High-roller who can’t bet but aims to hit the jackpot (UK)
(source: Telegraph September 4, 2006)
High-roller who can’t bet but aims to hit the jackpot
By Andrew Cave
Rank insider blows away fears over impact of smoking ban as he seeks to revitalise gaming division, writes Andrew Cave
Ian Burke: ‘Bingo has a lot of strengths. It’s great escapism.’
For a man who doesn’t gamble, Ian Burke has been on a monster of a punting expedition during the past six months. “I’ve been to 80 of the 114 Mecca bingo clubs, 30 of the 33 Grosvenor casinos, most of the big Hard Rock units and our Spanish bingo business,” confides Rank Group’s chief executive.
Phew! That’s at least one of the group’s venues every working day since he jogged over from health clubs chain Holmes Place in March.
“Bingo finishes at 9.30pm when casinos are just getting going, so it’s quite easy to combine visits,” laughs Burke, who showed his stamina last year by getting up, down and in between Britain’s three peaks – Scafell Pike, Snowden and Ben Nevis in 26 hours.
Now Burke, 50, wants to bring similar energy to overhauling what remains of Rank’s once-sprawling entertainment empire. “I think the first priority is re-energising the gaming businesses. These are fundamentally good businesses with lots of passionate people.”
Burke is too polite to criticise his predecessors at Rank but agrees that Rank has been an Uncle Tom Cobleigh of a muddle (indeed it once owned the pubs chain).
“If you take Mecca Bingo, my assessment is that Rank from 1999 to 2005 was managing that business for cash. From a customer point of view, we’ve been decreasing the prize boards. Customers have spent in that time an average extra £2 on their bingo tickets.
In 1999, we paid out more than £200m in prizes. Last year, we paid out £180m. Customers notice that and they vote with their feet. In 1999 we had a 34pc market share. By the end of 2005, it was 27.5pc. Our admissions dropped from 26m to 20m.”
Rank has now reduced Mecca’s bingo ticket prices and is increasing prize boards. Mecca’s margins are down from 22pc to 15pc, its market share is up to 29pc and Burke estimates it will be back to the 1999 prize total this year.
“In my view, it was a mistake to watch admissions decline at the rate they have over the past five or six years,” he says. “Over that timescale, we bought two new bingo clubs. Our major competitor [Gala] bought 70. We were under-investing in developing our portfolio.”
Mecca closed six clubs, opened three new ones and cut 200 jobs this year, but it also had to cope with the smoking ban introduced in Scotland in March. With smokers accounting for half of Rank’s bingo customers, the immediate effect was a 6pc fall in admissions, a 9pc decline in spending per customer and a 14pc drop in revenues.
Mecca’s interim operating profits, announced last Friday, fell from £38.5m to £31.5m on flat revenues of £134m. At Rank Group, interim pre-tax profits fell from £32.7m to £19.9m on revenues 7pc higher at £426m, after £26.8m of charges. Rank’s shares have fallen from 300p at the turn of this year to 226.75p on Friday.
Nevertheless, Burke is positive. “I’m encouraged by the response of the management team. I think they feel it is the start of a new era. The mood at Mecca six months ago was pretty low. Now I would say it’s good.”
Burke is also excited about Rank’s Grosvenor casino operation, which is second to Stanley Leisure in number of clubs but UK number one in terms of revenues and profits.
The Government’s deregulation programme has abolished the so-called “24-hour rule” whereby would-be gambler had to register at a casino a whole day before they intended to play. It’s also doubled to 20 the number of slot machines allowed in casinos.
Next September, advertising restrictions will be lifted and 17 local authorities will be allowed to open casinos, including one so-called “super-casino” by 2009.
“We believe that as a major UK player with expertise and a good reputation in bingo, casinos and sports betting, we’re well-placed to win these licences. We’ll be tendering for all 17 and hoping to win as many of them as we can.”
