The story behind my shattered Celtic dream

USUALLY, my column contains my musings and trenchant opinions, but today, it’s about my story, or more specifically, that of Celtic Bookmakers.

For those who are disinterested and unaware of the betting fraternity, this is our family business, which has traded as a retail/telephone bookmaker since St Stephen’s Day, 1987. Over 23 years, Celtic Bookmakers developed into one of the larger independent betting chains, with, at one point, 63 shops.

It started out as an entrepreneurial dream and hobby. Business guru, Mark McCormack, wrote in the last chapter of his best-selling book, What They Don’t Teach You At Harvard Business School, about entrepreneurship: “How do you know you are an entrepreneur? It’s not that you’re great at selling or making money, rather it is the passion that if you were on your death bed and hadn’t set up this enterprise in your lifetime — you would never forgive yourself.”

That’s exactly how I felt, notwithstanding my overriding drive to be a politician.

In the beginning, it was a disaster with our first shop in Tramore. Every conceivable mistake was made on both sides of the counter in a steep learning curve. Having no background in the business, I only had the support of my wife, Deirdre, and the guidance of a bookmaking friend in the west of Ireland. We opened our second shop in Wicklow. Paddy Power attacked us through a tax-free betting war. This aggressive discounting guaranteed severe losses. But, with the support of a loan from my mother, it survived.

Slowly the business grew, with additional shops in Waterford, Carlow and Bray. We evolved from sole trader status to an incorporated company. By 2001, I had spent 21 years as a professional politician and felt burnt out from the repetitive grind of political life. The business had grown to 12 shops, with plans to open six more. I committed myself to developing Celtic into a national brand and indestructible business on a full-time basis. The era of the Celtic Tiger was just about to commence and I was hungry to partake.

At the high-water mark in 2007, we grew the business to €180 million turnover, plus three shops in south Wales. Despite trials, tribulations and endless setbacks, we were making an operating profit of €4m. With the support of AIB we acquired Joe Molloy Bookmakers (€4m) and Ubet, as well as individual, independent bookie’s shops. I leveraged other personal assets to secure this lending. I willingly gave a personal guarantee to the bank. Analysts valued the business at eight times EBIT [earnings before interest and taxes], with a borrowing capacity of four times profit.

We recruited professional management in the critical functions of finance, operations, human resources and race-room trading. Our ethos and mission was to be the Ryanair of bookmaking — our logo: “No one beats our bonuses.”

Celtic sought to be competitively aggressive in the sector in relation to punter betting terms, offering top value, with lower gross margins. Our cost structure was lean and mean. The maximum salary Deirdre or I ever drew out of the business was €25k a year.

After the builders’ holidays in August 2007, I noticed a peculiar pattern emerging in my daily review of bets. While the number of wagers was broadly maintained, average slip or bet values started to decline. When queried, this was explained by shop staff telling me that regular customers from the construction and other sectors had reduced their betting stakes. This downward trend has continued to date. Gross revenue declined by almost 50%.

Management response to this, initially, was to cease organic growth and new shop developments. This was followed by restrictions on capital expenditure and non-essential costs (eg marketing and sponsorship). We saved on payroll costs due to the exceptional loyalty and commitment of our staff, which then exceeded 300. The abolition of bonuses and overtime was supplemented with pay and personnel reductions. Deirdre and I have not drawn any salary from the business for the past three years. Some landlords agreed to rent reductions. Total annual costs were reduced from €17m to €11.7m.

Given the continuing decline of turnover, we took more drastic action by closing loss-making shops. This time last year, I concluded the business model of Celtic could not survive as was. My focus then was to restructure and re-finance the company through taking on board an outside investor, surrendering ownership and control of the business. This was followed by attempts to merge with other independent bookmakers to develop enhanced scale and an online presence. This consolidation play was my preferred outcome, with a new indigenous brand of more than 150 shops.

When these initiatives ran into the sand, I sought to realise a programme of asset recovery. This attempt aimed to sell groups of shops to competitors who could grow their own estate in a complementary fashion. But they also experienced serious declines in their own revenue. Ladbrokes published figures for Ireland show a profit in 2008 of €4m, followed by a significant loss in 2009. William Hill recently announced the closure of a further 20 shops. Fellow independent bookmakers relayed sleepless nights and worry. Severe weather added to the woes of the downturn.

Accepting insolvency is tough. I obtained best advice regarding our responsibilities in relation to the Companies Act. Options of examinership, receivership and liquidation were analysed in depth. A few days before Christmas AIB agreed, upon our invitation, to appoint a receiver on January 4. All bets, both past and during the receivership, will be fully honoured and paid.

My immediate concern is to transfer many of the shops, with the receiver, Neil Hughes, to other bookmakers, to safeguard as many of the 237 jobs as possible. Flexibility and support is required from landlords to achieve a positive outcome. All our shops are long-term leasehold interests. The inflexibility of lease law has been significant in our demise. Surrender premiums on leases of shut shops have amounted up to two and a half years’ rent.

Causes of this business failure? Mainly, the recession and consequent reduction in discretionary disposable spending. Unlike groceries and clothes, you don’t have to have a bet. The migration of gambling online, emergence of betting exchanges, costs of the betting tax regime and growth of gaming (especially poker and roulette) have all been incremental underlying contributory factors.

I personally take responsibility for this commercial disaster. We invested €25m in the business to date. All profits were ploughed back in to the company. No assets were transferred out of the company. The opposite was the case. Financial consequences for me and my immediate family are horrendous. We owe AIB €6m. Our liabilities exceed all conceivable assets and potential earnings.

My feelings? Demoralisation, dejection and sadness — akin to a bereavement. The most important point I wish to express is my complete heartfelt appreciation to our tremendous staff (past and present) and customers. I am truly sorry that matters have ended up in this way. We will do all we can to ensure their future prospects. Our hope is that in excess of 100 of the jobs can be saved.