The Merger of Two Betting Giants – What’s at Stake?

In Europe, the online gambling industry is finding innovative ways to grow. Since lawmakers in the United Kingdom and other countries have levied tax and enforced stricter laws, betting industry is turning to mergers. Perhaps, the most significant event took place in late August when two of the most powerful players in UK joined hands to tackle strict betting laws.

It is confirmed that Betfair Group PLC and Paddy Power Group PLC will become a single company to reduce redundant operational costs. Just two or three months earlier, no one would have guessed that these two major rivals would agree on joining because both the two firms operated on radically different models. For instance, Paddy Power is a brick-and-mortar powerhouse, which operates more than 600 shops in the United Kingdom and Ireland. Using its global reach, Paddy Power has also expanded to become the leading player in other countries such as Ireland and Australia. In addition, it dominates various gambling niches in Italy, France and Canada. Unlike Paddy Power, which mainly offer its services through telephone betting service, Betfair operates by helping gamblers make transaction using a fully automated online platform. The company was formed twelve years after Paddy Power, in 2000. However, it soon became the leading rival of Paddy Power acquiring large number of popular off-line and online gambling firms. Betfair Group PLC is headquartered in London and owns the world’s largest Internet betting exchange. As such, the business model is entirely based on online transactions. Between 2005 and 2008, Betfair gained massive exposure in Australia as it became one of the first online betting exchanges to be legalized in the country. Currently, it owns majority share in Betfair Australia, which is run in partnership with Australia’s largest betting providers, Crown Resort.

The official announcement suggested that the name of the new entity will be Paddy Power Betfair, and its headquarters will be based in Dublin. As such, it is also fair to assume that stocks of both companies would also merge at London Stock Exchange, where the majority of trading volume takes place. Theoretically, the merger of these companies will offer the group to dominate marketplaces in Europe, Australia and Canada. According to recent press conference, the management of the new firm is looking to take this opportunity to expand in Asia. After the merger, it is estimated that the combined company will have a revenue exceeding 1.9 Billion Euros.

The impending merger is agreed on 6.83 Billion Euros, which will give 52% share to stakeholders of Paddy Power PLC and 48% share to Betfair stakeholders. It also seems that the news of the merger has generated positive reactions from the market. After the merger, shares of Paddy Power PLC rose 18 percent on Dublin Stock Exchange. Likewise, stocks of Betfair also rose 17 percent. According to the terms of merger, both companies will share management responsibilities as there are no reports of downsizing or any high profile management exit. The CEO of Betfair will act as the new leader in charge of day-to-day operations of the new entity. Interestingly, it is also noticeable that Breon Corcoran, the current CEO of Betfair, is rumored to be behind the merger deal as he also served as the COO of Paddy Power. On similar terms, the Chairman of Paddy Power, Garry McGann, will retain his position as the head of the new group. The merger also makes perfect business sense as the two companies are known to offer high return on investments for its stakeholders. The latest quarterly results of Paddy Power claimed a 31% increase in the total revenues compared to last year. Current revenues rose more than 80 Million Euros increasing from 61.6 Million Euros. In contrast, revenues for Betfair increased 15 percent reaching more than 135 Million Euros in the quarter ended July 31st.

Industry pundits see the recent merger in positive light. They claim that the merger is also in the personal interest of co-founders of each group. For example, co-founder of Betfair, Ed Wray, saw an increase of 50 Million Euros in his shares as he is also the largest shareholder in the company with 9 percent at stake. Similarly, David Power, the co-founder of Paddy Power saw a similar increase in revenue as he held 8 percent share in his company. Despite legal procedures, it is likely that the merger will be finalized in January 2016 paving the way for another giant in the online gaming industry. The higher management from either company spoke publicly about their future plans as it is understood that managers at both sides were eager to form the merger to tackle ongoing tax laws in Europe. Besides, the merger is also a strategic move to create more powerful presence in off-line and online gambling landscape.

For Betfair, the merger is a solid opportunity to lock horns with the largest online betting company, Bet365. By using its new resources, it can challenge Bet365 in various growing markets around the world. On the other hand, Paddy Power can outsmart its long-term rivals such as William-Hill by accessing one of the most advanced online betting exchanges in the industry. Despite the merger, both companies still need to be vigilant on the strategic front because the ongoing merger frenzy in the betting industry is unlikely to stop anytime soon. There are other large companies that have yet to make any moves. Bet365 and William-Hill are two such rivals that can propose each other, in future. As for Betfair Group PLC and Paddy Power Group PLC, the merger is the first successful attempt in tackling higher tax and government regulations. If the new entity, Paddy Power Betfair continues to perform in the operational front, it may create one of the first monopolies in the online gaming industry.

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