Paddy Power Betfair facing £115m impact from regulatory changes


paddy-power-betfair-regulatory-tax-gamblingUK-listed gambling operator Paddy Power Betfair (PPB) took a Q3 earnings hit thanks to its US market operations, while warning that regulatory changes in multiple markets will have a serious drag on future results.

In a trading update issued on Friday, PPB reported revenue of £483m in the three months ending September 30, up 10% year-on-year. But earnings were down 16% to £101m due to higher regulatory costs and the daily fantasy sports (DFS) losses incurred via PPB’s recent acquisition of FanDuel.

Online revenue was up 15% to £248m, driven in part by the second half of this summer’s FIFA World Cup, but PPB says online revenue was up 13% in the quarter’s post-Cup period. Online sports revenue improved 11%, with sportsbook growth (+17%) seriously outshining that of the Betfair betting exchange (+1%).

Online gaming revenue shot up 26%, thanks to January’s product enhancements leading to better cross-sell rates, and additional summertime tweaks to the gaming product in PPB’s sports apps.

PPB’s Australian online brand Sportsbet reported revenue falling 2% on punter-friendly local sports results, while “promotional generosity” contributed to margins falling 2.3 points. PPB said the Aussie online market was undergoing a “changing competitor brand landscape,” requiring a larger outlay to both attract and retain customers.

PPB’s newly expanded US market operations – DFS in 41 states, TVG race betting in 33 states, Betfair’s online casino in New Jersey, sports betting in NJ and West Virginia – reported revenue up 22%. DFS growth was 18%, TVG improved 7% and the Betfair online casino shot up 40%.

US sports betting added $5m to the Q3 revenue total, a sum that is expected to leap in Q4. PPB’s betting ops at NJ’s Meadowlands racetrack handled daily turnover of $1.5m in October and NJ online stakes are 40% higher than at retail. PPB estimates that 30% of its NJ betting revenue comes from New York residents who deign to take a bridge or tunnel to NJ’s legal wagering haven.

The picture was far less bright at PPB’s 628 UK and Irish retail betting shops, which saw revenue fall 4% to £82m. The decline came courtesy of a 6% fall in OTC wagering, while fixed-odds betting terminal (FOBT) revenue improved 2%.

PPB warned that negative changes were ahead in many of its key markets, including a doubling of Ireland’s betting turnover tax and increases in exchange betting tax that will cost the company around £20m per year.

In the UK, PPB expects to pay an additional £15m per year once the increased Remote Gaming Duty takes effect in October 2019, while the controversial reduction in FOBT maximum stakes will cost the company between £36m and £46m.

PPB is also wrestling with new online point-of-consumption taxes in Australia which, when combined with the other regulatory and tax changes noted above, would have reduced the company’s annual earnings by around £115m had they all applied throughout 2018.

Nonetheless, PPB slightly upped its FY18 earnings to come in somewhere between £465m-£480m, and said the range would have been £25m higher were it not for costs associated with expanding its New Jersey operations.