Entain claims BetCity.nl deal up to €156m overvalued

The gambling giant has made a legal challenge against the seller Sports Entertainment BV.

UK.- Entain has estimated that the price for its acquisition of the Dutch gambling brand BetCity.nl should have been €68m-to-€156m less. The London-listed gambling giant has made a high court challenge claiming that Sports Entertainment BV and its founders, the Singels family, failed to declare regulatory breaches that led to a €3m fine from the Dutch gambling regulator, the KSA.

Entain has made two calculations to estimate damages arising from alleged breaches of the deal covenants. It’s basing these on an assumption that BetCity.nl’s performance will be negatively affected by closer supervision and reputational damage. It estimates a €124m reduction in BetCity.nl’s value based on an increased Weighted Average Cost of Capital (WACC) from 10 per cent to 12.5 per cent.

A second calculation based on adjusted future cash flows estimates that 2024 revenue will be between 28-32 per cent lower than expected, resulting in an asset value decline of between €68m and €156m.

The documents submitted to the High Court of England and Wales state: “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.”

Entain agreed to buy BetEnt BV, the licensed operator of BetCity.nl, for €850m in 2022 in order to allow it to reenter the Dutch market following its withdrawal when online gambling was regulated in 2021. The deal involved the acquisition of Sports Entertainment Media BV for €300m in cash and performance reward incentives of €550m contingent on BetCity.nl achieving 10x EBITDA for 2023.

Entain launched the legal challenge after the KSA fined BetCity.nl €3m for breaches of the Netherlands Money Laundering and Terrorism Financing Prevention Act (Wwft) last year. The company is being represented by Clifford Chance.

Entain says it has allocated £40m for compliance costs in H1 2024 to address regulatory changes in the UK and the Netherlands. Meanwhile, the board has created a Capital Allocation Committee to review Entain’s brand portfolio and operating structures to enhance corporate value. It has been reported that the company is looking to sell its PartyPoker brand.