5 Challenges Facing The Big Bookmakers


What does the future hold for the betting industry? Today on the blog Stephen shares his view on five challenges that the traditional bookmaker giants are currently confronting.

The arrival of the much heralded Ladbrokes Betting Exchange was supposed to signal a reversal in the downward spiral that has engulfed the troubled bookmaking industry in the past year or two. However, early signs are hardly encouraging, with the new site struggling for liquidity and merely mirroring the Betdaq model that mainly failed to challenge the virtual monopoly that Betfair holds.

Here we look at the 5 major issues facing the industry as a whole, and the challenges it must overcome in a very competitive marketplace. Unfortunately, more go-ahead firms are showing signs of leaving former giants well behind.

#1 - Liquidity Issues

The new exchange seems to have been launched with very little forethought about how to combat the problem that has troubled all similar ventures into this arena, namely if the liquidity is not there then the punters will not be either. You cannot lead a horse to water if the well is empty.

It had been hoped that there would be an element of seeding, with Ladbrokes vast army of "highly skilled" traders encouraged to test their knowledge by putting large sums up on either side of outcomes. However, this is clearly not a part of the business plan.

A quick glance at the 12.00 at Lingfield on Wednesday shows this clearly. At 9.30am, in a maiden with a short priced favourite, the new exchange had only matched £880 compared with over £14,000 on betfair. There were also huge gaps between the prices offered on the new exchange with only nominal tiny sums on offer either side. It really beggars belief that after a month of "trading", the new exchange has already been left alone to whither on the vine. There is no natural growth guaranteed either from this "laissez faire" attitude, and Ladbrokes shareholders are unlikely to be thrilled to see the £10million or so invested into a mere shadow of Betdaq.

It is also hard to see how the new exchange sits when compared to the actual prices offered by the fixed odds division (both How can Ladbrokes try to lay 11-10 Liverpool when 11-8 is available on their exchange. Surely they are going to lose or alienate their huge army of non price sensitive customers, i.e the ones they should be actively courting in order to boost their flagging profits.

#2- Diminishing Profits

In September Ladbrokes issued its third profit warning of 2013, heaping pressure on their chief executive Richard Glynn and raising speculation the bookmaker could be vulnerable to a takeover bid, particularly from flourishing rivals such as Bet365 or Paddy Power. Indeed all firms could face major challenges if margins continue to get squeezed, as the Betfair price model continues to lead the layers into very low profits on a broad range of sports (VCbet are leading the way betting to a tiny percentage on Premiership football).

The company blamed a weak performance on its dated online business as well as "unfavourable" football results for the shortfall, which is a bit like rail companies blaming delays on leaves on the line during Autumn. As a result its shares have repeatedly dropped in value, wiping millions off the value of the company and causing anxiety among shareholders about the direction the business was heading in.

As the Guardian recently reported.."Ladbrokes has been struggling to develop its digital division to attract the increasing numbers of gamblers betting via computers, mobiles and tablets. Earlier this year it decided to ditch its existing online systems and instead signed a five-year partnership agreement with Israeli software group Playtech, a former partner of rival William Hill. But the gambling group said that disruption and delays meant its online profits would fall well below market expectations. Full-year operating profits from the digital division would be between £10m and £14m, compared to City forecasts of around £28m. Part of the problem is that Ladbrokes has been running the two systems in parallel, amid tensions caused by a threat of redundancy hanging over about 200 of its London-based staff. Around 120 are ultimately expected to lose their jobs".

#3 - Outdated Websites

Some bookmakers have been completely left behind on the internet and rely increasingly on the Fixed Odds Betting Terminals (FOBTs) driven profits from the huge number of shops in the high street up and down the UK. All companies now pay millions to make their site the most user friendly and innovative, with the creation of "apps" to work properly on tablets/mobiles a major challenge.

A daily glance at popular odds comparison sites show clearly how some big firms now "duck" out completely of offering competitive prices on horse racing, something in the past where they have led the way with opinions and aggressive trading (automated prices keep them well under the "exchange price" ironically). Ladbrokes for example have tried to stir up interest with daily "lock-ins", (where a price is enhanced to their shop customers), but dividing up what price someone gets depending on their physical location seems a very dated marketing theory. Furthermore, how can you logically advertise on twitter that a bigger price is available in a shop...to people who are presumably sat on their laptops (with an online account in front of them).

Firms seem to have become panicked to "do something" to combat the offers and free bets given away by more aggressive competitors, but again the fundamentals are not in place to truly compete.

#4 - Taxing Times Ahead

When the government finally gets round to either a "Supertax" on the extreme excess profits generated from the FOBTs, (and/or severely limiting the maximum stake/maximum win on these machines), there is going to be extreme fallout for the big companies. Massive shop closures are threatened by those in the industry when this subject is raised, but they ignore the fact that the idea of a "betting shop" been completely distorted by turning them into largely unchecked arcades. Furthermore they undoubtedly pray on the poorest areas, with shops mushrooming up close to council estates, nearest the poorest and most vulnerable in society. There has been an explosion in "problem" gambling, and the bookmaking industry has merely paid lip service to combating the issues involved.

The recent attempt to regulate the payday loan industry clearly how the tide has turned politically, and it is only a matter of time before the limelight falls on FOBTs and the social problems they undoubtedly cause.

Meanwhile some industry giants who base their online operations offshore, will face new UK tax charges from December 2014, based on the location of their customers rather than where their business is registered. This adds more pressure for any company attempting to sort out its digital difficulties.

#5 - Intensified Competition

These are clearly now troubling times for all the big bookmakers in an increasingly competitive marketplace, with firms like Paddy Power and Bet 365 dominating at the expense of the more "shop-heavy" established layers such as William Hills and Ladbrokes.

A change in attitudes and legislation towards the FOBTs might not lead to the "closure of every betting shop" as Fred Done warned recently, but there is little doubt that major changes are on the way and which firms are best placed to deal with it.

The companies who have become internet focussed are likely to continue to thrive, and find new customers in new territories easier to come by. There is clearly massive scope across parts of continental Europe and Asia for untapped gamblers, who would find the exchange driven pricing model now commonplace extremely attractive, particularly having often been fed a diet of high margin, state controlled prices.

VCbet have led the way with their aggressive pricing in the incredibly popular Premiership, taking on Betfair directly by betting to under 105pc on a regular basis and clearly into a massive turnover (and well traded) this is a sensible and profitable strategy for them. However, this kind of competition, while excellent in the short term for punters, does tend to lead to the industry becoming concentrated more and more in the hands of a few powerful companies. Put simply, firms such as (the late) Blue Square cannot bet to tiny margins against a "price savvy" customer base on the internet. The sums do not add up.

As it is easy to see in the world of horse racing betting, just because firms bet to very little theoretical margin, doesn't mean it is a goldmine for the astute. Accounts are now factored and restricted as never before, and this has certainly led to high levels of alienation against the major firms with even customers who a few years ago would have been regarded as an "ordinary punter", now restricted if he happens to stumble into a winner or two. The accountants are firmly in charge and the guaranteed, low cost profits of FOBTs, games and roulette are a far more attactive prospect than managing the online sharkpit of clued up punters.



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Racing Editor for bettingexpert. Always searching for winners against the crowd and trying to find the value.