Can Hills, Ladbrokes and Gala Coral sleepwalk to success?19th August 2014 9:33 am GMT
“The large sportsbook operators have been asleep at the wheel,” was one of the more memorable quotes I heard last week while reviewing the first interviews with new William Hill chief executive James Henderson and Ladbrokes’ latest attempt to draw good cheer from poor to middling financial results.
William Hill’s largely excellent results during the latter years of Ralph Topping’s spell as CEO have largely masked the beginnings of a period of great turmoil for UK bookmakers. William Hills’ revenue has risen 49 per cent this decade, up from £997.9m at the end of 2009 to £1.49bn at the end of the last financial year.
However, there has been a storm brewing that might finally break next year and there is a belief that Topping (among others) has done very little to stop it. He will be fondly remembered for many things but diplomacy will probably not be one of them. His quote labelling the Department of Culture Media and Sport the “department of ballet” was recycled by plenty of the national newspapers last week as they looked to illustrate the differing characters of Topping and his successor Henderson.
Henderson was a bit hesitant at his first media briefing, often seeming to turn to experienced finance director Neil Cooper for reassurance. Indeed, Cooper was on the phone to Henderson just prior to an interview with The Telegraph to warn him against giving away “state secrets”. However, it might not be a bad time to be hesitant rather than conducting political affairs with all guns blazing.
The political row around fixed odds betting terminals shows no sign of dying out. The Campaign for Fairer Gambling has been far from extinguished. Earlier in the summer, Gala Coral went as far as publicly responding to the Campaign’s suggestion it was misleading investors. The Campaign’s influence was also clear in the only piece of negative coverage Henderson has had to endure post-appointment.
The Times’ article was headlined “William Hill raises stakes in tax battle”. It was a shoddily put together piece, which took one of Henderson’s quotes about the hostility of the political climate and ramped it up into a supposed declaration of war against the government. The William Hill press office must be tearing its hair out. Despite fostering good relations with The Times’ journos, all it needs is one freelancer, egged on by an aggressive editor, for a lot of good work to come to nought.
However, The Times’ stance shows how deeply ingrained the hostility is towards the bookmakers and that is dangerous. It is impossible to shrug off this particular article as a one-off, when just one week earlier a Times columnist wrote a column entitled “Stop bombarding our kids with betting ads”. (Advertising is a whole topic that we will return to in depth separately.)
Henderson seems to be a conciliatory fellow and a humble approach would seem necessary in these times of upheaval. Richard Glynn’s statements at Ladbrokes have also taken on a more conciliatory tone of late, (which can’t come naturally to the belligerent chief executive). Every recent Ladbrokes statement about government relations has also been accompanied with the plea to “give us a break”, which keeps striking me as sounding rather desperate – never a good look.
However, it is possible that the bookmaker really is getting quite desperate. It cannot quite say that for fear of spooking the markets but, as Camberton managing director Mark Davies points out, when you tot up all the bookmakers’ various taxes and levies it amounts to nearly 70 per cent of revenue.
“The statutory costs on these businesses, before their own operating costs, are now at a level where they have no room to manoeuvre, which makes it difficult to invest. If statutory costs were to go up further, they would be left with no margin at all to play with – unless they cut operating costs, of course,” says Davies.
Henderson was spot on when he said that Hills needs to ramp up its political relations and it is noticeable that all three big bookmakers have made a point of saying how well they are working with government on the FOBT proposals. It is long overdue. We will see how effective it is.
When Henderson was appointed, chairman Gavin Davis made a point of saying that the William Hill strategy was not broken. Henderson surely is a safe pair of hands in that regard. While rumours that nobody external wanted the job are mean on the incumbent, and possibly untrue, the existence of the rumours reveals what a tough job Henderson has on his hands.
It might well come to pass that William Hill is well-placed to take advantage of the sweeping changes the industry will experience over the next few years. Appointing an insider to manage an organisation with such an ingrained betting/horses culture makes a lot of sense. Hills has not traditionally been a place where outsiders thrive. However, one wonders what an imaginative outsider could bring to the market leader during tumultuous times. Times of great change sometimes demand change. Sleepwalking – certainly – is not an option.