UK-listed online gambling giant Paddy Power Betfair (PPB) reported healthy revenue gains in 2016 but merger costs took a big bite out of profits.
Figures released Tuesday show PPB’s group revenue hitting £1.55b in 2016, 18% higher than the combined sum the two former rivals generated as separate entities in 2015.
Earnings were up more than one-third to £400m and operating profit was up 44% to £330m on a pro forma basis, although statutory profit tumbled from £125m to just £15m due in part to £66m in costs associated with the major restructuring triggered by the 2015 merger of Paddy Power and Betfair.
Sticking with the pro forma numbers, online sportsbook handle rose 16% in constant currency, while sports revenue gained 10% to £609m and online gaming rose 12% to £245m. Online earnings were up 28% to £289m as operating costs grew at a slower rate than revenue.
PPB says 85% of Betfair’s sportsbook is now traded using Paddy Power’s pricing and risk management platforms and 30% of Betfair’s ‘Arcade’ revenue now comes from Paddy Power’s proprietary gaming content. Full integration of PPB’s European online platforms will be concluded later this year.
PPB’s strategy of operating under a single brand outside Ireland and the UK will see the Paddy Power brand exit the Italian market by year’s end. Betfair will take on Paddy’s Italian customers as soon as regulators grant their blessing to the shift.
In Australia, the Sportsbet brand reported online betting stakes rising one-quarter to £2.9b but adverse sports results, particularly in racing, kept revenue growth to 18%. Online earnings were up 18% to £94m due to operating cost reductions.
Sportsbet withdrew its Bet Live online in-play betting app in October, in keeping with new government restrictions. Prior to the withdrawal, in-play accounted for 14% of stakes and 7% of Sportsbet’s 2016 revenue. Those numbers fell to roughly 6% and 3%, respectively, following the app’s withdrawal.
At the retail level, the 613 Paddy Power betting shops in the UK and Ireland reported sports betting revenue gaining 6% to £198m while machine gaming gained 10% to £97m. Retail earnings rose 10% to £62m. The company added 12 new shops in the UK and four in Ireland last year.
PPB’s US operations, which include the TVG horseracing operation as well as Betfair’s online casino and exchange wagering sites in New Jersey, reported revenue rising 3% to £91m and earnings gaining 6% to 312m. The New Jersey online casino is now operating at breakeven earnings after a couple years of startup losses.
PPB says 2017 has started off on the right foot, with group sportsbook handle up 12% in constant currency terms. Online sports wagers are up 9%, Australia rose 19% and retail is 7% higher. However, online gaming revenue is off to an “underwhelming” start to the year, due to reduced cross-sell from Betfair sports bettors and a reduction in VIP activity across both brands.
PPB CEO Breon Corcoran told analysts that he expected more consolidation in the online gambling market, and while there was “no strategic necessity” to involve PPB in this process, “if we were to do something and the right asset came up and it was international and gaming focused, it would be interesting.”
