About two decades ago, an Englishwoman, Irishman and Scotsman walked into the betting industry. With a little luck, some bold bets and help from the puritanical US, they put Britain at the forefront of the rapid growth in the $44.5bn online betting industry.
But one of those three, Ireland’s Breon Corcoran, who led Paddy Power Betfair for 16 years, on Monday announced he was leaving the group. The two remaining, Denise Coates, whose betting shops in Stoke-on-Trent became Bet365, and Kenny Alexander, who leads Isle of Man-based GVC Holdings, are left facing a sector in tumult.
British and Irish gambling groups are being forced into mergers as they battle increasing competition from online upstarts. Previously benign UK authorities may soon bare their teeth, shutting down profitable — if questionable — revenue sources for bookmakers.
Firms based in the UK have long benefited from not being as tightly regulated as elsewhere in the world. In some countries, such as China and India, bans on online gambling have pushed the practice underground, creating multibillion-dollar black markets for wagers. Other major markets, such as Germany, enforce strict restrictions.
Meanwhile, the US heavyweights of the offline gambling industry have remained focused on their lucrative real estate. Sands, MGM Resorts and Wynn generate tens of billions in revenues from large casino operations focused on Nevada in the US and Macau in China.
US federal bans on sports and online betting, instituted in the 1990s and 2000s, have restricted their internet activities.
“Americans have a strange attitude towards the sin business of gambling,” says Ralph Topping, former chief executive of William Hill, the UK bookmaker which is also pushing into the online space.
“They made it land-based only and tightly controlled. If Americans had been allowed to do [online gambling], you would be in a different world. People like Steve Wynn [the US casino and hotels magnate] with pocketfuls of cash would have made an impact. But there was that gap, and the UK guys were allowed to get on with it.”
Paddy Power BetFair
Born in Mullingar in rural Ireland, the softly-spoken chief executive of Paddy Power Betfair is seen as a leading strategic thinker in the gambling industry. “Breon is extremely bright,” says Henry Birch, chief executive of UK casino operator Rank Group. “Cerebral is the word that gets used quite a lot.”
He joined Paddy Power in 2001, moved to run Betfair in 2012 and masterminded the combination of the two last year, sparking a wave of consolidation across the UK gambling sector.
A life-long fan of Scottish football side Kilmarnock, Mr Alexander loves horseracing and is a keen poker player. He began his career as a chartered accountant at Grant Thornton, but entered the gaming industry in 2000 after joining Sportingbet.
He rose through the ranks to become chief executive of GVC in 2007. Instead of battling in the highly competitive UK gambling market, he has focused on growth through acquisition and targeting underserved international markets.
Arguably the most successful self-made woman in UK business, she took a string of shops in Stoke owned by father Peter and transformed them into a high-tech gambling business.
Though joint chief executive alongside brother John, Ms Coates is majority shareholder. “She doesn’t take a prominent part in the industry,” says Ralph Topping, former William Hill CEO. “She’s been an incredibly focused woman and done a terrific job.”
British and Irish bookmakers used the proceeds of their own highly profitable betting shops to build a formidable online presence over the past two decades, extending their offerings to customers internationally.
“If you take any online digital category — retail, search, social networks — they are dominated by US companies,” says Henry Birch, chief executive of UK casino operator Rank Group. “But in the UK, we have the largest online market in the world and the Americans are locked out.”
But now a sector built by experienced insiders is in middle of another shake-up. On Monday, Paddy Power Betfair, the world’s largest online betting firm by market capitalisation, announced that Mr Corcoran would be stepping down as chief executive.
The Irishman has been credited with foreseeing the disruption that internet betting would cause to over-the-counter bookmakers. With this insight, he led a £5bn merger last year between the two companies he had worked for throughout a 16-year career — Irish bookmaker Paddy Power and UK-based online betting firm Betfair.
“Our strategy on that has been to drive down the cost of service . . . using technology to make us ever more efficient,” says Mr Corcoran. “The thesis that, as barriers for entry [for online gambling] go up the small guys will suffer, is increasingly evident.”
The merger of Paddy Power and Betfair formed part of a wave of consolidation that has rippled across the online gambling industry in recent years. In 2015, GVC, the owners of Sportingbet, agreed a deal to acquire rivals Bwin.party in a £1.1bn deal, fighting off stiff competition from Gibraltar-based 888 Holdings.
The move was masterminded by Mr Alexander, the GVC chief. His all-in bet on Bwin.party catapulted his company, which previously traded on London’s Aim market, into the FTSE 250 group of the UK’s largest listed companies.
“If Kenny played chess, he’d be four moves in front of you,” says Mr Topping. “Most importantly, he’s not made a mistake yet.”
Further dealmaking is seen as paused until after a regulatory review of the gambling sector. Among the expected changes is a clampdown on fixed-odds betting terminals — in-store machines that operate only in the UK that generate hundreds of millions in revenues.
But a number of transactions are still possible. Last November, it emerged that Ladbrokes Coral held talks with GVC over a possible tie-up, and earlier this year, William Hill called off merger discussions with Canada’s Amaya, which runs the PokerStars site.
The push towards consolidation is also a response to the gains being made by online-only competitors, such as the privately held group Bet365, founded by Denise Coates in 2000.
Bet365 says it has more than 22m customers, making it the world’s largest online gambling company, with reports suggesting that three-quarters of its £1.5bn revenues come from international markets.
American players could yet join the fray. This autumn, the US Supreme Court will hear a case that challenges the federal ban on sports betting. A number of states, including Pennsylvania, New York and California are considering proposals to legalise wagers on sports matches. A next step could be the opening of online betting markets, although industry insiders suggest this could take years.
But groups such as Paddy Power Betfair have already been slowly building up their US operations, ready to take advantage of enormous pent-up demand if gambling bans are lifted. The American Gaming Association, a trade group, estimates that US punters place up to $150bn annually with illegal bookmakers with offshore accounts.
Mr Corcoran says: “An ever growing number of partners or possible American partners are finding their way to our door, to talk about what might happen next in the US. We have the right to be in the frame.”
Hunting for growth in ‘grey markets’
One route of growth for online gaming companies has been a risky bet on “grey markets” — untaxed or unregulated areas — which includes countries such as Turkey and Malaysia.
Among the boldest to adopt this strategy has been GVC. Analysts at Citi, the bank, have estimated that 30 per cent of the group’s revenue is derived from grey markets.
The figure may be far higher. According to the company’s full-year results for 2016, GVC earned €187.9m in revenues in Germany, the company’s most lucrative single territory. But the majority of GVCs revenues come from a geographic region it describes as “other”, a list of unspecified countries that accounted for €823.3m of revenues in 2016, up from €246.5m a year earlier.
Five years ago, groups such as Paddy Power Betfair abandoned a number of grey markets under pressure from UK authorities. Showing signs of slowing growth, some analysts have suggested it should re-enter these unregulated spaces.
Breon Corcoran, the company’s outgoing chief, says it will continue to resist these calls. “It may be a bet that works in the short term,” he says. “To be honest, one doesn’t learn an awful lot about product and technical online marketing capabilities in completely unlicensed, uncompetitive markets. You have to prove yourself against the best in the toughest markets. Ultimately, there is a question about sustainability in grey markets.”