November 22, 2010 8:42 pm

Sportech aims to expand global reach

From its operational base in Liverpool, Sportech is planning its conquest of the gambling world.

That may sound unlikely given the company’s estimated 2010 revenues are about £70m, while it made £8.1m ($12.9m) in pre-tax profit last year and that its products include such worthy but hardly dynamic UK traditions as the 87-year-old football pools and Spot the Ball.

Still, these are busy times for Sportech, whose second-biggest shareholder is Sir Trevor Hemmings, the 75-year-old leisure entrepreneur. It has eyes on the government’s Tote betting shops and pools business, which is once more holding up the “for sale” sign, and earlier this year dipped its toes into the Indian market with a joint venture.

But almost by stealth it has made a significant inroad into a far more lucrative terrain – the US. Last month, Sportech completed a cash-and-shares deal to buy Scientific Games Racing, part of the Nasdaq-traded Scientific Games that supplies gaming and lottery products.

It makes Sportech the only UK-listed gaming business to be operating legally in the US.

At first glance, the £51.4m deal seals a neat marriage between the UK football pools run out of Liverpool and the tote facilities SGR provides to US horseracing and greyhound tracks.

In a global tote market of $70bn, the new business estimates it has a share of 17 per cent. Sportech processes half of all US bets on horseracing.

With that base, the UK Tote would be a natural acquisition, although Sportech would prefer not to have to buy the 517 betting shops that come with the pari-mutuel business.

But, behind the facade of the deal, lies potentially far greater benefits. In a sector as competitive as gambling, Sportech has realised it is no longer possible to offer customers only a limited batch of products.

Sticking to pari-mutuel betting would leave operators such as Sportech with nothing much more than a strategy of managed decline. In the first half of 2010, it lost 92,000 football gaming customers, or 15.6 per cent.

Ian Penrose, Sportech’s chief executive, admits: “The pools market has been slipping downwards.”

The main purpose of the Sportech/SGR deal is to provide Sportech with a US base to develop other products such as casino, bingo and instant win games, to be rolled out both online and offline as and when the US gambling market becomes regulated.

Those games will be made by Playtech, the online gaming software provider that was floated four years ago and which invested £10m into the deal to take a 9.9 per cent stake in the enlarged Sportech business. SciGames is now Sportech’s biggest shareholder, with 19.9 per cent.

But why would Sportech-branded games such as online casino and bingo be any more attractive in the type of super-competitive market the industry anticipates in the US?

The answer, Mr Penrose believes, is that the advantage pools operators have over other gaming providers is respectability.

Gambling is a sector where every operator needs an army of lawyers, political lobbyists and regulatory experts to deal with the varying attitudes of governments towards legitimising all or parts of the industry. And in such a climate, pari-mutuel betting, regarded as being at the softer end of gambling, stands out as a betting product cautious politicians can trust.

It has taken most of this year for Sportech to gain US regulatory approval for its deal.

That required US regulators to examine the credentials of among others Sir Trevor and Teddy Sagi, the founder of Playtech.

Such approval is gold dust to a UK gambling industry that has been feeling the wrath of US prosecutors for the past four years.

If – and it is still a sizeable if – the US opens its doors to more gambling, those already operating legally in the US will have the early advantage, says Mr Penrose. They are the Las Vegas casinos, the lottery operators and racetrack operators and their suppliers.

“We think they will be the key beneficiaries from any change in US gaming rules,” he says.

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