Austrian publicly listed betting group Bwin (formerly BetandWin) came to the market this week with a sombre assessment of its affairs that included missed third quarter targets with a loss of Euro 5.6 million, a pared down full year forecast, reduced operational plans and a significant Euro 534 million write-off on Ongame – most of the value of the online poker provider and network which it acquired earlier this year.
The cause of the disappointing result lies in the group’s decision to cease US operations following the enactment of the Unlawful Internet Gambling Enforcement Act on October 13 this year.
“The precise amount of the writeoff will be agreed with our auditors, but it will be around Euro 534 million,” Chief Executive Norbert Teufelberger told reporters. “We have decided to drastically change our aggressive, growth-oriented strategy focused on regional expansion,” he said. “The focus is now to optimise margins and cashflow.”
Shares in bwin.com Interactive Entertainment dropped as much as 10 percent on the news, but recovered some ground later in the day. The stock has dropped 83 percent so far this year.
Observers said that the writeoff will wipe out around 90 percent of shareholders’ equity at bwin, which had just propped it up by selling Euro 270 million worth of new shares at Euro 95 in March to fund the acquisition of Ongame.
With U.S. revenues petering out as a result of its decision to cease operations in that country, bwin turned to a third-quarter core loss of Euros 5.6 million. Gross gaming revenues almost tripled to Euro 97.2 million, in line with the average forecast.
Highlights included quarterly gross gaming revenues of Euro 97.2 million, compared with Euro 35.7 million in 2005 and gross revenues from sports betting of Euro 44.4 million, compared with Euro 23.3 million in 2005. Bwin generated betting margins of 9.2 percent for the quarter. EBITDA losses were Euro 5.6 million for the three month period and after tax losses Euro 22.6 million.
Gross gaming revenues for the nine month period were Euro 289 million, compared with Euro 96.3 million on the same period in 2005. Bwin experienced an EBITDA loss of Euro 9.4 million for the nine month period and after tax losses of Euro 49.8 million for the same period.
The company has nearly 1.8 million active customers of which 1.1 million are new real money customers.
Bwin lowered its guidance for 2006 earnings before interest, tax, depreciation and amortisation saying it now expected to break even on this level if restructuring costs are excluded. The previous EBITDA forecast was for Euros 40. The company also slashed its forecast for gross gaming revenues by another 15 percent to Euro 375 million – the second cut in the last three months – and said the situation was too unstable to make any predictions for 2007.
Among the changes under its new strategy, bwin will cut its marketing budget to half of what it spends in 2006, Teufelberger said. A big part of its current marketing budget flows into sponsoring soccer clubs including AC Milan and Werder Bremen. The bwin executive said that the company will in future focus on European markets and move towards Asia.
Asked about reports that bwin and Party Gaming were discussing a merger, Teufelberger said he could not rule out consolidation in the European gambling sector. “There are several rumours saying that the industry is moving closer together, is realigning, and perhaps is seeking new partnerships,” he said. “One cannot rule this out.”