Betsson at the races in sportsbook

According to one executive from a leading operator there is a simple truth about becoming a major force in the UK sports betting sector. “You can’t do it without horseracing. If you don’t have horseracing you’re never going to be a major player,” he said in an off the record conversation earlier this year.

It’s a conversation that comes back to mind when looking at Betsson’s seemingly minor acquisition of racing betting firm RaceBets. The firm agreed to pay €34m in cash to acquire RaceBets at a multiple of just over 10 times its 2015 profit of €3.36m, with a further €6m in earnouts.

On the surface it seems a big price for an operator with growth of just 12% and revenues of only €9.3m, perhaps more so when you note that Betsson says the restructuring of RaceBets will have a negative impact of €750k in 2017. But horseracing remains a vitally important product for some of Europe’s biggest markets and as Betsson tries to push further into the UK it will need to be able to compete with the big names for the horseracing punters.

The latest Gambling Commission data shows horseracing is growing less quickly than football as a betting sport, but still accounted for 27% of all betting revenue from sportsbook operators. And a casual glance around the major operators shows just how important an acquisition product horseracing remains in the UK.

Sky Bet’s rise to a top tier UK sportsbook operator is not unconnected to its decision to ramp up its horseracing in 2014. While it’s primarily viewed as a football sportsbook its sponsorship of the Cheltenham festival and continuous high-value promotional offers on racing make it a major recreational horseracing operator too.

The UK sportsbook prize

Betsson has significant ambitions for the UK market, and has already got its fingers burned by its early attempts to break into the £4.5bn sector. Q2 profits were hit by what the firm described as an “aggressive” attempt to gain volume in the UK market during the period. “Looking back, we were too aggressive on bonusing and that cost us some money,” Betsson CEO Ulrik Bengtsson said at the time.

The other key territory for RaceBets is Germany, which Betsson has also earmarked for growth in the coming years with a SEK90m back tax payment made this year in advance of a more concerted push into the still nascent market there. While horseracing is more of a minority product in Germany than the UK, the ability to use it as an acquisition tool and a marketing differentiator was likely a core consideration in the deal.

For Betsson the next 12 months will be hugely important to their long-term future. It has completed most of the heavy lifting on its in-house technology revamp and the launch of the new OBG front-end platform is a big leap forward. It has significantly under indexed on mobile compared to its peers in recent years and simply catching up to peer group should provide a solid incremental boost.

But where it goes next will decide its long-term fate. It has a powerful presence in the Nordic markets, the Netherlands and is looking to grow scale in Eastern Europe, the UK and Germany among others. But a great deal of this is casino driven, and the reality of the modern egaming world is major operators need to have a strong sportsbook platform to compete in new regulated markets where tax costs mean lower cost acquisition and retention products are vital.

The addition of a solid horseracing product isn’t the silver bullet for Betsson, but it’s an important part of building out its product set to compete with the big players in the regulated sportsbook sector. The firm has only recently added cash-out and an expanded live betting offering and it still has a way to go before it’s competing at the same level as some of its rivals. But it would be a mistake to underestimate its ambitions or its potential as a player in the sector.