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Last updated: June 11, 2014 5:05 pm
Betfair will use its £210m cash pile to try to capitalise on the fallout from a new taxation regime set to shake up the online gambling world later this year.
Breon Corcoran, chief executive of the online gambling exchange, said that there would be a “shake-out” of smaller players following the introduction of a “point of consumption” tax, which will charge a 15 per cent levy on bets made in the UK when it is introduced in December.
“The ‘point of consumption’ tax will change things and will make things very difficult [for small rivals],” said Mr Corcoran.
The new tax will be based on where a gambler is located rather than where the gambling company is based, closing a loophole in the “point of supply” tax that led to most gambling companies basing their operations offshore.
“Will that give rise to opportunities?” said Mr Corcoran. “[The cash pile] may be used for acquisitions or returned to shareholders.”
The comments came as Betfair swung back to a profit after the exchange launched its turnround plan at the end of 2012, which focused on winning over casual gamblers and spending more on advertising.
It posted an annual pre-tax profit of £61.1m for the year to April 30 after the turnround plan resulted in writedowns and expenses of more than £100m last year that resulted in a £49.4m pre-tax loss.
Betfair had tried to simplify its business to attract more casual gamblers by acting as a normal bookmaker, on top of catering for regular users who prefer the group’s more complicated exchange.
Products such as Cash Out, which lets gamblers take their winnings before the event is over, has been used 30m times.
Betting on the World Cup was off to a strong start, with about £12m placed at Betfair on the outright winner already. In the week before Euro 2012 this figure was half of this.
The Irish chief executive will be cheering on England’s progress in the tournament. “If England come out of the traps well then that will drive demand here and in Ireland,” said Mr Corcoran. “Nil-nil draws means that customers lose interest.”
This has been backed up by heavy spending on advertising and marketing. The group spent £124m over the year – almost a third of its annual £394m turnover. “Our relative spend has gone up,” said Mr Corcoran, who said that Betfair had previously underinvested in advertising.
Betfair will increase its spending on advertising again next year, as gambling companies scramble to gain new customers before the new point of consumption tax comes into play at the end of the year.
The World Cup has unleashed an advertising scramble, with everyone from sportswear manufacturers to headphone makers trying to associate themselves with the sporting bonanza, writes Duncan Robinson.
Betting groups have also been at the forefront of this – but they have their eyes on a date well beyond the World Cup final on July 13.
Customer numbers in the UK and Ireland jumped 54 per cent over the year.
Mr Corcoran said: “Our strategy is working. The emphasis on sustainable revenues and our product and marketing investments are paying off, resulting in record revenues and profits.”
Betfair increased its dividend 54 per cent from 13p to 20p, but analysts welcomed Betfair’s decision to hang on to the bulk of its cash.
“This cash duvet should reassure shareholders that the business can continue to invest in the future despite regulatory change,” said Ivor Jones, analyst at Numis.
Diluted earnings per share hit 48.1p compared with a 44.4p loss per share the previous year.
Shares in Betfair rose 1 per cent to £10.33 on Wednesday.
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