Five key questions on the Paddy Power Betfair merger

A merger between Betfair and Paddy Power appears to make strategic sense and the news has been met by near-universal approval from the industry and the City alike.

Yet neither Paddy Power CEO Andy McCue nor his Betfair counterpart were able to offer up much of a picture of what the new company would look like, how it would operate, and therefore the impact on the wider market.

Here’s five burning questions which could determine the outlook for a combined Paddy Power Betfair entity.

1. Where does the power lie?

Both companies are performing well but the influence of Breon Corcoran, a man whose success cannot be questioned, could be the telling factor as to future strategy. He will assume the group CEO role post-merger, with Paddy Power’s boss as his right-hand man. For that reason we can probably expect to see Corcoran-style strategy domination, with a streamlined approach to major product development and marketing heavily synergised despite running both brands.

On the face of it McCue is of a similar mould, having made some significant and necessary changes since taking the reins at Paddy Power last year, including efficiency drives across marketing and cost-cutting in its loss making Italian arm.

2. What will the new company look like?

Anyone who claims to know how the structure will work now is either lying or an idiot.

Betfair employs over 1,600 employees globally and Paddy Power employs 5,000 but with offices in London and Dublin there are strong similarities between Betfair and Paddy Power’s organisation. Several sources have predicted that Dublin will become the corporate HQ which would make sense for logistical reasons given Paddy Power’s huge office there. And, as one source suggested, the location would have positive corporation tax and VAT implications.

It’s too early to say what the implications of running both brands will have on company structure, however other multi-brand operators have tended to keep distinct marketing functions. On the tech and development side a certain amount of duplication is likely and much will depend on whether Betfair keeps its in-house sportsbook up and running.

Paddy Power’s successful foray into proprietary gaming content could, on the other hand, be earmarked for more investment post-merger, given Betfair’s need to grow the vertical. Its less clear if the firm will keep all its various international tech teams or seek to streamline operations there.

3. What does this mean for the firms’ international ambitions?

While the most obvious impact will be felt in the operators’ core UK & Ireland markets, the combined group has a healthy international profile.

Australia has been a tricky market for Betfair and it switched to a B2B model there last year, however it has become a cash cow for Paddy Power and its Sportsbet brand. But it is in Europe where the pair can gain the most benefit. By pooling resources in regulated and regulating markets, Paddy Power Betfair can take bigger risks and go after bigger market share.

Paddy Power has historically been reluctant to enter what it deems to be sub-scale markets while Betfair has often been hamstrung by slow-moving exchange betting regulation. Combined, the group can cover all bases, invest more and react faster to new market opportunities.

Paddy Power has also been sniffing around the US market for several years and has an unused New Jersey licence, whereas Betfair US boasts an online casino in that state and its horseracing advanced deposit wagering business TVG operates in both California and New Jersey. That established infrastructure could see the Paddy Power brand finally heading stateside.

4. A combined B2B approach?

Something which received little or no attention yesterday was B2B, a key area of focus for both Betfair and Paddy Power in recent times. Paddy Power has a small but significant list of B2B clients it offers fixed-odds risk management and pricing to, including British Columbia Lottery Corporation and Europe’s largest betting company PMU. It has made no secret of its desire grow this alternative revenue stream.

Meanwhile Betfair has gone on record to say it would like to replicate its new Australian B2B exchange strategy in other markets where launching its own brand makes no sense.

A combination of a renowned fixed-odds solution and data feed, along with Betfair’s exchange technology looks hugely compelling on paper and one which could expedite the growth of the combined firm’s B2B side. Not to mention providing possible entry into more difficult-to-access regulated markets.

5. What impact does the deal have on its key rivals?

The merger puts immediate pressure on UK rivals William Hill, bet365 and the proposed tie-up between Ladbrokes and Gala Coral. For Hills in particular a combination of Paddy Power’s marketing clout and Betfair’s world class technology creates a powerful force arguably akin to its Stoke-based rival.

If the battle for UK sportsbook market share was tough already, the new landscape looks brutal and one which does not favour the smaller brands. The impact on the gaming market is less clear, with Paddy Power Betfair still some way behind the leaders in this vertical.

Yesterday’s news also heaps further pressure on those operators standing at the edges of the M&A party. If you consider the top 10 operators in last year’s eGR Power 50, almost all of them have been acquisitive or have been acquired in the past 12 months.

Bet365 is an obvious anomaly while William Hill and 888 – currently keeping its fingers crossed for a bwin.party deal – are the only others who have yet to put pen to paper. Whether this deal forces their hand is up for debate, but the M&A countdown clock is most definitely ticking.