News analysis: Operators shrug off soaring marketing costs
Rising licensing and marketing expenses hit first-half figures but many large operators vow to spend more as they continue to expand.
The cost of entering newly regulated egaming territories and the rising costs of marketing a brand to new customers may have dented operators’ profits in the first half of this year, but a number of large online gambling companies have told eGaming Review they will keep spending.
Ireland’s largest bookmaker, Paddy Power, despite not revealing a figure of how much it spent on marketing for the first half of this year, devotes a large amount of its budget to marketing and advertising its sports betting, games and bingo, for example, on television, radio, as well as on search engine optimisation and customer retention.
Breon Corcoran, chief operating officer at Paddy Power, said: “Our marketing spend has risen by 50% for Europe, Ireland and the UK. This has mainly been because of the World Cup, and rising television advertising costs, but we intend to continue spending to build the brand and move into new, larger, material markets.”
Rising licensing and marketing costs have not deterred large operators from spending more on marketing and, impressively, do not seem to be harming their margins. Despite a 50% increase in marketing spend, Paddy Power made “significant strategic and financial progress” in the first half of this year, according to chief executive Patrick Kennedy last month, and “substantially” increased its online scale with gross win up 117% to 112m and operating profit up 66% to 36.1m.
One way it has saved money, has been to enter the newly regulated French market by signing a deal with duopoly operator Pari Mutuel Urbain (PMU), the largest tote operator in Europe, via a new Paddy Power business-to-business (B2B) division. Corcoran says this enabled the business to save on “investing in a brand”. He added: “There are some technology fees as well as costs managing their book, but we can amortise that across the rest of the business.”
Bwin pledged to make a profit in France in 2011 despite incurring heavy launch costs of around 5m to enter the country and marketing costs rising by 30% in the second quarter. The Austrian egaming firm, that recently announced it would merge with PartyGaming at the beginning of next year, posted a 27% drop in quarterly operating profit in Q2 of this year.
But despite admitting the company had “spent more on the initial marketing campaign in France than we expected” and that the total cost of being regulated in France was “quite substantial”¦ in the region of 5m”, Norbert Teufelberger, Bwin co-chief executive, expects the business to make a profit in France next year.
He added that poker was up in France, having seen single-digit growth, and that Bwin was “still absorbing some of the tax and passing some of it on to the consumer”.
Sports betting in France was also successful in Q2 of this year. Teufelberger said: “The net margin we are generating on [sports betting] in France is higher than what we are generating on dot com.”
Ian Penrose, chief executive of British football pools and pari-mutuel business Sportech, told eGR it had “reigned in” marketing costs, spending £5m in the first half of this year. But he added that its partnership with Playtech, that provides it with egaming software and services and seeks to distribute Sportech’s core football pools product to other clients, would mean a further rise in marketing costs in the future as it seeks to retain customers.