The performance of a company or an organization is a corporate variable that can be evaluated through the assessment of profits, turnover from new investments, and the ability to compete with rivals. Ladbrokes profit margins are dropping at an alarming rate after the investment in an online betting game. The CEO, Richard Glynn, argues that the investment in an online betting game has not positively influenced profits yet. To make the situation worse, the investment of £25m in online betting has led to an 8.5% drop in profits. The drop is accounted after being compared with the previous annual pretax profits.

Financial problems of any organization are generally caused by a certain variable or a series of unfavourable instalments. With regard to Ladbrokes case, unfavourable sporting results of December 2011 and poor poker results are to blame. The online or digital division of Ladbrokes incurred a 12.3% loss in profits. The loss has considerably affected Ladbrokes’ ability to compete with rivals. As far as Ladbrokes’ profits keep going down south, it would even be much more difficult for Ladbrokes to invest in profitable businesses. The fact is that a drop in profits does not mean an actual loss; it can hinder future decisions of Ladbrokes in terms of incurring major negative opportunity costs. The potential of an organization is reached from profits that can sustain growth and development in terms of expansion and realization of much beneficial investments.

The fate of Ladbrokes’ profits hangs in the balance, as the organization tries to spend the remaining £50m of its digital improvement budget on launching a digital online sportsbook. The level of optimism from the top management and the CEO seems unparalleled, as profits are expected to rise in the second half of 2012. In this case, the level of optimism and the actual figures generated throughout the organization’s database do not quite spell out a smooth run for the organization. Given the fact that Ladbrokes posted a pretax profit of £134.6m from £147.1m previously, it is hard to predict which of the two profits the organization will be aiming to beat. As long as the organization was contented with the figure of £147.1m, the expected rise in profits in the second quarter of 2012 may be targeting that figure or the current of £134.6m. Whichever the target figure, Ladbrokes has had numerous negative results in a couple of deals it has tried to invest in.

Ladbrokes Technology Deal to Recover Financial Stability

In order to pull itself from the financial turmoil, Ladbrokes’ CEO contacted Dermot Desmond, an Irish Billionaire who owns the Betdaq betting exchange, to hold talks on a deal that would overturn the issues that the organization has been going through. The purpose of the deal was to revamp the online betting investment that has been going down in spite of more investments. With the current budget of £50m, Ladbrokes does not seem to be sure that anything positive will yield from the investment unless a capable player, Betdaq, is brought to the investment table. The aim of Ladbrokes through this deal is to buy pricing and trading skills for an online betting exchange to enable the organization to compete favourably with players like Betfair.

However, the talks between the Ladbrokes and Dermot Desmond may be a sermon to address Desmond’s 2% stake in the organization. The type of support that Ladbrokes seeks from Desmond is a deal to buy Betdaq at a price of over £100m in order to utilize the technology used in that particular betting organization. The profit problems of Ladbrokes originate from the online betting investment and the fact that many of its customers are changing to digital technology, hence looking forward to making the best out of the experience from other players.

The fact that Ladbrokes has to walk away from deals when they are about to mature might be considered a tendency. According to reports, since he became the CEO of Ladbrokes, Richard Glynn has been interested in buying several other betting organizations like the Playtech, Australia’s Centrebet, Sportingbet, and 888. However, the interests, the talks, and the promises that Ladbrokes would be pursuing those deals went in vain as none of the deals ever became fruitful. The downfall of Ladbrokes’ profits has affected the total revenue of the organization negatively by dropping from £980m to £976m. The decisions made by Glynn are based on a short-run basis. With regard to the number of organizations doing better than Ladbrokes, Glynn may walk away from the Betdaq talks as well. The behaviour of Glynn to crisscross from one deal to another is a time wasting endeavour that threatens the future of Ladbrokes, as shareholders and stakeholders are likely to withdraw their investments if the trend of subsiding profits continues (Braunstein 2005).

