Revenues are up by an impressive 18 percent to £1.55 billion ($1.9 billion) with a 35 percent increase in earnings before interest, tax, depreciation and amortization (EBITDA).
Tucked away in the earnings call presentation was the news that the company’s online casino business in New Jersey was now operating at breakeven when measured by EBITDA. While the business is tiny in terms of PPB’s global footprint, the news is important for its insight into online gambling in the US.
The combined PPB group includes TVG which is an online horse race betting business based in California and Betfair Casino which is licensed in New Jersey through a partnership with the Golden Nugget Casino.
“US division revenue in local currency increased by 13% and operating profit increased by 9%. These results includes TVG, where revenue increased by 9% on handle or stake growth of 4%. And Betfair Casino New Jersey where revenue increased by 39%, and the casino is now operating at the breakeven EBITDA after a couple of years of startup losses.”
PPB reports its results in UK Pounds Sterling which has depreciated against the US dollar particularly since the BREXIT vote. This has benefited PPB but is not flattering to its US revenue numbers.
In sterling, the year-on-year revenue growth for Betfair Casino was 56 percent, rising from £7 million ($8.5 million) to £12 million ($14.6 million).
Corcoran told investors that the business now enjoyed a “a low double-digit market share,” but that the business was “strategically interesting.”
The New Jersey Division of Gaming Enforcement (DGE) revenue figures for the Betfair/Golden Nugget partnership show full year revenues for 2016 at $42.25 million.
The basis on which annual report figures are calculated may be slightly different to the way figures are reported to the DGE, but even so, PPB’s financials suggest that Betfair Casino is responsible for around 35 percent of the partnership’s online revenues.
It is tough in this environment to make a viable business when there are bigger more well-known brands competing for a fixed customer base.
The fact that PPB has been able to break even on an EBITDA basis indicates that their business is indeed viable and will in time make a contribution to the accounting bottom line.
The New Jersey regulations include an effective tax rate of 17.5 percent, made up of a 15 percent gaming tax and a 2.5 percent contribution to the Casino Reinvestment Development Authority (CRDA).
The regulations also mandate expensive geo-location software, and that IT servers are located and maintained in-state, adding to already expensive IT costs.
That a smaller player in the regulated market can achieve commercial viability is a strong indication that the New Jersey regulations have created a good balance between cost and opportunity for operators.
Globally, PPB operates the Betfair and PaddyPoker online poker rooms on the iPoker network.
Betfair does not offer an online poker product in New Jersey, and that may make the company’s experience in New Jersey less indicative of how other operators are faring.
Online casino is a less complex business than online poker, and offers higher margins. Restricting itself to online casino may have been a factor in PPB managing to reach breakeven within just a couple of years of launching.
Partypoker started in New Jersey with a very large marketing spend which included a $1 million dollar first prize marketing promotion and a sponsorship deal with the Philadelphia 76ers and New Jersey Devils.
New owners GVC have been upbeat about their New Jersey business, but haven’t put out any figures to show whether that have made it to profitability yet.
For much of the time since New Jersey regulation began, the Borgata was half-owned by Boyd Gaming.
Like Betfair, Partypoker is probably the smaller revenue generator in the Borgata/partypoker partnership, but its earlier marketing spend may still be keeping the company short of breakeven on its investment.
When Amaya launched PokerStars in the New Jersey market, it deliberately avoided an early marketing blitz. This decision was clearly informed by the experience of the early market entrants which included WSOP and 888 as well as partypoker.
Amaya’s delayed market entry may have been a blessing in disguise, for without the early marketing investment it may well achieve profitability much earlier than its peers.