated to earn circa 25 percent of its total revenues from the UK while SBG’s results, for now, consist wholly of UK earnings.
By comparison, William Hill said its first-half online net revenue rose 5 percent for the period while Ladbrokes Coral said pro-forma revenues rose 14 percent in constant currency terms, though this includes the revenues from Australia and Italy. In UK sportsbook terms alone, the company said UK stakes were up 10 percent year-on-year.
Meanwhile, at Paddy Power Betfair the recent third-quarter trading statement said that online revenues in Europe (largely UK) were down 3 percent due to tough comparatives with last year (when the Euros were still taking place) and a deteriorating margin.
What would appear to be the gulf in performance (and increasingly scale) between the market leaders and the rest of the notional top five or ten operators in the UK throws up some interesting questions about the structure of the market and of the individual constituents.
“There are four things these two have in common,” says Paul Leyland, lead partner at gambling consultancy Regulus Partners. “They are held privately, they are UK-based, they have clearly identified a customer segment that they aim at and none of them have been involved in (large-scale) M&A. The key is that none of their competition have all four of these factors in their favour. Some have none.”
Moreover, these factors are likely to remain in place for some time to come. Bet365 is owned by the Coates family while SBG is under the stewardship of private equity house CVC, meaning the managements of both are more focused on the long-term, without the pressure of pleasing shareholders and the short-termism that comes with it.
The UK base is important, meanwhile, not for the specifics of geography but because what having a single base brings in terms of cohesion. Both Stoke (bet365) and Leeds (SBG) have become centres of gaming excellence and each have welded together well-rewarded and highly motivated employees.
Then there is the clear target audience. It is notable, for instance, that each is highly connected to and visible alongside the English football and while they may be aiming at slightly differing segments within the huge audience for football, they are equally focused and defined.
“They know who their customers are,” says Leyland. “You can target them properly. The bigger operators who go for every segment tend to tick every box and miss every target.”
The last point, meanwhile, could yet have even greater relevancy in the months ahead. Much of the focus in the sector at present has been about the potential for further M&A in the sector – and this despite the paucity of evidence that the last spate of buyouts and unions have been successful.
The jury is still very much out on Paddy Power Betfair, for instance, where new chief executive Peter Jackson aims to complete the job left behind by departing boss and merger architect Breon Corcoran.
The evidence of the success of Sportsbet in Australia, relatively free from any merger backwash, in comparison with the still integrating and transitional mothership points to how much M&A can handicap a business.
The only cloud on the horizon for either SBG or bet365 comes with the threat of Chancellor Philip Hammond potentially raising gross profits tax in the upcoming budget, potentially to help mitigate the loss of taxes should the ongoing triennial review consultation process end with a £2 maximum stake (and the loss in tax revenues that would come with it).
But if the net result of the end of the review process is – as many have suggested – another bout of corporate activity, then bet365 and SBG might yet see a silver lining as the consummation of further deals once again distracts the competition from the real task at hand of trying to close the gap at the top.
Football as a key driver for betting firms will be discussed at next year’s Betting on Football conference (20-23 March) at Stamford Bridge. Super Early Bird tickets are now available to buy at www.sbcevents.com