Power Couple Odds-on to Have their Union Approved
11 September 2015
Back in July, the talented social media team at Paddy Power tweeted ‘Hot on the heels of the Ladbrokes/Coral merger, we can exclusively reveal that we have merged with Betfair. Our new name is Betty Power’. It was a joke, of course, but it was also a reflection on the frenetic pace of consolidation in the gambling sector. Consolidation comes amid taxation changes, the tightening of regulation in the UK and elsewhere in Europe and a drive to lower costs.
It is not a terribly long time ago that Betfair’s founders, Andrew Black and Ed Wray, famously dressed as mourners, participated in a New Orleans-style funeral and ran a coffin through the City of London. The purpose was to announce Betfair to the world and to herald the ‘death of traditional bookmaking’. However, the union between Paddy Power and Betfair finally puts the long-running debate on the death of traditional bookmaking to bed. Indeed, I think that debate ended when Betfair launched its Sportsbook offering (a traditional fixed-odds platform) in May 2012.
Although betting exchanges and traditional fixed-odds bookmaking are fundamentally different propositions, I expect the proposed Betfair/Paddy Power union to be a symbiotic one. The combination would enhance the online presence of Paddy Power and enable Betfair to further cater for its established customer base, who might bet elsewhere due to any Betfair inability to offer liquidity in some markets. Betfair has flourished where other betting exchanges have floundered due, in large part, to its ability to offer highly liquid markets. That is, broadly, a market with lots of money being matched within it and where you can get your bets matched quickly and at the prices you want.
Reports last week highlighted that the proposed merger will face scrutiny from competition regulators. The process will work as follows: competition lawyers for both parties will identity the jurisdictions in which a ‘merger control’ filing must, or should, be made (most jurisdictionsnow operate a mandatory merger control regime). This analysis will require a geographic breakdown of the turnover of both parties and an assessment by the lawyers of whether local financial and, sometimes, market share thresholds are met.
By way of example, for a merger filing to be triggered at European Commission level under the primary thresholds, the parties’ combined worldwide turnover must exceed €5 billion. Each of the parties must also have EU-wide turnover in excess of €250m and the parties must not generate at least two-thirds of their individual EU-wide turnover in one and the same EU member state.
Based on publicly available financial information, it would appear both the worldwide and EU-wide elements of the thresholds outlined above are met. Whether both Betfair and Paddy Power generate two-thirds of their individual EU-wide turnover in one and the same member state is not as clear. Both parties do appear to generate a significant percentage of their respective EU-wide turnovers in the UK.
However, even if there was an ‘out’ from EU jurisdiction under the two-thirds rule, if the transaction is notifiable in at least three EU member states, it can be referred to the Commission for substantive legal and economic assessment. The Commission is a one-stop shop competition regulator and it is often preferable to have the Commission assess a transaction, rather than having a number of member state competition regulators involved. Both Betfair and Paddy Power also generate turnover in a number of jurisdictions outside the EU. Whether merger filings are required in some of those jurisdictions will also be assessed by the lawyers.
On the substantive side, one needs to look well beyond the revenues of the combined entity in determining whether competition would be lessened and whether customers would suffer as a consequence of the proposed merger. The starting point for competition lawyers is defining the relevant product and geographic market(s) and evaluating the strength of the combined entity in that relevant market(s).
I noted that betting exchanges and traditional fixed-odds bookmaking are fundamentally different propositions and I expect that much will be made of this when the question of relevant market definition arises. The traditional bookmaker is a one-sided operation. Betfair is a two-sided operation. Betting exchanges are structured to facilitate customers betting that a particular outcome will or will not occur. In broad terms, it is the availability to punters of this against backing (or laying) functionality in which betting exchanges fundamentally differ from the traditional forms of bookmaking.
It will greatly enhance the prospect of a speedy clearance if it can be successfully argued that the exchange element of Betfair’s business is in a different product market to the Paddy Power fixed-odds proposition. There is precedent to support such a contention.
Whilst I am, unfortunately, not gifted with the mantic powers of the Paddy Power social media team, competition clearance of the proposed Paddy Power/Betfair merger is not, in my view, a question of if, but when. What there is no doubt about, however, is that the proposed union is a harbinger of future consolidation in the gambling sector.
This article, written by Partner Niall Collins, first appeared in the Sunday Independent on 6 September 2015. © Copyright Sunday Independent 2015. All rights reserved. To view this article as it originally appeared, download the pdf document to the right.
The content of this article is provided for information purposes only and does not constitute legal or other advice.