Paddy Power, 888 to increase investment as new markets open

Betting companies Paddy Power and 888 Holdings geared up to aggressively increase investment in the second half of the year as newly regulated markets open up and profits increase.

Paddy Power, Ireland‘s largest bookmaker, which has increased its presence in Britain as well as Australia, Canada and France in recent years, entered the Italian market this year while online gaming company 888 was awarded a Spanish online gaming licence in June.

Britain’s 888, which saw earnings rise 81 per cent from a relatively low base of $20 million and revenues increase by just over a fifth to $186.4 million, said it planned to spend some of that in Europe and the United States by the end of the year.

“The second half of the year will see increased investment in Spain, where we will attempt to build on our market share, and also in the United States, where we are preparing for regulatory changes,” said chief executive Brian Mattingley.

“We will also continue to invest in our technological platform, the cornerstone of our offer, and make improvements to our mobile channel.”

Paddy Power’s revenues for the six months to end-June were over twice that of 888, rising 29 per cent to €311.2 million, more than the €285 million taken during the whole of 2009 as growth online accelerated and its Australian business performed particularly well.

Profit before tax rose 21 per cent to €68.7 million, tempered by the €6.3 million spent on four new online ventures, including its Italian launch and a massive 74 per cent increase in marketing spending as it looked to take advantage of a rush of gamblers betting on June’s Euro 2012 football tournament.

Paddy Power’s finance director Jack Massey told Reuters that it would invest at a faster pace in the second half of the year and hoped to increase its market share in Italy to 15 per cent in the next two years from the four per cent captured since May.

The group continues to look at opportunities to break into the US too after receiving preliminary clearance to operate in Nevada. Massey would not comment on whether it would join 888 in Spain where the www.paddypower.es web address asks Spaniards to join its mailing list “to be informed of progress”.

“Long-run market leadership rather than short-term profit is clearly management’s goal,” David Jennings, analyst at Davy Stockbrokers, wrote in a note.

“That may come as a bit of an unwelcome surprise to some investors, used to continuous earnings upgrades, but in our view this sector’s recent past is littered with too many examples of operators who chose not to reinvest sufficiently in their online businesses when revenue growth was strong.”

With the exception of Britain’s biggest bookmaker William Hill, bookmakers were cautious about getting any boost from the world’s biggest sporting event, the Olympics, and yesterday’s releases provided the first post-Games update.

While 888 simply said trading during the two-week event in London was in line with expectations, Paddy Power said it managed to turn over €31 million from the Games, a 13-fold increase from the Beijing Olympics in 2008.