Special Feature
Business background Sportingbet is a highly regarded sports-book operator that achieves industry-leading margins and has a strong position in its main markets in both Europe and Australia. Betting on sports accounts for about 75% of revenue, casino and poker provide most of the balance. Historically, Sportingbet’s business was skewed to the Southern European markets of Spain, Greece and Turkey (51% of revenue in FY10). Post the acquisition of Centrebet and sale of the Turkish business to GVC by way of an effective ‘earn out’ structure where a target minimum of €142.5m (£115m) is expected to be received, 45% of revenues come from Australia, and over 90% of profits. About 65% now comes from regulated markets - mainly Australia, Spain, the UK, Denmark, Italy and South Africa.
Overview Spain finally issued gambling licences on 1 June and miuapuesta.es is trading in time for Euro 2012 (after an injunction had forced the temporary closure of the old website). Sportingbet now derives about 65% of its revenues from regulated markets, although it still faces economic uncertainty in Spain and Greece (together accounting for about 22% of its revenues). The Spanish events of the last few months were more damaging in that they highlighted the unpredictability of European markets until licensing regimes are fully implemented. However, Sportingbet also has growth opportunities elsewhere: in fast growing emerging markets, and also potentially with partners in the US which is slowly moving towards allowing some online gaming.
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Risks: Regulatory and economic A number of Sportingbet’s markets have yet to introduce licences, notably Greece (although a law was passed and taxes are already being paid) and various smaller countries, while the German situation remains confused. This produces many uncertainties (tax rates, products allowed, IT requirements, new competition and enforcement). However, about two-thirds of revenues are already coming from regulated territories. In Australia it took three years for the benefit of 2008 regulation to flow through to profits, once faster market growth offset higher costs and increased competition. With around 22% of revenues (pre-gambling tax) coming from Greece and Spain, economic uncertainties will continue to weigh.
Financials: Australia growing, Europe break-even At this stage, the key to the story is confidence that Sportingbet can hold Europe around break-even while growing in Australia. This is reflected in FY13 numbers, slightly reduced to allow for reinvestment (e.g. marketing) in newly regulated markets (plus we have adjusted for the additional £15m of convertible issued to pay Spanish back-tax). Once European markets regulate and recession passes, and also if Australia allows new products, there is scope for significant profits growth. The balance sheet is sound with about £9m of net cash at 30 April plus £80m of convertible bonds.