The Role of Consultants Hired to Fix Ladbrokes’ Problems

The indecisive CEO of Ladbrokes has once again adopted another of his failing strategies, which is starting talks again. This time though he is not talking with any particular organization, he is talking to a consultant who would help the organization fix its financial problem. The new consultant, Oliver Wyman, is specifically hired to overlook and strategize on how to fully implement a package that would change the mode of operation of Ladbrokes’ 2100 betting shops. Wyman is an expert in risk management, strategy, operations, organizational transformation, and leadership development. From the perspective of Mr. Wyman’s areas of expertise, it seems that Glynn has recognized his level of incompetence in terms of decision-making and he is hiring Wyman to help rebuild his broken reputation. However, a Ladbrokes’ spokesperson denies any involvement of Wyman in terms of problems, and claims that his presence in Ladbrokes is specific to addressing retail exchange strategies.

As a public organization that has sold shares to investors, Ladbrokes might be strategizing to keep the organization’s problems from the public domain for business reasons. As much as Ladbrokes can admit to having issues in its strategic decisions, it does not want to create panic among its investors. If this happened by any particular or random chance, an influx in withdrawal of investments would be caused by the current shareholders and on the same note, it would lock out new investors interested in buying shares (Mills 1998). In business and finance, current profits and revenues do not attract investors, while the potential an organization has in meeting its objectives and goals does. Therefore, if a disclosure about Ladbrokes’ issues is made public, panic and withdrawal of interested adherent and current shareholders would have negative feedback (Risk and Insurance Management Society, Inc 2012).

When Glynn joined Ladbrokes, shares were trading at £160 apiece. Now, the shares trade at £128 having moved up by £7.2 from £120.8. Within the organization, a dissension by the Board members on Glynn’s strategies and incompetence has erupted following the trade-offs of dropping revenues, profits, and share prices. An investor interested in buying Ladbrokes’ shares would have to question the credibility of the CEO, as this seems to be the problem the consultant was hired to address. After all, what the spokesperson of Ladbrokes said about the duty of the consultant was highly disputed by the figures circulating in business charts and FTSE250 index.

If the claims are genuine, fingers point at the cause of problems. Richard Glynn has not only cost Ladbrokes numerous of deals worth good money, but he has also crashed other organization’s financial stabilities. Talks between Ladbrokes and Sportingbet had highlighted that Ladbrokes and Sportingbet were entering into a £400m deal. The advantage of the deal was that it would benefit both Ladbrokes and Sportingbet in terms of profit and revenue generation. Glynn had expected that the deal would pull off a £60 increment on both Ladbrokes’ and Sportingbet’s shares. The deal was not actually a merger or an acquisition; it was a partial acquisition. On the other hand, Sportingbet would have benefited by adding the amount to its reserves – an undertaking that would have enabled it to draw more financial power and manage the rest of its assets.

Sportingbet was an organization undergoing its own financial problems and had been listed for acquisition. However, Ladbrokes, through Glynn, wanted to acquire £400m asset deal rather than a full takeover of the organization. In his defence, Glynn argued that he and Ladbrokes were not ready to incur a liability, since the Turkey issue could not be resolved given that Sportingbet had failed to sell its interests in Turkey, a country where online betting is illegal. However, analysts argued that Sportingbet’s market exposures were well-documented and nothing could be changed after the deal was struck.

Following the claim and move by Glynn to withdraw from the drawing board with Sportingbet, the shares of Sportingbet fell to £119.9 having incurred a difference of £37. The fall of the share-trading price came after the organization was valued at £245m following the dropped deal with Ladbrokes. Due to the fact that Ladbrokes claims to be avoiding liabilities in acquiring or taking over a £400m-worth of Sportingbet assets, it can be noted that Ladbrokes’ organizational structure has been damaged from the top, and making wrong decisions is a problem of the CEO. Ladbrokes has capable people and an active board but the leadership strategies are not entrepreneurial in their structure and design. Jumping from one deal to another and aborting all of them creates an atmosphere of corporate distrust for Ladbrokes by other organizations.

