Luck of the Irish takes a pounding
Fiorente's Melbourne Cup win may have left the punters in clover, but it seems the bookies took a drubbing.
Paddy Power, the Irish betting giant behind one of Australia's largest corporate bookmakers, Sportsbet, admitted that it had lost about $5.7 million on the spring racing carnival, thanks to the run of favourites winning the big races.
At odds of 6-1, Fiorente was the first favourite to win the race since Makybe Diva in 2005, and Sportsbet is not expected to be the only corporate bookmaker to suffer.
"It is entirely down to the random walk of results," Paddy Power's chief executive, Patrick Kennedy, told analysts this week as the company's share price tanked.
"The difference between Fiorente and Red Cadeaux is very many millions, and the gap between them was half a head, and we'd be having a very different trading statement had Red Cadeaux got up."
The Melbourne Cup was not the only result that did not go the company's way. Sports results across Europe will contribute to a significant profit downgrade for the company, but Australia's big race generated the bulk of the €10 million ($14 million) worth of betting losses over October and November.
The "random" nature of the results means Paddy Power is confident its bottom line will pick up soon.
Mr Kennedy said some of the company's directors had not seen such a run against the bookie in three decades.
The losses reflect the big risks taken by such corporate bookmakers as Sportsbet, Sportingbet and Tom Waterhouse, which are on the other side of the bet taken by clients. Tabcorp, Australia's biggest betting operator, said it did not make a loss from its fixed-odds business on Cup day.
Its much larger TAB operations do not lose money on results, as winnings are paid out as a proportion of the bets laid on a race.
Paddy Power has invested heavily in the Australian market through its local subsidiary, Sportsbet, and recently paid tens of millions of dollars to sponsor Nine's NRL coverage.
Mr Kennedy said the company's investment in marketing such assets as the NRL coverage have been helped by the fact that there has been a slowdown in the marketing war among the various bookmakers vying for new punters.
Mr Kennedy said the "music has stopped" and some of the smaller operators, such as Unibet and BetChoice, are "far less aggressive" in the market.
Paddy Power said its Australian operations would account for up to one-third of its earnings this year.
Online net revenue was up 30 per cent for the year to date.
"This has been a very competitive market for quite a number of years," Mr Kennedy said. "And yet, external data shows that we continue to grow our market share strongly."