How have Ladbrokes Overpromised?

TAGs: 32Red, Editorial, JPMorgan, Ladbrokes, Microgaming, mike o donnell, modqs, POCT, Point of Consumption Tax, Project Galvanise, Richard Glynn

How have Ladbrokes Overpromised?The title of this column is asked more out of exasperation than a genuine request for an answer. As in ‘how could they?!’ Similarly to the way that you might ask how Hugh Hefner continues to attract such good-looking women – except without the obvious answers of money and fame.

Last week’s Ladbrokes September Trading Update held a warning that we’ve become accustomed to hearing from the Harrow-based bookmaker – we’ve heard it four times in the past year. It’s that profits from the digital side of the business are going to be lower than expected.

Rather than the £27.5 million that Reuters report was forecast, the company are expecting less than half of that with operating profit being in the region of £10 million to £14 million. Given the struggles that Ladbrokes has had online it seems bizarre that forecasts would be so far off the mark.

The huge changes taking place at the company must have given anyone who cared to look the impression that this year wasn’t going to be an easy one for Ladbrokes. But despite that, they’ve failed to reach a bar that wasn’t set all that high. So just how have they managed to fail to achieve such mediocre goals?

Software doesn’t solve all

Chief executive Richard Glynn attributed the poor digital earnings to “a lack of competitiveness in sportsbook, lower margins than planned and a greater disruptive impact than expected from the transition necessary to grow Digital for the long term”.

All three of these reasons are causes for considerable worry but it seems completely naïve for Glynn to have assumed that simply switching to Playtech software was going to solve all of their online woes.

First of all there’s the inevitable loss of players that were fans of the ever-sturdy Microgaming software. 32Red certainly recognised that this would be the case and have announced their intention to sweep up any casino users who are leaving Ladbrokes in search of Microgaming games.

Were it not for the creation of Ladbrokes Israel to handle digital marketing, you would be mistaken for thinking that Ladbrokes’ operating board attributed their poor online performance to the software used rather than the company itself. Had they been under that impression then this illusion should now be well and truly shattered. 32Red themselves have been able to do extremely well with Microgaming software and, despite operating at a lower overall level, continue to go from strength to strength when it comes to reputation and profits.

Away from the gaming side of things, few other digital sportsbooks have been required to issue profit warnings meaning that there’s clearly a big problem with the company’s sportsbook. They continue to advertise heavily and quite effectively on television which suggests that retention must be where the main issue is.

Challenges continue

Unfortunately things don’t look like getting much better any time soon either. While Ladbrokes’ focus has been on getting its products shipshape, others have been focusing on expansion. This has meant that Ladbrokes has also been left behind in land grab currently taking place on the other side of the Atlantic. While the likes of William Hill, Paddy Power and pureplay operators have been acquiring and deal-making, Ladbrokes has been quiet on this front – something which could damage them even more in the long run.

Also, the Point of Consumption Tax is moving ever closer in the UK. Bearing this in mind all iGaming companies with the UK as their main market are going to have a tough time maintaining share price without the added complications of failing to meet previous targets.

YouGov Plc monitored Ladbrokes’ social media mentions following last week’s profit warning and found that just under 15% of UK Twitter users had heard a mention of Ladbrokes in the following days. Unfortunately it’s also unlikely that the adage of any publicity being good publicity isn’t going to ring true in this instance. YouGov’s brand perception tool had an overall index score of -18.7 last week, down from -13.2 with the expectation being that the perception of the company will be damaged in the long run.

Glynn’s tenure at Ladbrokes has been something of a rollercoaster ride after having arrived with a grand plan and great promises. Things didn’t go well in his first few years but six months ago it appeared that the company had turned a corner. This latest setback could be the straw that breaks the camels back for Glynn.

JP Morgan Cazenove told UK newspaper The Guardian that: “It may now be too late for Ladbrokes’ digital business to achieve the scale that we see as key to competing effectively in the UK online market post the tax change.”

That’s a pretty big statement to make and is effectively saying that this could be the beginning of the end for any hopes Ladbrokes had of regaining what was once a significant share in the UK iGaming market.

With plenty of financial columnists already suggesting that the end for Glynn and his Project Galvanise should be sooner rather than later, he’s going to find it very difficult to come back from here. Even in the unlikely even that the Playtech move does pay off, the chances are that Glynn won’t be around to see it.


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