Betting war may hit profits at Paddy Power

A tax-free betting war being waged in high-street bookmakers could dent full-year 2004 profits at Dublin-listed Paddy Power by 8-11 per cent, according to some estimates.

British-owned Stanley Racing yesterday said it would offer tax-free betting at its 51 Irish outlets indefinitely. Stanley introduced the offer three weeks' ago to test the market's reaction.

A spokesman last night told The Irish Times that it would only review the offer if the Government increases the levy. The betting industry does not believe that this is likely to happen.

The move has forced Paddy Power plc and other players in the Irish market to offer the same incentive in some of their outlets. This means they have to absorb the 3 per cent of turnover charge themselves rather than passing it on to punters.

Mr Paddy Power, operations executive with Paddy Power plc, would not say last night how many of the chain's 137 Irish shops are tax free as a result. However, its nearest competitor, Ladbrokes, has confirmed that it has dropped the levy in 45 of its 121 outlets. The next largest player, Boyle's, has gone tax free in 25 of 66 shops.

Mr Power said the measure was introduced in individual shops as a response to local conditions. The chain has always had a number of tax-free outlets in particularly competitive areas. But it has increased this since Stanley's move. Some sources suggested last night that the number of Power's tax-free outlets is on the same scale as that of its competitors.

Stockbroker NCB has estimated that a full year of tax-free betting in 30 Paddy Power outlets could cut its 2004 pre-tax profits by 11 per cent.

However, NCB analyst Mr David Odlum pointed out that dropping the tax could increase turnover. Factoring that in, he suggested that profits could be cut by 8 per cent. Some analysts have forecast pre-tax profits of €28 million for Power in 2004.

Mr Power did not comment on the likely financial impact of the move. However, Ladbrokes yesterday said some of its Irish shops were operating at a loss as a result. Stanley has already claimed the likely increase in its turnover can cover the cost of offering tax-free wagers.

Mr Power made a similar argument yesterday. However, he admitted that it would be difficult to quantify any increase in turnover as a result of introducing additional tax-free outlets.

Mr Odlum said it was possible to make the case that the latest twist in the Republic's betting market could potentially benefit Paddy Power. He pointed out that it could hit some of its smaller rivals first, leaving more of the market to the large players.

The Minister for Finance, Mr McCreevy, cut betting tax from 5 per cent to 2 per cent in his 2002 Budget. Bookmakers added an extra 1 per cent to this charge to cover the cost of increased royalties paid to the British Horse Racing Board for the right to screen UK racing in their shops.

Paddy Power's chief executive, Mr John O'Reilly, has argued against the Government tax, which is passed on to horse and greyhound racing bodies to fund development.

The company's shares were up 0.82 per cent at €6.18 on the Dublin market last night.