Analysis: Sportech performs u-turn on US egaming

Operator’s decision to sell stake in egaming JV marks a strategic shift towards growing land-based venues business

Yesterday’s news that Sportech is flogging its 50% stake in its US-facing egaming joint-venture to partner NYX Gaming for CA$23m marks a significant strategic shift for the operator and one which appears to represent a complete U-turn on plans which were two years in the making. [private]

The SNG Interactive JV was formed a little under 18 months ago in order to capitalise on the roll-out of regulated egaming across the US, but with no new states adopting regulation in almost two years, and just one customer signed up to its B2B casino platform, the sale suggests Sportech’s appetite for online gaming in the US has waned.

It’s not the first time Sportech has back-tracked on egaming, after selling its UK-facing online gaming business Vernons to NetPlay TV for $6m in November 2013. At the time the operator said it was a strategic decision that would enable it to focus on expanding its presence in the US.

Yesterday’s deal, however, leaves Sportech fully focussed on the land-based betting venues in the US and egaming off the agenda almost entirely.

Taking a step back

CEO Ian Penrose (pictured) told eGR NA Sportech is not exiting the egaming market, but instead is taking a far less hands on approach.

As part of the deal Sportech has taken a 6% shareholding in NYX Gaming, and will also receive payment of US$1m for every new customer – for up to three customers – NYX signs to the SNG platform outside of New Jersey in the next five years.

But in real terms Sportech is taking a step back from the US egaming market, and will re-invest the bulk of the $16.8m profit it has made from selling its stake back into its land-based venues business.

“The realisation of the deal allows us to invest in our core growth opportunities particularly in the US and allows us to get some real focus and momentum in those areas,” Penrose told eGR NA this morning.

“We needed to look at the opportunities in front of us and prioritise our resources, and for us we can accelerate immediate growth opportunities now in terms of some of our venues and online in Connecticut and California, which will now have increased pace, focus and development,” he added.

The deal values SNG Interactive at $46m, despite the platform being operational for just three months and with one customer, Resorts Casino in New Jersey, currently on its books.

On the face of it the move is therefore a big win for Sportech, whose licensing and established customer service operations in the US made them an attractive partner for NYX. NYX itself provided the platform, game content and technological know-how and the company clearly sees an opportunity to justify what is a high valuation for SNG based on its current market performance.

In it for the duration

But what plans does NYX have for SNG now that it has 100% control of the business?

“From an operational perspective we will now be running everything ourselves,” says David Flynn, EVP of business development at NYX. “So we will be able to leverage the synergies between all of our international operations and make sure that we have efficiencies across the board in terms of 24/7 support around the world.

“It allows us to really ramp up our service operations for existing and new business, and it gives us the flexibility to be able to really drive quickly in terms of new deals and customers in the US market,” he adds.

In reality the acquisition will only pay dividends if more states come online and NYX can sign up more operators to the SNG platform. But with Pennsylvania the only state even close to passing enabling legislation this year or next, the firm really will have to remain committed for the long-term.

If the market does take off, however, NYX is well placed to cash in. In that scenario Sportech will also benefit as a significant shareholder in NYX but, more significantly, Penrose says the deal does not block Sportech from re-entering the US market at a later date, either as Sportech or under a different agreement.

So Sportech’s decision to sell its 50% stake in SNG should be seen more as a sabbatical than an outright exit from the sector.