Taking a gamble on a mobile future
THE gamblers in our banks and property companies may be a spent force but Ireland, it seems, is increasingly a force to be reckoned with in the betting world.
The latest financial results from Paddy Power, the Tallaght-based Plc, serve as a reminder that entrepreneurial openings can emerge in all sorts of unusual spaces.
Irish people have always loved a wager but these days the bets are as likely to be placed on weather events or the performance of shares or commodity futures as on horses.
Paddy Power has over the years been more alert than others to advances in technology and to the power of good publicity.
Its executives and staff are in touch with a new generation that conducts more and more of its business on mobile phones by means of ‘apps’.
The group has expanded rapidly in recent years and a decade after its flotation, it now employs well over 2,000 people around the world, including more than 750 at its fast expanding, if unpretentious HQ in Tallaght on the south western fringe of Dublin.
It was annual results time this week, and as usual the company did not disappoint.
Pre-tax profits were up from €67 million in 2009 to €104m in 2010, driven in large part by a very strong performance at the online business PaddyPower.com where profits were almost €60m
“This is a very solid business model, a very solid set of results, with good cash generation — cash-flow of €75m in the full year,” says Ian Hunter of Dolmen Securities.
Goodbody Stockbrokers has also welcomed the result, pointing in particular to Paddy Power’s fast-developing online presence and growth in its mobile customer base. Paddy Power now claims more customers on YouTube, Facebook and Twitter than its next five competitors combined.
Excluding its recent Australian acquisition, Sportsbet, the original online business grew by 44% on terms of active online customer base.
In its traditional retail heartland, Paddy Power is more than holding its own in Ireland with an 8% rise in turnover, while expansion in Britain continues apace. It has recently opened 30 new shops, bringing the total to 124, with a target of 150 by the year end.
However, there are 9,000 betting shops in Britain, so market saturation is not an issue.
To date, Paddy Power’s timing has been good, as it has been entering into commercial arrangements at a time when value is to be had.
One question mark centres on the depth of the British recession and its likely impact on betting turnover.
There have also been suggestions that Paddy Power might step up its acquisition pace by acquiring properties from the British Tote.
It is now almost 18 months since the group entered into its joint venture with the French state group PMU, through its new B2B division. This has raised hopes of profitable tie-ups with other state monopolies on the continent.
THE word is that progress on the French venture has been a little slower than expected for regulatory reasons.
Last week, the group also moved to acquire full control of the Australian online company Sportsbet, pushing it within touching distance of the lucrative Asian market.
Commentators have been quick to compare Paddy Power with Ryanair, another young pretender which has grown to gorilla-like proportions by dint of clever marketing and aggressive pricing — ironic, given that its chief executive Patrick Kennedy is the son of David Kennedy, former chief of Aer Lingus and leading figure in the old airline establishment which Ryanair so clinically dispatched to the margins.
Patrick grew up in leafy Herbert Park in the heart of Dublin 4.
Excelling at rugby, he ended up on the Leinster U20 team before qualifying as a chartered accountant at KPMG.
He headed off to London to work for McKinsey Consultants, acquiring valuable international polish and exposure
Along the way, he somehow managed to acquire some of the hunger of the self-made entrepreneur to add to the education, skills and polish provided to him from birth.
In 1998, he ended up back in Ireland in a senior position as chief financial officer at Greencore. At the time, the Plc was embarking on the process of transforming itself from a major producer of sugar beet and hops into a major player in the British convenience food market with its 2001 acquisition of Hazlewood. As a result, Greencore has ended up as the largest producer of fresh sandwiches in Europe.
Working under David Dilger, Kennedy supervised the disposal, or closure of almost 40 business units.
Kennedy left Greencore to take up the top job at Paddy Power in succession to John O’Reilly, having been invited onto the Paddy Power board at the behest of Fintan Drury, the former RTÉ Authority chairman, sports agent and friend of former taoiseach Brian Cowen.
Kennedy joined Paddy Power in mid-2005, assuming the top job in January 2006.
It is not clear to what extent he could be said to share responsibility for two very controversial strategic decisions taken at Greencore: the decision to shut down sugar beet production in Ireland and the related move into property development, a move effectively aborted at the onset of the property crash.
If much of his energies at Greencore were focused on rationalisations and restructuring, at Paddy Power the emphasis has been very much on expansion, diversification and the development of new profit centres.
Paddy Power’s Tallaght workforce is highly specialised, composed mainly of people with degrees in maths or statistics, economics and computer science, as well as qualifications as actuaries and in business information systems.
The group announced plans late last year to recruit a further 500 people over the next three years as it continues to roll out new products. The company plans to hire people in e-commerce, online marketing and risk management.
Paddy Power is a brand one associates with fun, but this is a hard-nosed business where cash gets thrown up rather than burned, as in so many other online entities.
At the end of December the group had a net cash balance of €150m, leaving it much better placed than over-borrowed competitors such as Ladbrokes.
The Paddy Power offering is increasingly varied. Customers can wager on elections, volcanoes and football matches and they can play the stock markets while avoiding taxes and commission through the vehicle of spread betting (betting on the performance of particular stocks).
They can do all of this on their i-phone ‘app’.
Paddy Power offers spread betting in commodities, currencies, interest rates, stocks, bonds and various indices.
Our cash-strapped Government has been casting a covetous eye at the lucrative online business. The departed Cowen administration was considering a 1% tax, which Kennedy and Paddy Power were resisting, warning of a threat to jobs, promised and existing, if the measure were to be implemented.
Time will tell whether this argument wins out with the new Government, but Paddy Power will continue to project its cheeky chappie persona while filling its satchel with the takings from an increasingly diverse range of activities.
Few would begrudge its success, not least because it shows that an Irish company can still trade punches with the best.
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