Shares of London Capital Group (LCG), the owner of the spread betting company Capital Spreads, fell more than 15% after the news that Paddy Power is reviewing their partnership with LCG were made known. Investors are concerned that an end of the partnership could undermine future prospects for LCG, and traded more than 400,000 shares in a massive sell-off. LCG has an agreement with Paddy Power to deliver a white-label spread betting product that is marketed as Paddypowertrader. The product is hosted and managed on LCG’s platform. The agreement is in place since 2007 and currently hosts 17% of LCG’s client base.
Following this announcement LCG has issued an update on White Label Agreement:
Further to the statement made on Tuesday 1(st) March, London Capital Group has been informed by Paddy Power that following the review of their financial spread betting business they intend to terminate their LCG operated White Label contract and will be exiting the financial spread betting space. LCG and Paddy Power are now in negotiations to agree a mutually beneficial termination agreement. PaddyPowerTrader customers will be invited to transfer to LCG's Capital Spreads brand at a date to be agreed. As a result of this transfer, LCG will continue to receive revenue from these customers.
As I suspected it's not very easy for the gambling operators to operate in the financial markets. William Hill is the latest gambling operator to make an attempt at this market segment, read more about it here.
