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A World Cup digital boost, but Ladbrokes bet on online gambling still fails to score

Stuart Lauchlan Profile picture for user slauchlan August 12, 2014
Summary:
Betting shop chain Ladbrokes saw profits nearly halved as it struggles to catch up with online gambling rivals such as William Hill and Paddy Power.

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Ladbrokes online gambling

We’ve seen it happen in so many other sectors that it shouldn’t come as a surprise that as the incumbent offline champions in the betting industry move to a multi-channel future, with some of them struggling more than others with the online gambling challenge.

A case in point is Ladbrokes, the UK’s second largest bookmaker, which yesterday reported that its profits have nearly halved as it struggles to catch up with rivals such as William Hill, the biggest chain in the UK, and Paddy Power.

Ladbrokes reported profits of £27.7 million, down from £55.1 million during the same period in 2013, this despite a summer of sporting activity that included the World Cup.

At the heart of the company’s problems is a painfully slow transition to a digital operating mode of online gambling to complement its offline activities. The figures speak for themselves.

Digital net revenue for the period totalled £105 million, compared with the £90.8 million, recorded in the first half of 2013.

But Ladbrokes online business made only £3 million in operating profits in the six months to June, compared with William Hill's digital business which turned in £92 million over the same period.

That £3 million was also down 72% from what was an already low base.

Digital accounts for only 4.4% of Ladbrokes' operating profits, against 52% at William Hill.


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One problem has been a shift in strategic direction. In 2011, the plan was to follow a £50 million organic growth strategy towards online gambling. That lasted until 2013, when it signed an agreement with Playtech, the Israeli company that had transformed William Hill's digital service.

But it has taken a year to get this technology up and running after Ladbrokes had to see out the contract with its existing supplier, Microgaming.

Chief executive Rich­ard Glynn admitted yesterday that things had not gone according to plan:

We said a few years ago that Ladbrokes needed to dramatically increase its presence in the digital and mobile world. I think I've been very upfront about the fact that it's taken us a while to do that.

The road has been bumpy at times. The product didn't match the brand.

Half time score

There have certainly been successes. The firm completed integration of its digital products onto the Playtech IMS platform to give customers a single wallet across all of its betting and gaming products on 29 April 2014 in time for the World Cup. It had previously passed final performance tests on the day of the Grand National horse race on 5 April.

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Mobile is the best bet for online gambling

With the World Cup acting as a hard stop for development, Glynn insisted that the digital building blocks are now in place:

In the first half of 2014 we successfully delivered all of the planned operational improvements in time for the World Cup. Our offer performed well, delivering a great betting experience for our customers and a good result for the business in a highly competitive market.

We have made substantial progress and while there is more to do there is also much to play for. We now have the products, the platforms, the people and the brand in place to deliver. Ladbrokes today is a far stronger company and well positioned for growth.

With the convergence of competitive products, platforms and capabilities the heavy lifting has been largely completed and we now move to normal operations with the continual evolution of our offer and refinement of our operations.

What is key now is getting a good mobile story together and getting that across to the punters. In that respect there is some reason for cautious optimism as betting via mobile devices more than doubled in the first half with actives up nearly 700% and staking by over 1,100%.

Ladbrokes Mobile Sportsbook saw stakes placed accounting for 46% of total Sportsbook revenues and during the World Cup that grew to about 63%. Glynn commented:

It's a change in pattern. The 18- to 34-year-old male comes into the shops for the social experience and uses mobile to play."

Mobile is the battleground now – there is no doubt about it. We only launched [our mobile product] six months ago. It is now bigger than desktop in digital. It is growing at a very good rate.

Into extra time

That said,  time is running out for Ladbrokes. Investors had already signalled to Glynn that the firm had to have its online gambling act together before the World Cup. That was basically achieved.

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World Cup win

But looming later this year is a new 15% online betting tax which is expected to cause a number of smaller online players to fold and trigger consolidation among the larger ones.

Analyst James Ainley at Citi argues that Ladbrokes:

World Cup football performance adds a glimmer of hope for a digital revival.

But even if it’s a game of two halves, Ladbrokes needs to up its game as William Hill saw online betting on the World Cup triple compared with the 2010 tournament, with 60% of wagers made via mobile devices. The most bet-on match was the final, with a million wagers and £10 million staked, as Germany beat Argentina.

The firm’s new CEO James Henderson made clear on his first day in the job that digital expansion is a priority, but also wants to push offline expansion in the form of its high street betting shops:

I've got is to make sure that we continue to leverage our multi-channel opportunity, to be able to continue to develop our technology in a way that will differentiate ourselves from other people.

Against such competition, Nick Batram, gaming analyst at Peel Hunt, said that Ladbrokes had made advances, but added:

The big question is how quickly and how far that improvement [in Ladbrokes’ digital division] goes? Has [Glynn] done enough? Probably yes but the game is far from over.

Against a regulatory storm and a general election on the horizon, the risk of further disappointment is high.

 My take

I wouldn't bet on it.

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