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Entain’s BetCity Acquisition: Regulatory Impact

Entain's BetCity Acquisition - Regulatory Impact
by
March 19, 2024
in Companies & People, iGaming News
115

Entain has disclosed that undisclosed regulatory investigations ongoing at the time of its acquisition of BetCity significantly impacted the perceived value of the Dutch-facing business. The undisclosed investigations have led to a reduction in the estimated value of BetCity by as much as €156 million (£133 million/$169 million).

Background of the Acquisition

Entain finalized the acquisition of BetCity for €450 million in January of the previous year. The strategic move aimed to grant Entain access to the burgeoning Dutch gambling market, with BetCity being among the initial 10 licensees operating in the Netherlands.

However, in January of the current year, Entain initiated a compensation claim following the revelation of two regulatory cases related to BetCity. Entain asserted that it was unaware of these investigations at the time of the acquisition, prompting the claim against BetCity’s former owners.

Unveiling the Regulatory Cases

According to documents obtained by CasinoNieuws.nl, BetCity’s former owners had signed agreements stating their lack of awareness regarding any ongoing regulatory investigations. Nevertheless, it was revealed that several individuals within BetCity were aware of the cases but failed to disclose this crucial information.

The regulatory investigations were being conducted by the Dutch gambling regulator Kansspelautoriteit (KSA), shedding light on potential breaches of compliance within BetCity’s operations.

Impact on BetCity’s Valuation

A subsequent document secured by CasinoNieuws.nl detailed Entain’s assessment of how the regulatory cases affected BetCity’s valuation. The investigations led Entain to conclude that BetCity’s actual value could be significantly lower than originally assumed, with estimates ranging from €68 million to €156 million less.

Entain refrained from disclosing the exact amount of compensation being sought from BetCity’s former owners, pending further assessment by industry experts. However, the document outlined two methodologies employed by Entain to calculate the diminished valuation.

Methodologies Employed by Entain

The first methodology focused on assessing the increased risks associated with BetCity’s operations, particularly regarding violations of Dutch gambling laws. Entain contended that these violations escalated various risks, including legal, operational, and reputational, thus diminishing BetCity’s value. The potential increase in the average cost of capital from 10% to 12.5% resulted in a devaluation of €124 million. Even a modest 1% increase in this cost could still translate to a depreciation of €58 million.

The second methodology, perhaps more concerning, centered on the impact of the regulatory cases on BetCity’s future cash flows. Entain recalibrated the cash flow forecasts provided by BetCity’s former owners, projecting a substantial decrease in net gaming revenue for 2024. This adjustment led to a valuation reduction ranging from €136 million to €156 million.

Details of Regulatory Cases

The regulatory investigations against BetCity, as outlined in January’s filing, highlighted significant compliance breaches. The first case, notified to BetCity in April 2022, involved the improper sending of promotional emails to young adults, resulting in a €400,000 fine. The second investigation, initiated in May 2022, identified deficiencies in anti-money laundering and counter-terrorism financing measures, leading to a €3 million penalty.

Speculations Surrounding BetCity’s Future

Amidst the controversy surrounding BetCity’s regulatory issues, speculations have emerged regarding the possibility of Entain divesting the business. Reports from the Financial Times hinted at Entain’s openness to a potential sale, although the company has refrained from commenting on the matter.

Conclusion

The undisclosed regulatory investigations surrounding BetCity have unveiled significant compliance shortcomings, leading to a substantial devaluation of the business. Entain’s pursuit of compensation underscores the gravity of the situation, as the company navigates through the complexities of regulatory compliance in the gambling industry.

FAQs

What was the value of BetCity when Entain acquired it?
The value of BetCity when Entain acquired it was €450 million.

What were the undisclosed regulatory investigations concerning BetCity?
The undisclosed regulatory investigations involved breaches of Dutch gambling laws, including improper promotional activities and deficiencies in anti-money laundering measures.

Who initiated the compensation claim against BetCity’s former owners?
Entain initiated the compensation claim against BetCity’s former owners after the regulatory investigations came to light.

What methodologies did Entain employ to assess BetCity’s diminished valuation?
Entain employed two methodologies: one focused on increased risks due to compliance breaches, and the other on the impact of regulatory cases on future cash flows.

What were the findings of the regulatory investigations against BetCity?
The investigations revealed violations such as sending promotional emails to young adults and shortcomings in anti-money laundering measures.

How much was BetCity fined for sending promotional emails to young adults?
BetCity was fined €400,000 for sending promotional emails to young adults, which violated Dutch gambling laws.

What were the shortcomings identified in BetCity’s anti-money laundering measures?
BetCity’s anti-money laundering measures were found to be deficient, leading to a €3 million fine.

Is Entain considering selling BetCity amidst the regulatory controversies?
Reports suggest that Entain may be open to selling BetCity, although the company has not confirmed this speculation.

What impact have the regulatory cases had on BetCity’s future cash flows?
The regulatory cases have led to a projected decrease in BetCity’s future cash flows, resulting in a diminished valuation of the business.

Has BetCity responded to Entain’s compensation claim?
BetCity’s response to Entain’s compensation claim remains undisclosed as of now.

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