Cash-rich Sportech with post-Pools options

Cash-rich Sportech with post-Pools options

Thursday, August 25, 2016 Posted by Andy McCarron
Modernised Football Pools ready for sale

The extent to which Sportech relies upon its soon-to-be-sold UK football pools business as a profit generator was displayed by its first-half results statement released this week.

While revenues from the Sportech’s digital racing pools and venues businesses brought in over 70% of total revenues of £49.2m, the Football Pools £14m of revenue translated to £7m of EBITDA or over 50% of the £12.8m total.

The company said this week that negotiations with regard to the sale of the Football Pools to an as-yet-unnamed party are continuing. Reports in the press have suggested the business could fetch a fee of up to £100m.

Should the sale go through later this year, it has the potential to leave Sportech with a war-chest of over £130m, assuming the company is able to keep the money it has already banked from the Spot the Ball VAT refund claim.

The protracted legal proceedings with the UK’s tax authorities is likely to finally come to an end in the next few months. Despite Sportech having already received the £97m claim, a final appeal to the UK Supreme Court on the part of Her Majesty’s Revenue and Customs (HMRC) is due to heard in the Autumn.

The company said that, with the VAT claim, it had reversed its net debt position and now has net cash of £36.2m compared to a net debt as of the end of last year of £57.7m.

Ian Penrose, chief executive of Sportech, said the company was aware that it needed to further invest in each of its divisions. “We have reached a key stage in our development, as our US business makes progress in both existing and new markets around the world, and our Football Pools business has reached expected stability after a number of years of modernisation,” he said.

This modernisation includes the closing of the ‘collector’ channel in the Football Pools business. The remaining customers using collection have now been transferred to either digital or subscription transactions. The company has also overhauled its database and moved away from old legacy systems. The closure of the collector channel continued the downward drift for total pools player numbers, down to 220,000 end the end of the first half compared with 234,000 at the same time last year.

The racing and digital pools division saw revenues rise to £17.8m at a constant currency basis helped by further expansion in Asia. Sportech has opened an office in Singapore and recent signed the Macau Jockey Club and the Royal Sabah Turf Club as customers. Meanwhile the deal with the Tote in the UK is proceeding well with the new Quantum system installation almost complete.

More new customers were also added in the US via the company’s 50/50 Bump in-stadia lotteries business which now has 33 teams from the various professional sports leagues on its roster compared to seven in June 2014.

The last element of Sportech’s business is the venues business which runs sports and horserace betting outlets and bars in Connecticut and California in the US and in the Netherlands. That business also saw revenues on the rise in constant currency terms, up to £17.4m in the first half from £15.4m in 2015. The company said it was hoping to see the benefit of two newly refurbished venues in Stamford, Connecticut and San Diego, California, in the second half.

TotallyGaming says: Sportech’s evolution into a US-facing digital pools betting business will likely be finalised in the coming months with the sale of the Football Pools. Combined with the cash from the VAT sale, it will leave the business relatively cash-rich. The next strategic move for the company will key to its future.

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