Details have been released about Entain‘s legal challenge against Sports Entertainment Media BV and related parties involved in the valuation of its Dutch subsidiary, BetCity.nl.
Documents from the High Court of England and Wales state that the board of gambling group FTSE100 believes the value of BetCity.nl is €68 million to €156 million.
This amount is lower than the previously agreed deal with Sports Entertainment BV.
Entain’s first valuation was €850 million
As a result, Entain is seeking legal action by accusing Sports Entertainment BV and the company’s founders, the Singels family, of withholding information relating to regulatory infractions at BetCity.
Entain has agreed terms to acquire BetEnt BV, the Dutch operator of BetCity.nl, in 2022 at a valuation of €850 million.
But the initial terms of the deal resulted in the group acquiring the shareholding of Sports Entertainment Media BV for a cash offer of €300 million.
Then performance reward incentives of €550 million were included in the deal, taking the offer above the €800 million mark. But with the condition that BetCity produces 10 times EBITDA for the 2023 financial year.
However, last year BetCity received a €3 million fine for significant failures to comply with the Netherlands Anti-Money Laundering and Terrorist Financing Act.
That is, Entain believes that Sports Entertainment Media BV and associated parties concealed violations.
Entain, represented by Clifford Chance, justified the price paid by BetCity because it was acquiring an operator placed on the podium in the Dutch gambling market.
But they now estimate the damage caused by violating trade agreements to be in the range of €68 million to €156 million.
Two calculations were presented
Entain provided two calculations to determine the damages caused by Sports Entertainment Media BV’s breach of agreements.
The first calculation takes into account assuming the risks of violations. The group details an estimated reduction in the value of BetCity.nl at 124 million euros. This calculation took into account the increase in the weighted average cost of capital from 10% to 12.5%.
The second calculation focuses on BetCity’s adjusted future cash flows. Therefore, Entain believes that 2024 revenue will be between 28% and 32% lower than expected.
This would result in an increase in asset value from 136 million euros to 156 million euros. Therefore, Entain cautiously adjusted it to between €68 million and €156 million.
For both calculations, Entain assumes that BetCity.nl’s performance will be negatively impacted by tighter supervision and loss of reputation. Therefore, it remains to be seen what the English court will decide.
