Effectiveness of marketing spend comes into question

Effectiveness of marketing spend comes into question

Friday, May 5, 2017
Analysts argue the only beneficiary is the consumer

The gambling industry is in danger of seeing the benefits of recent increases in marketing and promotional spend go directly to the consumer rather than translate to their bottom lines, according to analysts.

Speaking last week on the earnings call for Paddy Power Betfair’s first-quarter trading statement, chief executive Breon Corcoran made mention of Paddy Power’s offer on the US Masters golf giving each-way terms of the first eight places. He noted the company was surprised at the degree to which that offer was matched by other operators.

Simon French, analyst at Cenkos noted during a panel session at SBC’s Betting on Football event tlast week at Stamford Bridge, that such cutthroat marketing efforts were depressing margins for the industry.

“An event that historically would – for the market leader - have generated mid-single digit gross win is now only generating breakeven so there is a long way to go before a clear picture emerges of who the long-term winners and losers will be,” he said.

This heightened marketing battle is taking place against a backdrop of an industry going through a sustained bout of M&A activity and Ed Birkin, analyst with H2 Gambling Capital, suggested that the supposed positives in that process were to an extent being frittered away.

“There is an argument that if you increase regulation, increase taxes and cost pressures, that having scale and taking out synergies allows you to have the cash to invest in that business and survive,” he said. “But if all that is happening is that every company is getting bigger and that excess cash is going into competing each other out on others, it’s not really benefitting anyone other than the punter who gets better offers.”

However, Birkin added that it would be a “brave” operator that significantly pulled back on marketing spend independently. “The only way it will happen is if there were some restrictions on marketing, which would likely be viewed positively by the big guys who would be happy with having to spend less on marketing.”

The delayed UK triennial review, which alongside the issue of the maximum stakes on gaming machines has also been charged with looking into the issue of gambling advertising around sporting events, is likely to report after the election. That might see the instigation of a ban on all gambling TV ads before the 9pm watershed.

French said the real growth in marketing spend has come from the challenger brands such as Betway and Betbright. “I think with the bigger brands, the trend will be down,” he added. “But the difficulty is that no one really knows the value of that marketing.”

The evolution of the marketing journey for online gambling now lies in the direction of personalised offerings and Davies said the example of where the gambling sector is heading comes from other sectors within the online world. “You are seeing huge advances in AI across other industries and in two or three years’ time I would expect bonusing activity that wholly focuses on my previous activity,” he added.

French said the best innovation he had seen within the sector within the last 18 months had been Sky Betting & Gaming’s request-a-bet offering. “That generates huge volumes and generates interaction with the customer base,” he said. “But is that innovation on a technical basis? Overall, I think innovation has been lacking.”

Birkin concluded that the industry was still a follower when it came to online rather than a leader. “For all the talk of innovation and being digital businesses, it is actually still lagging other online businesses.”

Totally Gaming says: Arguably, the only people to benefit from the increased marketing activity on the part of the UK’s operators is the consumer who has enjoyed an extended period of more generous offers and free bets. How long that lasts is open to question, but it is clear that some are questioning the industry’s ever-increasing spend in this area.

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