There will be other opportunities. The industry expects further consolidation, following this week’s agreed takeover of London Clubs International by US giant Harrah’s.
Did Rank consider getting involved? “No,” says Burke. “We’re very focused on just improving our existing businesses. We watch what’s happening in our marketplace, but we had no intention of bidding for LCI.
“We’re going to see consolidation across the gaming sector, not just the UK, but globally. There are a number of major players but don’t ask me over what timescale consolidation will happen or who will do the consolidating or be consolidated.”
Rank itself is an obvious takeover target for bookmakers William Hill and Ladbrokes or big US gaming groups. But Burke says he’s not had any approaches.
“If anyone operating in these fields can demonstrate that there are significant additional areas of growth, particularly revenue growth though cross-marketing of products or new technology, then I’m pretty sure investors would be willing to listen to those arguments.”
One sale Burke has announced is that of the Clermont Club in London. Its high-roller clientele didn’t fit with the mid-market positioning of the rest of Grosvenor, whose typical customer will spend about £120 in an evening but will on average “leave behind” about £28-£30, including his or her bar and café bill.
At Mecca bingo, customers are spending about £28-£30 and leaving the premises about £12-£13 lighter than when they arrived. With 20m admissions a year in bingo and 4m at Grosvenor’s casinos, it all adds up. The problem is that Rank has been leaking cash elsewhere.
Deluxe, Rank’s DVD and CD manufacturing business, lost £10m in the first half of this year and seems to have taken forever to get rid of. Rank still has to dispose of three of its units and has provided £57m to cover the cost. Rank is also selling its US camp sites and Burke admits that internet bookie Blue Square has underperformed since Rank bought the company in 2003.
Rank’s Hard Rock Cafes are the subject of a strategic review and are widely expected to be sold. Burke doesn’t want to pre-empt the review but agrees that Hard Rock doesn’t have to belong to a gaming group. “There are limited synergies with the gaming division,” he says.
Burke, who launched the Gala brand in 1992 when he worked for Bass, is happier talking about bingo and casinos, though he doesn’t play much. “I’m not allowed to. I can play bingo in competitor outlets, and I do from time to time, but I can’t play any casino games in anybody’s outlets; competitors’ or our own. It’s the way the rules work under the 1968 Gaming Act.
“I’m like 80pc of the population in Britain. I like a flutter from time to time. We’re either bingo or casino customers, we buy lottery tickets or we have a bet on the horseracing or online.”
Which is his preferred flutter? “It’s irrelevant now,” he replies. “It’s easier for me not to go anywhere betting, other than the odd trip to a competitor’s bingo club.”
The smoking ban is extended to England and Wales next year. Burke agrees that it’s a challenge. But he also sees opportunity. “The other way of looking at it is that 70pc of the adult population does not smoke, but 50pc of our customers do smoke. So how many of our potential customers are not playing bingo because they find the atmosphere is too smoky?
“There’s still more we can do as an industry to make sure people understand that these are modern leisure outlets that offer terrific value for money. About 12pc of the adult population play bingo. About 4-5pc visit casinos.
“There’s still a lot of scope. Bingo has a lot of strengths. It’s great escapism; it’s a secure environment. It’s a place women can go on their own or in groups and feel very comfortable. Eighty per cent of our bingo customers are women. Half of them are over the age of 45.
“It’s difficult to convey the vibrancy of businesses like these. I was in Sunderland a couple of weeks ago on a Friday afternoon and went into a bingo club and there were 250 people having an absolutely fantastic time. There was so much genuine warmth and human connection. It’s about the sweaty palm you get when you’re waiting for your number to come up in bingo or when you have put money on a roulette wheel.”
As for Burke, he’ll be sweating over a different kind of gamble. If he succeeds with his plan then Rank’s famous man with the gong might just bang the group into a new era. If not, the company might make a nice meal for a cash-rich private equity group.
Place your bets now on the consolidating gaming industry.
Date Posted: 03-Sep-2006