Views of Ladbrokes’ CEO on Profit Drops

“I will not have Plod picking me from bed.” These were the words of Ladbrokes CEO after he was questioned about the deal with Sportingbet. The Turkish illegal online betting regulation was the reason why Ladbrokes would not strike a deal with Sportingbet. However, depending on the many other deals that the CEO had dropped, it is clear or almost deducible that he was indecisive by nature. On the issue of share pricing and falling profits, the CEO was quoted saying that the organization was doing fine in terms of generating revenue and profits. The CEO reflected on the issue of 2010’s Football World Cup and Barcelona’s Victory in the Champions League, saying that the underlying profits of the organization went up by 16% after acquiring £12m from the World Cup. The Barcelona victory accounted for £4m in revenue generation to replace or lift up the financial loss it had incurred of £8.9 in the first six months of 2010. Even through Ladbrokes secured some profits from the World Cup and the Champions League, it is improper for the CEO to imply that Ladbroke is doing fine, while revenue generation deficits of up to £4.9m were incurred.

Ladbrokes profit margins went up by 6.5% to £31m having been boosted by digital online betting and mobile betting. In regards to corrective structural action, a rise of 15% in machine gross win had been registered from £723 to £821. The numbers seem interesting to look at without considering the fact that, since Glynn became the CEO, the cost of Ladbrokes’ shares has been going down and the value of Ladbrokes has been going down as well. Optimistically, the CEO refers to a future date of the second half of 2012, when he expects his strategies to bear some fruit. Being on the leadership throne, it is almost ironical to see the CEO being rewarded with a bonus of £491,000 on top of his £1.2m pay. The matters that have been affecting the organization and others that have taken the organization from its stable financial status are management associated and involve the CEO. The fact that he receives a pay bonus and takes it comfortably raises a concern about his credibility in office and his actual duty and purpose in Ladbrokes. As far as Ladbrokes does not revolve around the CEO or the management, decisions have been made by either of these parties since 2010 to date; Ladbrokes is still struggling to make it out of the financial crisis.

Ladbrokes Shareholders in Protest Vote

The financial crisis that Ladbrokes is struggling to tackle currently arises because of various mistakes or poor planning actions that the organization was involved with in 2010. There had been an increase in terms of incompetency in the management platform of Ladbrokes. In 2010, Ladbrokes lost its CEO, Chris Bell, and before long, the Chief Financial Officer was planning to leave as well. To tackle the problem, a retention bonus of £350,000 was offered to Brian Wallace so that he would consider staying. However, the problem with the organization’s management is that of taking without giving back. In total, Ladbrokes paid Wallace a total of £1.58m, but he later quitted after the bonus vested. Given that this step to reward or try to buy Mr. Wallace from leaving was taken outside logical and legal means, the organization could not sue or lay a complaint against him (Simons 1999).

A remuneration report was issued prior to the payment of the retention bonus to Wallace. In the vote, only 65% of shares voted for and 33% of the total 100% shares voted against the report. At the meeting, the report was passed because there were more of those who voted for it than those who voted against it. However, the total vote that was considered as the winning vote was less than half the total. It is, therefore, clear that Wallace was paid illegally and jeopardized the profit generation strategies and approaches of the organization. In total, Ladbrokes paid its executive directors a total of £5.6 million in 2010, while in 2009 he was paid £2.6m.

In this case, considering the fate of other organizations like William Hill and Trinity Mirror or Tullow Oil, the shareholders of Ladbrokes are moving in the same direction. William Hill had its shareholders protesting over its salary increment to its CEO from £475,000 to £540,000. Ladbrokes trend of increasing salary pay-offs is proportional to its loss in profit margins and generation of less revenues. As the pay of £5.6 from £2.6 to its executive directors was being finalized, the organization’s revenues were dropping from £1.03 billion to £980 million. This was also accompanied by a pretax profit fall from £174m to £147m in the same year. After this fall, 2011 did not forecast a better trading ground for the organization, as a further drop in revenue was registered from £980m to £976m. In terms of pretax profits, these fell further from £147m to 134.6m in 2011. It, therefore, means that the trend of the Ladbrokes financial status is a constant fall, year in year out. It is almost the end of the first quarter of 2012, and no remarkable, if any, profit or revenue generation improvements have been registered.  The CEO’s remarks on a second half revenue and profit increase may not be complying with the real situation concerning the organization’s operational model.

