Flutter-Stars Tie-Up Heading For CMA Pass Despite Competition Concerns

The proposed creation of a global betting and gaming giant from the merger of Flutter Entertainment and The Stars Group is unlikely to force competition authorities to take any remedial action, according to competition lawyers, but in the UK it could trigger a wider investigation into the sector from a consumer point of view.

The all-share deal announced on Wednesday will bring together some of the biggest global online betting and gaming brands, including PokerStars, Paddy Power, Sky Betting & Gaming and FanDuel. According to the company, the combined entity would have pro-forma revenues for 2018 of £3.77bn and active customers of more than 13m.

In the UK, the merger would bring together a number of prominent online brands including Sky Bet, Paddy Power and Betfair.

According to GamblingCompliance's estimates for 2018, the combination of these brands controlled circa 25 percent of the UK online and betting market, with Paddy Power and Betfair worth a combined 12.6 percent and Sky Betting & Gaming and PokerStars accounting for 12.4 percent.

However, when UK sports betting is looked at in isolation, the combined market share shoots up to around 37.5 percent, with Paddy Power and Betfair contributing 21.4 percent and Sky Betting & Gaming worth 16.1 percent.

On the conference call with analysts debuting the deal on Wednesday, Peter Jackson, chief executive of Flutter and CEO-designate for the combined entity, acknowledged that the Competition and Markets Authority (CMA) in the UK and the Australian Competition and Consumer Commission (ACCC) would each likely be taking a close look at the deal.

“We’re very respectful of the competition authorities,” he said. “We look forward to engaging and working with them in due course and we are confident we will receive the relevant approvals in due course.”

The CMA usually gets involved with any merger when a 25 percent threshold is crossed in any merger situation. Its process involves two stages of enquiry. Phase one is an information gathering exercise asking for commentary from market participants including competitors and suppliers.

This takes 40 days from notification. At this point, the CMA decides whether the deal represents a “substantial lessening of competition”. If this is the case, it then launches into phase two whereby an independent panel conducts an in-depth investigation and decides whether any remedial actions need to be taken.

Jackson refused to comment on analyst prompts over whether the company would countenance asset sales should such measures be required.

But Caroline Hobson, a partner and competition expert at CMS Law, suggested this might be an unlikely outcome.

Even with regard to the percentage of sports betting that would be controlled by the combined entity, she said the market shares “are not horrendous”

“The threshold for the CMA to look at this would be 25 percent but typically we start going white when there is a market share of over 50-60 percent,” she said.

“Below that it is manageable, but it depends on the make-up of the market. They will look at the risks and how it will impact the rest of the market. Generally, online betting and gaming is not a market characterised by high barriers to entry. But this erects higher barriers and that’s what they will look at.”

Other industry observers also noted that lawyers working on the deal would likely have already approached the CMA with indicative papers outlining the proposed tie-up.

Although consumers will not have any direct input into the CMA’s merger deliberations, Hobson did warn that the CMA could decide to take a much closer look into how the sector operates having had the online gambling sector brought to its attention on more than one occasion in the recent past.

“The more deals in a sector that come under its nose, the more it will look further,” she said.

“They might well look at it in terms of consumer powers. They will be concerned about the impact on consumers. This will be carefully scrutinised.”

The CMA has already looked into the online gambling sector with regard to its marketing activities and, in April this year, concluded a joint study with the Gambling Commission into suspected breaches of consumer protection law. 

Its most recent significant involvement with the gambling sector came with the merger of Ladbrokes and Coral back in 2016 when the CMA ordered the disposal of 350 betting shop outlets as part of its merger settlement.

In Australia, the online sports-betting market-share percentage of the two major brands Sportsbet for Flutter and BetEasy for The Stars Group is even more dominant at a combined 37.9 percent.

Jackson also rebuffed questions regarding previous statements from BetEasy about the Tabcorp/Tatts merger from 2017 to the effect that the deal resulted in a substantial lessening of competition. 

“Without wanting to sound like a broken record, we are very respectful of the competition authorities,” he repeated on the call. “We both run different businesses in Australia which are trying to take on the might of the TAB; we are just small corporate bookmakers nipping around their heels.”

The analysts noted that the prospect of competition enquiries could delay the completion of the merger beyond the slated date of the second quarter next year.

Gavin Kelleher at Goodbody brokers said a phase two enquiry would likely mean a completion date in the third quarter, assuming the deal got the go-ahead.

“A deal of such scale will clearly take time to digest,” he said. “However, our initial sense is that the transaction offers a unique opportunity to combine a collection of leading global brands, resulting in an improved position in core, US and international markets, and to extract significant synergies (over and above the £140m identified to date).”

At Morgan Stanley the team said they would be looking at how the company approach the technological and operational integration issues in what is “by far the largest combination in the sector's history”.

“We are also unsure at this stage of any antitrust issues that could arise from outsize share in markets like the UK and Australia,” they added.