Ladbrokes Downgraded by Fitch Ratings

International ratings agency, Fitch Ratings, has downgraded leading UK land and online gaming and betting operation Ladbrokes, based on a perception that the gambling giant is facing and increase in competition and tougher trading environment both online and on through its high street shops.

After Ladbrokes reported a 34 percent drop in its group profits over the last four months up to April this year, Fitch Ratings assigned the drop in profitability to 'increased competitive dynamics' across the business, as well as longer operating hours and a rise in Fixed Odds Betting Terminals (FOBTs).

However, it is Ladbrokes' recently launched loyalty scheme that is sending up the biggest red flags according to Fitch. Ladbrokes launched its Odds On program loyalty scheme in 2,700 high street shops earlier this year, which to date has seen over 8.6m pounds of free bets and bonuses been handed out.

Said a Fitch Ratings spokesperson, 'The result of the loyalty program is an upfront increase of customer retention costs, particularly for Ladbrokes. It has yet to produce any results, which in turn would depend on the extent of competitors' reaction. In addition, while these expenses are discretionary, it could be difficult to withdraw them when customer spending is no longer growing and competitors are winning market share.'

Ladbrokes, however, explains its loyalty scheme as a 'way to provide a greater degree of knowledge of the betting habits of their customers.' The gaming firm is also quick to point out that none of its competitors have as yet launched their own loyalty schemes, and that it is still too early to gauge its overall success.

Despite the fact that Ladbrokes may be losing market share to its largest UK competitors, which included William Hill and Paddy Power, it is still looking abroad to make strategic acquisitions. For instance, Ladbrokes is reportedly considering purchasing Tote Tasmania to bolster its international betting interests.

Formerly run by the Tasmanian government, Tote Tasmania went on sale earlier this year, with the betting operation expected to go under the hammer for between AUD$210m and AUD$240m. Ladbrokes has also shown interest in taking on the Victorian wagering license, which comes up for renewal in 2012.