The news that BoyleSports is considering the purchase of 360 shops from the newly merged Ladbrokes Coral business for £100 million demonstrates the decline in the values of betting shops.
This purchase value equates to a value of £277,000 per betting shop, a far cry from the heady days when betting shops were fetching just shy of £1m each. Values have now returned to their 1997 level.
The value of the AR Dennis deal in 1997 would be worth today £449,830 had the purchase price of £274,000 kept pace with inflation.
The worst deal has to be Ladbrokes’ acquisition of Eastwoods, valuing the business at over £2 million per betting shop. Eastwoods were based in Northern Ireland and Ladbrokes placed their Republic of Ireland business in administration in 2015. Presumably the Northern Irish shops are reporting those figures through the UK business but, either way, the results have been poor and did not justify the acquisition price.
There are many things you can change in a business but there is one thing you cannot change – what you paid for the business. Everything else you can change. High prices are hostage to the unknown, and in this case there have been many unknowns that have wrecked the value of the business. Here are a few:
• Growth of internet betting
• Smoking ban in England
• End of the demand test for betting shops
• Machine Games Duty
• Escalating cost of media rights for horseracing
• Increased licensing costs.
• Negative connotation associated with social responsibility
The peak price seemed to have been reached in 2005, when William Hill acquired Stanley’s betting shops for £807,000 per shop, a few years before the financial crisis. If the deal goes ahead between Ladbrokes and BoyleSports on the basis of what has been reported in the press, the decline in values represents a fall of 65%. But it is probably more than that. The CMA wants Coral and Ladbrokes to sell shops where they overlap, so that the market will remain competitive.
I would have expected those shops to be in good areas where there is a high density of population. Both Coral and Ladbrokes have always enjoyed higher revenue per shop than the Stanley estate in 2005. So the fall in value is even greater than the bare figures imply.