Further details have been disclosed regarding Entain’s legal challenge against Sports Entertainment Media BV and related parties involved in valuing its Netherlands subsidiary, BetCity.nl.
According to CasinoNieuws, documents from the High Court of England and Wales state that the FTSE100 gambling group’s board believe BetCity.nl’s value is €68m to €156m less than the previously agreed deal with Sports Entertainment BV.
As a result, Entain is pursuing a legal challenge as it accuses Sports Entertainment BV and the company’s founders, the Singels family, of concealing information related to regulatory infringements at BetCity.
Entain agreed terms to acquire BetEnt BV, the Dutch operator of BetCity.nl, in 2022 for a valuation of €850m. The initial deal terms resulted in the group acquiring the shareholding of Sports Entertainment Media BV for a cash offer of €300m.
Performance reward incentives of €550m were included in the deal, elevating the offer above the €800m mark on the condition that BetCity produced 10x EBITDA for the 2023 financial year.
However, last year, BetCity received a €3m fine for significant failures to comply with the Netherlands’ Money Laundering and Terrorism Financing Prevention Act – violations which Entain believes were concealed by Sports Entertainment Media BV and associated parties.
Entain, being represented by Clifford Chance, justified the price paid for BetCity as it was acquiring a podium-placed operator in the Dutch gambling market, but they estimate the damages caused by the operator’s previous owners’ breached deal covenants to be in the range of €68m to €156m.
The court document stated: “Without prejudice to the matters set out above, the Claimant’s most recent good faith calculation is that the damage it has suffered from the Defendants’ breach of warranty totals between €68 million and €156 million, though as set out below, an alternative assessment method produces a range of potential losses of €58 million to €124 million.
“This is the case whether the Claimant’s loss is assessed at the date of the SPA, or at the date of Completion.”
Two calculations have been provided by Entain to determine the damages caused by Sports Entertainment Media BV breaching deal covenants. Assuming increased risks due to violations, the group details an estimated reduction in BetCity.nl’s value by €124m based on an increased weighted average cost of capital from 10 per cent to 12.5 per cent.
The second calculation focuses on BetCity’s adjusted future cash flows, where Entain believes 2024 revenue will be between 28 per cent to 32 per cent lower than expected, resulting in an asset value decrease of €136m to €156m, which Entain has cautiously adjusted to between €68m and €156m.
For both calculations, Entain assumes that BetCity.nl’s performance will be negatively impacted by stricter supervision and loss of reputation.
With the group’s recently published 2023 financial results, Entain issued a warning that 2024 EBITDA will likely be impacted by almost £40m due to continued regulatory adjustments in the UK and the Netherlands.
The group formed a Capital Allocation Committee in November to review its markets, brands and verticals “to help focus the organisation, improve competitive positions in core markets and maximise shareholder value”.
Over the past month, it has been reported that Entain is exploring the sale of its PartyPoker subsidiary and has enlisted Oakvale Capital to fetch the ‘maximum possible value’ for the asset – a targeted £150m sale.
In addition, the group has reportedly hired advisory firm Moelis to assist the board and its capital allocation committee in moving on from brands which have not been integrated into the group’s technology platform.
