Bookies Bet on Turnaround

By Rupert Steiner, Daily Mail

Normally it is the punters who have the losing streak. Yesterday it was the turn of Britain's biggest bookmaker. Ladbrokes warned that an unusually low number of draws in Premier League football games was behind a 15 per cent decline in third-quarter revenues.

The slump was one of the reasons chief executive Chris Bell launched a heavily discounted £275million cash call, and suspended the already reduced dividend.

But investors fear there could be bigger, more fundamental problems dragging down the firm and its chief rival, William Hill.

Overshadowed: Fewer Premiership draws have cancelled out windfall enjoyed by bookies when Grand national winner Mon Mome won with odds of 100-1.

The rise of rival online gambling sites, and rising unemployment could mean the traditional high street bookie is suffering from more than just a spell of bad luck.

However, there is no disputing the fact that sporting results have wrong-footed the bookmakers.

Just four of the first 66 football games of this season ended in draws - only 6 per cent compared with the five-season average of 25 per cent.

Bookies prefer draws because punters tend to place wagers on their favourite teams either winning or losing.

It was this barren start to the Premier League that Ladbrokes claim caused operating profit to slide 58 per cent to £22.4million for the three months to September.

This overshadowed the windfall the bookmaker enjoyed when Grand National winner Mon Mome came home at 100-1. The 3 per cent decline in over-the-counter bets across its whole business was better than expected.

But the key gross win margin, which represents the money Ladbrokes is left with after paying out winners, fell from 17.5 per cent to 14 per cent.

The rough trading acted as the tipping point for Bell who ran to the market cap in hand.

With a crippling £967million debt pile - having watched William Hill already raise £350million in a cash call - Ladbrokes was on the back foot.

It offered investors two-for-one shares at 95p each, a 50 per cent discount to Wednesday's close. Its shares fell 9.8p to 171.4p.

Nick Batram, analyst at KBC said: 'Clearly trading has forced management's hand and this gives us some concern.

'Given previous comments from management, the rights issue has come as a bit of a surprise.'

In August Ladbrokes had indicated it wanted to reduce debt naturally over time using cashflow.

The rights issue will cut debts to a more manageable £687million.

Bell said: 'This was not a surprise. We said we would like to have organically managed our balance sheet but this is a journey.

'We would have preferred to have continued without a rights issue. But this is not a distressed offer.'

Distressed or not, Ladbrokes and rivals William Hill and bookie Paddy Power (which has a secondary listing in London) find themselves in a difficult place.

Gambling firms are traditionally resilient during downturns.

But with more punters being laid off at work, those that have the desire find that they do not have the ability. And more of them are gambling online.

Mark Brumby, an analyst at Astaire, said: 'Sorting the secular shifts from the temporary aberrations will take some time (at Ladbrokes).

'It is easy to disparage people who bet in bookies as not being computer literate, but that does not mean they will not become computer literate.

'With smoking bans in pubs and bookies, people are becoming lazy. Putting on the hat and coat to go to the pub and the bookies does not seem to have the same draw as it once did.'

If share performance is a guide to the outlook for betting firms, it seems to suggest the internet-based companies are on to a winner.

Traditional bookies have underperformed the online players over the past two years.

William Hill is down 61 per cent with Ladbrokes down 59 per cent and Paddy Power 24 per cent. Sportingbet rose 54 per cent and PartyGaming slipped just 4 per cent.

Bell says he is not losing punters to online players. 'I am sure some people are using the internet more,' he says.

'But people still like betting shops. They like paying in cash and it's a social event.'

No doubt Bell will be hoping he has lady luck on his side.