It has been an eventful year for Playtech and a particularly turbulent one at the same time. The gambling technology company, founded by Israeli businessman Teddy Sagi in 1999, saw its share price fall nearly 50% over the past 12 months and recorded a 34% drop in adjusted profit in the first half of the year. In addition, news emerged that a brand-new Playtech investor is pushing for a corporate governance overhaul and is not very happy about Mr. Sagi’s involvement in the company.
Earlier this year, the tech giant, which has for years been supplying major operators with a variety of products, completed the purchase of Italian gambling company Snaitech for €846 million. In its half-year results, Playtech CEO Mor Weizer attributed the company’s regulated revenue growth namely to that acquisition deal.
However, the debate over the introduction of massive restrictions on the distribution of gaming machines around Italy is becoming more and more intense with each day passing and this could cast heavy clouds over what Playtech hoped would be a purchase that would strengthen its footprint across the regulated gambling space. Snaitech derives nearly half of its overall revenue from the gaming devices.
Most recently, Playtech offloaded its entire stake in CFD trading platform Plus500 for £176 million, stating that it would use proceeds from the deal to reduce its debt and for general corporate purposes.
What is next for the gambling tech giant? The company is facing regulatory pressure and competition in key markets and will clearly have to direct its focus to where it can reap the greatest benefits. In addition, changes are clearly coming for Playtech, but it is yet to be seen how these will affect its operations, profitability and its lure to investors.
Shaky Profitability and Share Price Drop
Playtech has long been targeting a FTSE 100 status. However, it was forced to abandon these ambitions after issuing two profit warnings over the past year and reporting a 34% slump in adjusted profit for the first half of the year. The profit warnings and the eventual significant drop resulted in the company’s share price falling by half over the past 12 months.
Playtech attributed its shaky profitability to its operations in Southeast Asia. The gambling tech giant has maintained its footprint in that particular region for nearly a decade. However, growing competition in China combined with heavy pressure in Malaysia, where the local government has ramped up efforts to crack down on unregulated gambling, have had quite a negative impact on Playtech’s performance over the past year. In Malaysia, in particular, the company saw a significantly lower activity this year compared to two years ago.
On a more positive note, regulated markets offset the losses suffered in Asia. Excluding Asian revenue, the company recorded a double-digit growth during the first half of the year. Playtech further pointed out that it would look to focus on regulated markets which are traditionally more stable and that it expects to generate around 80% of its overall revenue for 2018 from such regulated markets. Around 69% of Playtech’s half-year revenue came from regulated markets, as reported by the gambling software developer.
New Shareholders with New Demands
News emerged last month that SpringOwl Asset Management had invested more than $100 million into Playtech over the span of several weeks, thus acquiring a 5% stake in the company. The New York-based hedge fund is led by US investor Jason Ader, who among other things is known for playing a key role in bwin.party Digital Entertainment’s sale to GVC Holdings. Mr. Ader used his holding in bwin.party to press for the gambling operator’s sale following a prolonged proxy fight with the company’s board which involved him criticizing board members for failing to properly execute the 2010 merger of bwin and Party Gaming, which resulted in a 60% decline in share price.
According to media reports, Mr. Ader is expected to use his newly acquired stake in Playtech to demand disposal of assets or even sale of the gambling tech company. However, Playtech’s corporate governance is understood to be SpringOwl and its leader’s main focus for the time being. Mr. Ader has reportedly expressed concerns over the fact that Alan Jackson has been serving as the company’s Chairman for too long. In addition, the US investor has pointed out that Mr. Sagi’s continuing association with the gambling tech giant he had found is “a negative” for Playtech. The company’s founder currently holds a 6.3% stake in it after selling down his controlling stake bit by bit over the past several years. Mr. Ader has recently told Reuters that he does not have “a sense that the future of this company includes Teddy Sagi”.
In a separate round of news, it became known that London-based privately owned hedge fund Odey Asset Management has quietly bought a 5% stake in Playtech. Reports also emerged that the hedge fund’s co-founder, British businessman Crispin Odey has been in touch with Mr. Ader. Together the two investors own 10% in Playtech, which is more than enough to secure them with the influence required to press for important changes, including a corporate governance overhaul.
According to the latest reports on the topic, a change in the company’s leadership could indeed be asked for by Mr. Ader.
Plus500 Stake Sale
As mentioned above, Playtech sold recently its entire stake in CFD trading platform Plus500 for the amount of £176 million. The company said in a statement that it would use the money it has raked in from the sale to reduce its debt and for other corporate purposes.
The move came days after five of the trading platform’s founders disposed of 9.4 million of their shares for the approximate amount of £145 million, citing personal reasons and “desire to diversify their investments” as the main reasons for their decision. Playtech previously made a £459-million offer to purchase Plus500. However, concerns raised by the UK Financial Conduct Authority combined with pressure from the trading platform’s investors, with Odey being one of them, resulted in the deal’s failure.
Playtech’s recent disposal of its stake in Plus500 has actually been applauded by Mr. Ader. The US investor has pointed out that the gambling tech firm should continue disposing of its financial businesses and focus solely on the gambling portion of its operations as its financial services holdings have proved to be a major distraction.
ConclusionBearing in mind the recent developments, it seems that Playtech’s eventful streak is far from over. With brand-new and very demanding investors, the company could be headed toward a sale, a disposal of some of its assets, and/or a corporate governance overhaul. In addition, it would be looking to improve its profitability by directing its focus mainly on regulated markets and gradually reducing the influence unregulated markets have on its business. Last but not least, there clearly will be pressure for Mr. Sagi to exit the company completely and it is rather curious to see whether and how this would happen.
The post What’s Next for Gambling Tech Giant Playtech? appeared first on Casino News Daily.
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