The Billion Dollar Bet

Australians individually lose, on average, $1,600 a year gambling – the most in the world. Because of this, a few years back, the big gambling houses of Europe set their sights on Australia and $1 billion surged in from offshore. The tide is quickly receding and that investment is souring.

William Hill grabbed Sportingbet, Centrebet, and Tom Waterhouse for a cool $710 million. Paddy Power swallowed Sportsbet and IasBet for $235 million. Ladbrokes strangely bought and Betstar for a combined $40 million. Add in Unibet buying Betchoice for $20 million, and Bet365 setting up from scratch and bleeding $76 million in their first two years of operation, and there’s your billion dollar bet.

Where these CEO’s and their boards erred, was assuming that they would enjoy UK style regulatory protectionism, and be able to conduct their business’ in the same rapacious way they do back home.

Interestingly, their conduct back home has finally come to bear, and all the major UK bookmakers have acknowledged an outraged UK community and signed a Code of Conduct.

European Big Gambling also underestimated how established the Aussie market was. Very few new punters are coming to the game, and most had already found a home with Sportingbet, Sportsbet or Tabcorp. So for Ladbrokes and Bet365, customer acquisition is very, very expensive. And the customer base that William Hill and Paddy Power bought, came at significant expense. This has left them all in a costly race to the bottom to attract new clients.

Paddy Power, who reported a solid annual profit of just over $50 million for their Aussie arm, Sportsbet, is the only UK company to achieve acceptable results so far. However, they have a lot of work in front of them to stay as the most recognised brand in Australian wagering (a title which Tabcorp have ceded) and repay the $235 million invested to gain that position.

William Hill has the most daunting task. For the original team who started Sportingbet Australia, William Hill swooping at the top of the market must remind them of Alan Bond at his best. Sportsbet’s $50 million annual profit is the benchmark for the industry – there’s a lot of $50 million’s in $710 million. Now, Tom Waterhouse – who has just been appointed CEO of William Hill Australia at the age of 32 – is burdened with clawing back the $710 million that London head office decided was a good bet to have on the Aussie market.

It’s speculated there has already been an internal revaluation of William Hill’s Australian operation – written down to $320 million. Ouch!

From the mid 90’s, Australian wagering became the Wild West. Fractured administration and regulation led to disgruntled corporate bookmakers seeking, and finding, a complicit regulator in the Northern Territory – which allowed them to write their own rules. This was to the deep detriment of the racing industry and the community. Now the industry and community has caught up with them, and corporate bookies will be allowed to continue operating their businesses in the manner they’ve chosen – but they’re gunna pay for it. And more importantly, they will be made to treat punters fairly.

Racing Victoria and Racing Queensland completely blind sided the bookies when they nearly doubled their product fees and introduced a new turnover tax regime of between 2 and 3.5%, depending on the status of the race meeting – premier meetings like the Melbourne Cup attract the maximum turnover tax applicable in Victoria of 3%. This makes the bookies already incredibly tight business models close to untenable.

Racing NSW, after persistent complaints from the industry, took the noble step of introducing minimum bet limits and ethical standards on corporate bookmakers betting on NSW racing. They did this by citing the Federal Court’s 2011 decision that Racing NSW are entitled to administer their product any way they see fit.

Of the six biggest bookies in Australia, Sportsbet and Bet365 have adhered to Racing NSW’s new rules. Tabcorp, William Hill, Ladbrokes and Unibet are ignoring them and refuse to allow punters an opportunity to win. If need be, I hope Racing NSW stare them down all the way back to the Federal Court.

All the while, the bookies have been desperately lobbying the Abbott government to amend legislation and allow in-play betting on the internet. In-play betting has produced rivers of gold for Big Gambling in Europe. The untapped Aussie in-play market was a major factor why the Europeans payed massively over the odds for established Australian corporate bookies. This change doesn’t look to be on the horizon and it’s implementation would have questionable benefits anyway.

All theses factors add up to the stark reality that the European bookies, with the exception of Paddy Power, will never recoup their initial investments.