Alderney-based and licensed Sportingbet.com, listed on London's Alternative Investment Market, has agreed to acquire SportsBook, which is privately-run and employs 150 people in Gibraltar, Dublin, Venezuela and Antigua.
SportsBook operates under an Antiguan gambling licence and has nearly 350,000 customer accounts, 92% of them American. These will be added to Sportingbet's existing 100,000 customer base.
Sportingbet says that the deal will make it the world's largest online sports bookmaker, with a combined turnover of more than £900 million ($1.3bn).
Sportingbet has yet to make a profit. The company also announced its results for the three months to June 30. Total betting turnover rose to £111.5m from £39.1m last time. Gross margin rose from 3.1% to 3.6%. The company said it expected the figure to rise even more in the next quarter after the start of the UK football season, when betting activity would increase. Losses before tax fell from £2.43m to £998,000. Analysts said the company would break even in the next quarter and would achieve profitability by the end of the year.
"Because we are an internet platform, turnover growth does not mean there is a like-for-like change in costs," said Nigel Payne, finance director. "As our costs are not scaling, the opportunity for bottom line growth is substantial."
The acquisition is highly leveraged against future performance. The initial consideration of £36m ($52m) comprises $10m cash, funded by an £8.5m placing of new shares at 95p, with the rest in shares, loan notes and convertible loan notes. Some $12.5m in shares depends on Sportsbook's aggregate net profits for four consecutive quarters reaching $6m. The vendors then have a seven-year earn-out, worth up to $133.8m, if Sportsbook hits unspecified profits targets. The SportsBook board will hold a 9 per cent stake in Sportingbet, pending completion of the deal.
Mark Blandford, Sportingbet's chief executive, said: "One analyst told me we've won first prize for the most complicated earn-out structure ever created. But this is a great deal and we're only paying $10m cash upfront."
SportsBook generated gross profits of about $40m from its internet operations in the year to March 31. Turnover amounted to $394m. Combined with its telephone betting operations, it produced turnover of $435m and profits of $42m. Its websites sportsbook.com, wallstreet.com and playersonly.com, are some of the most recognised betting brands in North America, Sportingbet said. Mark Blandford added: "It's a sleeping giant. It gets huge traffic because of the wallstreet name and some of the visitors stick. It's not the reason for doing the deal, but we can now investigate financial spread betting, say £1 a point on the Nikkei or the FTSE."
Mr Blandford declined to reveal Sportsbook's owners, saying: "It's a private company structured as an efficient tax-planning vehicle." Sportsbook is based in Margarita Island, off Venezuela, though it is relocating to Costa Rica.
Asked if the company did not look opaque, not least with its accounts qualified by BDO Stoy Hayward, Mr Blandford said: "The comfort we're giving investors is that this is structured as a Class 1 transaction and we're going to quickly move it to our accounting systems. Only £300,000 of expenses in the accounts are qualified, not the turnover or the gross margin."
Sportingbet took its first big step into the US betting market in May 2000 with the acquisition of Betmaker, based in Costa Rica and now rebranded as SportingbetUSA.com. It has also expanded its presence in the Asia-Pacific region with an GBP11.5m ($16m) deal to buy The Number One Betting Shop, Australia's largest private bookmaker.
Despite changes to the UK's tax regime for bookmakers, Sportingbet has insisted that it will remain offshore. Mark Blandford has said that he does not feel threatened by the looming abolition of Britain's 9pc betting deductions to be replaced by a tax on bookmakers' gross profits. "There's no chance of us coming back onshore," he said, adding that his Alderney base had several advantages. "We'd have to pay VAT, the gross betting tax and higher corporation tax."
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