Europe
The European business continued to demonstrate strong growth throughout the year. In particular, the Group’s core sports betting product saw a 6% increase in the number of customers to 464,523 (2007: 436,779). The number of bets placed rose by 14% to 51.5m (2007: 45.3m) at a rate of 111 per active customer per year (2007: 104 bets), with an average bet size of £14.98 (2007: £13.26). As a result of both increased frequency of bets and a marginally higher bet size, plus a stronger margin percentage, yield per customer increased by 36% from £124 to £169.
The improvement in the yield described above was, in part, driven by the strength of the Group’s in-running betting product, branded ‘in:play’, allowing customers to bet throughout the game on a wide variety of outcomes. Consequently in:play grew 71% year on year and now accounts for 45% of sports turnover within Europe, building on the Group’s aim of providing its customers with an entertainment based destination rather than a mere transactional website. In response to increasing customer demand, the Group is working towards offering a round-theclock in-running betting service on an ever wider variety of events, irrespective of an event’s location or time zone.
In addition to the further development of in:play, the Group has invested heavily in its systems and processes to allow it to offer many more betting markets than previously with little additional personnel input. This allowed the Group to focus on liability management in order to maximise the profit from the range of markets being offered and led to the sports margin percentage increasing to 10.1% (2007: 9.0%). As sports betting remains the Group’s core product, further investment will continue to be made in this area.
The Group continues to focus on yields from its existing customer base as well as seeking to attract new high value customers. To support this, the Group has invested in its customer proposition by enhancing service levels for existing customers through its dedicated service centre in Dublin, including one-to-one support for more high value customers. The Group’s marketing has also been reviewed, with attention on efficiency and the recruitment of profitable players.
The European business generates its revenues from a broad geographical base. Southern Europe continued to be the key geographical stronghold of the Group with Spain and Greece growing at a combined 22%, representing 17% and 14% of Group net gaming revenue (‘NGR’) respectively. Turkey grew strongly in the first half of the year before the Group switched its investment to other areas to reduce its dependence on this region. As a result, Turkey accounted for 17% of the Group’s NGR in the year. Since February 2008 this region has accounted for 8% of Group NGR and has continued at this rate through the first two months of the new financial year.
Historic investment in emerging Eastern European markets is now beginning to demonstrate real returns in these high growth markets. Poland, Hungary, the Czech Republic and Bulgaria are key markets in this region, and grew in aggregate by 79% year on year to generate 13% of Group NGR. In addition, investment in the Latin American market has successfully established Sportingbet in the region.
Europe’s casino offering, which accounted for 24% of the Group’s NGR, performed well through the year. The number of casino bets placed rose by 23% to 175.4m (2007: 142.6m) at an average bet size of £4.73 (2007: £5.06). The casino margin percentage was 3.4% (2007: 3.2%). The slight improvement in the margin reflects the change in product mix within the portfolio over the last year, towards higher margin slot machine play, over and above table games such as blackjack and roulette. This follows our increased investment in the Group’s slot type product offering.
During the year the European region generated poker rake of £23.7m (2007: £29.0m), pre bonus deductions, down 18.3% year on year. Poker now accounts for just 15% of the Group’s NGR, down from 23% in the prior year. Poker remains difficult as the environment has become increasingly competitive with large US-focused poker companies using significant cash flow and their high liquidity to capture the European market.
Marketing Partner Review
Over the last two years, the Board has reviewed its arrangements with its European marketing partners. These marketing partnerships were established a number of years ago and provide a variety of locally focused support including marketing, customer services and in some circumstances, payment processing, in return for a share of the gaming revenue generated from those regions. Whilst all of these contracts are similar in their operation, they each have different contractual obligations for both Sportingbet and the marketing partner. These relationships flourished during the early part of their tenure providing Sportingbet with strong market positions in Spain, Turkey, Greece and Bulgaria. As these markets have matured the benefits from some of the arrangements have diminished and the Group concluded that some should be brought in-house whilst others expanded.
Last year, the Group purchased the business and assets of its Turkish marketing partner, as well as terminating the contract with its much smaller Scandinavia based partner.
This year, the Board has continued this strategic initiative, resulting in the purchase of its Bulgarian marketing partner in March 2008.In addition, the contract with its Hungarian marketing partner was not renewed, resulting in the operation of this domain being brought in-house in April 2008.
In July 2008, Sportingbet brought in-house the operation and management of miapuesta.com, the Group’s Spanish domain.The contract termination payment and the cost of setting up the in-house operation, has resulted in an exceptional charge of £4.7m during the period. This move provides the Group with operational and strategic control over its largest market.
Finally, in October 2008 the Group signed a significant extension to the contracts with its Greek marketing partner.
This partnership has to date established Greece as Sportingbet’s second largest market. This new agreement provides the partner with the ability to market the Sportingbet brand, and its own secondary brand vistabet.com, across Greece as well as the new markets of Romania, Croatia, Slovenia and certain other Balkan regions. In light of the highly successful historic performance of the Greek domains, this extension commits a key supplier for the medium term whilst increasing the geographical footprint of the Group.
The restructuring of these marketing arrangements has an impact on the structure of the Group’s Income Statement. Commissions paid to the partners are classified as a marketing expense. Once these businesses are brought in-house, this commission will cease to be paid; however these savings will be largely offset by the Group’s own marketing in these regions, an increase in the level of reported bonuses and additional staff costs.