Home In-Depth Entain claims that BetCity’s value could be devalued by EUR156m due to a hidden investigation

Entain claims that BetCity’s value could be devalued by EUR156m due to a hidden investigation

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Entain said that undeclared regulatory inquiries ongoing when it acquired BetCity resulted in the Dutch business being worth EUR156m less (PS133m/$169m).

Entain purchased BetCity in January last year for EUR450m, allowing it to access the Dutch market. BetCity is one of the original 10 licensed operators in The Netherlands.

Entain filed a claim for compensation in January of this year after two cases involving regulatory issues were revealed. Entain claimed that it had no knowledge of BetCity’s investigations when it purchased the company.

Entain stated that former BetCity owners had signed documents stating they did not know about any regulatory investigations. According to the filing, several BetCity employees knew about these cases but failed to disclose this information.

Both investigations were led by the Dutch gambling regulator Kansspelautoriteit.

Entain’s conclusion:

Another document, obtained by CasinoNieuws.nl, explains how Entain thinks the BetCity case shows that it is worth less than was assumed at the time of acquisition. Entain stated in the document that this could range between EUR68m to EUR156m.

Entain has not disclosed how much compensation Entain is seeking from former BetCity owners. Experts have yet to determine the exact amount that is due.

Entain has provided two different methods for calculating its initial estimate.

BetCity’s value is EUR124m lower

BetCity’s value was EUR124m lower according to the first calculation. The method examines which risks increased as a result of, for example, Dutch laws violations. Entain assumes that violations of Dutch law have increased the risk associated with legislation, regulations and business operations, and also reputational and operational risk.

Entain states that BetCity may be under stricter surveillance and could face increased sanctions. Investors may then demand higher returns in order to offset these increased risks.

Entain says that this is a rise in capital costs from 10% to 12,5%. BetCity will lose EUR124m in value. If this was only increased by 1% the value of BetCity would be reduced to EUR58m.

BetCity’s value is between EUR68m to EUR156m lower

This second method is more alarming, as BetCity’s value could be up to EUR156m lower than expected. The value is calculated based on future cash flow.

Entain has adjusted the cash flow forecast that BetCity’s former owners provided before acquisition. Entain believes BetCity will have a net gaming revenue of 28% – 32% less than expected in 2024.

This method calculates that BetCity is worth EUR136m – EUR156m lower than originally thought. Entain, however, reduced this lower range of EUR68m-EUR156m by 50% because the consequences of these violations are not clear.

What has BetCity done?

The January filing outlined the regulatory actions that BetCity was facing at the time.

BetCity received notification of the first in April 2022. It was a matter concerning sending promotional emails for young adults. The Dutch laws were violated and a fine of EUR400,000 was imposed.

In May 2022 the second investigation was launched. It focused on deficiencies in anti-money laundering measures and terrorist funding. BetCity received a fine of EUR3m due to such failures.

The controversy surrounding the case has become so intense that rumours are now circulating about Entain possibly selling BetCity. Last week, The Financial Times reported that Entain might be willing to sell BetCity. Entain, to date, has declined comment.

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