Ladbrokes Investors to Protest over Pay

Logically, there cannot be solutions to problems that do not have a beginning or a root cause. In this case, the analysis of Ladbrokes’ financial regimes takes the current problems as aftershocks or results of previous managerial or strategic mistakes committed earlier. In May 2011, shareholders were infuriated by the decision of Ladbrokes to pay off their outgoing Chief Financial Officer, Mr. Wallace, in 2010. In regards to the protest over the same issue, it is logical to review a prototype similar event that occurred at the William Hill organization.

It seems that organizations make a great deal of decisions without involving their investors or shareholders. This is because the pay increment of William Hill’s CEO was argued to be a compensation package after he reinstated the financial status of the organization. Since 2008, William Hill had issues in its planning and had difficulty in generating enough revenues and profits that could take the organization to the next level of development. In this case, Ralph, the CEO of William Hill, considered a salary freeze until things got better. The transformation of William Hill took place systematically but had a negative implication on the shareholders when the time to review the CEO’s salary came. The shareholders had been masked from the decision-making process and did not know that Ralph had given up his personal interests to help the organization in fixing problems first. For this case, shareholders protested against that move, infuriated that he was paid too much money, which was £1.58m.

In regards to the issue of William Hill presented above, it would be worse for Ladbrokes, as shareholders will have more than one reason to present their complains through protests. The payment was given to a financial director who, nevertheless, left after the extension bonus had been handed to him. On the other hand, the new CEO at Ladbrokes is unable to transform the organization in terms of profit generation, power to compete with rivals, budget wastage in promoting non-profit generating investments, and the CEO accepting bonuses at the midst of financial crisis. Shareholders have been in decline in terms of new investors because a negative image has been painted on the management board of the organization. It is easy or logical for shareholders to hold on to deals that do not look promising at the moment; however, it is illogical and waste of resources for shareholders to hold on or to invest in an organization that has been incurring negative growth.

Ladbrokes’ strategy to take over 888 for £240m

The length of time that Ladbrokes takes to make up its mind, if it has any, is a contributing factor as to why many deals slip through and never bear fruit. Now that Ladbrokes is struggling to deal with a falling online betting investment, there is a reason for its management to look back into the deal that was never fruitful between it and 888 on a similar business model. The fact that Ladbrokes might be scared of investments makes the organization vulnerable in terms of financial recovery. The longer the CEO of Ladbrokes does not make a deal go through, the less the organization is capable of outperforming its rivals and the fewer chances it has to acquire a stable financial model. In this case, the fate of the organization does not seem to be moving in the right direction in competing with other organizations; this is because William Hill acquired Playtech, a package that Ladbrokes had failed to acquire. Competitors and investors can question the credibility of Ladbrokes because a high level of weakness in terms of management has been registered over the last couple of years. In the same case, the failure to acquire the 888 domain is another of many deals that the organization has been unable to close. This marks a high level of indecisiveness by the organization and it is affecting the decisions of shareholders. The management of Ladbrokes does not run everything in Ladbrokes; however, the decisions made and their effects on revenue, profits, and competitive advantage maintain the organization’s reputation.

Ladbrokes’ Incapability to takeover 888

The incapability of Ladbrokes to take over 888 was because there was no strategy to accomplish the promises it made to its shareholders and the 888 management. Ladbrokes had previously promised that if it acquired 888 successfully, it would raise the share prices from £34.75 to £70 or £80. The promise raised the hopes of shareholders and got 888 excited. However, assuming that Ladbrokes had been unable to transform its share prices, this made the deal seem like a corporate joke. In business, promises do not work unless one has done a background check and a thorough investigation on the same issue. This is because the trading trends tend to be inconsistent with promises. The inability of Ladbrokes to acquire 888 was steered by the previous monetary issues it had with paying off an outgoing CFO and pouching a new one from Greene King, Ian Bull. Besides being unreliable in terms of decision-making, Ladbrokes has engaged in unfair business practices as well. Pouching a Chief Financing Officer from another company or organization can be termed as corporate espionage; this is because, a new CFO is likely to address current issues with tactics borrowed from the company he/she left. On the other hand, if the former organization was a competitor, Ladbrokes is likely to use the CFO as a tool for disclosing business strategies and products.

