Gaming Economics joined 3,000 other industry executives at last week’s iGaming Super Show in Amsterdam, where one of the top topics of conversation was the breaking news that Gala Coral and Ladbrokes were in talks over a potential merger.
But remember, we’ve been here before. In 1998, Ladbrokes’ proposed takeover of a then far-smaller Coral were blocked by the Competition authorities, with much weight given to the combined market-share for Licensed Betting Offices (LBOs). However, that was an entirely different era for the domestic retail betting market.
Horserace betting dominated, online was barely getting underway (neither party then had a digital operation), fixed-odds betting terminals (FOBTs) were in a similar state of embryonic development and the newly-created National Lottery was seen as major competitive threat to the leisure-betting pound.
Almost 20 years on, there remain key similarities, plus essential differences. A successful merger would (again) create the largest domestic retail betting chain, but a merged digital operation would probably become just the third largest brand-offering, well behind leaders William Hill and bet365.
Although now having only marginally the smaller domestic estate of the pair, most industry observers believe Coral’s estate of around 1,850 LBOs shops to be of overall better earning-quality than Ladbrokes’ 2,100 or so. But with a combined UK LBO-market share of around 45%, this still seems certain to attract the attention of the competition authorities.
Nonetheless, the logic seems sound; with growing political challenges, new taxes and other cost pressures hitting the retail sector , a suitably-combined retail estate could reduce duplication and costs. Analysis undertaken by the UK trade media title the Racing Post suggested around 18% of total combined estate shared the same post-code, so expect any successful merger to feature targeted shop closures and job losses but with a resultant leaner, meaner retail offering right across the UK.
Beyond a purely domestic perspective, the two parties also operate around 1,400 retail operations across Ireland, Belgium, Spain and Italy. Some operations are clearly thriving more than others; Ladbrokes’ Irish retail operations have been ‘under review’ for years, whilst Gala Coral’s Eurobet division continues to show decent growth, with over 800 outlets in Italy. It was perhaps prescient that Ladbrokes announced the closure of its international management division just last week…
Exploiting the digital opportunities would also be tough for the combined operation; Ladbrokes’ poor recent online performance has been well-documented, and remains overwhelmingly domestic. It maintains tiny digital operations today in Australia, Belgium and Spain, with only Gala Coral’s Eurobet.it operations able to deliver any immediate scale to international digital aspirations for any enlarged group.
Overall though, initial investor reaction to last week’s news seemed positive, with Ladbrokes’ share price initially gaining 15%, but subsequent City analyst views appeared mixed. Some cited unsurmountable competitive issues – as in 1998 – and others wondered if the announcement might simply stimulate expressions of interest from others potential suitors and scupper the deal that way.
In addition, Gala Coral — one of the largest privately-held betting and gaming companies in the EU — are also understood to continue to want to explore other options such as a flotation on the London Stock Exchange, to join Ladbrokes, William Hill and Paddy Power.
The sector has certainly become used to speculation over the scale and scope of industry consolidation, and this deal might yet become one of the largest of 2015
Lee Richardson – CEO – Gaming Economics