This could be a momentous week for the UK gambling industry, with a ruling from the Competition and Markets Authority (CMA) on the impending Ladbrokes Coral merger expected in the coming days.
Reports surfaced over the weekend that a decision is due this week, though it was confirmed by the CMA itself in April that it had pushed back the timing of its decision to mid-May.
It is thought by some that the delay to the CMA’s announcement could be due to deliberation on the number of betting shops that may have to be sold by Ladbrokes Coral, with City AM reporting that the number is between 300 and 500.
What does this mean?
Ladbrokes claims to have over 2,700 betting outlets in the UK, Ireland and Belgium, while over 1,850 betting shops are operated by Coral, so it may seem like a small number, but if it were close to 500, over 10% of the combined group’s total of circa 4,550, then it could be severely detrimental to the enlarged business.
Operating betting shops can be difficult enough as it is, when you combine machine gaming duty increasing from 20% to 25% from March 2015, the potential future lowering of maximum stakes on fixed-odds betting terminals from £100, which accounted for 54% of off course bookmaker gross gaming yield (GGY) between April 2014 and March 2015 (£1.66bn), and the lessening of the number of UK betting premises. This total went down by 166 to 8,952 for the same April-March reporting period, and the UK Gambling Commission has confirmed that the number has since gone down to 8,819 as of September 2015.
Therefore, while the Ladbrokes Coral not only makes sense from an online point of view, in light of the implementation of the point-of-consumption tax on remote gaming of 15% from December 2014, it also makes sense from a retail point of view. This is Darwinism in the retail space, and adapting to the environment by combining resources is the plan.
When breaking down retail revenue for the leading UK operators, it is clear to see that it remains an integral part of their business.
Retail is integral to net revenue
Here is a breakdown of four of the leading UK operators’ retail net revenue combined for the last annual reported period, or the last four reported quarters combined in the case of Gala Coral, and the percentage of overall net revenue it accounted for:
Ladbrokes - £947.2m (79% of total)
Gala Coral - £773.8m (65% of total)
Paddy Power - £366.8m (34% of total)
William Hill - £889.5m (56% of total)
In the combined group, this would give Ladbrokes Coral combined retail net revenue of £1.72bn, giving it a clear market lead over these competitors. Paddy Power has helped itself compete overall by merging with Betfair in February, though this will not help much on the retail front.
If you were to add up the scores of all four operators, you would get £2.98bn, and Ladbrokes Coral would take a 58% share, hence the interest from the CMA. Betfred's retail figures were not mentioned in its last annual report.
Retail vs online
While UK i-gaming gross win is expected to be approximately £4bn for 2016, according to Barclays and YouGov, this would still not top the total UK non-remote gross gaming yield of £5.44bn for April 2014 to March 2015. Barclays and YouGov predicted that the i-gaming total will be over £5bn by the end of 2020, so it may be some time before it catches the non-remote total, especially given that that figure has increased in all of the last five annual reporting periods. Put simply, even with the growth of online gaming, retail must be the number one focus for a majority of the most established UK operators.
To be clear, this is certainly not a sympathetic tribute to the poor little bookmakers, but the facts and the numbers do not lie. The result of the CMA’s ruling will have strong implications on either side of the fence, regardless of the retail issue, but retail will certainly be a strong driver in determining Ladbrokes Coral’s position.
The market waits in eager anticipation for the CMA’s ruling, although the final report is expected to be published in late June, before a statutory deadline of 24 June.