How Do Spread Betting Companies Make Money
The top five betting companies in the United Kingdom are William Hill, Bet365, 888 Holdings, Flutter Stars Group, which owns the likes of Paddy Power and Betfair, and Entain PLC (formerly GVC Holdings), which is the company behind Ladbrokes, Coral, Gala and so on. Between them they absolutely dominate the betting industry, taking the largest share of profits each year.
How Much Money Do The Betting Companies Make In A Year? The top five betting companies in the United Kingdom are William Hill, Bet365, 888 Holdings, Flutter Stars Group, which owns the likes of Paddy Power and Betfair, and Entain PLC (formerly GVC Holdings), which is the company. How to Make Money Betting. Every time that you place a bet you will do it hoping that you are soon a lot richer. Yet, far too many gamblers end up losing their money instead of adding to it. In fact, figures.
With the gambling industry being worth in excess of £14 billion a year, even a small slice of that pie is a decent chunk of money. The revenue that each company takes differs, with Bet365 earning £2.981 billion in 2019, compared to William Hill’s £1.6 billion, the £3.6 billion of Entain plc, £560 million for 888 Holdings and £2.14 billion for Flutter Entertainment.
Why The Big Difference In Revenue?
The various betting companies have certain specialities as well as different brackets of business interest. It makes complete sense for Entain PLC to be the largest earner of the group, for example, given that it is the parent company of some of the industry’s best known names; the revenue for Ladbrokes and Coral alone would be impressive enough.
The idea of competition within the betting industry is a somewhat misleading one, given the manner in which so many companies are actually grouped together under the same umbrella company. Companies will agree to mergers because it sees their value go up, such as when Paddy Power and Betfair merged to create the country’s third largest betting brand.
When they then merged again with The Stars Group, who owned the likes of PokerStars and Sky Betting & Games, the combined company became the largest in the world when it came to market share and revenue. On the face of it each of these companies isn’t huge, but put them together and they most certain are noteworthy.
Entain Plc have a decent income courtesy of the bookmakers that they own, but don’t forget that they also own bingo companies like Foxy Bingo and Gala Bingo. On top of that they own companies that we might not know that well in the UK but that are huge in Europe, such as bwin. With such a diverse portfolio, it’s no surprise that they have such a high revenue.
Comparing that with 888 Holdings, which is one of the youngest brands on the list in terms of history that can be traced, and you can see how the revenues can vary so wildly. It is part of Cassava Enterprises, which has a complicated corporate structure that 888 is the betting arm of. Whilst it is growing, courtesy of its various brands, it’s still the smallest on the list.
On top of that, of course, is the fact that different years will see different events taking place that people will want to bet on. Football is the most popular sport to bet on in the United Kingdom, with more than 50% of all bets placed being on the sport. A year that features a World Cup or European Championship will naturally lead to more revenue than one that doesn’t.
How Mergers Have Changed The Industry
The interesting thing about the current top 5 betting companies is that it can change relatively rapidly. The big companies are always looking to strengthen their portfolios, with the easiest way of doing this being to buy up smaller companies that offer something they don’t already have. The various niches that can be occupied by a new company are getting fewer and fewer.
The lack of niche areas means that competition get smaller, of course, which is something that the Competition and Markets Authority has to keep a constant eye on. Its responsibility is to keep an eye on the market to ensure that there is plenty of competition within it, which is generally designed to benefit the consumer by stopping one company setting prices for things.
In the past mergers have either been stopped by the CMA or else something has had to happen in order to allow the merger to go ahead. In 2016, as an example, the body said that Ladbrokes and Coral would have to sell as many as 400 of their shops if they were hoping to get their merger to go through. This was due to a ‘substantial loss of competition’ in 659 areas by the merger.
Top 5 Companies Breakdown
Let’s have a look at each of the top 5 countries in terms of the revenue that they managed in the year 2019:
Bet365
One of the United Kingdom’s biggest betting companies is Bet365, which specialises in sports betting. That’s not to say that they don’t have a diverse portfolio, of course, with live casino games, slots, bingo and more available through their website. In 2019 they managed revenue of £2.98 billion, which was up from the £2.72 billion the year before.
William Hill
Another big company in the world of British bookmaking is William Hill. They have a global reach that sees shops located in many European countries as well as the United States of America and Australia. Their net revenue for 2019 was £1.6 billion, which is impressive when you consider that they don’t have the same sort of diverse portfolio as other companies.
Flutter Stars Group
The newly formed group only merged in May of 2020, so they didn’t actually have a combined revenue to report in 2019. Flutter Entertainment did, though, and their revenue was £2.14 billion. That was from the company’s combined revenue and was a 14% increase on the year before.
