SBC News Entain Dutch dispute points to bonus and VAT exemptions denying BetCity.nl performance 

Entain Dutch dispute points to bonus and VAT exemptions denying BetCity.nl performance 

Sports Media Entertainment BV has filed a further counterclaim against Entain Plc, stating that technical arrangements related to bonus costs and VAT exemptions had been infringed upon, negatively impacting the performance and valuation of BetCity.nl.

The counterclaim is the latest development in the High Court of England & Wales dispute between Entain Plc and Sports Media BV and related associates – the former owners of Dutch operator BetCity.nl.

In January, Entain initiated a High Court challenge against Sports Media BV related to ‘contractual disputes’ on the terms of its acquisition of BetCity.nl.

Deal terms struck in 2022 saw Entain pay an up-front cash payment of €300m to the former owners of BetCity.nl. The deal was further elevated by reward incentives of €550m, contingent on BetCity.nl generating 10x EBITDA for the financial year 2023. 

However, Entain’s lawsuit claims that Sports Media BV hid regulatory infringements and operational deficiencies which impacted BetCity.nl’s value by €68m-to-€156m below the deal valuation of €800m. 

Entain believes that Sports Media BV had breached deal covenants by not disclosing Dutch regulatory penalties of €3m and inconsistencies in how it calculated the financial performance of BetCity.nl during the deal’s earn-out period. 

Submitting a counterclaim, the former owners of BetCity.nl argue that Entain’s actions had severely undermined BetCity’s operational efficiency and financial performance due to technical arrangements on bonus costs and tax exemptions, which should be maintained as part of the deal.

On bonus costs, the defendants assert that Entain “unilaterally increased the bonus costs without proper consultation or agreement,” violating the terms of the acquisition. 

Of significance, bonus cost increases were unjustified and based on inaccurate calculations, which Entain had revised in August 2023 due to an unexpected ban on untargeted advertising being enforced in the Netherlands. 

BetCity.nl’s former owners believe that Entain only sought permission after significantly overspending on bonuses, rendering the advertising ban a non-factor. They also question the accuracy of Entain’s bonus cost calculations and argue that the increase was not adequately justified. 

Further technical stipulations see Sports Media BV contend that a VAT-exempt structure should have been included in the original deal terms and purchase arrangement of BetCity.nl. As a property of Entain Plc, BetCity.nl should be afforded ‘tax reduction liabilities’ available in Malta and Gibraltar as a ‘common practice’ used in industry M&A. 

As detailed by the claim: “The VAT-Exempt Structure was a means through which Betent could reduce its Irrecoverable VAT Burden to nil going forwards (i.e., following the acquisition), in light of: (i) the uncertainty surrounding the potential outcome of the Application; 

(ii) the wider Entain group already having established offices in Malta and Gibraltar; and (iii) other potential business benefits to Betent that would arise from the establishment of a foreign branch, given the experienced network of suppliers and potential employees with knowledge of, and experience in, the remote gambling business in such overseas jurisdictions.” 

As such, defendants argue that Entain’s failure to implement this structure as planned negatively impacted BetCity’s financial performance, thus failing to leverage the intended benefits of the acquisition agreement.

Industry observers are monitoring legal proceedings closely, as the lawsuit highlights distinct complexities related to industry-specific M&As, which can be impacted by varying regulatory environments. 

At present, Entain is marred in legal disputes, as last week shareholder litigation law firm Fox Williams publicized that it would sue the FTSE firm for its mishandling of a £585m bribery case settlement with the Crown Prosecution Service (CPS).

Ongoing legal challenges have been cited as one of the hurdles in Entain’s burdensome task to hire a new CEO. This weekend, a City AM article noted that ‘top prospect’ Henry Birch, former CEO of Rank Group, had withdrawn from the recruitment process. 

City observers believe that Entain’s new CEO “will be gambling with their career” as “make no mistake: Entain is in a mess. From huge compliance failings to misguided takeovers, the company has become the gambling equivalent of Royal Bank of Scotland 15 years ago”.

Check Also

SBC News Goldman Sachs bets on Kindred as Dutch dilemmas blur FDJ M&A

Goldman Sachs bets on Kindred as Dutch dilemmas blur FDJ M&A

Goldman Sachs has acquired 5.4% of Kindred Group, becoming the Stockholm-listed firm’s third largest shareholder …

SBC News KSA tightens anti-betting harm measures for EURO 2024

KSA tightens anti-betting harm measures for EURO 2024

The Dutch gambling regulator Kansspelautoriteit (KSA) has highlighted three main areas which it will focus …

SBC News Weerwind out of Dutch politics as new coalition takes charge of KOA reforms

Weerwind out of Dutch politics as new coalition takes charge of KOA reforms

The formation of a new four-party coalition government in the Netherlands has brought sweeping changes …