Privatization of State-Controlled Gambling Operators Only hype or a reality in the near future?

Transcription

1 Privatization of State-Controlled Gambling Operators Only hype or a reality in the near future? Click here to obtain full report London/Munich, July 2005 In cooperation with:

2 Introduction Competition is getting tougher we cannot compete on equal terms we cannot ignore that the competition is here to stay - (Jesper Kärrbrink, CEO of the Swedish state lottery Svenska Spel). Hard-to-control Internet gambling offers and the intensive debate about increasing liberalization make life difficult for state-controlled operators. Although they recently won some battles, according to many experts business will not get any easier for them, and the value of state-controlled operators will probably decrease rather than increase in the future. This fact combined with tight budgets might lead a growing number of state shareholders to see the regular contributions to state budgets in jeopardy and prompt them to consider privatizing their gambling operations as soon as possible. Indeed, recent and current privatizations, such as those of the Greek OPAP and the UK tote, show that this is not just idle speculation. Furthermore about 73% of the experts surveyed expect that the number of privatized state gambling operations will continue to increase in the near future. But what exactly are the advantages and disadvantages of privatizing the gambling sector besides filling up state coffers? Many complex issues have to be analyzed closely in advance, for example: Are state-controlled companies really inferior and inefficient compared to private operators? While some state-controlled operators, such as German WestLotto, work even more efficiently than some privatized companies, others are indeed far more inefficient. How could a privatized operation be regulated to prevent excessive gambling or other negative side effects? What are state-controlled gambling operators worth and how could they be valuated meaningfully since the number of examples to refer to is limited. The report addresses primarily state shareholders and provides an objective analysis of all relevant issues as well as firsthand information about possible options for privatization and their implementation. The results are based in part on a survey of more than 90 industry insiders who offered their unique insights. The report is coauthored by many renowned experts, among them the investment bank Sal. Oppenheim and industry insiders such as Rob van der Gaast and Wulf Hambach. Sample pages of report

3 Table of contents 1 Executive summary 2 Status of privatization worldwide Privatization - Only hype or a reality in the near future? Developments driving privatizations Key regions and sectors for privatization Overview of different types of state-controlled gambling operators 13 3 Examples of privatizations in process Privatizing the Turkish lottery Milli Piyango UK tote - long planned and now executed Others 17 4 Advantages of privatization Advantages from introducing market competition Are state-controlled companies inefficient compared to private operators? Private operators - putting an end to the regressive tax discussion Regulation vs. self-regulation Freedom to choose 22 5 Disadvantages of privatization Increase in negative social externalities of gambling Lottery - A need for a natural monopoly? Guarantee of a basic supply of gambling products 25 6 Possible options for privatization Overview of alternative modes of sale Placing shares on the capital market Trade sale to a strategic or financial investor If selling to private companies - who would be best suited? Sale to foreign state-controlled gambling operators Sale to other state-controlled bodies % vs. 49% - how much to sell? 31 7 What are state-controlled gambling operators worth? Methods, peer groups, and multiples for valuation Valuation of relevant state-controlled gambling operators Potential increase of valuation in case of privatization 35 8 Explanation of the trade sale process Analysis and preparatory phase Marketing and due diligence phase Negotiating phase Ancillary conditions imposed by the seller in privatization processes 39 9 Case studies of privatized, formerly state-controlled gambling operators UK National Lottery OPAP Maltco Tabcorp UniTAB Casinos Lower Saxony Others Outlook and recommendations Increase of privatizations in the near future? Recommendations for state shareholders Recommendations for potential investors Relevant links Methodology Appendix About the authors and contact information Related MECN reports 57

