As the Ladbrokes-Coral merger enters its twelfth month since its initial deal agreement , the new enterprise was dealt a blow as the British Horseracing Authority (BHA) raised its racing industry concerns to the UK Competition and Markets Authority (CMA). Scott Longley details a new conflict in one of the UK gamblings longest running sagas.
The BHA would likely prefer to avoid the impression that its comments to the CMA regarding on the provisional findings of the enquiry committee looking into the merger of Ladbrokes and Coral represents a last stand.
But still there was a whiff of Rourke’s Drift about the letter from BHA chief executive Nick Rust written in the wake of the CMA inquiry group suggesting that the only remedial action the high-street giants would need to undertake would be to offload circa 400 shops before the merger could go ahead.
The letter said the BHA was “concerned that the current investigation has not appropriately considered the impact of the proposed merger” on the racing industry. Specifically, Rust refers in his letter to the situation in 1998, the last time Ladbrokes and Coral attempted a merger, when the old Monopolies and Merger Commission (MMC) ruled that 60% of the market being concentrated in the hands of two operators would have an “undesirable” effect on racing.
The BHA points out that in this instance, the concentration would be even worse, with up to 70% of all UK LBOs being either Ladbrokes/Coral or William Hill (with Ladbrokes/Coral alone on 40% even after the suggested disposals). The CMA inquiry suggested there was no Substantial Lessening of Competition (SLC) other than in these specific localised instances but the BHA makes clear it disagrees suggesting that a national market share approach should be adopted by the CMA as it was by the MMC in 1998.
There remains a possibility that a new competitor might take the opportunity to snap up whatever amount of shops are offloaded by Ladbrokes Coral, but in its letter the BHA submits that for this to be of sufficient scale then more than the stated 400 shops would be needed to compete.
However, the latest newspaper rumours suggesting Betfred are the front runners to pick up the shops presumably represents a far-from-ideal solution for the BHA or anyone else worried about competition on the high street. Such a sale would only concentrate further the grip of the big three.
The BHA go on to pinpoint specific areas where this concentration would be detrimental to racing. First, it considers that the work undertaken by the inquiry with regard to pricing for horseracing. The BHA suggests the “limited assessment” – concentrating only on Pricewise pricing – may fail to appropriately reflect the impact on pricing competition in the market. Again looking to the MMC inquiry from 1998, the BHA suggests that despite the intervening impact of remote betting, it remains the case that the potential is there – as with the MMC’s conclusions – for a worsening of odds for punters by as much as three or four percentage points being added to the average over-round.
The second area of concern for the BHA centres around the significant buying power the remaining high-street firms have with regard to media rights. The provisional findings suggested there were no competition concerns but the BHA disagrees, suggesting that should the value of media rights fall as a result of the merger then some more marginal racecourses might be forced to close.
All this comes at a sensitive time for racing and its relationship with the betting industry. Discussions are ongoing with the government over the introduction of a statutory funding regime for racing slated for April next year which the BHA hopes will resolve the issue of the leakage of money offshore via remote operations which currently do not pay the Levy. The BHA is also in continuing talks at an EU level with regard to the state aid issues that might come into play with the new funding regime, despite the recent referendum vote for the UK to leave the Union.
Given these uncertainties, it is no surprise that in its original submission to the CMA inquiry, the BHA suggested that Ladbrokes and Coral should be forced by statute to contribute appropriate amounts to the levy on behalf of their respective offshore operations. Referencing its ongoing funding saga, the letter pointedly says that statutory measures are needed because both companies having previously reneged on their commitments, including with regard to their respective remote operations moving offshore and the breakdown after one year of the supposedly four-year agreement on the payment voluntary contributions in lieu of any remote Levy. Says Rust in the letter: “We believe that this would be justified as it would ensure, through a more sustainably funded British Racing industry, a ‘higher quality’ product for UK betting customers to bet on.”
It is thought the BHA has achieved one aim from the letter and has held a subsequent meeting with the inquiry team to put its views in person. Whether this will have any effect with regard to the inquiry’s provisional findings is hard to divine. It is also hard to judge at this point what difference it will make to the inquiry team if it is indeed Betfred that emerges as the likeliest buyer of the surplus shops.
It is obviously in the interests of both Ladbrokes and Coral to promote the idea that – following the provisional findings – this is a done deal, and it may well be that this is indeed a final last desperate effort by the BHA. Yet sometimes such efforts do manage to pull a result out of the fire.
In a final side swipe, the BHA letter refers to the undertakings made in 1999 by then Ladbrokes parent group Hilton not to take any future interest in Coral. In saying that these remain valid, the BHA suggests that the final decision on the merger should be subject to prior written consent from the secretary of state for business, innovation and skills, a post currently held by Sajid Javid. With the political situation as it is, such a long-grass option might be the best defence of all.