LAST month Flutter Entertainment, owner of Paddy Power Betfair and various other sports betting, gaming and poker platforms, announced they are on track to record full year earnings of between £1.275 to £1.350 million.

Releasing their results for the third quarter of the year, various year-on-year figures were up, most notably in the US, where ‘average daily group customers’ were up 41%.

Earlier in the year Flutter increased their investment into developing their business in America, to the tune of £800 million, with an aim to take full advantage of many states loosening their gambling restrictions. In a year where the vast majority of global sport and business ceased due to Covid-19, Flutter has continued to accelerate its share price.

It was also interesting to note that over 3,000 Paddy Power shop staff continued to be paid, without the aid of the government’s wage subsidy scheme, during lockdown.

In fact, chief financial officer Jonathan Hill said the group did not avail of government wage support for any of its 13,000 workers during the period when many of the sports on which its customers bet were cancelled.

“We felt that these schemes were put in place by different governments for businesses that would be in difficulties or would have laid people off had these schemes not been in place,” he said.

In the first half-year projections, Paddy Power shop closures were said to have cost the company £10 million, but in the same period, poker and gaming platforms thrived, more than compensating the company for the sports shutdown.

In one sense it is admirable how this Irish company continues to go from strength to strength but in another sense, a light is shone on how they can do this in what has been a turbulent year.

Sports may have shut down but gambling didn’t. The virtual roulette wheel spins all night and you can stay at it as long as you will.

Such mediums – gaming, poker and betting on eSports (gamers playing each other on the PlayStation and other platforms) – are not available to all bookmakers. Clearly, they are light years away from what traditional independent shop bookmakers can manage. It is this fraternity that is struggling most in the industry with shops closed for a large portion of the year and having either no online platform to take bets or a comparatively very small one.

“It’s been seriously challenging,” says Paul Tully of Tully’s Bookmakers. “We were only just getting back to half normal when we had to close down again.

“After the first lockdown, it took us a few weeks to get back any sort of our trade and then we had to close down again and now the same thing is happening again. At the moment it’s very quiet in our shops, I’m sure it’s the same all over, but it’s very difficult.”

Barney O’Hare of Bar One Racing added: “The first lockdown happened and we got back going again but as soon as we did, Kildare and Laois were closed down again for three weeks.

“When that happened it was just so slow in getting shops back up and running again. To be truthful and honest, that’s exactly what I see happening now – we’ve been closed for six weeks. There’s been nobody in the shops since we reopened.”

Demographic

Like so many other businesses, shop bookmakers are beginning to rely more and more on an ageing demographic, the exact demographic that Covid-19 has affected most. Another fear is the seemingly unstoppable march towards a cashless society which has been accelerated by the pandemic.

“Over the past 10-15 years the clientele has been getting older and older every year,” Tully said. “I think they’re reticent about going in anywhere at all. Some of them are still cocooning, trying to keep themselves to themselves.

“Young people are more tech savvy and are betting online. They’re more into their football and the horses aren’t a huge thing for them at the minute. In some shops, we do have a few young people coming in but most of them are online, and there’s quite a few older clients.

“You’d be worried about the decreased use of cash alright but I think people still like to have a bet in cash, to hand it over and potentially get their winnings back in cash. We haven’t been open long enough to see any trend develop yet.”

Body blow

While Covid-19 has been a body blow, a bigger hit for small bookmakers came in 2018 when the government announced that betting tax on turnover would be doubled from 1% to 2% in the 2019 budget. That the tax is on turnover is key – the government now takes 2% of every euro staked in bets – so whether the bookmaker makes a profit or not is irrelevant to the monies taken.

The Irish Bookmaker Association (IBA) chair Sharon Byrne warned at the time that many shops would close due to this move and she was right. To date, the IBA, which represents over 650 shops in Ireland, say that 50 shops have closed due to the 100% increase in tax, which they say has also resulted in a loss of 300 jobs and cost the government just short of €3.9 million in tax.

“When the 2% came in, we had 24 shops and we’ve closed 10 shops since,” Tully says. “That change has just basically made the shops unprofitable. Some of the shops we have at the moment would be seriously borderline at the 2%. If our turnover doesn’t pick up, they could be very, very vulnerable. Every other bookmaker in the country is the same.”

Sympathy

Finance Minister Pascal Donohoe said in September 2019 that he had sympathy for small bookmakers competing with large retail and online bookmakers but that he “could not apply the increase in betting duty to some bookmakers and not others.

“In any discussion on betting duty, we must acknowledge the raised public consciousness of the problem of gambling in society.”

And perhaps, there lies the crux of the matter.

