In an acquisition heralded as a strategic move to break into the Dutch gambling market, UK-based gaming company Entain acquired BetCity for €450 million in early January of the previous year. BetCity, as one of the ten initial licensees in the Netherlands, represented a golden ticket for Entain to establish its foothold in the newly regulated space.
Fast forward to this January, and the landscape tells a different story—one that has Entain launching a compensation claim against the former owners of BetCity. According to Entain, when it secured the deal involving millions, it did so under the impression that BetCity had a clean operational slate. However, information unraveled about BetCity’s previous conduct, revealing not one, but two regulatory investigations that had not been disclosed during negotiations.
CasinoNieuws.nl obtained insider documents revealing Entain’s stance that BetCity’s value had diminished by as much as €156 million due to these newfound cases. The company’s legal position is underpinned by claims that BetCity’s former leadership had signed agreements stating no ongoing regulatory inquiries were affecting the company, despite some BetCity personnel reportedly being aware of them. Both cases, it turns out, were being spearheaded by Kansspelautoriteit (KSA), the Dutch gambling authority.
Another document obtained paints a more vivid picture of Entain’s valuation concerns. The company believes that the very fact of the probes’ existence has devalued BetCity substantially. Entain, while not explicitly stating the exact amount of compensation it desires, has grounded its initial devaluation estimate on two primary calculations.
The first method puts the reduction in BetCity’s worth at €124 million, arriving at this figure by considering heightened risks resulting from alleged violations of Dutch law. Entain suggests that such infringements likely escalate legislative, operational, and reputational dangers. More stringent supervision and the looming threat of additional penalties could lead investors to expect higher returns to compensate for these increased risks—culminating in a rise in the average cost of capital from 10% to 12.5%.
Should the cost of capital be adjusted less drastically, by just 1%, the value drop-off for BetCity would still reach €58 million, a significant but comparatively lighter dent.
However, the second valuation method signals an even more concerning plunge. When factoring in the anticipated value of future cash flows, the company’s worth could shrink by an amount ranging between €136 million to €156 million. Entain adjusted the cash flow projections provided by BetCity’s previous proprietors pre-acquisition, concluding that BetCity’s net gaming revenue by 2024 could fall short by 28% to 32%. To be conservative and considering the opaque nature of the actual consequences of these violations, Entain has scaled down the lower limit of its projection, ultimately estimating the company’s depreciation to lie somewhere between €68 million and €156 million.
This depreciation has roots in the substance of the regulatory cases that came to light. The first case, which was disclosed to BetCity in April 2022, involves promotional emails sent to young adults—a clear infringement of Dutch law that resulted in a €400,000 fine. A subsequent investigation initiated in May of the same year uncovered deficiencies in anti-money laundering (AML) and counter-terrorist financing (CTF) protocols at BetCity, resulting in a staggering €3 million fine.
The repercussions of these regulatory mishaps have stirred enough controversy to give rise to speculation about Entain’s next moves, including rumors of a potential sale of BetCity. Although these whispers have become fodder for outlets such as the Financial Times, Entain has maintained a stoic silence, choosing not to furnish any comments addressing these claims.
As it stands, the situation unravels a cautionary tale for acquired entities and their successors. The unfolding events reflect the complexities and potential reversals in value that can occur when due diligence is eclipsed by undisclosed liabilities—and the resulting dance of legal and financial maneuverings in search of remediation for a deal soured by secrets emerges from behind the glittering façade of multi-million Euro mergers.