Entain PLC (GVC Holdings)
The parent company of Ladbrokes, Coral, Bwin, Party Poker and more, it was founded in Luxembourg in 2004 and has gone on to become one of the biggest betting companies in the world. Their Net Gaming Revenue, or NGR, for 2019 was £3.6 billion, which is the biggest on the list be some distance.
888 Holdings
The last name on the list is 888 Holdings, which might be the smallest but is far from the least interesting. They saw a 5.7% increase in revenue in 2019, which wasn’t enough to offset the money dropped in gaming taxes and revenue, but was still impressive enough. That amounted to around £560 million in revenue, which is why they’re on the list.
Spread betting providers make money from dealing spreads and interest charges. As when dealing ordinary shares or any other asset, these providers always quote you two prices: a lower one at which you can sell and a higher one at which you can buy.
The difference is called the “spread” and it will be based on the market spread. Where commission is not being charged, a bit extra is added to the spread by the provider.
This is a big advantage to trading spread betting compared to horse-racing. I think I’ve already stated somewhere how tough it was to get bets on races. As soon as they see that you know what you are doing, they close you out. Bookies only want ‘mug punters’ or so called ‘recreational clients’, they don’t want professionals. This is not the case with spread betting companies. They don’t care how much money you win and will gladly pay you a million pounds and let you come back for more.
Why?
Because they make their money on the spread of their quotation. They make money if you win and they make money if you lose – it’s virtually the same to them. Your bet that the market is going up is usually balanced by a bet (from another punter) that the market is going down. They couldn’t care less which way it goes or who wins or loses. Bets are covered with excess risk being hedged in the futures markets and they make their margin whatever the market direction. This is good news for spreadbetters like myself. It is very frustrating to be closed out of a market just because you cannot get your bet placed.
Having a spread bet generally also involves daily interest costs. When you do a “buy” trade, the provider charges you interest on its total. Typically, this interest rate is based on LIBOR, plus a mark-up. When you do a “sell” trade, your provider may end up paying you interest on the value of your trade, albeit at a lower rate than they would charge you if you were buying.
Longer-term spread bets trades based on futures contracts don’t carry a daily interest charge, you just pay a wider spread when you buy and sell.
Spread-bet companies make most of their money on the spreads, rollovers and the like. That higher cost of running positions is the downside to spread-betting. The upside is no CGT. (It currently costs me about 3% per annum to hold spreadbet positions, plus I typically lose roughly a further 1% on the spread compared to physically buying and selling shares).
Do spread betting providers charge commission?
No. Spread betting providers do not charge commissions or any other dealing fees. They make their profits from the dealing spread. For all their bets the price at which you can ‘buy’ is slightly higher than the price at which you can ‘sell’.
Do spread betting providers take all the risk themselves?
No. Spread trading companies trade extensively in the underlying markets to hedge bets made by their clients. That is how they ensure their financial situation is protected. It also means that, unlike conventional bookmakers, they are perfectly happy if a client has a bit win. The will normally have made slightly more on their hedging transaction than if the client had won from them.
How do spread betting companies work?
A spread betting company will net trades and then hedge the residual exposure directly in the underlying market.
The good news is that the market for spread betting is very competitive with numerous service providers. The rise of spread betting companies was a threat to the traditional stockbrokers and in turn we have seen these fight back by also offering a spread betting service alongside the traditional stock broking service.
These companies offer traders a market in an ever-expanding variety of financial and non-financial markets. The trader has the choice to go long or to go short the chosen market, and will either realise a profit or loss on his trade. The trade is made between the trader and the spread betting company. Once the trade is made, the company will net the position it has taken on with those it has made with other traders on the same market.
Example: How spread betting companies net orders.
Say the following trades have been put on by different traders with the company:
Trader 1 goes long the FTSE 100 for £10 per point
Trader 2 goes long the FTSE 100 for £5 per point
Trader 3 goes short the FTSE 100 for £20 per point
Trader 4 goes long the FTSE 100 for £50 per point
Top Spread Betting Companies
The company takes the opposite side of each of these trades leaving it with a net position of short £45 per point. To hedge this position it will then need to go into the market and go long an amount of index futures that give it the equivalent exposure of £45 per point. By doing this, it is hedged against any price fluctuation of the FTSE 100.
How To Do Spread Betting
Generally, we would expect to see the spreads offered by spread betting companies to be wider than if we were to trade the market direct, such as trading on a futures exchange or by trading with a traditional stock broking firm. This is because the spread betting companies will flatten off their exposure by trading with the market leaving the difference as their gain.