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Entain agrees £585.0m payment with CPS over Turkey case

| By Robert Fletcher
Entain has reached a Deferred Prosecution Agreement (DPA) in principle with the Crown Prosecution Service (CPS) over historic activities in Turkey.

Preliminary judicial approval was secured today (24 November) at the Royal Courts of Justice sitting as the Crown Court at Southwark. Entain will seek final judicial approval in court on 5 December.

Terms of the DPA are in line with the provision announced on 10 August. Entain agreed to pay a financial penalty plus disgorgement of profits totalling £585.0m (€674.0m/$736.1m). It will also make a charitable donation of £20.0m and contribute £10.0m to CPS and HMRC costs.

These will be paid in instalments over the term of the DPA. This will run for a period of four years from the date of the final court approval.

At the time of originally posting the article, Entain’s share price was down 2.38% on market opening at 843.80p per share. By 3.35pm UK time, the price had rebounded to 856.20p per share (down 0.95% since opening).

Entain hopes to draw a line under the case

The DPA relates to an HMRC investigation into the historical Turkish business. Entain previously warned in May this year that it expected a “substantial” penalty from HMRC’s investigation.

This stretches back to 2019 when HMRC sought additional information from GVC Holdings – Entain’s previous name before rebranding – related to online betting and gaming operations. 

Before that request for information in 2019, the operator group, then GVC Holdings, denied claims it continued to benefit from its Turkish business, Headlong Ltd.

“This legacy matter concerns a business which was sold by a former management team six years ago,” Entain chair Barry Gibson said.

“The group has changed immeasurably since these events took place and the DPA process has provided a reminder of the stark differences between the GVC of yesterday and the Entain of today. 

“We are committed to continuing our journey towards operating only in regulated markets. We are now widely recognised as a best-in-class, responsible operator with the highest levels of corporate governance across all aspects of our business.”

Entain added that the DPA is voluntary and would fully resolve investigations into matters in relation to its own business.

Entain and HMRC: how did we get here?

GVC owned its Turkish subsidiary, Headlong Limited from 2011 to 2017.

It sold the business to Ropso Malta Limited for a performance-related earn-out of up to €150m. The operator later waived the earn-out to smooth the approvals process for Ladbrokes Coral. 

However reports persisted it still benefitted from the Turkish operations, despite repeated denials. HRMC began looking into the case shortly after.

HMRC widened the scope of its investigation to cover “potential corporate offending” in 2020. These offences included, but were not limited to, section 7 of the Bribery Act 2010.

Entain previously said the inquiry targeted former third-party suppliers. Following the announcement it then acknowledged that historical misconduct involving former third-party suppliers and employees of the group may have occurred.

The company also later dismissed a connection with its former payment subsidiary Kalixa – sold to Senjō Group in 2017 – collapsed German behemoth Wirecard and the Turkish operations.

Taking steps to reshape an uncertain business

The 2020 announcement led to wholesale changes within Entain. Days before the investigation was announced, Kenny Alexander stepped down as CEO. Shay Segev, Alexander’s replacement, moved on to sports streamer DAZN, with Jette Nygaard-Andersen moving in to hold the CEO title.

Entain also shifted its place of management and control from the Isle of Man to the UK. This led to its tax residence moving as a result.

The company also rebranded in 2020, in a bid to highlight how the corporate make-up of the business was greatly differentiated from its previous operations as GVC.

At the time, Segev said this better reflected the group’s socially responsible ethos. 

However, in August 2022, the GB Gambling Commission ordered Entain to pay a record £17m for wide-ranging social responsibility failings.

As a result, Gambling Commission chief executive Andrew Rhodes, warned that the regulator could revoke Entain’s licence in the event of further breaches, particularly as the business had also paid a £5.9m settlement for similar failings in 2019.

What does this mean for Entain’s financial position?

While Entain announced a record H1 2023 in August, the company’s Q3 November report highlighted that online net gaming revenue (NGR) growth had already slowed to single figures.

On 8 November, it was then announced that Entain chairman Barry Gibson and CEO Jette Nygaard-Andersen had significantly increased their shareholdings. The chair’s spouse, Brenda Gibson, also increased her holding in Entain from 41,902 shares to 57,434. 

Additionally, senior independent non-executive director Stella David secured an additional 95,025 shares, as well as non-executive director Rahul Welde purchasing 21,644 more Entain shares.

At the time, this increased the company’s share price by close to 3%.

However, following today’s news, Entain’s financial future likely hinges on how much this process will affect its licences in other markets, such as its 50-50 joint venture with MGM Resorts.

The brand is now live in more than 26 US states, including OhioMassachusetts and Puerto Rico which launched in H1. It is also unclear how this will affect future M&A activity.

In its Q3 trading update, Entain also unveiled Project Romer, with the goal of reaching an online EBITDA margin of 28% by 2026 and 30% by 2028.

To achieve this, Entain plans to simplify the group to improve operational leverage and drive cost efficiencies. It will also seek to make cross cost savings of £100m by the year 2025.

Where does this now leave Entain’s former executives?

In reaching today’s agreement, Entain again stressed it related to its own business and the group, rather than former executives.

This suggests that the former executives involved with the business at the time may still face charges.

As stated when the DPA was struck in August, the settlement covers alleged offences under Section 7 of the 2010 Bribery Act.

Section 7 says businesses must put in place proper procedures to prevent people associated with the company from making bribes for the organisation’s commercial benefit.

As to where this leaves former employees, the case is not so clear.

The operator admitted in May that historical misconduct involving former third-party suppliers and employees of the group may have occurred.

Alexander’s conundrum

This is particularly true for Alexander who, along with former chair Lee Feldman and former CFO Stephen Morana, failed in a bid to take charge of 888 Holdings earlier this year

FS Gaming, an investment vehicle backed by the trio, took a 6.57% stake in 888 Holdings in June. Soon after, a proposal was tabled for Alexander to become CEO, Feldman chair and Morana CFO.

However, this was halted almost immediately when the Gambling Commission intervened. It said that it has final sign-off for a change of corporate control and directly referenced the Turkey case as a reason for flagging concerns over the proposal.

With 888 facing the threat of a licence suspension in Britain if it did not ratify the change, this led to 888 ending talks. Per Widerström was ultimately named CEO in July, replacing Itai Pazner.

Entain will make a further announcement on the case after the next court hearing on 5 December.

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