Gaming / Gambling Business - Uk betting groups place high stakes on tv advertising

1. March 17, 2014 3:43 pm
UK betting groups place high stakes on TV
advertising
By Roger Blitz, Leisure Industries Correspondent
Gambling companies are engaged in an all-out television advertising war to win
customers ahead of the start of a new taxation regime that will shake up the industry.
The TV battle is being waged at a time of increasing political concern about the
number of gambling adverts, the latest regulatory attack on an increasingly defensive
industry.
The big five betting groups, William Hill, Betfair, Paddy Power, Ladbrokes and Coral,
are gearing up for a World Cup advertising push that on its own will cost them
millions of pounds in TV spots.
But the battle will be sustained beyond this summer’s tournament and all the way to
the end of the year because the government is changing the way gambling groups are
being taxed for their online operations.
The new “point of consumption” tax for online operators, being introduced in
December, is designed to close the loophole of the old “place of supply” tax that drove
companies offshore to avoid paying it.
Operators expect the chancellor, George Osborne, to announce in Wednesday’s
Budget a rate of 15 per cent of gross profits for the new tax.
They have already started to warn of the tax’s likely impact. William Hill said it
would cost £60m-£70m a year and announced cost cuts of £15m-£20m to mitigate
its impact. Paddy Power said the tax would have cost it €37m based on 2013
revenues.

2. The upshot is companies are in a race for customers to increase market share before
the tax starts to impact on their profits, with TV advertising seen as the most
productive way of winning new customers.
The importance of marketing to gambling companies means that around 20-30 per
cent of online revenues are ploughed back into advertising and other forms of
marketing activity.
January 2014: Growing cross-party concerns about links between machines and addictive gambling mean there
will probably be tighter regulation on how games, such as digital roulette, are played. The FT’s Roger Blitz
reports
That equates with up to £690m in overall marketing in 2013, of which TV advertising
would have comprised around £150m, according to gambling consultant Paul
Leyland of Regulus Partners.
If the online gambling market grows 10 per cent this year, as expected, that would
mean TV advertising would rise to around £200m. But in a year of increasing
regulatory concerns about betting, operators’ ability to lure punters though the small
screen is coming under pressure.
Betting operators with retail shops are already feeling the political heat over the
potential harmful effects of their digital betting terminals, which critics say
encourage problem gambling.
Now, the regulation of gambling advertising is in the government’s sights, following
sharp rises in the number of ads becoming the subject of complaints from the public
– up from 113 in 2010 to 518 last year. There has been a sixfold increase in the
number of ads since the market was liberalised in 2007. Culture secretary Maria
Miller has ordered a review.
All the increased marketing is likely to stimulate some extra demand, but this is unlikely to be
economic. The result is the sector gets too confident about growth and too hopeful about
mitigation, while reducing short-term margins - Paul Leyland, Regulus Partners
David Jennings, of Davy Research, said: “At a time when the gaming operators seem
to be increasingly reliant on TV advertising to drive growth, the question we are
asking now is whether this review of TV advertising could mark a further challenge
for an industry already facing significant regulatory and tax headwinds.”
Several big operators think the tax will in time knock out smaller operators, leading
to a boost in the short term. “We will get some market share, some consolidation,”
said Ralph Topping, William Hill chief executive.

3. Richard Glynn, Ladbrokes chief executive, wants his marketing spend to provide a
“bigger bang for your buck”. He is being considerably outspent by his rivals and is
relying on a revival of Ladbrokes’ struggling online offering.
“The combination of branding, digital product, which for the first time will be truly
competitive, and personalised customer relations capability, means we should be
getting a better return for the money we are spending,” Mr Glynn said.
But Mr Leyland, of Regulus, wonders whether all this extra marketing spend will be
worth it.
“All the increased marketing is likely to stimulate some extra demand, but this is
unlikely to be economic. The result is the sector gets too confident about growth and
too hopeful about mitigation, while reducing short-term margins,” he said.
“The customers recruited early in the year are unlikely to remain once the new tax
kicks in, but the significant ramp-up in advertising could easily create a regulatory
backlash.”