COUNTERVAILING FACTORS: are there any countervailing factors that prevent or mitigate any SLC arising from the Merger?:
There are two main ways in which this could happen:
(a) Entry and/or expansion: the effect of a merger on competition may be
mitigated if effective entry and/or expansion by third parties occurs as a result
of the merger and any consequent adverse effect (eg a price rise).481
(b) Merger efficiencies: rivalry-enhancing efficiencies – ie efficiencies that
change the incentives of the merger firms and induce them to act as stronger
competitors to their rivals – may prevent an SLC by offsetting any
anticompetitive effects of a merger
7.3 This Chapter therefore assesses the potential for entry and/or expansion and
merger efficiencies to mitigate the loss of competitive constraint resulting from the
Merger
Entry and/or expansion
7.4 In this Chapter, we consider the possibility of entry into the relevant market by a
new market entrant, triggered by the Merger, and whether this would replace the
constraint eliminated by the Merger and therefore would constitute a countervailing
factor to prevent or mitigate any SLC arising from the Merger.483 This assessment
is distinct from our assessment set out in Chapter 5, Counterfactual, where we
have considered the scenario, in the absence of the Merger, in which a potential
purchaser may have acquired Sporting Index or its assets.
Framework of assessment
7.5 If effective entry and/or expansion occurs as a result of the merger and any
consequent adverse effect (for example, a price rise), the effect of the merger on
competition may be mitigated. In these situations, the CMA might conclude that no
SLC arises as a result of the merger
As set out in Chapter 6, Horizontal Unilateral Effects, our view is that there are
primarily three relevant parameters of competition in the supply of licensed online
sports spread betting in the UK:
(a) price;
(b) range of ‘spread markets’, and
(c) customer experience
we conclude that obtaining an FCA
licence would not be a lengthy and/or costly process. We understand that it would
take 6–12 months and that this would not be a costly process on its own, with an
approximate cost of just £10,000.
7.28 We note the third-party evidence that obtaining an FCA licence is a significant
barrier to entry. However, we also note that the third party considered that this
barrier could be overcome, and that it considered obtaining a licence to be a less
onerous process than it had initially thought.506
7.29 We therefore consider that the costs and timescales involved in obtaining the
required regulatory licence from the FCA do not represent a significant barrier to
entry on their own, and firms that already hold this licence (such as financial
leveraged trading providers) would not face this barrier at all. However, we note
that there are other barriers which an entrant would need to overcome, including
the costs required to comply with the FCA’s regulatory requirements on an
ongoing basis, which are considered in more detail below
Our view is that in order for a competitor to exert an effective competitive
constraint on the Merged Entity in the supply of licensed online sports spread
betting services in the UK, it would require the technology to:
(a) comply with the FCA’s regulated requirements; and
(b) offer spread betting prices in a manner that is sufficiently comprehensive to
compete with the Merged Entity.
A new entrant would need to offer services comparable to those of Sporting Index
pre-Merger to prevent an SLC arising from the Merger.
7.39 In our view, a financial leveraged trading provider looking to start supplying sports
spread betting in the UK would need to incur significant investment to acquire, and
in addition over multiple years to develop, the technology required to provide
sports specific spread betting services. This would include costs to:
(a) either acquire third-party sports data feeds or develop these sports data
feeds in-house; and
(b) adjust the spread betting technology it has such that it can use this data feed
to provide sports-specific spread betting prices.
7.40 While financial leveraged trading providers may be better placed than other
providers to develop this technology due to the general spread betting overlaps
between the platforms it already owns and the platform required to generate sports
spread betting prices, the evidence is that an investment of at least several
millions over multiple years would still be required in order to provide a sports
spread betting service comparable to that of Sporting Index pre-Merger.519
7.41 In our view, a sports fixed odds betting provider would also need to incur
significant investment over multiple years to provide licensed online sports spread
betting services in the UK, in order to:
(a) adjust its existing technology such that this is compliant with the FCA’s
regulatory requirements; and
(b) develop or acquire a platform that can generate spread betting prices.520
7.42 On the basis of the evidence, hiring the relevant IT staff to make these changes
would require an investment of at least several millions of pounds over multiple
years.
7.43 We also consider that after the initial upfront technological investment required for
a new entrant to start supplying sports spread betting services in the UK
comparable to those of Sporting Index pre-Merger, both sports fixed odds betting
providers and financial leveraged trading providers would then need to incur costs
on an ongoing basis to develop this technology in order to ensure that it is:
(a) an effective competitor to Spreadex’s sports spread betting services; and
(b) compliant on an ongoing basis with the FCA’s regulatory requirements.
