Photo-finish for the Tote sale saga

Listen to this article

00:00
00:00

The government’s long-running efforts to sell the Tote could be disrupted by legal action from bidder Betfred if ministers choose Sir Martin Broughton’s rival offer, people close to the situation say.

The outcome of the Tote auction was still in the balance over the weekend, and although the government is moving towards a decision this week, it may be delayed as officials weigh up the implications of a contested outcome.

Long-time favourite Betfred says its offer gives the Tote an enterprise value of £200m. Sir Martin’s Sports Investment Partners will not say how much it has offered, but says its proposal values the Tote at more than £200m. Last week SIP received backing from Peter Dubens’ private equity outfit, Oakley Partners, to underwrite its plans for a Tote flotation.

That has left the Betfred camp feeling frustrated about a bidding process it now feels has been massaged by the government to help Sir Martin put together a winnable bid that satisfies the racing industry, which receives income from the business. It believes the process could have been dealt with more quickly.

With the racing industry lining up behind SIP, the Betfred camp is scrutinising European Union rules on state aid and the requirement of the government to accept the offer from the highest bidder.

“If Fred [Done] feels he’s being badly treated, he will be very vocal about it,” said one person with knowledge of the situation. “If he feels there has been any breach of state-aid rules, he will be absolutely all over it.”

The person said Mr Done, (Betfred’s founder) could seek to injunct the sale process, a move that could badly damage Sir Martin’s flotation prospects. He could alternatively hope to wreck the IPO chances by mounting a public campaign to expose what he believes are serious flaws in SIP’s proposal.

Against that is the claim by Sir Martin that he has strong support from racing-friendly investors for a flotation, as well as the agreement by Oakley to underwrite his offer if the flotation fails.

Nevertheless, Betfred’s black mood underlines how the Tote sale has become increasingly rancorous, as MPs waded into the battle.

After Tory MP Matthew Hancock last week publicly supported the SIP campaign, criticising Mr Done for not engaging with the racing industry early enough, it was the turn on Friday of fellow Tory Ben Wallace to have his say.

Describing SIP’s bid as being underpinned by “smoke and mirrors financing”, Mr Wallace, an MP from the north-west, where the Tote is based, said racing was spurning £120m of guaranteed funding from Betfred in return for a much lower sum from SIP and board representation.

“It is a sad day that sees racing fat cats swap vitally needed income for courses, owners and punters in return for a couple of directorships,” Mr Wallace said.

Betfred on Sunday said it would set up a Tote Development Board, with seats reserved for the racing industry.

A sale of the Tote has been on the political agenda since 1997, but has been hobbled by government indecision, a clash with the EU and market disinterest.

Set up in 1928, the Tote on-course stands and betting shops offered punters a legal form of gambling and gave racing an income stream from betting. There are 517 Tote betting shops plus a pools business. The Tote makes about £20m in earnings, before, interest, tax, depreciation and amortisation, after an annual payment to racing of just over £10m.

A straightforward sale has proved elusive for the government. With the EU insisting the Tote be sold at a market price, a £320m bid from a racing consortium and Tote management was rejected in 2008, as the government held out for £400m.

An attempt to sell the Tote on the open market was scuppered by the 2008 global economic downturn.

Ministers were confident at the start of the year of a successful outcome when the auction restarted, with more than a dozen bids lodged. One by one, they have melted away, to leave two standing.

Will the Tote at last end up in private hands? The smart money suggests it will, though which bidder passes the winning post remains in doubt. One thing seems fairly nailed on – the politicians and the civil servants will continue to bear the scars of this protracted saga on their backs.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.