Analysis: Can Paddy Power solve its Italian problem?
Growth in the market remains stunted as operator pins hope on World Cup for customer acquisition boost
Paddy Power’s share of the Italian sportsbook and casino market may have inched up during the first three months of 2014 but the country remains problematic for the operator.
Italy’s less than buoyant market has caused concern for licensed online gambling operators and none more so than Paddy Power which has spent heavily on establishing its brand since it launched in 2012.
After spending more than 15m on that launch and suffering a 16.8m loss during 2013, the firm set itself a target of breaking even by the end of this year.
But with marketing spend failing to result in increased customer numbers the Irish operator is now relying heavily on a favourable football World Cup to reach that goal.
Paddypower.it achieved a 10% share of the sports betting market and an increased share of the casino market to 3% during the first part of the year, but this represents relatively slow progress for a company more accustomed to immediate online success.
It’s an experience that reflects that of “ among others “ Betsson, which last year admitted Italy was a far tougher market to gain traction in than it assumed prior to launch. CEO Magnus Silfverberg said the firm had lost out to early entrants that had grabbed significant market share.
William Hill has also found growth in Italy relatively hard to come by despite spending big on marketing, with 7% market share in sports betting in 2013, but its focus on online casino has seen it take an 8% market share and helped net revenues double during 2013.
So while outgoing CEO Patrick Kennedy said he was “happy” with how Paddy Power is executing in Italy, there appears to be a sense of frustration at the firm.
The launch of online poker, bingo and virtual sports, due by the end of the year, should provide a boost for Paddy Power, O’Donovan claiming this will increase the operator’s “addressable market” by some 65%.
But in its core sports betting market there are concerns over long-term growth prospects.
“There is growth but that’s primarily driven by increased spend per customer rather than new customers entering the market,” head of online Peter O’Donovan told analysts this morning. “As a brand looking to grow that’s obviously not optimal for us.”
He added that the firm was succeeding in taking a leading share of new customers as they are entering the market. “We are waiting for the World Cup to kick-off and those new customers to enter the market”¦ and our team in Italy will convert those customers very successfully,” O’Donovan said.
Questions over the long-term profitability of the market, however, will remain long after this summer’s World Cup spectacle.
Italy’s online sports betting market has struggled for growth during the past two years, with a tough operating environment created by high taxes a still restricted product offering and no shortage of competition from the non-regulated market.
The University of Milan, in conjuction with DLA Piper, estimates that Italy’s online sports betting spend dropped from 168m in 2009 to just 135m in 2013. Compare that to the mature UK market’s growth from 489m to 776m in the same period and the problem becomes all too clear.
In the meantime Italy’s market conditions and the summer’s sporting events demands that marketing spend must not abate, and Paddy Power will need to strike a careful balance between growth and bottom line.