137/11    16 December 2011

The OFT is considering an offer from Betfred to divest a betting shop in each of 25 local areas to resolve competition concerns raised by its acquisition of the Tote.

The parties overlap in the supply of betting and gaming services in the UK including through betting shops. At the time of the acquisition in July 2011, Betfred owned 840 betting shops while the Tote owned 517.

An OFT investigation confirmed that the acquisition did not give rise to competition concerns at a national level in relation to betting shops, telephone betting or online gambling. In each of these channels, Betfred will continue to face competition from several competing bookmakers including from the three major bookmakers, William Hill, Ladbrokes and Coral.

The OFT's investigation did, however, find that the completed transaction would result in a significant reduction in choice and competition for customers who choose to place bets at betting shops in certain towns and cities across the UK. In these local areas, the investigation found that there was no, or limited, existing competition from alternative suppliers and little prospect for entry of new suppliers to compete with the merged company.

As a result of the OFT's concerns, Betfred has offered to divest a betting shop in each of the 25 local areas where the transaction gives rise to competition concerns. In this case, given the reasonably small number of potential purchasers, the OFT requires an up-front buyer to be identified before accepting undertakings from Betfred to divest these betting shops.

The OFT is suspending its duty to refer the merger to the Competition Commission to consider this offer of undertakings. The form of the proposed divestments will be the subject of public consultation prior to the OFT accepting them.

The OFT further concluded that Betfred's acquisition of the Tote's seven year exclusive licence to provide pool betting services did not give rise to competition concerns.

Ali Nikpay, OFT Senior Director and Decision Maker in this case, said:

'Betfred's acquisition of the Tote did not raise competition concerns at a national level. However, there are some local areas where it has resulted in the elimination of or a significant reduction in choice of betting shops for consumers. The OFT is now considering Betfred's offer to divest one of its betting shops in each area to remove the OFT's competition concerns.'

NOTES

1. On 13 July 2011 the Secretary of State for Culture, Media and Sport sold Tote (Successor Company) Limited, formerly the Horserace Totalisator Board, to Lightcatch Limited, the parent company of Done Brothers (Cash Betting) Limited trading as Betfred.
2. Total UK betting shop turnover was around £2.7 billion in 2010 according to the Gambling Commission's figures on gross gambling yield in betting shops, which is the amount retained by bookmakers after the payment of winnings but before the deduction of the costs of the operation.
3. The Gambling Act 2005, which came into force in 2007, removed the demand test from local licensing regulations, such that local licensing authorities can no longer refuse an application for a betting shop licence based on insufficient unmet demand in the local area.
4. Pool betting differs from fixed odds betting in that all bets are placed together in a pool and payoffs are calculated by sharing the pool among the winning bets, while participants in fixed odds betting are paid according to the particular odds at which the bet is placed, with the bookmaker running the risk of any loss.
5. The Reference Test - The OFT has a duty to make a reference to the CC if the OFT believes that a relevant merger situation has been created, or 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; and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services. 
6. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply or acquisition of goods or services of any description, a 25 per cent share of supply or acquisition in the UK (or a substantial part thereof) is created or enhanced.
7. Undertakings in lieu of reference - under section 73 of the Enterprise Act 2002 the OFT may, instead of making a reference to the Competition Commission, 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 appropriate undertakings from the parties concerned as it considers appropriate. The OFT is required to consult publicly before accepting any such undertakings.
8. The text of this decision will be placed in the Mergers section as soon as is reasonably practicable.