4 Exhibits Exhibit 1: More privatizations: What state-controlled gambling operators think of the issue Results of MECN survey Exhibit 2: Level of success of privatizations so far Results of MECN survey Exhibit 3: Drivers of the privatization discussion Exhibit 4: Key regions for future privatization activity Results of MECN survey Exhibit 5: Key industry sectors for future privatization activity Results of MECN survey Exhibit 6: Different types of state-controlled gambling operators Exhibit 7: Structure of directly owned state gambling operators Examples Exhibit 8: Most relevant advantages of privatization Results of MECN survey Exhibit 9: The most cost-efficient state-controlled gambling operators Exhibit 10: Economies of scale at state-controlled gambling companies Exhibit 11: Most relevant disadvantages of privatization Results of MECN survey Exhibit 12: Alternative modes of sale Exhibit 13: Main privatization methods in the OECD Exhibit 14: Bookbuilding process Exhibit 15: Alternative transaction procedure Exhibit 16: Potential groups of strategic investors Exhibit 17: Predominant forms of privatization Results of MECN survey Exhibit 18: Best suited private companies to run former state-controlled gambling operators Results of MECN survey Exhibit 19: Multiples in the lottery sector Exhibit 20: Multiples in the betting sector Exhibit 21: Multiples in the casino and online gambling sectors Exhibit 22: Value and value/turnover multiple of 14 top state-controlled gambling businesses Exhibit 23: Potential value of top state-controlled gambling businesses in case of privatization Exhibit 24: Example of the auction and bidding process Exhibit 25: Areas and structure of a due diligence process Exhibit 26: Multi-stage pricing- and terms-based competition Exhibit 27: Development and estimated number of privatizations in the next 2-3 years Results of MECN survey Exhibit 28: Likelihood of 19 top state-controlled gambling operators to be privatized in the near future Results of MECN survey Exhibit 29: Major shareholders of survey participants Exhibit 30: Industry sectors of survey participants Appendix 1: Shareholder structure of Casinos Austria Companies mentioned in this report Admiral Sportwetten An Post National Lottery ÁPV Associated Supplies Austrian Lotteries Austrian Mint / Münze Österreich Austrian National Bank Autotote Corporation Berjaya Sports Toto Berhad BetandWin Black Management Forum Cadbury Schweppes California Lottery Camelot Casinos Austria Casinos Austria International Casinos Baden-Wuerttemberg Casinos Lower Saxony China Sports Lottery Citicorp Nominees CONI Czech Sports Association Dansk Tipstjeneste De La Rue De Lotto Dogus EssNet Far East Asset Berhad Fujitsu Services GTech Hotel Sacher GmbH Ingenio Intralot Irish National Lottery Jockey Club of Türkiye JP Morgan Nominees Australia Koc La Française des Jeux Ladbrokes LAE LLI Investment Loterija na Makedonija Loto-Québec Lottery Romania Lotto Bavaria Maltco Mauritius National Lottery Medial Beteiligungs GmbH MGM Mirage Milli Piyango Motswedi Technology Holdings MTB Private Foundation NAFCOC Investment Holding New South Wales Lotteries New York Lottery Norsk Tipping OECD ONCE OPAP Philippine Charity Sweepstakes Office Players Group PMU Raiffeisenbank Holding Rehab Lotteries Royal Mail Enterprises Sazka Schellhammer & Schattera Scientific Games Sisal Group Société du Cheval Français Sports Toto Malaysia Svenska Spel Swisslos Szerencsejáték Tabcorp Tattersall s Thales Electronics UK tote Unitab Uthingo Management Veikkaus Oy Virgin WestLotto Westpac Custodian Nominees West Virginia Lottery William Hill Youbet

5 About the authors MECN MECN is a network of experts on issues concerning the media and entertainment industry. Together we provide in-depth knowledge, analysis, and advice to global clients. For the gambling industry, we provide market insights and strategic support to various clients ranging from bookmakers to state lotteries. Sal. Oppenheim Sal. Oppenheim is one of Europe s leading private banks and has an investment banking branch focusing especially on the public sector. Sal. Oppenheim fosters a comprehensive advisory approach that combines competence with absolute discretion and independence; the bank was involved in more than 50 privatizations in recent years and enjoys an excellent reputation as privatization experts. Dr. Wulf Hambach Dr. Wulf Hambach is a partner in the law firm Hambach & Hambach and specializes in international and European betting and gambling law. He is coauthor of the Internet Gambling Report, and his work has appeared in a variety of publications, including the WorldOnlineGamblingLawReport, the legal paper Sport & Recht (sports and law), and the Frankfurter Allgemeine Zeitung. Rob van der Gaast Rob van der Gaast is one of the best known gambling research analysts and contributed to LotteryInsider, igamingnews, the Internet Gambling Report, and the European Lottery Files. He has a background in sports journalism, sports marketing, and developing creative TV & gambling program ideas. After developing a completely new sports betting concept, he returned to his journalistic roots. Paolo Pinotti Paolo Pinotti is an expert in the field of privatization. He is researcher at Fondazione ENI Enrico Matteo (Milan) in the group Privatization, Regulation, and Antitrust and is also teaching assistant at Universitat Pompeu Fabra (Barcelona). He holds a Master Degree in Economics from the University of Chicago.

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