CEO interview: Cormac Barry, Sportsbet

Whether down to its relative immaturity or the precarious regulatory footing on which the sector in the main had to do its business, last month’s 10 Greatest Deals feature reinforced the view that the number of truly successful and transformational deals in egaming can be counted on one hand.

However, analysts’ pick of the deals that added the most value among the sector’s listed companies last year, while still in its early days, looks destined to join this list. This transaction is Paddy Power’s buy of Australian operator Sportsbet, initiated in May 2009 with the acquisition of a controlling 51% stake and completed in February this year with the buy-out of the remaining shares.

Riding on the back of the explosive growth of the market unleashed by the lifting of interstate advertising restrictions from late 2008, Paddy Power’s Australian business delivered 44% year-on-year growth in gross win and €19.5m in operating profit last year. Sportsbet’s existing 20% share of International All Sports (IAS) also enabled the Irish operator to snatch the horseracing specialist from under the nose of Centrebet, itself now on the brink of being swallowed up by Sportsbet’s closest competitor in Australia, Sportingbet.

Paddy Power’s agent on the ground overseeing the import of the Irish bookmaker’s model down under during this time was former head of online Cormac Barry, who joined Sportsbet as commercial director in August 2009.

Having assumed the CEO hot-seat from former Sportsbet owner Matt Tripp in March following the buy-out, eGR caught up with Barry to find out how he intends to drive the business forward amid an increasingly competitive climate, characterised not only by Sportingbet’s imminent buy of Centrebet but of Bet365’s entry into the market.

eGR: Paddy Power had been targeting acquisitions for a while, such as Cashcade. How did the move for Sportsbet come about?

Cormac Barry (CB): There are very few regulated markets to enter that have economically viable regulatory models. We liked Australia because it was English speaking, had a strong tradition of betting on racing and, until that time, the market development had been repressed. We started looking at Australia seriously in 2008 after the implications of the Betfair High Court ruling became understood and it was clear that this ruling would lead to the abolition of the advertising ban that had previously been in place. We decided that due to the ‘land grab’ opportunity that existed and a healthy respect for the existing local operators, we needed to enter the market through acquisition as opposed to organically. We initially identified four acquisition targets and ultimately ended up buying two of the four.

eGR: How did you come to head up Paddy’s operation down under?

CB: I have a slight confession to make; my wife is Australian so I always had an ulterior motive for Paddy Power to enter the market. As head of online at Paddy Power I was involved in the business development trips to Australia so was close to the project from day one. After the acquisition was announced in May 2009 I came to Melbourne for four weeks to assist with the completion of the initial deal. Within 24 hours of landing I had decided I wanted to work there.

eGR: What share does Sportsbet and IAS have of the Australian online betting market, and how has this increased since Paddy Power entered Australia?

CB: When Paddy Power acquired Sportsbet in 2009 we believe it had about 10% of the total online betting market in Australia. This market share is now above 15%, and when IAS is included we will have about 20% of the total online betting market.

eGR: What elements of the Paddy Power model have been introduced into Sportsbet/IAS with most effect since your arrival?

CB: Paddy Power’s scale and expertise has allowed us to supercharge the development of Sportsbet. We have added Paddy Power’s expertise in risk management, marketing and technology to what was already a very successful formula. For example, when PPC advertising was introduced by Google in July 2009, we were able to hit the ground running and be the first live Australian corporate bookmaker by adopting the Paddy Power PPC model.

eGR: Are the businesses still experiencing a fillip from the lifting of advertising restrictions from late 2008, or is this levelling off now?

CB: The rate of growth of the internet betting market has slowed. However, I believe the market can expect to experience double-digit growth for at least another two to three years, driven by the ongoing increase in broadband penetration, product innovation and a natural migration from phone and land-based betting.

eGR: What was the main driver to Paddy’s completing the buy-out ahead of time?

CB: One of the primary reasons behind the early buy-out was to avoid focus on the ‘earn-out year’ by both parties negatively affecting the momentum of the business. This is a key period in the development of the business, so it is important we are solely focused on growth.

eGR: The Australian government last year left the bans on online in-play, poker and casino under the Interactive Gambling Act 2001 intact. When is this up for review again, and what are you realistically hopeful for?

CB: The political environment in Australia is currently quite unpredictable with a Labour minority administration in the lower house and the Greens holding the balance of power in the Senate, reducing the probability of change in the short term. Unfortunately, the prospects for positive regulatory change in the online environment are diminished due to the fact that gambling issues in Australia are primarily associated with ‘pokies’, which are perceived to be a major social problem. If a resolution to the pokies issue was found, this could clear the way for a review of the regulation of the online environment.

eGR: Sportsbet lost a court appeal in November against New South Wales racing authorities over the imposition of turnover tax in that state. What is the state of play now?

CB: Sportsbet and Betfair were granted special leave to appeal to the High Court of Australia in March this year. It is expected these appeals will be heard in August and we will have a decision by the end of the year. Victory in this case should ensure that product fees are charged on a gross win basis and that the fees are paid by all operators, not just the corporate bookmakers.

eGR: The regulated online market in Australia is increasingly dominated by a few operators ““ Sportsbet/IAS, Sportingbet and Centrebet. Would it be fair to say that anyone wanting to enter the sports betting market there now would probably need to acquire?

CB: I think it would be very hard to successfully enter the Australian market organically at this stage, although I believe one major UK based operator [Bet365] is about to do this, so it will be interesting to see how successful it is. Paddy Power analysed this option in 2009 and decided it was already too late to enter the market organically. I can’t imagine it would be any easier now.

eGR: Some of Sportsbet’s competitors are investing heavily in sports sponsorship. Given you don’t have high street brand presence over in Australia and, as far as I’m aware, these deals come cheaper than in Europe, why has Sportsbet not followed suit?

CB: I am not sure sponsorship deals are cheaper in Australia than in Europe. Seven figure deals have been done to sponsor AFL and NRL teams by betting companies recently, which would compare to deals done for English Premiership soccer teams. To date we have focused on growing brand awareness through integration with the coverage of racing and sport on TV and then converting that awareness online. If the right sponsorship deal came up we would consider it.

eGR: Where are most of Sportsbet’s marketing bucks going at present, and which channels are proving most effective?

CB: About three-quarters of our spend goes on TV and online. The rest is split between radio, print and other channels. The development of the market has been quite similar to the UK, with an explosion of TV advertising following the change in advertising regulations. This is great for growing the sector, but means it is hard to maintain a high share of voice for individual brands.

eGR: I get the impression Paddy Power’s irreverent marketing strategies translate well down under. Is this a fair assumption?

CB: While every market is different, Paddy Power’s trademark early payouts, moneyback specials and irreverent sense of humour have been well received to date. We recently introduced betting on surfing which has gone down swell (!)