Will Sportingbet finally be sold?

If we start with the basic premise that Sportingbet has been up for sale since UIGEA was passed in 2006, then we must end up with the assumption that the current board will ultimately accept the joint offer of William Hill and GVC.

At present, Sportingbet claim the bid “significantly undervalues the business”. And why not? They owe it to their shareholders to get as much as possible and the fact the deal has not fallen apart at the first hurdle bodes well for its completion. However, those on the Sportingbet side of the table might also want to consider that the business is fast running out of suitors - a fact probably not lost on the other side.

In November 2010, Unibet withdrew from merger talks. It did not want to touch Turkey, which accounted for 22.4 per cent of Sportingbet’s revenues in 2011. One year later, Ladbrokes pulled the plug on four months of talks. Lads CEO Richard Glynn cited “non-mitigable regulatory risk” in addition to the usual lack of shareholder value.

At the time, it was thought that GVC had cleared the way for Ladbrokes. It snapped up the Turkish business Superbahis.com via a supplier deal with East Pioneer Corporation only for Glynn to change the payment terms at the last minute and scupper the deal.

Lads’ head of channels Nick Rust later remarked witheringly: “There are inflated views of those businesses [he was including 888 in this discussion], as you will have seen with how the markets reacted to one of those - Sportingbet.”

Inflated self-valuation or not, Glynn was still concerned about exposure to non-regulated markets. A quick glance at Sportingbet’s annual report clearly reveals the source of the company’s revenues:

Source of net gaming revenues

Chairman Peter Dicks claimed regulated markets accounted for 32 per cent of revenues in 2011. I make it about 25 per cent if you add up Australia, the UK and half of emerging markets (which is probably generous given that it is split between non-regulated Brazil, regulated South Africa and non-regulated elsewhere unknown) but we can attribute the difference to accounting methods.

In its most recent announcement it claimed this figure had risen to 80 per cent due to regulations being passed in Greece and Spain and withdrawal from Turkey. This is quite some jump from the 52 per cent that the company reported in Q3. A spokesperson claims this is attributable to the 50 per cent of revenues now reaped in Australia (actually 44 per cent or 42.8 per cent depending on which part of the report you cite) plus Greece, Spain, Denmark and the UK.

Given the available data and even assuming a massive jump in Danish revenues, I still struggle to get the figure much above 70 per cent. Again, we can put the difference down to accounting methods but I wonder if Richard Glynn’s accounting methods are closer to mine than those of Sportingbet FD Jim Wilkinson.

It seems silly to quibble over 10 per cent (especially given my lack of access to all the figures) but as this has been the major sticking point of all previous negotiations, it is worthy of scrutiny. For the last two years, this mystical figure has taken pride of place at the very top of every one of CEO Andy McIver’s financial announcements.

Now it has finally risen as high as 80 per cent (or thereabouts), it seems odd for Sportingbet to stall on price, when finally it has found someone willing to buy the dodgy 20 per cent (or thereabouts). The joint bid from Hills and GVC has a whiff of genius about it. GVC’s revenues soared 147 per cent on the back of its supplier deal to Superbahis.com and it has significant business in South America and Germany. It would seem to have the right regulatory risk profile to take on Sportingbet’s unregulated markets but one feels there will still be a fair bit of due diligence to be done on this deal.  

Regulatory concerns have been at the centre of Sportingbet’s efforts to offload the business since the company’s former US activities scuppered a deal with bwin in 2007. Now, Sportingbet has a sensibly structured deal on the table, one feels it should grab it with both hands - especially if Hills and GVC up their bid, which they are expected to. However, the company’s shares have surged more than 90 per cent in the past four months on bid speculation. So McIver, Wilkinson and Dicks are obviously doing something right.

sah@gamingintelligence.com