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Entain says concealed investigations devalue BetCity by up to €156m

| By Robert Fletcher
Entain has said undeclared regulatory investigations ongoing at the time of its acquisition of BetCity meant the Dutch-facing business was worth as much as €156m (£133m/$169m) less than assumed at the time.
Entain BetCity

Entain acquired BetCity for €450m in January of last year, with the deal ultimately giving it access to the Dutch market. BetCity was one of the initial 10 licensees in the Netherlands.

However in January this year, Entain launched a compensation claim after details of two regulatory cases came to light. Entain said in the claim it was unaware of the investigations into BetCity when it acquired the business.

In a document obtained by CasinoNieuws.nl, Entain said BetCity’s former owners signed papers saying they were not aware of any ongoing regulatory investigations. The filing claims several personnel at BetCity knew of the cases but did not declare this information. 

Dutch gambling regulator Kansspelautoriteit (KSA) was leading both investigations.

How did Entain reach this conclusion?

Now, another document secured by CasinoNieuws.nl sets out how Entain believes the cases mean BetCity was worth less than assumed when it was acquired. This, Entain said in the document, could be between €68m and €156m less.

Entain did not disclose how much compensation it is demanding from the former owners of BetCity. It was also noted that the actual, potential amount due is yet to be determined by experts.

However, Entain did set out how it calculated its initial estimation, with two methods put forward in the document.

Entain method one: BetCity is worth €124m less

The first calculation suggests BetCity was worth €124m less. This method looks at which risks have increased due to, among other issues, violations of Dutch law. Entain assumes violations have caused increased risk related to legislation and regulations, as well as heightened business, operational and reputational risk. 

As such, Entain says this means BetCity could be subject to stricter supervision and face an increased chance of further sanctions. This could in turn lead to investors demanding additional returns to compensate for these additional risks.

According to Entain, this can be summarised in an increase in the average cost of capital from 10% to 12.5%, reducing BetCity’s value by €124m. However, if this were only raised by 1%, the depreciation could instead amount to €58m.

Entain method two: BetCity is worth between €68m and €156m less

The second method makes for more worrying reading, with BetCity worth up to €156m less than assumed. This is based on the value of future cash flows.

The cash flow forecast BetCity’s former owners shared before the acquisition was adjusted by Entain. As such, Entain estimates BetCity’s net gaming revenue in 2024 will be 28% to 32% lower than forecast. 

This method estimates BetCity would be worth €136m to €156m less than initially thought. However, with the exact consequences of the violations not yet clear, Entain reduced the lower end of this range by 50%, resulting in a final estimate of €68m to €156m.

What did BetCity do?

In terms of the actual regulatory cases that were against BetCity at the time, these were set out in January’s filing.

The first, which BetCity was informed about in April 2022, related to it sending promotional emails to young adults. This is in breach of Dutch law and resulted in a €400,000 fine.

The second investigation, launched in May 2022, was referenced shortcomings with anti-money laundering and terrorist financing measures. BetCity was fined €3m for such failings.

Such has been the controversy around the case that rumours have begun to swirl about the possibility of Entain selling BetCity. The Financial Times last week reported Entain could be open to a sale. Entain has so far declined to comment.

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