May 14, 2021 Land-Based

THE RIGHT CONNECTION

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Sportech CEO Richard McGuire walks Gaming America through its transformational 2020, and the critical role the company must play in shaping the Connecticut online gaming market.

Sportech is in a transformational stage. First, we’ve announced the sale of the Global Tote, which covers services to the UK and to clients in many countries across the globe. This is with BetMakers Technology Group, an Australian company that’s on an expansion drive, and a great group of people. That deal is progressing well and should complete in H1.

We also announced the sale of our Bump 50:50 business, which is more focused on the North American and Canadian market. It’s predominately in-stadium raffles at sporting events, and it’s got a big client list including almost every major sports team, and works closely with a lot of charitable foundations. We streamlined that operation in 2019, installed new management, and last year they signed more new clients than ever before. It was a big success which led to interest and, ultimately, us announcing the sale of that business. So our business, once these deals go through, is pretty much going to be a retail one. It will be predominantly based in Connecticut, with the small lottery business that we currently have supplementing that. The sales will also generate a strong amount of cash (projected £36.1m from the sales alone) and we’re currently in discussion with shareholders over what we will do once we receive the amounts. An approach for the whole group was rejected last year, however, but it is clear there will be serious levels of cash coming back to shareholders in the near future, and a de-risking in the current environment. We plan to be a much smaller and leaner company.

We have also been working to streamline the company structure, digitise product, and make operations more nimble. This work has meant that going forward we have no debt, are cash-rich, have supportive shareholders, and can look at new opportunities. For us the focus is completing these existing deals, deciding what will be done with the payments, and then deciding what our strategy is in light of the huge potential opportunity in Connecticut now that the state is looking to expand online lottery, casino gaming and sports betting.

 

The future in Connecticut

At the moment, Governor Ned Lamont’s announcements look to have not been to our explicit benefit, and we feel as though we are not as involved in decision making as we should be. However, we are at present in discussions with the Governor’s office and have provided serious external legal opinion on our rights, how we feel the announcements so far are breaching certain Federal and state laws, and how we can progress to deliver an elegant solution to this collectively.

The two key announcements that have been made so far came somewhat as surprises. The first was made during a public hearing on expanding gaming in the state, and towards the end of that session, it was announced that the Governor’s office had finalised an online gaming expansion deal with the Mohegan Tribe. It was a surprise announcement to a lot of people, which was disappointing, but it really mobilised us in terms of us defending our position in a more robust manner, which has helped.

The second then included both tribes, but again included Sportech in a way that clearly made sense to the state Governor’s office, but not from our end. One must recognize, however, that Connecticut state offices are currently dealing with the social health and financial challenges of Covid-19 at present, so whereas as we are solely focused on the gaming matters at hand, you can understand why state governance may not be matching our level of focus in that respect.

As we have had more discussions with the Governors ‘negotiators, it has become clear that our lack of inclusion was not meant as a sidelining in the way that it may have first appeared, which has been a very positive outcome. The discussions are ongoing between all parties to see if we can find a way that we can continue this expanded gaming initiative without any issues of litigation. We feel that we have a very strong legal standing, and ultimately all parties want to reach a solution and progress the issue.

 

Playing the long game

We have been strong supporters of gaming expansion here in Connecticut for a number of years, and can certainly say that I feel like our voice is being heard a lot clearer now than at the start of proceedings. We have had some great discussions, especially with Governor Lamont’s chief of staff Paul Mounds, and I feel that since we entered into discussions, progress has certainly been made, and we hope that we can keep this progressing smoothly. I am certainly optimistic that we can get a deal done here that makes sense for everyone involved. Gaming expansion in Connecticut is certainly a significant binary event for us, and it has been years in the making. It is a major focus for Sportech. We have 400 employees in Connecticut, and we’re the only operator currently allowed to make any online bets, so to exclude us and award operational rights to other parties without any RFP process, we feel would not only be wrong, but also against federal precedent.

We know about sports betting, and what has become clear in our detailed discussions with the Governor’s office is that for some in the state, this is alien. But not only betting, gaming and gambling, but also fixed-odds betting, which is a completely new concept to a lot of people in the US. This is something I have really noticed in the last few years. We certainly hope that our experience in the matter, and that we’ve been able to provide the state to help people understand it, enables legislature to clearly understand the nuances of multi-operator betting markets and the implications in practice.

There certainly are issues with the inclusion of the state lottery in operations. State lotteries run non-competitive businesses that have around 50% no-risk margins, so why legislature would want to enter into highly-competitive markets that have closer to 6-7% GGR margins is unknown. It seems like putting money at risk, especially when it can’t be hedged out of state. We are definitely trying to be involved in assisting this process and helping stakeholders realise the detail and implications of gaming market expansion.

 

The European experience

We have drawn attention to our prior gaming experience in European markets as part of our stance in Connecticut, as that prior experience is invaluable. We engaged Paul Leyland from Regulus Partners to help educate the Connecticut legislature in the trends particularly seen in Europe and Australia. Because if you’re going to write a rule book and start from scratch, it pays dividends to look at what has already happened in other areas. There are lessons to be learned from Europe and the way that fixed-odds horse racing markets have worked in the past, how sports betting works now, how social responsibility measures have progressed, and how advertising standards have been enhanced. All of these experiences can be invaluable as people look to move forward, especially somewhere like Connecticut, which is going to be building a market from the ground up.

There appears to be a reticence from some in the United States to make best use of these clear lessons. Naturally many stakeholders are very open to learning about the history of gaming markets in Europe and Australia, but in some quarters there certainly seems to be a feeling that the US is a totally different market and should be approached in total isolation. I believe it’s crucial for legislative bodies to take on as much of these experiences as possible because once laws are set they become very hard to change.

 

Going forward

One thing that I have found from living and working in the US is that it’s not a singular entity, rather than this idea of one United States. Each state is very different. They may have the same currency and federal laws, but beyond that, they are staggeringly different in every aspect of business operation. Not only do you have different state governance structures, with different priorities and ways of going about business, you also have tribal governments having a big input in a lot of decision making as well. We’ve seen this first hand in Connecticut in our gambling expansion plans. Hopefully we’ll all be able to work together for a mutually-beneficial resolution, as opening up a sports betting market here in Connecticut has implications for the entire state. We all have a great opportunity here and we hope that we can get it over the line. It’s been an interesting challenge so far.

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