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Odds stacked against Paddy Power as Betfair face shareholder revolt

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Nearly a third of Betfair shareholders rejected a remuneration report last week in response to plans to pay out £1.3 million to chief executive Breon Corcoran and almost £1 million to CFO Alex Gersh. This came in spite of the news that the company had just recorded a superb quarter thanks to the FIFA World Cup, with customers placing more than twenty million bets over the course of the competition.

The company announced that the tournament had brought in £15.9 million, double the amount they made from Euro 2012, and revenues rose 30 per cent during the summer compared to the quarter to May this year. The World Cup also helped Betfair increase its customer base by 65 per cent.

Mr Corcoran said the group’s customer base increased by 65 per cent during the tournament. “Betfair’s ongoing product innovation and marketing investment led to an excellent quarter against all key metrics, with continued momentum in sustainable revenues and customer numbers enhanced by a strong World Cup,” he said.

In spite of this, corporate governance group Pirc has been critical of the arrangements at Betfair in the run up to the group’s annual meeting. Corcoran could be entitled to a bonus of up to 380 per cent of his salary, for example, which Pirc believes is not in line with the company’s financial performance. It also believed performance benchmarks were “not adequate”.

This revolt was even more surprising when one appreciates that these excellent results come at a time when rivals are falling behind. Paddy Power also had an excellent World Cup – it accepted bets worth €198 million during the tournament, up 130 percent on the last World Cup in 2010, and acquired about 150,000 customers during the tournament.

But its operating profit fell by 20 percent to €60 million after issuing a proft warning earlier this year, due to a “horrific run of sports results”. CFO Cormac McCarthy said: “There has been an extraordinary run of results. We always say to people that the run of results can go against bookies. Every separate event is a new coin toss”. Shares in the company fell slightly by 1 per cent to €49 from a high of €70 in April last year. The stock has yet to recover since profit growth stalled suddenly last year following years of rapid expansion.

The news that a successor to chief executive Patrick Kennedy has been found will therefore be welcome news. Managing director of UK and Ireland operations Andy McCue will now takeover. Chairman Nigel Northridge said of McCue: “He has an outstanding track record and has consistently demonstrated strong leadership across the business… Andy is the ideal leader to drive Paddy Power’s next phase of growth.”

Published on Tuesday 09 September by Editorial Assistant
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