Paddy Power's efforts to appeal to the small-stake punter include gimmicksdesigned to broaden betting opportunities on a given event, writes Barry O'Halloran.
There's an old maxim in betting circles that if you back one horse in a race, the bookie is backing the rest against you. In short, he can't loose, even if you win.
Those who invested in Paddy Power when it floated in 2000 would have to agree. The shares were placed at €2.40, and were trading at around €6.20 earlier this week when the company posted its interim results. That's a 250 per cent gain, a decent return whether you're an investor or a punter.
It was the last Irish company to float on the Irish exchange and was placed at the lower end of an estimated range of €2.30-€2.85. Both facts reflected deflated investor confidence, but the company went on to buck the trend and became, in the words of one analyst this week, " the best Irish news story in a while".
At this stage, it looks like it was always a good news story. Current chief executive Mr John O'Reilly was in on the ground floor when Paddy Power was established in 1988.
"When we started we had 40 shops and 8 per cent of the market, Corals and Ladbrokes had 70 shops each," he recalls. "We traded through that, it was our specific objective to build Paddy Power into the number one position."
With 134 licensed betting shops in the State, 30 per cent of the market and one of the country's most recognisable brands, it looks like Paddy Power has achieved just that. A large part of it is down to audacious marketing. Not only is it well-known here, one-in-10 British people surveyed this year also recognised it.
Earlier this year, both Ken Doherty and Mark Williams were wearing Paddy Power logos on their waistcoats when they clashed in the 2003 world snooker championship at the Crucible in Birmingham. As a result, Mr O'Reilly says people still have the very much mistaken impression that the firm sponsored the tournament.
More recently it branded the hurleys of a number of high-profile players like Cork's Seán Óg O'hAilpín and Wexford's Paul Codd in the first semi-final clash between the two counties.
Mr O'Reilly says he was sceptical of the plan, simply because of the speed at which hurling is played. But the game turned out to be the match of the championship and the sponsorship deal the row of the season. The papers carried pictures of the offending hurleys, and the firm was once again centre stage.
In the case of both the Crucible and Croke Park, Mr O'Reilly says that Paddy Power was lucky to get the profile it did. This week's interims showed that luck may not always run its way. Profits before tax for the six months to June were €7.2 million, a 22 per cent fall on last year. Earnings per share fell similarly from 16.3 cent to 13.1 cent.
This was down to the well-flagged fact that a record 10 favourites came home out of a total of 20 races at Cheltenham, and then Monty's Pass carried sackfuls of Irish cash first across the line at the Aintree Grand National. Mr O'Reilly points out that this combination of events is unlikely to re-occur.
It would not be a million miles from Paddy Power's way of doing business if it offered odds against it happening again. Its efforts to appeal to its core audience, the small-stake punter, include a range of gimmicks and quirks designed to broaden betting opportunities on a given event, and to give punters the impression they are getting something back.
These include betting on the distance by which hot favourites will win races, "money back" specials on individual races, and even paying out early on the Premier and Scottish leagues.
Mr O'Reilly stresses that the small punter is the company's mainstay and preferred market. "Our aim is the fun end of the market," he says.
"We are not interested in the €10,000 punter because it skews our books [meaning the books of bets made up on each event] if we have too much weight on one customer.
"When you make up a book on an event, you do not want a customer taking all your risk, and leaving you in a situation where you do not have the pricing \ that you want available to other punters. We would prefer 500 satisfied smaller customers."
The average bet taken in the average Paddy Power is €22.19. But there is plenty of hard-headed thinking behind going after the small punter. Behind the average, there are shops with a high number of bets and lower- than-average stakes, and lower volumes of bets with higher-than-average stakes.
Mr O'Reilly says that the high- volume, low-stakes premises often generate better returns. Many customers in these shops do multiple bets for small stakes. The most popular multiple product is a "yankee", which is a combination of bets on four horses or dogs. These generate a 40 per cent margin, as a low proportion of these bets are won.
Low-volume, high-stakes shops attract more singles, which are simple win bets on one horse/dog/team. This business generates an 8 per cent margin, as punters collect on a higher proportion of these bets than on multiples.
Paddy Power has set itself some specific growth targets. First is building a chain in the UK, from where it is drawing 23 per cent of its revenues, mainly via the internet and phone-line business. It is on target to open 12 shops in north London by the end of the year.
"We focused there initially because we wanted to build a cluster, because it's better for the brand," Mr O'Reilly says.
"We picked north London because there is an Irish heritage there, the Irish banks are there and there are Irish pubs there, and we felt it was the easiest launch pad."
Each shop needs a licence, and this has to go to the equivalent of the local district court, where Paddy Power's competitors always object. However, Mr O'Reilly says it has been overcoming these obstacles easily. Between upcoming licence hearings, applications and the properties it has acquired, it could have 30 shops in the UK next year.
It is not only facing competition in the UK. There are substantial operators at home, some of which have adopted at least some of Paddy Power's tactics.
Boylesports last year stated that it wanted to be the number one in this market, and has been making inroads. Mr O'Reilly says that competition here has kept the company's eye on the Irish ball.
"After building ourselves into the number one position, we are not going to step back and let the next guy in," he says.
It opened five new outlets here this year, and plans to reach 170 over the next five years. With less regulation involved in getting a licence, this side of it should not be difficult.
Mr O'Reilly believes that there are opportunities primarily in newly developed suburbs on the edge of Dublin and other centres.
Mr John O'Reilly joined Paddy Power as financial controller and company secretary when it was formed from a merger in 1988. He is a trained chartered accountant who did his time with Craig Gardner before working with retail chain H Williams.
In March 2000 he was appointed as a director and took over the online betting service. This will break even this year, right on the target which Paddy Power set three years ago. He is keen to transfer some of the betting products developed there back to the betting shops.
He points out that while the internet service is split 50-50 between sports and horse/dog racing, the shops are still 85 per cent racing.
"When we started the online business, we leveraged the expertise we had in the betting shop business to develop racing products," he says. "As we went on, we developed new products for sports betting, so we want to leverage that back to the shops."
The problem at the moment is that the shops are not showing many of the sporting events and the bets which Power is willing to lay on them.
The 20 per cent of shops that are large enough to contain them will have dedicated sports zones, showing the main sporting as opposed to racing events. Alongside these will be bets and odds on offer.
"What we are thinking of is the guy who is betting on a race, but who might also be interested in athletics, he might have a view on an event, so he can bet on something that he will be watching later on TV," Mr O'Reilly says.
They could also pull in new customers. While not all shops will have the capacity for these, all 134 outlets will offer the new sports bets.
Like a lot of things that Paddy Power does, it sounds like a good idea. You know it can't lose, bookies never do.
