Keeping the fun in Paddy Power is O'Reilly's game

It was hardly the way John O'Reilly would have chosen to mark his first full year as chief executive of Ireland's leading bookmaker.

A Cheltenham Festival that saw an unprecedented run of success by favourites followed by the victory of heavily backed Irish horse Monty's Pass in the Aintree Grand National left the company having to issue its first ever profit warning.

To a public more familiar with the sustained ear of success under his high-profile predecessor Stewart Kenny, it boded ill. But Mr O'Reilly is no blow-in and he wasn't going to cut and run at the first sign of trouble.

"From my point of view, it was a pretty hard thing to have to do in a company where I had only taken over the reins the previous June; to have to come out and take the pain of that within my first year," he says.

"Still, the ups and downs of results are an integral part of betting. We live in the knowledge that what goes around comes around, as we saw in the second half of 2003."

It's a comment typical of Mr O'Reilly, who has been instrumental in the success of the group. He arrived as financial controller a month before the first Paddy Power store opened its doors in early 1988 and rose to chief operations officer before taking over the reins in 2002 when the charismatic Mr Kenny stepped aside to the chairman's seat.

He has put together a team that has driven an aggressive expansion policy and has seen the group move into the British market.

By the end of this year, Paddy Power will have 30 outlets in and around London. It has also seen dramatic growth in British interest in its telephone and online betting operations.

From a standing start in 2001, the telephone operation has 8,361 active customers - a 40 per cent rise on 2002.

The online operation has increased its number of active UK customers from just over 7,000 at the end of 2001 to more than 22,000 last December.

That was instrumental in lifting the online operation to profit in 2003 for the first time and in boosting group profits to a record €20.4 million last year.

For Mr O'Reilly, capitalising on the move into the British market and the potential of the internet are key challenges for the future at Paddy Power.

"Obviously, there is a high level of expectation that we keep on delivering in London," he says. "No-one expects London to be a profit generator in the current year because we are still in the development phase and you won't get the same margin, but they do expect us to deliver and that is a challenge."

He believes the company's emphasis on innovation and special offers will, if anything, be an even greater advantage in establishing the brand in Britain than in Ireland. "It does stand us in greater stead because it is a fresh approach to a market we are new in."

While the jury is still out on British proposals for loosening regulation, Paddy Power is hopeful that Gaming Commission proposals will make growing its UK business easier.

For a man who came into the business with a background in accounting, Mr O'Reilly has recently found himself juggling the requirements of technology as cyberthugs target online gambling sites for extortion.

"I feel there is fantastic scope for growth in the non-retail [betting shop\] side of the business," he says.

But, alongside innovative product design, reliability is the key he believes in.

This will become more of an issue as Paddy Power expands its online offering. It recently started offering an online casino and is still weighing up the prospects for entering the competitive online poker market.

While it expects the casino to make money from the outset, it is cautioning against unrealistic expectations.

One of Mr O'Reilly's biggest challenges as the group gets larger and more sophisticated is adapting structures and offerings to local requirements.

The company established a separate management operation for the British betting shop operation just before Christmas after finding that Irish executives were being distracted from the core operation in overseeing developments in London.

"When it got to nine shops, we decided this needed to stand on its own with a small head office," says Mr O'Reilly.

But he is adamant that, despite the potential market in the UK, Paddy Power will remain an Irish company.

It has also tailored the offering in London to take account of different gambling interests there; football, for instance, takes a far greater share of the business.

This year, Paddy Power will take more than €1 billion worth in bets. That makes it a significant business but Mr O'Reilly is determined that it will retain the fun element that has made it a distinctive brand.