Merger of betting powerhouses a necessary punt
Gavin McLoughlin looks behind the proposed Betfair and Paddy Power alliance and what the multi-billion pound gamble means for the betting industry in the UK and Ireland
Betfair boss Breon Corcoran and Paddy Power go back a long way. The Mullingar native worked there for 10 years, rising to the post of chief operations officer before he left in 2011.
He was former Paddy Power boss Patrick Kennedy's number two - and together the pair were seen as two of Ireland's hottest young executives.
Then Corcoran, who had overseen much of the bookie's online development, was gone. Three years later Kennedy announced his own departure, paving the way for Scotsman Andy McCue to take over at the top at the beginning of this year.
McCue had worked mainly on the retail end of things. He joined Paddy Power in 2006 as head of strategy for UK retail, then took on the managing director role of that arm of the business, before bringing Irish retail into his empire after Corcoran left.
But now he has been persuaded to step down as boss - becoming chief operating officer of the most recognisable bookmaker in these islands in favour of his former superior. Why?
At a press conference at the company's south Dublin headquarters - nicknamed the Power Tower - McCue came over all humble. It was like watching a star footballer claiming his success was really all down to the team.
"I'm very comfortable with that decision. I think this is a great strategic move for the Paddy Power business. I personally am delighted with the deal and am delighted to be the chief operating officer in the new combined group."
Cormac McCarthy, the former Ulster Bank chief executive who is currently Paddy Power's chief financial officer, will be bidding farewell to the company, but he backed the deal in a big way, too. He even trotted out the 'it's not about me, it's about the company' line.
Most analysts have welcomed the move. The industry is in something of a regulatory flux at the moment.
A new point of consumption tax introduced in the UK has put pressure on margins. In this country a new online betting tax has been introduced.
One way to drive margins back up is to make the cost savings that can be derived from a merger.
Sophie Blandford, an equity analyst at Daniel Stewart & Co, said:"There is massive consolidation in the sector as a result of the point of consumption tax coming in at the back end of last year.
"You only have to look back at the deals that have been going on.
"William Hill tried to take 888 out, and then you've got Ladbrokes and Gala Coral merging together, you've got Bwin up for sale with GVC and 888 kind of fighting over that one.
"So you've got margin pressure from the introduction of this tax, and you've also got changes to the fixed-odds betting terminals that came in March this year.
"You've got two tax changes that have moved people towards looking at maintaining their margins, and ultimately looking to get bigger and more scalable.
"From a strategic point of view it makes sense for Paddy Power to go along with Betfair."
The results Paddy Power posted recently were strong - but this time last year it was announcing a 14% reduction in first-half operating profits on the back of adverse sporting results.
Even aside from regulatory changes, it operates in a volatile sector.
Scaling up will give both companies more strength, and will also provide them with a foothold in markets where they do not currently operate.
BDO Ireland managing partner Michael Costello, whose company has a specialist team for the sector, said that the market has reached saturation point and merger activity is increasing.
He added: "However, this deal might be considered unique in one particular way, in that it brings together the sophistication of the Betfair customer base with the more recreational player that sits within the Paddy Power stable."