2: Paddy Power Betfair (2016)
Twelve months ago these firms were ranked separately, albeit inseparable on the Power 50 list – both tied at number four and lending weight to the ‘merger of equals’ mantra. But while heavyweights in their own right, the February tie-up has no doubt gone on to create something of an egaming powerhouse, and one only beaten to this year’s top spot by bet365.
The size of the combined firm is plain for all to see. When stripping out its retail contribution, Paddy Power Betfair posted pro-forma revenues of £612m in H1 2016 – well on the way to topping last year’s aggregated figure of £1.05bn. And the perceived squeaky clean nature of Paddy Power’s business will almost certainly place the combined firm at the top of the regulated revenue pile.
Since the union, the firm has been eliminating duplicate costs with £65m in merger synergies on track to be delivered ahead of schedule. Approximately 60% of these savings will come from a reduction in headcount, while future savings could depend on the two businesses sharing a single operating platform. Yet to focus purely on cost savings would be to miss the sizeable opportunity.
Paddy Power Betfair has become the Heineken of egaming – able to reach parts of the public others simply can’t reach. On one hand it has a Betfair brand targeting the price-conscious customer, while on the other Paddy Power provides entertainment to the bonus-driven recreational punter. At the time of the merger, the firm said its UK customer base had cross-over of just 9%, underlining the distinct positioning of the two brands.
But if Paddy Power Betfair is to wrestle the Power 50 crown from bet365 next year, it will likely need to gain more traction in overseas markets. The firm’s Australia-facing Sportsbet business is doing its part but Paddy Power has encountered choppy waters in Italy, Europe’s second biggest regulated market.
The firm has one eye on South America but it’s north of the continent which could prove to be an unlikely friend. Betfair is preparing to launch its horseracing exchange into California after New Jersey went live earlier this year.