Ladbrokes, the second largest bookmaker in the United Kingdom, has declared that it suffered a £42.3 million pretax loss for the year 2015. This marks the first time the company has ended a full year in the negatives in a decade.
This comes as a surprise to most considering by the middle of 2015, Ladbrokes’ shares were up 7.6 percent on the year. In the fourth quarter, investors were shocked when the stock plummeted six percent.
In a press release announcing the company’s poor performance, Ladbrokes assured investors that it is taking steps to have a better showing in 2016:
“We continue to see the benefit of investing some margin to deliver value offers to our customers in key sports through promotions such as Best Odds Guaranteed and Happy Hour or by products such as Top Prices Top Teams.
Our colleagues tell us that they have driven the appeal of our retail offer as well as increased the belief of our own retail teams in our competitive proposition. It perhaps should not be a surprise that with this confidence in our people, the trends on our OTC business have improved.”
Ladbrokes has placed the blame for last year’s poor performance on a higher cost of operating, issues with software, and store closures in both the UK and Ireland. The largest single component of the company’s breakdown of their negative exceptional items was a £58.3 million expense which was incurred after a review of its UK and Ireland shops and software.
Despite taking a pretax loss after operating expenses, Ladbrokes did see revenue growth in 2015. The company’s total £99.3 million in exceptional expenses put them at a £42.3 million pretax loss while still seeing about 3.2 percent growth in revenues, up to a total of about £1.2 billion.
Will this affect the future merger with Coral?
Ladbrokes has made statements that confirm its merger with Gala Coral is still on, despite seemingly poor performance. Ladbrokes stock is even showing improvement despite a weak fourth quarter – it climbed over five percent on February 23 in response to the negative number. Perhaps the company’s positive outlook seemed an appealing story to investors, and maybe the seemingly negative number was already built into the stock’s price.
Part of 2015’s losses were actually caused by the merger itself – £19.8 million in exceptional items were lost due to shop closures (many of which were brought on by the company’s attempt to consolidate in order to please the Competition and Markets Authority), and £17.6 million in exceptional items were attributed directly to the future merger with Coral.
Most importantly, it seems like quite a few of the negative expenses which hurt the company’s bottom line are unlikely to be present in future years. The merger going through will further allow both Ladbrokes and Gala Coral to cut some costs through scale, an appealing proposition to potential investors.
How are other UK sportsbooks fairing?
Many UK sportsbooks have seen a rough 2015 because of additional regulations imposed on gambling. British bookmaker William Hill also experienced 2015 losses which the company blamed primarily on owing £87 million in new UK gambling taxes.
The new tax that’s hurting the UK books is a fifteen percent tax on all remote online sportsbook profits. That means that the more international a brand is, the more severely the brand is hurt. William Hill was hurt disproportionately more for this reason compared to competitors like Ladbrokes which do the bulk of their business in the UK.
There was also an increased tax on betting machines from 20 percent to 25 percent, which was felt somewhat more equally by all bookmakers with physical shops.
Although sportsbooks face a fair number of challenges moving ahead, net revenue increases certainly suggest that most major bookies will be able to adjust their businesses moving forward and deal with additional costs from regulators and the tax man.