The Outlook for Bwin - Sportingbet

13.03.2007

The Outlook for Bwin - Sportingbet

Following last Wednesdays announcement of a preliminary takeover approach of Sportingbet Plc by Bwin Interactive Entertainment AG, senior management of Sportingbet were on Friday headed to Austria for talks with their Bwin counterparts, Gaming Intelligence Group has learnt.

The companies who both started out in sportsbook before branching out into poker and casino are now two of the biggest sportsbook operators in the world. At the close of market on Friday 9th March, Bwin had a market cap of €1.12 billion, roughly three times that of Sportingbet’s €379 million.

In February 2007 Sportingbet renewed their casino and poker contract with the Swedish online gaming software company Boss Media for a further three years and began the migration of their poker customers from Paradise Poker to Boss’ IPN poker network.

In August 2006, Bwin left the same Boss Media network and migrated players to their recently purchased Ongame network.

Following the passage of the UIGEA in October 2006, the Ongame purchase began to look like anything but a success, due in most part to the fact that the biggest poker skin on Ongame had about 85% of their customers coming from US at the time of the acquisition. At the end of 2006 Bwin wrote off €534 million worth of assets which it had acquired as a result of the Ongame transaction.

This summer will see Bwin’s casino contract with Boss Media expire and there are many question marks as to whether this contract will be renewed. Bwin now have their own casino software through Ongame and could therefore move their customers there.

Although if the deal between Bwin and Sportingbet goes ahead, there may be potential problems ahead for Ongame.

One of the leading Ongame network partners is Coral Eurobet, which is also one of the top three sportsbooks in the UK, and the prospect of another direct competitor coming into the ownership of the network would not be a pleasing one for them. As it is, Bwin’s ownership of Ongame is not an ideal scenario for Coral Eurobet, who could consider leaving the Ongame network should the acquisition of Sportingbet go ahead. If Coral Eurobet did choose to leave the Ongame network, the resulting loss of player liquidity would decrease Ongame’s position in the list of leading networks.

The acquisition of Sportingbet by Bwin could also potentially trigger the departure of other customers from Ongame to a network which does not directly compete with its clients, such as Cryptologic, iPoker or IPN.

There is also another possibility that a newly formed Bwin-Sportingbet entity would refocus efforts on its core competency as online gaming operator as opposed to software developer, a move which would most likely benefit the new operation moving forward. Combined, the two companies would represent the world’s largest sportbook, which means better odds for their customers and improved margins for them, a win-win combination. With Sportingbet’s casino and poker players locked into software provided by Boss Media for the next three years and the fact that Bwin still have their online casino players with Boss Media, such as outcome appears even more likely.

Another consideration worth noting, albeit a small one, is the likelihood that many current players have an account with both Bwin and Sportingbet which makes it difficult to predict active customers numbers for a combined business.

The outcome of the situation at this stage is far from clear. What is clear by the rapid announcement of the initial approach by both Sportingbet and Bwin, and the meeting on Friday, is that both companies appear serious about the prospect of a takeover. There are many opportunities ahead, and as always with an acquisition of this size, potential problems too.

gamingintelligencegroup.com