Weighing up the Lads-Coral merger (part two)
Part 2 of our look at the pros and cons surrounding the much-debated mega-merger. By Gerard Starkey
Not everyone is downbeat on the chances of Ladbrokes Coral finding success. Patrick Jay, Ladbrokes’ former sports director and now a partner at egaming consultancy firm Regulus Partners, says this was the “best deal in town” for both parties, with the main gains likely to be found by using best practice across both firms and stripping out unnecessary and duplicate costs.
“I think if you are a bit more optimistic and get to the guts of the business I’m sure they will do better than the £65m in cost savings [the two firms said they would extract in the first two years], which would go some way to make up for any potential deterioration in performance numbers,” Jay says.
And the former Hong Kong Jockey Club director of trading is also of the opinion that the decision to operate all three brands and run two separate trading functions is a sensible one. According to Jay, the three brands all have strong positions in the market so should be retained and he sees no issues with Ladbrokes Coral having two separate trading teams.
“Two brains are better than one,” Jay says. “They can share information and there are going to be times when one team will think the other is wrong and vice versa. But when you look at how some of the major operators are set up, they already have separate in-play teams and prematch teams, and for many years there have been odds compilers doing one job and traders doing another,” he adds.
TRADING ON SUCCESS
This view is echoed by a City analyst who believes having two trading functions will help ensure the brands retain a level of differentiation. However, the analyst, who preferred to remain anonymous, says the promise of separate trading teams may also be for the benefit of the CMA, which may find the deal a little more palatable with customers still having the option of two distinct products.
“Clearly having the two different brands and pricing teams could have a positive effect on the CMA,” the analyst says. “So a sceptic might think that once the CMA has finished its process, the trading teams will start to have more shared functions, with only a small number of people working on brand specific promotions,” he adds.
Andrewes feels the branding and trading issue again bears some resemblance to the bwin Party Gaming merger and fears the Ladbrokes Coral management simply hasn’t been bold enough to take the tough decisions required to fully integrate the two businesses. On the other hand, he also suggests the terms of the deal as it stands, which has neither party giving much ground, may have been the only way to get a deal over the line, but the situation may change over time.
“Right from the beginning bwin.party said they were going to have joint-CEOs then the whole way down tough decisions weren’t made and I think this Ladbrokes Coral brand decision feels like a bit of a fudge and inevitably as time goes on one team will become more dominant,” he adds.
And that dominance, one might assume, is more likely to be assumed by Ladbrokes with its CEO Jim Mullen taking up the head role at Ladbrokes Coral. Furthermore, with Gala Coral CEO Carl Leaver only likely to stay on to oversee the integration for a 12-month period, Mullen may find himself with a bit more scope to stamp his authority on the business in Leaver’s absence.
However, it could be argued that Gala Coral may have had the upper hand in merger negotiations, particularly on the digital side with its performance over the past two years a rejuvenation of an online business that had struggled for longperiods. Ladbrokes meanwhile has been in the doldrums for a number of years. While there has been some signs of growth of late, the firm’s financial results are no better than what they were pre-Playtech migration.
According to Burns, Ladbrokes needs Gala Coral more than Gala Coral needs Ladbrokes. “It seems without Coral, Ladbrokes are going to struggle on their own to recover the lost ground in retail and online. They need the Coral expertise online and offering a multi-channel product while they’ve basically admitted the Playtech agreement was never going to work and couldn’t get out of it,” Burns says.
And should the two brands adopt best practice as stated, it is expected Gala Coral, with Playtech in tow, would use its
expertise to help grow Ladbrokes’ digital business. It is Gala Coral, after all, that has the best track record over recent years. While Ladbrokes has at best stagnated, Gala Coral has enjoyed a rapid rise with active player numbers having doubled during the period.
SUPPLIER DEMANDS
While Gala Coral’s Playtech deal kickedoff some 18 months before Ladbrokes’, it’s unclear why the supplier has yet to have the same impact on Ladbrokes as it has undoubtedly had with Gala Coral and William Hill Online previously. However, Jay believes the key to growth doesn’t just lay behind securing the services of Playtech, but knowing exactly how its technology should be used.
“Playtech is not pixie dust,” Jay says. “It is a fantastically good supplier with great products but it is about how you use Playtech – you don’t just sign up to Playtech and make a load of money. And the contrasting experiences of Ladbrokes and William Hill demonstrates what happens when you get it right and when you perhaps don’t get it right.
“And I think there’s no doubt Coral has done very well and has worked very well with the senior Playtech team,” he adds.
The Gala Coral team working alongside Playtech now includes former Playtech COO Shay Segev, who joined the operator as chief strategy officer this summer. And Gala Coral also boasts another former Playtech staffer in the shape of product and gaming development director Itay Fisher, which should make for productive discussions between the two groups.
Mullen has already made clear Ladbrokes will look to leverage Coral’s multi-channel, single wallet Connect Card
technology which has proven to be a runaway success for the operator since its launch in early 2014. What else it will
take from Coral is less clear, however.
Ladbrokes’ mobile product is considered to be competitive while it’s still too early to tell whether Ladbrokes’ new HTML5 desktop site will be a success. All we can be sure of is that the merger has so far failed to grab the imagination of many, and failed to convince the doubters that a Ladbrokes Gala Coral combination can be a major player in the online gaming
market.
On a crude H1 number crunching basis, combined half-year digital revenues of £177m does put it in the upper echelons of the online market, albeit still behind bet365 and William Hill, which recently posted H1 revenues of £280m.
Mullen and Leaver have both conceded their companies are unlikely to catch up with the market leaders on their own, or at least not any time soon, but whether they are the right match for each other is still very much up for debate.