7.44 We note that both sports fixed odds betting providers and financial leveraged
trading providers may be able to enter in a more timely manner than other entrants
should it be possible to procure from a third party the technology platform required
to provide sports spread betting services, rather than developing this technology
in-house. However, the evidence is mixed on whether there is any third-party
technology which can provide a similar level of service to that of Sporting Index
pre-Merger, and one third party told us that acquiring this technology would incur a
significant cost.521
7.45 The evidence provided to us therefore implies that any new entrant or rival looking
to expand into sports spread betting will face substantial upfront costs to
developing the required technology, as well as multiple years of investment before
any return on investment is realised. For example, we note Spreadex’s
assessment that a new entrant would require technological investment in excess
of £20 million over three years to provide a service comparable to that of Sporting
Index pre-Merger. Our view is that this required investment is large when
compared to the available profits, noting in particular that licensed online sports
spread betting had a market size of £[] million in 2022 and £[] million in 2023
(see paragraph 2.12).522
7.46 We therefore conclude that, relative to the size of the licensed online sports
spread betting market in the UK, the costs and timescales to develop and/or
acquire the required technology to provide a licensed online sports spread betting
service in the UK that is compliant with the FCA’s regulatory requirements and
sufficiently comprehensive to exert an effective competitive constraint on the
Merged Entity represents a significant barrier, making entry unlikely. If new entry
were to occur as a result of the Merger, we conclude that the technological
barriers mean that it would not be timely or of sufficient scale to prevent the SLC
identified in Chapter 6, Horizontal Unilateral Effects. Although we consider that
barriers to expansion are lower than barriers to entry as regards technology, they
are not relevant in this case since, following the Merger, there are no other
providers of licensed online sports spread betting services in the UK.
we provisionally concluded that, relative to the size of
the licensed online sports spread betting market in the UK, the costs and
timescales to develop and/or acquire the required industry expertise to provide a
licensed online sports spread betting service that is compliant with the FCA’s
regulatory requirements and is sufficiently comprehensive to exert an effective
competitive constraint on the Merged Entity represents a significant barrier to
entry.
7.58 Following our Provisional Findings, and in the course of our evidence gathering in
relation to possible remedies for the SLC provisionally identified, we received the
we conclude that, while staff and
expertise are important to the operation of a successful sports spread betting
business, and some investment may be required in order to ensure that a
business has the required staff, the costs and timescales to develop and/or
acquire the relevant industry expertise do not represent a significant barrier to
entry. We also note that firms already active in the wider betting industry are likely
to have existing staff with relevant transferable skills.
Conclusion on potential barriers to entry and/or expansion
7.60 Based on our assessment set out above, we conclude that while there are no
absolute impediments to entry into the market for licensed online sports spread
betting in the UK, the cost and timescales involved in developing and/or acquiring
the required technology, relative to the modest market opportunity available,
constitute a barrier to entry.
7.61 However, we conclude that the costs and timescales involved in obtaining the
required regulatory licence from the FCA do not represent a significant barrier to
entry on their own, and firms that already hold this licence (such as financial
spread betting providers) would not face this barrier at all.
7.62 We also conclude that the costs and timescales involved in obtaining the required
industry expertise do not represent a significant barrier to entry on their own, and
that firms already active in the wider betting industry are likely to have existing
staff with relevant transferable skills.
we conclude that entry and/or expansion would not be timely, likely and sufficient
to prevent an SLC arising from the Merger.
Efficiencies
7.71 We also consider whether there are any efficiencies arising from the Merger which
could be considered a potential countervailing factor to an SLC arising from the
Merger. The details of our assessment are set out below.
Framework for assessment
7.72 Efficiencies arising from a merger can enhance rivalry with the result that a merger
does not give rise to an SLC. In order for that to be the case, the efficiencies must:
(a) enhance rivalry in the supply of those products where an SLC may otherwise
arise;
(b) be timely, likely and sufficient to prevent an SLC from arising;
(c) be merger-specific; and
(d) benefit customers in the UK.
The MAGs state that merger firms who wish to make efficiency claims are
encouraged to provide verifiable evidence to support their claims in line with the
CMA’s framework.545 The MAGs note that it is for the merger firms to demonstrate
that the merger will result in efficiencies and the CMA must be satisfied that the
evidence shows that the above criteria are met
Our view is that the efficiency arguments submitted by Spreadex to date do not
meet the above criteria for the following reasons:
(a) The claimed efficiencies are not merger-specific, as the customer benefits
described above would have been available to Sporting Index customers had
they switched to Spreadex and this option would have existed with or without
the Merger.
(b) The claimed efficiencies also do not enhance rivalry in the market for
licensed online sports spread betting in the UK, given that the Merger has
resulted in Spreadex acquiring the only other licensed sports spread betting
provider in the UK, and the lack of any other effective competitive constraint
on the Merged Entity.
Conclusion on efficiencies as a countervailing factor
7.77 Based on our assessment above and in light of the evidence provided to us, we
conclude that the claimed efficiencies would not be merger specific or enhance
rivalry in the UK licensed online sports spread betting market, such as to prevent
an SLC arising from the Merger.
Conclusion on countervailing factors
7.78 Based on our assessment set out in this Chapter, it is our conclusion that there are
no countervailing factors to prevent or mitigate an SLC arising from the Merger.
we conclude that:
(a) the completed acquisition of Sporting Index by Spreadex has resulted in the
creation of an RMS; and
(b) the creation of that RMS has resulted, or may be expected to result, in an
SLC in the supply of licensed online sports spread betting services in the UK