GPWA Times Magazine - Issue 34 - February 2016

in interim results published so far that op- erators are struggling to mitigate the im- pact of this new tax on their profits. In the presentation of its 2015 interim re- sults, William Hill had a slide titled “Tax and regulation changes impact profit pro- gression.” The company reported a hit of £35.4 million with the new U.K. POC tax, and total costs represented 77% of net rev- enues in H1 2015 versus 69% in H1 2014. The overall “impact on profit progres- sion” for William Hill was to reduce the company’s operating profit by 20%. Similarly, Ladbrokes said the U.K. POC tax had cost it £12.6 million in the first half of 2015, while Paddy Power took a triple whammy of new tax increases in all three of its main markets in the first half of 2015: 1. €25 million from the U.K.’s POC tax. 2. €3.5 million from increased product fees in Australia. 3. €1.9 million from the introduction of value added tax (VAT) on iGaming in Ireland. Ouch! So far, the only way the companies have come up with to try to solve this tax headache is to merge, in the hope that a problem shared is a problem halved. GBGC has compiled a list of the revenues of the leading operators and new partner- ships, and it is clear that “size matters” is the new mantra for iGaming in 2016. Assuming all the deals that have been announced are completed, there will be a clear divide between the biggest and the rest when it comes to revenues. The new GVC-bwin entity would occupy the fourth spot on the list, based on the two companies’ combined 2014 revenues. 888 is somewhat adrift of the “top tier” of companies with revenues of more than £500 million. Looking at the table, the next deal that seems “obvious” is between William Hill and 888 Holdings. That merged company would leap to second place on the list, based on 2014 revenues. But, as we know, that deal was discussed and rejected early in 2015. Of course, high revenues are not neces- sarily an indication that a company is suc- cessful or profitable. bwin.Party is proof of that. But scale is certainly a means of trying to mitigate fixed costs and, al- though a number of big deals have been made in 2015, the process of consolidation will continue into 2016. A lot of money has been splashed about, but to what ef- fect we will only know in three or four years. The iGaming sector would do well to take a lesson from the sage of Omaha, Warren Buffett. He has written: “As a director of 19 companies over the years, I’ve never heard ‘dis-synergies’ men- tioned (though I’ve witnessed plenty of these once deals have closed). Postmortems of acquisitions, in which reality is honestly compared to the original projections, are rare in American boardrooms. They should instead be standard practice.” Come 2018/2019, such a process of honest reflection could be distinctly uncomfort- able for some iGaming executives and their shareholders. It is clear that ‘size matters’ is the new mantra for iGaming in 2016. Assuming all the deals that have been announced are completed, there will be a clear divide between the biggest and the rest when it comes to revenues.” Ranking of operators by iGaming revenues (2014) Company GGY (£m) 1 bet365 1,284.2 2 Paddy-Betfair 832.2 3 PokerStars 687.1 4 GVC-bwin 653.6 5 William Hill 649.3 6 Ladbrokes-Coral 523.0 7 Unibet 312.0 8 888 Holdings 292.1 9 Betsson 251.6 10 Skybet 183.0 Source: GBGC analysis of company accounts Lorien Pilling is research director for Global Betting and Gaming Consultants. 40 A problem merged is a problem halved?