Paddy Power banks on Australian experience to maintain UK competitiveness

Patrick Kennedy, chief executive of Paddy Power, claims that his company’s experience in dealing with increased competition in the Australian market will allow the business to maintain its market-leading position in the UK, as operators fight to increase market share before the introduction of the point of consumption (PoC) tax next year.

Speaking following publication of the operator’s disappointing Q3 results Tuesday, in which a fall in sportsbook net revenue saw online revenues fail to post year-on-year growth for the period, Kennedy said that with competition in the UK increasing, driving up marketing costs, the operator would remain “disciplined” in its advertising spend, having experienced a similar situation in the Australian market last year.

“The UK will play out broadly similar to Australia. In Australia last year we saw an aggressive step-up in competition, especially in marketing, but marketing inflation abates,” he explained, adding that Paddy Power preferred “to invest in capability,” with the company employing 420 people in Australia - almost double its major competitor William Hill Australia.

After a year of heavy spending, Kennedy continued, competitors were “far less aggressive” in 2013, suggesting that the competition had reached a plateau, with pricing of marketing assets now falling once again.

However, despite pledging not to heavily invest in marketing, the company's chief financial officer Cormac McCarthy admitted that the company would have to increase its spend to an extent.

He said that the operator was “seeing some inflation” in marketing asset prices, but would aim to “keep a high level of discipline by keeping marketing spend at around 20 per cent of net revenues.”

Kennedy also noted that Paddy Power would continue to offer free bets and special promotions despite competitors ramping up similar offers, explaining that with “have a structurally better product and wider proposition [Paddy Power] can offer targeted specials and pricing in a way that other operators don’t.”

He added that these increased costs would be mitigated by increased revenues from the less volatile Australian market, where Paddy Power continues to perform well. In Q3 total amounts staked online were up 26 per cent year-on-year, leading to a 30 per cent rise in net revenues.

Despite the disappointing online revenues, blamed on adverse sporting results, Kennedy was keen to stress that the decline in sportsbook net revenues was purely due to these results, and in no way down to the operator’s pricing structures.

He picked out the example of the horse Fiorente unexpectedly winning the Melbourne Cup, admitting that if second-placed Red Cadeaux had won, the company “would be giving a very different trading statement.”