New Paddy Power B2B arm signs landmark deal with France's PMU

Paddy Power has made a major play for the French market, signing a five-year deal with French duopoly operator Pari Mutuel Urbain (PMU), the largest single operator in Europe, via a new Paddy Power business-to-business (B2B) division.

PMU is one of France’s two giant state-backed gaming and betting providers, together with Française des Jeux . PMU has around 10,000 retail outlets in France and recorded a turnover of €9.3bn in 2008. PMU and FDJ both joined the Power 50 list of leading operators this year ahead of the opening of the French market to foreign competitors in early 2010.

The deal, which will see Paddy Power provide PMU with fixed-odds risk management and pricing tools, is expected to add between €3m and €5m to Paddy Power’s revenues by 2012, as well as increasing the likelihood of similar ties between the Irish bookmaker’s new B2B arm and other European monopolies.

PMU was considering offering fixed odds sports bets in an exclusive story in May, with industry sources suggesting it was set to sign a direct licensing agreement with UK sports betting software specialist Orbis. Although Paddy Power is on the Orbis sports platform, PMU has decided to outsource the risk management and pricing functions to a third party.

Paddy Power chief executive Patrick Kennedy said: "This deal with PMU is the ideal start for our new business-to-business operation. We continue to look for other quality opportunities in international markets, capitalising on our investment in people, expertise and particularly in our proprietary pricing and risk management technology.”

Managing Director Breon Corcoran added that Paddy Power expected to expand further through outsourcing deals and partnerships with local partners as a number of regulatory markets open up over the next three to five years.

PMU chief executive and chairman Philippe Germond today said: "This partnership is going to enable PMU to offer sporting bets online under its own brand and retain direct management of its client database. Paddy Power will provide us with its expertise in sports betting. Through this partnership PMU is given the means to be ready for the opening of the online betting market in France next year."

Paddy Power's traders will set PMU odds, set risk parameters for each event, bet type and customer and manage PMU’s online promotions from Dublin. Paddy Power, which also expanded into the Australian market in May, said the PMU deal would create 50 jobs at its Dublin headquarters by June 2010, with 200 additional jobs expected in the subsequent three years.

The deal has been well received by brokers. Analyst Paul Leyland at Collins Stewart wrote: “We see it as supporting our thesis that companies which combine conservative licensing and cutting edge commercial practices are best placed to benefit from regulating markets. It also reinforces our view that incumbents remain a force to be reckoned with.”

Davy Stockbrokers analyst David Jennings wrote: "This deal opens other doors for Paddy Power to do further business-to-business deals across Europe as regulate and tax models come to the fore," calling it a massive catalyst for the stock.

However Daniel Stewart analyst James Hollins warned that although the deal “should generate considerable revenue” and “the French market provides a considerable opportunity for operators entering the market… several key legal issues, in our opinion, could see the delay of any legislation beyond the mooted H1 2010 start point”.