Betfair has applied for a federal sports betting licence in Germany despite CFO Stephen Morana admitting “our current exchange model would not be viable” with the accompanying 5% turnover tax.
Operators have until tomorrow morning to apply to the Interior Ministry in the federal state of Hesse for one of up to 20 sports betting licences to be issued under the new Interstate Treaty on Gambling (ITG), which came into force on 1 July after being ratified by 14 of Germany’s 16 federal states. In addition to an accompanying 5% turnover tax on all sports bets taken in Germany, the ITG extended the pre-existing ban on online poker and casino.
CFO Morana confirmed in an answer to a question posed by Barcap analyst Ed Birkin in the company’s Q1 earnings call that: “We have sent in an indication of interest in accordance with the process, yes.” Betfair generated around £40m – or 4% – of total revenue and £6m of earnings (EBITDA) in Germany last year.
In the meantime, the company continued to operate off the licence granted to it by the northernmost federal state, or Land, of Schleswig-Holstein in May, Morana confirmed, while “paying the relevant taxes to the federal authorities that we believe are due”.
The Betfair CFO however declined to comment on whether Betfair would naturally be forced to shut down casino and poker in Germany as part of the process of receiving a federal sports betting licence under the ITG.
“To be honest, there are loads of conditions we are working through with our advisors and the regulators as well. This is very fluid, and it’s very uncertain. The end game is a few months away. This is not long term, but we continue to work through. It’s just too early to speculate how it’s going to play out.”
Betfair this morning posted a 13% rise in core Betfair revenues (excluding its Australian JV and Betfair US) to £91.6m, driven by a “great summer of sport” in its largest market, the UK, where revenues were up 23%. The Euro 2012 football tournament delivered £7.8m of the company’s revenues in the three months to 31 July 2012.
Mobile usage and revenues both doubled – the number of bets placed increased by 114% to 15.8 million and revenue up 98% to £8.2m – driven by the penetration of smartphones, product enhancements and growing customer familiarity with the channel. Betfair said it had started to see “meaningful revenue” from its mobile casino, which launched in the quarter.
Long-standing CFO Morana, who acted as interim CEO for much of the nine months it took new CEO Breon Corcoran to arrive from rival Paddy Power to replace former incumbent David Yu, announced today he was to stand down once a successor had been found.
“I’ve been incredibly fortunate to be part of the Betfair story the last ten years. When I look back at what we’ve achieved during that time, turning a small start-up into a global business, I’m immensely proud. Having said that, I think now is the right time for me and the company to move on” , he said.
Betfair shares however stood 2% down on yesterday’s close at the time of writing following the trading update issued this morning, reflective of the company’s exposure to ongoing regulatory and tax risk in Germany, Cyprus and the UK. In Spain, Betfair had to pay back taxes in Spain ahead of its licence being issued in June, and has also had to withdraw its its exchange until the relevant licence is issued. It also lodged a formal complaint with the EC yesterday over Cyprus’ non-regulation of betting exchanges in its new betting law. “On regulation, we’ve had a turbulent few months”, admitted Morana.