Anticipated acquisition by Sportech plc of the Vernons Football Pools business from Ladbrokes plc

Affected market: Football pools

No. ME/2935/07

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, undertakings in lieu, assessment and decision.

The OFT's decision on reference under section 33(1) given on 3 May 2007. Full text of decision published 15 May 2007.

Please note that square brackets indicate figures or text which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.

PARTIES

Sportech plc (Sportech) is active in the betting and gaming sectors. Sportech, through its subsidiary Littlewoods Promotions Limited, operates the Littlewoods football pools (Littlewoods) and the Zetters football pools (Zetters).

Ladbrokes plc (Ladbrokes) is active in the betting and gaming sector [see note 1]. Ladbrokes, through its subsidiary Vernons Pools Limited, operates the Vernons football pools business (Vernons). The UK turnover of Vernons in 2005 was approximately £18 million.

TRANSACTION

Sportech proposes to acquire from Vernons Pools Limited the assets constituting its football pools business together with the entire issued capital of Vernons Games Ltd, Vernons Trustee Company Ltd and Vernons Financial Services Ltd. In addition, Ladbrokes and Sportech will enter into arrangements for the distribution of football pools products through Ladbrokes' licensed betting offices.

One of the motivations for the deal is [ ]. Sportech also argues that the acquisition of Vernons will allow it to create economies of scale, reduce costs and increase the size of the prize pool, which it says will benefit customers and attract new ones.

The Office of Fair Trading's (OFT) administrative deadline for deciding whether to refer the merger to the Competition Commission is 10 May 2007.

JURISDICTION

As a result of this transaction Sportech and Vernons will cease to be distinct. The parties' combined share of supply of football pools in the UK is almost 100 per cent (by volume and value) and as a consequence the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

The OFT was contacted by 116 Vernons customers concerned about the merger. The OFT also heard from a few employees and other people involved in football pools and in the gambling business more widely. In addition, 61 customers completed the OFT survey sent to customers of Littlewoods, Zetters and Vernons, of which 25 had chosen to make contact with the OFT. The concerns and perceptions of the market expressed to the OFT have been dealt with above.

UNDERTAKINGS IN LIEU

Where the duty to make a reference under section 33(1) of the Act applies, pursuant to section 73(2) of the Act the OFT may, instead of making such a reference, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned or any adverse effect which has or may have resulted from it or may be expected to result from it, accept from the parties concerned such undertakings as it considers appropriate.

The OFT has therefore considered whether there might be undertakings in lieu of reference which would address the competition concerns outlined above. The OFT's Mergers Substantive Assessment Guidance states that, 'undertakings in lieu of reference are appropriate only where the competition concerns raised by the merger and the remedies proposed to address them are clear cut, and those remedies are capable of ready implementation' (para 8.3).

Sportech offered the following undertakings: [ ].

The OFT considers that the behavioural undertakings offered manifestly fail to meet the criteria set out in the OFT's Mergers Substantive Assessment Guidance. They are not clear cut or capable of remedying the adverse competition effects that this merger will give rise to, and therefore the duty to refer remains. [ ].

ASSESSMENT

As a result of the proposed merger Sportech will supply virtually 100 per cent of UK demand for football pools. Although the National Lottery provides a limited competitive constraint on football pools providers, on the evidence available the OFT does not consider that this constraint is sufficient to prevent a monopoly provider of football pools from reducing consumer welfare. The OFT considers that current customers are less sensitive to price increases than those who switched away, and therefore more likely to continue playing the football pools even if prices go up, the pay-out ratio is lowered and/or the quality of services is decreased.

Although competition between Sportech's brands and Vernons may not be vigorous, the evidence before the OFT indicates that they do compete against each other, in particular by using marketing campaigns to attract new and lapsed players and by using their product differentiation to illustrate differences in their value-for-money, suggesting there would be adverse effects arising from the merger's elimination of rivalry between the parties.

Finally, the available evidence on entry and expansion does not resolve the concerns raised by this degree of concentration, and countervailing buyer power is not a relevant issue in this case.

Consequently, the OFT believes that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore be referred to the Competition Commission under section 33(1) of the Act.

NOTE

1. Ladbrokes later clarified that it is no longer active in the hotel sector.

Back to top