I think another factor is underrated esp in the ftse firms is the obsession with margins. Hills latest report was banging on about margins falling. Margins could fall through the floor if you allowed them to and you turn over a shed load more money and take more profit. Given this obsession you are always going to have CEOs and Tds making decisions to protect their margins rather than max bottom line profits. This means if you want to hold 8% on the sports book for the city book yes men you have to technically close all accounts you expect to win 5% from otherwise it becomes harder and harder to hit your margin target. I have never understood the obsession with margins in a huge turnover high volume business like betting. Sounds stupid but this is the way the game is going. If you don't lose at a fast enough rate they will sack you off.
The funny thing is you never hear about margin warnings in interim results in the city it is always bottom line absolute profit which causes the profit warnings which cause share price slumps which CEOs hate.
Really good point this and I hadn't really thought about it. In a private business we 're gonna care about cash flows in the main. The % return is something of an irrelevance.
As you say, PLCs actively turn down business because it doesn't reach certain returns criteria and the drive for specific % & year on year improving returns drives the desperate short termism that damages most UK and US businesses in the end.
I literally couldn't care less what my ROI is an a professional gambler. If i have a 1% edge i take it. It kills my ROI (if i cared about it) but for every £2k i have on i make £20 cash). The more i turn my money over with any positive edge the more money i make. I never understand why anyone in the gambling business cares about margins over how much cash they make (apart from to impress people that don't understand the game). I could have a 25% roi if i wanted to. It would look really impressive to people who have no idea about the game but i would only turn over £500 a month on probably 2 bets which i couldn't get on properly and make £125 profit. ROI looks awesome but i am skint. Try going into Aldi and paying for your shopping with a 25% roi but no cash. 'We don't take ROi as a form of payment' is the common response.
Equally the boys in the city say 'we couldn't care what your margins are lolbrokes your trading profits are down year on year whatever your turnover is so we don't want your shares you are not making enough cash'yet constantly they focus on margin over profit. The comical thing is all their profits nowadays come from their lowest margin, highest turnover product. FOBT's.
I agree to an extent, but the issue comes when you have finite capital and can't take every profit making opportunity. When they reject a project on margin aren't they basically saying that their available capital can be better deployed elsewhere?
That could be the case but it doesn't cost much more capital than processing the online payment (50p for a visa deposit) to take on a 2% losing customer in an online betting company. You still make money long term out of them with zero marginal costs of doing business with them.
I appreciate in companies where capital is scarce you need to use it on the most profitable projects however this argument is impossible to apply to the online gambling industry. All the capital expenditure is fixed and there are virtually no marginal costs of dealing with a 2% roi losing customer and no excuse at all why you shouldn't be taking his business (other than it hurts your 8% roi goals as discussed).
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