“We’re not looked at favourably,” Tully asserts. “I think the shops are probably the safest place for gambling, for anyone who wants to have a bet. The online is where people are getting into really serious trouble I think. Betting with credit cards and that, it’s so easy to do. The shops are getting painted with a bad brush.

“You’d never get anyone coming into our shops looking to have a bet on eFootball or the Belurussian league. Football-wise, our customers come in to have their bets on the Premier League each week, and maybe the Irish league and big Champions League matches.

“But even online, it’s not just the sports betting, it’s the casinos and games and all that sort of thing, straight through to your phone, that’s when people get into serious trouble.”

Bar One have 52 shops in Ireland, based in big and small towns around the country.

The business is very much in the middle tier, trying to establish a foothold in a hugely competitive online scene, but still very much relying on their shop business to make it pay for now.

“It doesn’t sound like much, that 2%, but it’s a 100% increase from what we used to pay on our turnover,” O’Hare said. “For instance we could target turnover of €150 million, well in that case, instead of €1.5 million, it’s €3 million in tax. With margins so tight in bookmaking, it completely wipes all profits out.

“The retail shops are a much safer place for people to bet. They are also a place for people to come in and meet each other and sit down for a half an hour.

“Paschal (Donoghue) is completely anti gambling, there was no thought put into that (raise of turnover tax) and it wasn’t viable at all but he basically said ‘I’ll just charge 2% and I don’t care which one of yous go.’ The large companies like Paddy Power or not going to go but with this policy he can’t get at Paddy Power without damaging the smaller ones.

“There’s far more overheads in a shop (compared to online betting mediums), we have to pay for our pictures through SIS, we have to pay rent, rates, electricity, staff, cleaning.”

Tax collectors

“We’re basically working as tax collectors for the government,” Tully added.

“It’s very difficult at the moment and it has been for the last two or three years since it went up to the 2%. Even before the 2%, it wasn’t easy, but at least we were making something.

“We’ve tried to make this argument to the government but they’re not interested. The last thing we heard from the government was that they can’t separate online from retail because it’s all still gambling. Online and shop bookmakers are different, it’s different licensing, yet we’re all still paying the same tax.

“Up to about four or five years ago, the online wasn’t even taxed. They’re making up their own rules as they go along.”

So what is the solution?

“My preference is that they reduce the tax on retail to 1% and increase the online to 2%. The cost base to actually run a shop is an awful lot higher as it is to run an online medium. That’s what they should be targeting – get more out of the online rather than taking it off the retail section. The shops provide an awful lot more employment than the online does per euro across the counter.

“We’re providing employment in rural areas. We are an outlet for people in small towns, we’re in a couple of big towns but the majority of ours are in small towns around the country. Some people meet in pubs for a chat and some people do it in betting shops, and that’s what we can provide.”

Tully’s Bookmakers was set up by Paul’s father John who opened the first shop in 1977. It was built up by John and Paul’s brother David through the decades and peaked at 37 shops at one stage. Paul joined the business 16 years ago, shortly before his father died, having taken a back seat, and since then it has been Paul and David running the business.

Today it is very much a case of survival. They had to shut down one more shop recently – a shop which was “borderline even before Covid”.

“I think the independent sector will be going through a level of consolidation again for the next,” Tully said. “It’s going to take us a couple of years to just get through this and get back to any sort of normality. I think everyone is going to start closing more shops and it’ll probably be in the new year, when the employment assistance cuts out, you could see quite a few shops closing after that.”

IBA chair Sharon Byrne shares the same fear but says it is the middle tier that is affected most.

“The government, in fairness to them, brought in a De Minimis relief the year before last to assist the very small operators with the 2% rate and it did help everybody that is operating with one or two shops,” Byrne said.

“But it doesn’t help anybody that’s operating with more than five of six shops and particularly those in the mid tier like Bar One, Tracksports and Tully’s. It really is interesting to see how it will play out over the next six to 12 months when hopefully the country comes back to some sort of normal retail experience.

“Certainly the migration to online is definitely evident now, whether those customers will remain online or come back to the shops, we won’t know until there is a little bit more consumer confidence in the streets and in the shops. It’s a worrying time for a lot of people, not just our sector, I know every sector is struggling.

“Customer confidence is just so low. You cannot underestimate the effect Covid is having on retail. People normally pop in and out have a bet, they’re just not doing that anymore.

“It’s the same in lots of shop types, except food and groceries. I just think customers will need a little bit of confidence and hopefully the vaccine gives them that when it is eventually rolled out.”

In the meantime, mere survival is the objective for all