Entain Seeks BetCity Compensation Over Undisclosed Regulatory Issues

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The year 2024 has started out with more hot water for Entain, the European gambling giant that has a 50% share in prominent U.S. online gambling operation BetMGM.

Entain bought Dutch operator BetCity for €450m ($487 million) in January 2023. But it is now seeking millions in damages over the transaction.

It claims that the former owners of BetCity did not disclose two regulatory cases against the operator during the acquisition process.

Dutch regulator Kansspelautoriteit (KSA) fined BetCity €3.4 million ($3.683 million) in December 2023.

Entain says it was not aware of the impending cases until it was told to pay up, and that BetCity’s former owners deliberately hid the filings before the sale.

This news only adds to the chaos around Entain, which recently saw critical activist investors appointed to its board after the departure of CEO Jette Nygaard-Andersen in December.

Her exit was partly in response to investor criticism over a lack of focus on the U.S. operations of BetMGM, and a huge $739 million settlement fine it paid to the UK taxman, His Majesty’s Revenue and Customs, in November 2023.

Neither BetCity nor Entain has yet publicly commented on this latest case, or revealed how much in damages is being sought.

BetCity Investigations Revealed

Entain first agreed to purchase BetCity in June 2022 in order to gain Netherlands market access, with the purchase taking until January 2023 to complete.

During this whole process, Entain says it was not made aware of two KSA investigations into BetCity, even though BetCity management would have known.

Both investigations began prior to Entain’s initial agreement in 2022.

The operator was only informed of the fines when they were posted on the KSA website.

Once revealed to Entain, BetCity’s previous owners agreed to pay the fines. However, Entain reserved the right to further compensation claims if the fines continued to negatively impact their business, which it has now taken up its option to do.

Entain is seeking compensation from various operations and individuals over the undisclosed fines, including Sports Entertainment Media BV, the Singels Family, and former BetCity executives Melvin Bostelaar and Robert Kooiman.

Entain’s Struggles

This news comes as Entain has been in gambling business headlines for various reasons over the past six months, not many of them good.

Entain’s relationship with BetMGM, in which it holds 50% of shares, has been soured by the controversies over leadership and shareholder criticisms.

The company invested heavily in European markets in 2022 and 2023. That came despite the booming U.S. gambling market, which raised eyebrows among investors.

That included acquiring esports betting business Unikrn for $50 million, which it then closed just a year later, and 2023’s $957 million purchase of Polish bookmaker STS. Just days after the latter acquisition, Entain’s share price slumped by 10%.

Before all this bad press, BetMGM co-owner MGM Resorts International was long rumored to be interested in buying Entain. However, in recent months the largest U.S. gambling operator has somewhat cooled on that idea, and may simply look to buy out Entain’s BetMGM shares instead.

In another blow, MGM Resorts also went ahead and launched BetMGM in the UK market, but without including Entain. Instead, it partnered with Swedish operator Leo Vegas.

As the controversies and management changes have hit investor confidence, shares have fallen by 35% in the last year.

The appointment of Eminence Capital founder and owner Ricky Sandler, who owns 2% of Entain shares, promised a change of direction for the company, including the potential of divesting its U.S. business.

One of its most recent moves in January was to announce its departure from 140 global markets. That included large ones, like Argentina and Ukraine, to the so-miniscule-it’s-ridiculous, such as the Pitcairn Islands (population, 35) and Antarctica, with a permanent population of around 1,000.

Current interim CEO Stella David will need to do more than that to steady the ship, coming in from a non-senior executive position.

Despite all the doom and gloom, revenues were up substantially in the last quarter reported in 2023, mostly thanks to BetMGM. However, with all the acquisitions and extra costs incurred in recent months, the balance sheet may not look good on Entain’s 2023 yearly report, set to be published on March 7.

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