Analysis: Will Betfair's refocus pay off?
Betfair recently reported a 13% slump in revenue as it looks to refocus on sustainable markets
A year into Betfair CEO Breon Corcoran’s tenure, the company’s new and streamlined strategy is beginning to take shape.
The London-listed exchange operator, having launched its fixed-odds sportsbook in the UK last year, is now laser-focussed on its core UK business and other sustainable markets. Yet whether the Irishman’s back to basics approach will pay dividends is still up for debate.
The turnaround was first announced during the company’s FY13 results announcement in June, highlighting the goal of achieving “profitable scale in sustainable markets” such as the UK, Ireland, Denmark, Gibraltar and the US.
“While reducing unregulated revenues has held back revenue growth in the near-term, it moves us towards a more sustainable future,” said Corcoran at the time.
The company has withdrawn from markets in Germany, Greece and Cyprus, with regulatory developments in the countries cited as problematic.
Plans to regulate Germany have stalled, with the European Gaming & Betting Association claiming them destined to fail, while the Greek government’s attempts to award the now-privatised OPAP a monopoly over specific online gambling products has caused similar uncertainty.
However, yesterday’s Q1 announcement revealed that exits from such markets, coupled with the cessation of marketing investment in others, caused revenue to fall by £6.5m during the period.
Despite the operator insisting it remains on track to meet full-year expectations, Betfair will now need its faith in the sustainable markets it has targeted to be repaid.
Panmure analyst Simon French sees numerous growth opportunities for the operator. “These include buying out its JV partner in Australia, relaunching the exchange in Italy and Spain, growth in gaming underpinned by moves to Playtech software and further growth in the US through the launch of the exchange in California and New Jersey,” he said.
Betfair confirmed its move into New Jersey following the release of it Q1 results, with eGaming Review having previously revealed the company has agreed an online gaming partnership with the Trump Plaza casino. Betfair will provide an egaming platform as well as third-party casino and poker software to the casino operator prior to the market’s expected launch in mid-November this year.
Yet Betfair’s confidence in the US as a sustainable market is untested. Successful and trouble-free regulation in New Jersey could coax other states into contemplating similar moves, but opposition to online gambling in the nation remains fierce in certain quarters. California in particular, where exchange wagering has been legalised, has provided a great source of frustration with a go-live date still seemingly out of reach.
Elsewhere, increasing competition in Australia could also dampen expectations, with Corcoran stating Betfair’s growth in the nation to be “soft” during yesterday’s analyst call. William Hill and Ladbrokes have cemented their places in the market following recent M&A activity, while Paddy Power’s Australian business continues to perform well and grow its market share.
Relative uncertainty across the Atlantic and increasing competition Down Under are, however, likely to have less of an impact on revenues than the prospect of dedicating resources to markets with regulatory issues. The £6.5m hit taken by withdrawing from such markets could feasibly be made up in the US relatively quickly.
Indeed Betfair remains on course to meet expectations for the forthcoming financial year, and could yet exceed those expectations should the new Premier League season prove as fruitful for it as it has other operators. All eyes will be on whether its joint exchange-sportsbook product offering will truly grow its revenues over the course of the season.
Meanwhile, growth further afield may have to wait a little while longer.