BUSINESS

Can Playtech Repeat their Success?

TAGs: Editorial, Ladbrokes, Mike O’Donnell, modqs, Playtech, Richard Glynn, William Hill Online

Things may finally be coming together for Richard Glynn and his Ladbrokes revolution. Not only has the company managed to acquire an online gambling business in the form of Betdaq but they’ve now entered into the sort of partnership that they’ve been so desperately seeking.

Can Playtech Repeat their Success?The tie-up with Playtech is set to last until 2017 at least. It will consist of Ladbrokes handing over the digital marketing reigns to Ladbrokes Israel (the new company formed as a result of the deal) and their products transferring to Playtech software when the bookmaker’s current software deal with Microgaming expires. This deal has the potential to be the catalyst for the major change that Richard Glynn promised upon his arrival at the company in 2010. Even if it isn’t then this will count as one of his better weeks considering that he was handed a £2.4 million bonus for his part in the company’s recent share price increase – a handy sum when added onto his salary of £2.2 million.

But for Ladbrokes, it certainly makes sense to have done joined forces with Playtech. Despite Glynn’s attempts at distancing this deal from others, whether he likes it or not this is always going to be measured against the yardstick that is William Hill Online (WHO) – the joint venture set up by Playtech and William Hill in 2008 – as the similarities are just too large to ignore.  First of all there’s the timing. Coming in the same month that Playtech were released from WHO after their 29% stake was bought out; this deal is very likely to have been the one that was blocked more than two years ago by a Hills injunction.

Then there’s the similarity between Hills and Ladbrokes. The two have been rivals as the largest bookmakers in Britain for most of our lifetimes and this battle has now spilled onto the internet.

Also, the fact that this deal goes beyond the simple operator-supplier partnership that we see elsewhere is reminiscent of the WHO deal. Despite all these similarities, Glynn has been quick to distance this deal, and the resulting company Ladbrokes Israel, from comparisons to WHO.

The Financial Times reported Glynn saying: “This is not a joint venture, it is 100 per cent controlled by us.”

No one can blame him from doing so. The tribulations experienced by Hills as a result of the structure of their deal with Playtech are not something that Ladbrokes will wish to emulate. But comparisons are inevitable so we might as well begin them now. Just how can Ladbrokes Israel compare to WHO?

Starting Place 

To predict whether Playtech can be as successful with Ladbrokes as they have been with Playtech requires us to look at where they were when they first came together. The major difference is that Hills already had a pre-existing relationship with the software company making the transition much smoother. Ladbrokes will undoubtedly lose some players who are loyal to Microgaming products in their move. But that’s where any significant differences end. Look at of the digital profits of the two bookmakers before working with Playtech and there are marked similarities.

Ladbrokes’ digital operating profit in the four years leading up to the deal reads poorly for Glynn and his troops. From £46.1 million in 2009, they rose to £62.7 million in 2010 before dropping to £52.4 million in 2011 and £31.8 million in 2012.  Compare this to William Hill’s digital operating profit pre-JV and there’s not much to choose between the two. After profit of £51.7 million in 2004 Hills’ online profit plateaued at around £62 million before dropping to £50.9 million in 2007 – the year before WHO was launched.

Of course, digging into these figures reveals much more. For Ladbrokes, their biggest digital declines have come in poker revenue, which dropped by 23.2% from 2011 to 2012. A move to the iPoker network with its much larger liquidity should provide an immediate boost that Hills didn’t have which certainly bodes well for the Rayner’s Lane based company.

CRM over Acquisition 

Glynn’s comments this week have made numerous references to the main goal of Ladbrokes Israel being “to make sure we service our existing customers better.”

This certainly seems their best move and the figures are there to support it. The number of unique active players from 2011 to 2012 increased by 15% while the number of real money sign ups increased by 26%. So there are plenty of players signed up, they just aren’t spending enough. It’s here that Playtech will be looking to do the most of their work. As we all know, despite some clashes their relationship with William Hill was successful – at least in terms of figures. Rightly, when creating WHO, Playtech recognised that there was a gap where the large gambling brands had failed to really work well in the online sector.

This was back in 2008. Since then a lot has changed. Paddy Power’s online business is thriving along with pureplay competitors such as bet365. Not only that, but by succeeding with WHO, Playtech have already filled this gap themselves. This leaves us with the question of how Ladbrokes Israel is going to be able to differentiate their products from those already out there.

Reading into Glynn’s comments, they may not even try. It’s clear from what has already been said that the focus of Ladbrokes Israel will be to improve on the customer retention. So rather than looking for new players the strategy may well just be to reactivate old ones. This certainly isn’t a bad idea as a problem that the acquisition teams at big brands often come across is that many potential customers that they reach already have an account.

So while we may try our very best to compare the Ladbrokes and Hills’ respective deals, the fact is that they will serve different purposes. While one was all about acquisition, the other will focus on getting more out of what’s already there.  Looking at the bottom line, it’s always going to be a big ask for the profits of WHO to be repeated at Ladbrokes Israel. But given the base that they have to work from, you wouldn’t bet against it.

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