James Thomson Editor

James Thomson is the editor of BRW. Previously he was editor and publisher of SmartCompany and a senior editor at Business Spectator. He writes regularly on Australia's wealthiest entrepreneurs and has deep expertise in small business and the mid market.

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Why Tom Waterhouse’s deal means we’ll be seeing more of him

Published 09 August 2013 10:48, Updated 15 August 2013 00:45

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Why Tom Waterhouse’s deal means we’ll be seeing more of him

Tom Waterhouse can’t afford to take the foot off the marketing pedal now.

Tom Waterhouse might have finally pulled off the sale deal he’s been chasing all year, but don’t think for a moment that we’re going to be seeing less of his youthful face on our television screens.

If Tom wants a big a really big payday, he’s going to have to work incredibly hard in the next few years.

The structure of the Waterhouse deal with British bookmaker William Hill (which already owns Sportingbet Australia) could perhaps be described as small carrot, big carrot.

The $34 million he gets up front is actually a pretty impressive price for a business that is really only two years old.

But the real gold is in the incentive payments that William Hill is dangling in front of Waterhouse. If Tom can produce earnings before interest and tax of more than $10 million in calendar 2015, his earn-out payments will start. If he can make $30 million in that year, his payout could be as high as $70 million.

That’s a lot of carrot, but it won’t be an easy feat for Waterhouse to manage. At present, the business is believed to be unprofitable, largely due to the fact it spent millions on marketing in an effort to build the sort of customer base that a buyer like William Hill would want.

Waterhouse might be able to turn down the marketing tap to some extent to reduce costs and improve profitability (indeed he’s basically been forced to, by the community backlash to his saturation advertising strategy). But that won’t be easy, given the incredibly strong competition for the punting dollar.

Those in the bookmaking industry say Waterhouse will derive big benefits from being able to use the industry-leading infrastructure that Sportingbet has. This should help him reduce customer churn, which those in the sector say has been a problem for the young business.

Bookmakers are finding conditions very tough at present. The big punters who underwrite many bookmaking operations have pulled back, in line with the weaker economy and the marketing spend required to land the mass-market punter – who might only turn over hundreds of dollars are year – which is weighing heavily on profitability.

The industry view is that Tom Waterhouse will need to work very, very hard to reach $10 million of earnings in 2015, let alone $30 million. He will need to keep pushing his brand hard, and those advertising deals with the likes of Nine Network.

The one thing in Waterhouse’s favour is that he now has the backing of a partner with deep expertise and deep pockets. William Hill’s experience combined with Tom’s marketing abilities, could be a powerful combination.

Powerful enough to get Tom $70 million? That won’t be easy.

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