William Hill, Ladbrokes and the £78m problem

For the two traditional giants of UK sports betting the half year results were in stark contrast. Ladbrokes, in the red corner, was punching well below its weight with a digital operating profit of just £3m for the period, while in the blue corner, William Hill posted an online operating profit some 27 times larger at £81.1m.

Ladbrokes is at the end of a traumatic restructure that has seen it move from long-term partner Microgaming to Playtech, rebuild its entire online and mobile platforms and restructure its marketing, affiliate and executive teams. This has had an enormous impact on revenues, with gaming in particular savagely hit by the delays in moving to the Playtech back end.

But investors and analysts are looking directly at Hills for a comparison for potential growth prospects. And despite Hills substantial lead, comparisons between the two firms are still both relevant and realistic. Both firms have similar advantages in terms of huge retail estates and brand recognition in the UK. And if Hills success isn’t a target at Ladbrokes Rayners Lane HQ it should be.

In H1 2010, when current CEO Richard Glynn took over, the two firms were also fairly well matched, even if Ladbrokes was on a downward curve and Hills an upward one. Operating profit at William Hill Online was £44.9m for the period, from revenues of £124.2m. Ladbrokes posted a corresponding £29.1m of profit from egaming revenues of £85.6m.

In 2014 Ladbrokes H1 net revenue was roughly the same at £84.8m, before Betdaq and Australia revenues, while William Hill had more than doubled to £261.1m. Gaming was 44% of Ladbrokes revenue in the period and 54% of William Hill’s, as the former kept the marketing taps firmly turned off with the Playtech move still not completed. And a deeper look at the numbers reveal this gaming component to be a key differentiator.

A closer look at the revenues

The numbers at Ladbrokes are also not quite as bad as they first appear. Digital EBITDA for the period was down just 6.5% on 2013 at £17.3m and like for like operating profit was down 52.3% to £5.3m. Over £2.3m of losses were attributable to Spain and Belgium with expensive launches in the first two weighing in at £1.2m and £1.0m respectively. The costs related to the Playtech migration won’t impact on the results from H2 and beyond and there is plenty of upside in gaming.

Hills gaming component insulated them from a run of poor sporting results in the first quarter of the year, allowing them to post a 1% rise in operating profits despite an increase in operating costs. Casino revenue was almost level with sportsbook and interestingly this was down as much to a major push of its in-house Vegas platform and substantial mobile growth rather than its Playtech casino.

Sportsbook revenue at Hills was up 5% to £121.4m, but casino rose 25% to £120m with 146% growth in mobile gaming revenue. At Ladbrokes the gaming side looked like a horror show in comparison. Casino and games dropped a relatively modest 14.3% during the period to £30.6m, with the Games component actually posting 10% growth in the period.

Ladbrokes softer casino performance led to a fairly low yield per unique player for the period of £120.45. Sportsbook player yields of £79 would suggest some cross selling work is needed to return to bigger profits with the firm reporting a digital CPA of £70. Hills yield per user was £152.7 for the period, in comparison, with an average CPA of £97.8.

H1 Key Numbers (online only)

Lessons from the World Cup

No step change in revenue is expected in Q3 at Ladbrokes, with Q4 targeted for a return to growth with mobile and tablet a large part of those plans. Mobile played a big part in Hills gaming growth story in Q2 and the continued move from laptop to tablet by consumers will only accentuate the need to be competitive in these channels. Both firms have mobile-focused development units in London and we should expect new releases and features during H2 on tablets in particular.

Sportsbook growth has been driven by mobile so far with actives and sign-ups rising 74% and 176% respectively on the mobile platforms during H1. Mobile was responsible for 60% of sportsbook turnover in June and 63% of World Cup betting. And it’s the World Cup that offers the final point of comparison between the two. This is where, on sportsbook at least, the two land-based giants were finally competing on an even(ish) basis.

Ladbrokes mobile and online platforms were in place, the Ladbrokes Life rebrand was live and there was no shortage of marketing budget. This was a reasonably fair fight. And on the face of it, Ladbrokes has a very successful World Cup. It posted a 43% rise in stakes with a 25.9% rise in digital net revenue to £9.1m from a margin of 18.7%. Sign-ups rose by 48% and actives grew 28% during the Brazil tournament. In comparison staking excluding the World Cup grew 27% in H1.

But once gain the comparatives with Hills make for tough reading in Rayners Lane. William Hill posted a 211% rise in betting turnover, compared to the 2010 World Cup, with a corresponding 142% rise in net revenue as gross win margin dropped from 20% to 15.6%. It had a total gross win of £24.7m for the entire world cup and £17.7m from H1.

To directly compare the two, Ladbrokes managed to grow its betting turnover by 43% compared to 2010 while Hills grew 211% against the same period. If this was a “stellar” world cup for Ladbrokes, according to one analyst, then it was an interstellar one for its rival in the blue corner. If Ladbrokes really is to make up lost ground on its historic rival then it’s going to need to raise its game a fair bit further still.