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Entain Says BetCity’s Failings Have Incurred Damages Of $63-169M

Entain’s legal battle against BetCity’s former owners continues as the former company claims damages of between €58 million and €156 million ($63-$169 million). The former company used two different methods to calculate the damages, Casino Nieuws said.

For reference, Entain acquired BetCity in a $482 million deal in January 2023. The major acquisition allowed the gambling operator to make a foray into the Netherlands, thus expanding its European footprint.

Unfortunately, Entain soon found itself involved in trouble with the Kansspelautoriteit (KSA), the Dutch gambling regulator. As it turned out, BetCity had two ongoing no-compliance investigations prior to its acquisition by Entain. The brand was eventually forced to pay €3.4 million ($3.7 million) for its AML and ad-related violations.

Entain previously alleged that BetCity’s former owners had failed to properly disclose details about the ongoing investigations, resulting in damages for the former company. Because of that, Entain opened a legal dispute.

Entain is now seeking damages, arguing that BetCity’s undisclosed regulatory breaches have hurt its business.

Entain Says the Penalties Hurt Its Business As mentioned, Entain used two methods to calculate the damages caused by the withheld information that BetCity’s former owners allegedly failed to disclose.

The first method saw the company consider the increased legal, business and reputational risk. The increased risks resulted in higher cash flow volatility and slower growth, Entain argued. The sanctions furthermore mean that Entain could be subject to more intense regulatory scrutiny in the future.

Entain also pointed out that the sanctions could impact its market share, further hurting its business. The company said that the KSA penalties have led to an increase in the weighted average cost of capital (WACC) to 12.5%. For reference, BetCity’s WACC stood at 10% before the acquisition deal, which could signify a whopping €124 million ($134.5 million) reduction in valuation.

The second calculation saw Entain highlight a possible cash flow reduction. Entain estimated that the KSA investigations could have led to a cash flow reduction of between 28 and 32%, caused by higher user acquisition costs and reduced revenue.

In addition, the VIP segment suffered as VIP customers reduced their spending.

As it turns out, BetCity might soon find its way to the chopping block as Entain considers selling some of its brands. While no sale has been set in stone as of now, the company is reportedly eyeing divestments that would streamline its business.

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