H1 revenues mask further exchange disappointment for PPB

H1 revenues mask further exchange disappointment for PPB

Friday, August 10, 2018 Posted by Luke Massey
No alternative text provided
The Group reported a 7% YOY increase in revenues for H1 2018

The cancellation of racing fixtures was the main reason put forward by Paddy Power Betfair (PPB) to justify a 7% reduction in its exchange revenues for Q1 2018 (January to March), but calls to cut commission charges will only intensify given another disappointing return from April to June.

The Group was forced to readjust its full-year EBITDA expectation to £460–480 million because of costs incurred by the acquisition of US fantasy sports operator FanDuel and the introduction of new Australian taxes, but still recorded a 7% increase in H1 2018 revenues to £867 million.

Aided by a 5% year-on-year (YOY) increase for PPB’s online division and 5% YOY increase in sports revenue, achieved despite an 8% reduction in the number of sportsbook stakes, this upturn also served to highlight the continual decline in exchange revenues, which has brought about a lowering of the group’s exchange growth target from 2-3%.

Despite saying that exchange revenues were good for all sports except for horse racing, overall exchange revenues were down a further 1% in Q2. This was due to the “competitive challenge facing racing commissions from low-margin sportsbooks and price discounting by smaller exchange competitors", according to PPB CEO Peter Jackson.

Speaking on his firm’s investor call, Jackson also suggested that making it easier to toggle between the sportsbook and exchange might help the situation, and that the World Cup wasn't that helpful for the exchange because of the relatively small number of games (64) over the month period.

However, it is clear that PPB is struggling in the face of competition from the likes of Smarkets and Matchbook, as well as from back-only sportsbooks such as bet365, whose racing margins were described by PPB CEO Peter Jackson as “not sustainable unless it simply uses racing as a way of luring punters to bet on other sports”.

The unparalleled success of bet365, and its subsequently ability to squeeze margins, eats away at the Betfair’s main USP – namely that its exchange offering can offer more generous odds than conventional bookmakers, who build profit margins into their prices.

For Smarkets and Matchbook, the commission charges imposed by PPB’s, generally set at 5%, has provided them with the opening to gain market share. Smarkets takes a flat 2% commission on net winnings per market, while Matchbook continues to promote its 0% offer until 31 December.

Totally Gaming: Though Betfair maintains its position as the outright leader in exchange betting, the platform faces tough decisions to prevent new competitors from undercutting its services. This leaves no easy choices for Peter Jackson as the Betfair Exchange is PPB’s guiding technology for group growth and vision.

Latest
Football

Delaware sports betting market grows strongly in November

TV

UK TV gambling ad ban to come into force in 2019

New Jersey

New Jersey sees sports betting revenue almost double in November

Basketball

The Stars Group seals NBA partnership

Gaming Products & Services Directory

The essential directory for the gaming industry