Year Ended 31 December

2011

2010

2009

£ millions

Turnover

976.1

980

1032.2

Operating Profit

166.9

175.5

218.1

Net interest

-33.3

-31.7

-45.1

Profit Before Interest

134.6

147.1

174.1

Profit After Tax

117.8

375.4

146.6

Table 1. Ladbrokes’ Profit and Loss Table for the Year 2009 through 2011

Risks in investments can be divided into two distinct types: positive and negative risks. Risks are incurred in any type of organizations, large or small, profit making or loss incurring, or non-profit organizations. Positive risks are risks that are not identified as positive or negative at the initial stages, but turn out to be positive after decisions to implement them have been made and decided on. The positive results of these risks define or regard them as positive because they benefit the organization or the company. Negative risks, like positive risks, cannot be identified prior to the implementation and assessment of results. In this case, a risk is termed as negative if it leads to the incurrence of loss in terms of time or reduction in net profits. In this case, an organization’s financial status should be analyzed through an assessment of the following dependent and independent variables:

  • Organization’s growth for the last 3 to 5 years (If negative, avoid investing);
  • Management decisions and their implications on the organization (A series of negative decisions should influence no investment);
  • Ethical business models that effect fair and stiff competition (Competitive advantage and ethics of business; if negative, no risk should be taken);
  • Cross referencing the organization with similar issues affecting similar organizations and its implications to investors (If the issue currently affecting the organization has been faced by another organization and had negative implications, an investor should be careful with heavy investing);
  • The kind of risks the organization is involved in and the mechanisms put in place to tackle them. (see the literature below for clarification)

Ladbrokes is an organization whose management team seems to be run by one ‘scared fellow’, Mr. Glynn. Due to the fact that risks come from decisions, one can never be able to tell what types of risks result from particular nature of decisions. Reviewing what Glynn has done for Ladbrokes, he may have good ideas that help the organization from sinking any further; but it is clear that he does not take risks for good. The problem of Ladbrokes of incurring negative growth can be accounted for by the fact that the organization does not involve itself with risks and opportunities that are likely to be missed and taken by competitors (Telegro 1998). In hiring a risk manager, the organization will not be announcing its misfortunes or financial troubles (Ladbrokes’ spokesperson denied that its 2100 betting shops needed Wyman to fix their financial problems). As a recommendation, a risk manager would be in charge of reviewing decisions made by the executives as well as modifying them if they have high negative expectations. The fact that CEOs are good leaders, they are not keen on scrutinizing decisions and their implications, which can be done by risk managers (Simons 1999).

Positive and negative risks can be managed through trial and error with ready remedies or flexibility mechanisms (Quinn 2005). The fact that a decision does not work is not a precise reason to disqualify the decision. The field of risk management is made of various risks and managers are employed to deal with them (Mills 1998). Business risks are addressed by managers with the right knowhow in marketing and industry trends of those particular organizations. Market risks are dealt with to address factors of price fluctuations, unpredictable interest rates, and inconsistent exchange rates. Credit risks are risks that involve debtors who fail or are not in the position to pay their debts; these are provided with mechanisms that help in retrieving money and funds owed to the organization by debtors (Lam 2003).

Finally, there is the issue of risks and the importance of covering incorporate legal risks. Organizations incur losses when people are unable to accomplish their duties until the end of their contracts. People like Richard Wallace have the potential to run down an organization and are dealt with through the application of this risk management tool. If a retention bonus is offered to extend a stay or serve the initial contract, movement along the salary-increment chain with no precise jurisdiction should be dealt with in accordance to the organization’s ethics (Dowd 1998). If these had been implemented, Wallace and Glynn would not have made away with £350,000 and £491,000 as retention and salary bonus respectively without having accomplished their professional duties.


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