Ladbrokes’ new Chief Executive Jim Mullen is interested in merging with Coral. This merger was tried before in 1998 but the then Secretary of State for Trade and Industry, Peter Mandelson, vetoed the merger stating that the Ladbrokes’ purchase of Coral “would damage competition and disadvantage punters” by extending its dominant position in the UK betting market.
At the time I was chairman of the British Betting Office Association (BBOA) and with William Hill the BBOA led a campaign opposing the takeover. “The enemy of my enemy is my friend” – this alliance brought me into close contact with William Hill’s then Chief Executive John Brown. We got on well and from that we were able to work on Will Roseff’s idea of gross profits tax and a gross profits horserace betting levy.
I recall our first meeting at the Office of Fair Trading (OFT). Ladbrokes had obviously sounded out the OFT before announcing the takeover and I suspected the company had been given the green light to proceed. We managed, however, to produce evidence that suggested that a Ladbrokes-Coral combined entity would be able to exercise so much power over the industry and that it would lead to the closure of many small betting shops. Competition would suffer and the punters would be worse off.
The OFT representatives looked pale. We had caused them to rethink the deal. Later it was announced that the merger would be referred to the Monopolies and Mergers Commission (MMC).
I am a great believer in corporate sentiment. At the time Ladbrokes did not enjoy a good reputation. Chris Bell had just taken over as Managing Director from the hard businessman Bergis Daver. Peter George was Ladbrokes’ Chief Executive and had been with Ladbrokes all through its expansionary phase.
Sentiment towards Ladbrokes was low not only within the industry, which was partially explained by ‘sour grapes’ – they provided strident competition and used to “predatory price” against the independents – but also amongst the wider racing industry. They were dominant, flexed their muscles and people were tired of it.
By the late 1990s I doubt Ladbrokes had recovered from the days of the mercurial Cyril Stein who just went a bit too far when Ladbrokes had casinos. They lost them all through malpractice and once you make such a colossal mistake the PR just runs against you.
Once the hearing started I always felt we were pushing at an open door. John Nelson and I made the presentation at the MMC and afterwards we felt it had gone well. I heard that Ladbrokes were put through the mill and the result of the hearing seems to have indicated this was the case.
The MMC was unanimous in its conclusions. The deal would “reduce punters’ choice” and “weaken price competition”, both at national and domestic level.
Peter Mandelson added that the takeover was anti-competitive for two reasons. Ladbrokes, with around 1,900 shops, was already the largest owner of shops and with Coral this would have increased its market share from 21% to 30% and that would widen the gap from its nearest rival William Hill (then owned by Nomura). Ladbrokes would have controlled one in three bets placed.
Ladbrokes in its presentation had planned to sell 301 Coral shops to the Tote. A clever move – racing was still wedded to the idea of a Tote monopoly and any boost to the Tote’s finances was grabbed with both hands. But the MMC saw through it and was having none of it.
One of the key planks to the case was the plight of the independent bookmakers. The five largest bookmakers controlled 70% of the market compared to 65% in 1989. The remaining 30% was scattered amongst the independents that the MMC said could not compete with the bigger bookmakers.
What made matters worse was the arrival of the National Lottery in 1994. The second mid-week draw had caused the number of bets to decline by ten percent. This had caused a sharp drop in profitability and accelerated the closure of the smaller betting shops.
Ladbrokes’ bid valued Coral at £363 million in 1998. In today’s money that would be £570 million because inflation over the period according to the Bank of England was supposed to be an average of 2.8% per year.
Ladbrokes sold the business to Morgan Grenfell (Deutsche Bank) for £390 million who sold it in 2002 to Charterhouse Development Capital for £860 million. Why the uplift? Gross profits tax. I was involved in that too. I led the team that persuaded the Treasury that tax on turnover would lead the industry to be uncompetitive in the global world of e-gaming. Today practically all countries have followed the UK and are taxing gross profit and not turnover.
Let us fast forward to the here and now. For this merger to succeed Ladbrokes and Coral will have to persuade the competition authorities that things have changed since 1998. The reality is that they have changed significantly. The internet has created super efficiencies in betting pricing and in the UK practically everyone has access to the internet.
Since the original merger proposal the market has concentrated further with the big four bookmakers having 86% of the market up from 70% in 1997. There are fewer small bookmakers to protect and the Internet is providing competition and value the likes of which the punter has never seen in his lifetime. This time Ladbrokes might just succeed and sentiment might be with the company. It will depend what view the authorities take of a single company owning around 40% of UK betting shops.
By Warwick Bartlett