Paddy Power: online is 'the sexy part' of the business

'Welcome to Disneyland," says Paddy Power, the communications director who shares a name with the company he works for. He's giving me a tour of "Power Tower" which is located in a very unDisneyish office park in Clonskeagh in Dublin.

It’s the company’s fourth headquarters. There’s a Lada with a massive Ukrainian musical instrument on its roof sitting in the lobby, a relic of an old marketing campaign. “We had to remove the [building’s] doors to get it in,” says Power. “I think it’s broken down. It’s staying here now.”

Paddy Power is the biggest gambling operator in the Irish market and also operates multinationally. It was formed in 1988, when three bookmakers, Stewart Kenny, John Corcoran and Paddy’s father David, merged their operations. They now employ 2,570 people in Ireland and 5,000 worldwide across a number of brands. They made €167 million profit in 2014.

The company floated on the London Stock exchange in 2000 and Paddypower. com was launched the same year. Paddy Power has 571 betting shops in Ireland and the UK, but the online business overtook the bricks-and-mortar business in 2006-2007. Paddypower.com offers sports betting, spread-betting, casino games, poker and bingo. Online is responsible for 77 per cent of their profits.

“It’s the sexy part of the business,” says Power.

In the early days, he recalls, before anyone understood the internet, paddypower.com crashed. “We couldn’t figure it out. Turns out the guy that owned the Spar shop next door had put his flashing Santa on the roof and unplugged paddypower.com in the process . . . A few months later a cleaning lady unplugged the server to plug in the hoover.”

Probability

We go up to the ‘in-running room’ where dozens of people monitor banks of screens, manually adjusting the odds on races. The room is divided by race-track hedges and carpeted with fake grass. “We stole them from the racetrack,” says Power.

We go to the office of horse-racing expert Paddy Desmond and look onscreen at a race happening later in the afternoon. There are 8,500 bets on, and he shows me how much the company will win or lose if particular horses win the race. Only one outcome leads to a loss. “Most people back the favourite,” says Power.

A lot of people don’t understand probability, says Desmond. “[If someone asks] for a tip and I get it wrong, I’ll get dog’s abuse.”

I ask for a tip. He (reluctantly) recommends a horse called Secret Brief running in the 2.55.

“We’ll have to watch that race,” says Power, rubbing his hands gleefully.

We walk over to a big glass office filled with people monitoring screens. There’s a life-size model of record-breaking long-jumper Mike Powell embedded in the glass.

“As part of your job interview here, you have to do the long jump,” says Power.

One man is tweaking the odds on a “third tier” tennis match in Monte Carlo. “The umpire is there at the match and probably nobody else,” says Power. “But there is a market out there for it.”

The odds are mathematically modelled, says Power. The trader’s job is to tweak these as the match progresses. We can see bets as they come in from subsidiaries around the world: €100, €85, €279, €24. Paddy Power takes around 600 million bets a year. The average online bet is €13-€15 and the average punter is signed up to three other betting services.

Right now the biggest bet onscreen is €1,500. “The odds are 1 to 16 so he’s going to win 100 quid if that wins,” says Power. “He’s risking a lot for a hundred quid because the odds are so short.”

Is that not a big risk? “He probably thinks if you saw it on the ground you’d pick it up.” But he adds: “I’m a seasoned gambler . . . I wouldn’t dream of having a bet on 1 to 16.”

Political bets

Outside this office a woman called Steph is working on political bets (the UK election is imminent at the time of our visit) and “novelties” (the next

X-Factor

judge). “Steph is the person whose head we wreck the most,” says Power. “We have this thing that if they talk about it down the pub, you should be able to put a bet on it.”

We’re joined by an older man named Jim who tells me that the highlight of the last UK election was when Peter Robinson lost his seat to 100-to-1 outsider Naomi Long. “If a horse is at 100 to 1 it means it’s only got two legs,” says Jim. “We lost a five-figure sum.”

Jim used to bet in one of Paddy Power co-founder Stewart Kenny’s shops. “He’d win so much on politics that Stewart hired him,” says Power.

“There’s 1 per cent truth in that,” says Jim.

We walk around the corner to the “quants” or “boffins”, as Power calls them. “These are the cleverest people in the building, hired for their maths skills. They could be modelling up the odds for a football game and never watch football.”

Power recalls standing at the racetrack with his father “holding a ledger and pencil, doing sums in my head”. Power’s great-grandfather Richard Power started as a bookie in the 1890s. His grandmother was the first woman to hold a betting licence. His father still operates “up at the track”.

Hacked

It’s a high-tech business now. Everyone, says Power, is in a race for the best app. While it’s unlikely a cleaner will unplug the servers these days, there are other dangers.

There’s a floor of people concerned with fraud and money-laundering. In 2010 someone hacked into the system and accessed customer information. Paddy Power was later criticised for being slow to alert the Office of the Information Commissioner; they didn’t do so for four years.

