Part 2: The UK market overview: at a crossroads
“increased its cyclical characteristics” and will be
It did take a look at what the Paddy Power
more affected by economic currents than was Betfair merger meant in terms of online
previously the case. competition before giving the deal a pass. But
“A combination of macro pressure and the
future tie-ups might merit more attention if it is
lack of a major football tournament could felt that the concentration at the top is starting to
therefore make 2017 a difficult year in which to take on a more obviously anti-competitive shape.
show positive momentum, with Brexit economic
However, for other analysts the prospect of
uncertainty and disruption further clouding the a slowing online market will only increase the
medium-term outlook,” he adds. centrifugal forces affecting the sector right now.
Davies from Canaccord Genuity says: “We see
The impact of slowing growth rising marketing costs, regulatory complexity and
If we accept the premise of at the very least a slowing market all driving further consolidation
moderating growth within the UK market, then activity. The economies of scale in the gambling
what impact will this have on the shape of the industry are immense, particularly in online, and a
market? slowing market will encourage operators to drive
Though we shouldn’t look at the recent
consolidation trend solely through the prism of
profits growth through M&A.”
As Gavin Kelleher from Goodbody
the UK market – or indeed as being wholly online Stockbrokers in Dublin puts it, “further
driven — it remains the case that the introduction consolidation with definitely happen either way”.
of the PoC regime and the attendant marketing Birkin at H2GC agrees – up to a point – but he
splurge that accompanied it has been a significant adds that the evidence that scale necessarily
driver of the deals we have seen in recent years, brings with it organic market share gains is more
whether consummated (Betfair Paddy Power questionable.
or Ladbrokes Coral, for instance) or not (any
“Given the slowing top-line growth, I think that
combination of William Hill, Rank, 888 and there will be more consolidation as operators look
Amaya). to boost profits by taking out duplicate costs
Simon French from Cenkos points out that it is
from mergers,” he says. “However, I don’t feel that
likely not the growth rate of the market at present we’ve seen any proof that scale is necessary for
that is the biggest factor that lays behind whether success in the UK.”
or not there will be further market consolidation.
The main focus of the Triennial Review remains
He points to two illustrative examples with
Coral and Sky Betting & Gaming. “Coral’s online
the future of stakes and prizes for gaming recovery happened before the merger with
machines in betting shops – the poisonous FOBT Ladbrokes, and the biggest success story of the
debate – and this is likely to be cramping the style moment is Sky Bet, which has grown organically.”
of any investment banker wishing to involve any In contrast, the scale of operators such as
of the major high street betting operators i n any William Hill and Paddy Power Betfair makes it
further M&A. harder to retain high growth rates from such a
“Who is going to drive the consolidation given
the large retail exposure amongst major online
large revenue base.
“Scale is important up to a point, but there is a
companies and increasing competition issues?” danger of too much focus on it, and consolidation
French asks. purely for scale can be littered with dangers,”
Certainly, in terms of market competition, while
previous CMA inquiries in the gambling sector
Birkin adds.
“Acquiring underperforming businesses and
have focused on a heavy concentration within the implementing best practice to turn them around
retail gambling space, the watchdog is yet to be is more likely to create long-term value than
tested on a similar situation in online. consolidation for the sake of scale.”
iGaming Business Market Monitor • June 2017
6