Playtech “very comfortable” with black market exposure

The board of Playtech is now “very comfortable” with the company’s level of exposure to “black” markets in Asia, having reassessed the legal and regulatory risks ahead of its move to London’s Main List, it said Tuesday.

The software supplier’s prospectus for its move to London’s Main Market at the start of last month provided the most publicly available detail to date on its exposure to territories where: “[L]egislation or regulation may be interpreted in such a way as to criminalise certain activities of the Group, its Licensees or any of their respective agents or intermediaries.” The document revealed bet365, William Hill and Paddy Power’s poker and casino provider derived 3.6% of gross income from licensees transacting with the Chinese market, 8.4% from Malaysia and 7.7% from Germany, meaning 19.7% of Playtech’s gross income was generated by licensees operating in these black markets in 2011.

CFO David Mathewson however declined to provide “more colour” during Tuesday’s Q2 earnings call on what products it was providing and to how many licensees in China and Malaysia, telling analyst Simon French of Panmure Gordon that:

“We would rather not do that, we have been pretty full in the disclosure in the prospectus. The prospectus wording was very carefully drafted after our work with the lawyers. We have certainly taken the veil back on our activities over there. But I feel at this stage, we have never done this before, splitting out our product contribution in various markets, so we will leave it there for the time being.”

The company’s CEO Mor Weizer added: “I think we were very fortunate to go through this prospectus process as part of the move to the main list, which put us in a position to review each and every market we operate in, and work with our lawyers and obtain revised and new legal advice.

“Where the markets were significant, we took local legal advice on top of that from legal advisors we have in this part of the world and in the UK. The board, having considered all of that, feels very comfortable with the way we do business, which is not very different to what we have in Europe.”

Mathewson also emphasised that it was wrong to assess the company’s risk exposure in these black markets on the same terms as an operator active in these territories without a local licence.

“I would also just comment that we are, remember, a supplier, we are not an operator. We are not offering in any regimes here that are illegal, there are regulatory issues that we are well familiar with here, but the lawyers have articulated that very clearly in the document.”

The share of Playtech’s revenues generated from the Asia Pacific region rose to 24% in the first half of 2012 from 22% the prior year, according to the supplier’s Q2 KPIs issued Tuesday. European revenues contracted to 69% from 73%, with Rest of the World rising to 7% from 5%.

Weizer also said the company was proceeding with caution over the implementation of its online gambling JV with the German Gauselmann group, owner of the Merkur gaming brand, after 15 of the 16 Germany federal states ratified a new Interstate Treaty which reaffirmed their ban on online casino and poker from 1 July. The only state not to ratify, Schleswig-Holstein, has yet to issue any online poker and casino licences under its own enabling law ahead of its new coalition government looking to repeal this re-join the Treaty.

“At this point in time we are in discussion with Gauselmann to see what is the best way to approach and initiate it. We are still very much interested in the Germany market, and we will have to follow the regulatory regimes that are introduced in the near future”, said the Playtech CEO.

“The answer is, we are establishing the operations, we are in discussions over that, but we are very cautious how we should go about it given the recent changes in Germany.”

Casino Choice journalist

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