“But as it turned out there was nothing sensitive . . . The information released wasn’t of value . . . The fact there was a breach in the system showed up, but it took a while to identify what had happened and what level [of information] they accessed.”

Investigators tracked the data from Malta to Canada where police went to a man’s home and retrieved it from his server.

“We’d be very confident it couldn’t happen again,” he says. “But [hacking is] a real threat for companies.”

Being in the big data business must increase its power when it comes to what Power calls “the age-old battle between bookie and punter”. “[Bookies] know an awful lot more now than we did then,” he says. “But so do the punters.”

Looking at the banks of computers, however, I’m not sure the knowledge gains are equal. I’m curious what all the collated data about gamblers tells them. Power says it’s used largely to target customers with appropriate marketing material. “If you’re a football person, there’s no point sending you an email about volleyball.”

They can tell who their most valued customers are (though Power is a bit vague on what constitutes a “valued customer”). They invite around 500 of them to events such as Cheltenham every year.

Problem gamblers

Can they use the data to figure out who might have a problem with gambling? Not currently, he says, though they are working with McGill University in Montreal, Canada on research that analyses the behaviour associated with at-risk players.

He stresses the company’s membership of the UK’s Senet group which promotes responsible gaming standards. He says its customer service operatives are trained by counselling service GamCare. He says users can also set spending limits and can exclude themselves from the site if they feel their spending is getting out of control.

About 0.5 per cent of its users self-exclude. However, the company does not cut people off if it suspects they are problem gamblers. “We’re not clinicians. We can’t say to people: ‘you’re a problem gambler’.”

What if someone is losing a lot of money? “From a problem gambling point of view, the amount is almost irrelevant because €100 to you is different to a €100 to me,” says Power. “So you can’t really segment it that way.”

It does, I’m told, restrict the bets of people who win too much. “We do sometimes,” Power tells me later, over the phone. “We want that risk pool split among as many people as possible. And sometimes to do that we restrict some of the bigger players to allow more people to place bets at the bigger odds.

“It can happen that if somebody is beating the market all the time – they’ll say they’re not being allowed to put bets on because they win. We say we don’t want them to take all the money; we want to split that among the other customers.”

Power prides himself on how upfront it is about what it does. “We expect to make 10 per cent,” says Power. “If we take €100 we expect to pay out €90 and take a tenner in profit.”

Entertainment

Of course, this is an average. Paddy Power takes a lot more from some customers. I mention a survey undertaken by UK academics Jim Orford and Heather Wardle that found that 30-35 per cent of the gambling industry’s profits came from the 0.5-1 per cent of people who are problem gamblers.

“That can’t be true,” says Power. “There’s no way we make [that] from less than 1 per cent.”

Why would gambling companies, which want to make profit, want to curb problem gambling? “We don’t want problematic customers because that’s not what we’re here for. We’re here for entertainment.”

From Power’s perspective, it’s important to solve the problems of the few without introducing “draconian” measures. He says the company is happy to absorb the new 1 per cent turnover tax on online gambling which will come into effect in August in Ireland, as part of the Betting (Amendment) Act, 2015, but Power thinks further increases could cause punters to go to less scrupulous offshore operators.

“When John of God’s come out and say the number of patients has increased, you can’t argue with that,” he says. “But you want to entertain the masses and look after the guys who have a problem. That’s the Holy Grail: to find the perfect balance.”

Before I leave, we check how Secret Brief performed in the 2.55. Power looks it up on his phone and cracks up. Not only has Secret Brief lost, it has come eighth out of eight horses. Chance is a fickle thing.

“Oh, that totally damages his credibility,” chuckles Power.

Luckily we’re in Power Tower. We can always have another go.

Gambling by the numbers

€80 billion:

The European gambling market is estimated to be worth €80 billion a year, and it is undergoing rapid change.

€1.1 billion: Gavin Kelleher of Goodbody Stockbrokers estimates (he stresses they are "estimates") the gross revenue from gambling in Ireland as about €1.1 billion a year. About €314 million comes from land-based betting and €310 million from lotteries. Another €8 million comes from bingo, €130 million from gaming machines and €65 million comes from casinos or private members' clubs.

€220 million: The online market, Kelleher says, is difficult to quantify, but he estimates it is worth €220 million. The market is dominated by Paddy Power, Boyle Sports and Betfair.

948: The traditional, land-based bookmaking market is shrinking. In 2008 there were 1,365 betting shops. There are 948 today. Gamblers seem to be migrating online. Not only does Paddy Power say that 77 per cent of its profits come from the online side of the industry, but Dr Colin O'Gara, a consultant psychiatrist at St John of God Hospital, says he has seen a dramatic increase in the number of patients with online gambling problems.