Monday, May 23, 2011

Paddy Power and betting tax

Paddy Power and the betting tax

By Stephen Dwyer

In a time when the eyes of millions are upon us with the visit of the Queen and Barack Obama, we are reminded of Ireland’s contribution to the world throughout the centuries. Aside from our rich cultural history which includes Joyce, Yeats, Wilde and Beckett, we are famous for punching above our weight. But over the past few decades, we have become just as famous for our brand names.

Guinness, Waterford Crystal, Riverdance, U2, and Ryanair are recognised in almost every country. Another brand name, the ubiquitous green betting shops of Paddy Power is fast becoming another symbol that signifies Ireland. They are seen as light hearted rogues, bucking the trend of the old-fashioned scrooge-faced bookmaker. But financially there is no doubt that Paddy Power plc. are trailblazing their way through the world of betting.

The first thing you need to know about Paddy Power is that they dance to their own tune. They were founded in 1988 at a time when opening a bookmakers shop in Ireland was much easier to do that in the UK. The business was not founded by a single Paddy Power but by the merging of three bookmakers. This consolidation grew rapidly through shrewd management and they hired their namesake, Paddy Power who was a graduate of business studies from DCU, to become their head of communications and public spokesperson. Clever stuff.

The second thing you need to know about them is that they are shameless self-promoters. Habitually offering odds for controversial events and tongue-in-cheek promotions is centric to their business model. However, when you dissect their marketing drives, many are borderline insensitive and inflammatory.

Shamelessly, Paddy Power has offered odds that the Pope would sign for Glasgow Rangers and that Barack Obama “would not finish” his first term on office (i.e. that he would be assassinated). They ran advertising campaigns following the death of Pope John Paul II featuring Leonardo da Vinci’s Last Supper with Jesus and his apostles surrounded by roulette wheels and betting chips. Most recently, a TV commercial by Paddy Power featuring a cat being kicked into a tree by a blind soccer player became the most complained about advert in the UK in 2010 and the third most complained about advert of all time. Patrick Kennedy, the CEO of Paddy Power defended the ad, shrugging off the criticism by simply saying that it got people talking.

All of this leads us on to point number three; Paddy Power are admittedly, very good at what they do. They have become Ireland’s largest bookmakers with over 200 shops nationwide. As of May 15th, their bank balance is €113 million. €47 million of this is comprised of customer accounts. It would seem Paddy Power have more money in their coffers than many of our banks.

To their credit they have pioneered the world of online betting and their latest financial report notes that online revenues have increased by over one-third. In this year alone they opened 14 shops in the UK. Despite this growth on the back of a record year, their CEO is up in arms about the Governments plans to double betting tax to 2 per cent.

Betting tax in Ireland is used primarily to fund prize money for horse and greyhound racing as well as supporting the racing industry. Understandably, the Government have reduced the funding available. The reduction to Horse and Greyhound Racing Fund is dramatic, from €76m in 2008 to €57m this year. This is a serious shortfall and simply has to be clawed back through the raising of betting taxes.

Irish punters do not pay the betting tax; it is absorbed by the bookmakers. This should continue to be the case as without the industry, their existence would be threatened. In the UK, this year’s budget brought in sweeping changes to the betting tax system.

Chancellor Gordon Brown announced that bookmakers would be taxed on their gross profits at a flat rate of 15%. As of January 2010, he is scrapping the system in which the Government collects betting tax of 6.75% from bookmakers; this is then passed on to punters in a 9% tax.

You cut your cloth to measure as they say, so Paddy Power should do exactly what their cleverly-spun adverts suggest, just grin and bear it.

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