Ladbrokes, BSkyB Ink iTV Dea

12 July 2001
British armchair punters should benefit from a deal announced today between Ladbrokes (the betting and gaming division of Hilton Group plc) and British Sky Broadcasting (BSkyB). The two companies have formed a joint venture to develop and operate a fixed-odds and pools (pari-mutuel) betting service linked to Sky channels on Sky Digital.

David Michels, group chief executive for Hilton, acknowledged the size of the joint venture, saying the partners "will be the first companies in the world to develop betting via interactive television to its full potential."

Betting via interactive television, while in its infancy now, is expected to account for 10 percent of all British betting turnover by 2005, according to ABN Amro.

Yet, many British betting firms remain leery of the service and its potential for success. David Harding, chief executive at William Hill, one of Ladbrokes' major competitors, feels that iTV betting won't become popular. "We're not convinced that the majority of punters, particularly in the U.K., are sitting in front of their television screens and expose to their spouses how much they are betting. Betting is a very private activity. That's why betting shops will remain a place where people want to go," Harding told IGN in January.

Nonetheless, Ladbrokes is betting a lot that British punters will want to lean back in their armchairs for a flutter on whatever they're watching on the TV.

BSkyB also needs a successful paying service to help it bring in revenues. So far, the company hasn't been successful in reaping profits; some say BSkyB spent too much to gain the rights to broadcast soccer matches, which made it nearly impossible for the company to actually turn a profit.

This deal could prove to be a lifesaver for BSkyB with Ladbrokes making a £30 million cash payment upon the deal's completion as well as operational payments linked to both the betting volume and profitability of the joint venture. (In the nine-month period ending March 31, 2001, BSkyB reported betting revenues of £55 million.)

Sky Digital customers, meanwhile, will gain easy access to the interactive betting services by being able to use their account with the joint venture across all the other telephone, Internet and mobile Internet betting services operated by Ladbrokes and BSkyB.

The joint venture will have exclusive rights for five years from completion, as well as non-exclusive rights for another five years, to offer Sky Digital viewers sports betting services while simultaneously viewing Sky Sports channels on which interactive betting is offered. For a period of five years, the JV will also become the exclusive supplier for sports betting on Sky Internet sites and will have non-exclusive rights to operate interactive betting services on Sky's non-sport channels where interactive betting is offered.

The 50-50 deal calls for the fixed-odds betting services to be operated under the Ladbrokes name while the pools betting service will be known as Vernons.

Hilton owns the Vernon Pools service, which will be transferred to the JV, along with its 400,000 regular customers and customer database of more than 6 million names. On the other side of the deal, BSkyB will contribute its wholly owned bookmaker Surrey Sports, which already operates on Sky Digital, to the JV.

Ladbrokes gets to nominate the chief executive for the deal and will also provide all necessary betting and gaming management expertise and marketing support for the joint venture.

News of the JV caused a surge in stock prices for both companies today, with Hilton gaining a total of 9.50 pence today, closing at 243.50 pence today on a 15,693,884 volume. BSkyB, meanwhile, jumped 25.50 pence today with 14,491,096 shares traded, before closing at 704.50 pence.