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Entain believes a failure to disclose regulatory risk by the former owners of BetCity has led to damages of between €58m and €156m.

Entain released the filing as part of its ongoing legal dispute with the former owners and several former executives of BetCity, the local Dutch operator it acquired for €450m in a deal concluded January 2023.

According to previous filings, BetCity failed to disclose to Entain the existence of two KSA non-compliance investigations prior to the signing of the takeover agreement.

BetCity was ultimately fined a combined €3.4m for money laundering and marketing failures.

As first reported by Casino Nieuws, the Ladbrokes-Coral owner said it had used two separate methods to calculate its damages.

Entain points to increased costs of capital

For the first method, the company attempted to model for increased legal, business, operation and reputational risk.

These increased risks have led to higher cash flow volatility and lower than expected rates of growth since the closing of the deal, it suggested.

The business also highlighted the compliance failures have led to an increased probability in receiving future regulatory sanctions, as well as an overall reduced market share due to increased scrutiny of operational practices.

The increased risk caused by the sanctions has also led to an increase in the weighted average cost of capital, or WACC, Entain has argued.

The business highlighted an increase to 12.5% for WACC, compared to 10% prior to the deal agreement, resulted in a potential €124m reduced valuation for BetCity.

Operator highlights hit to cash flow

The second calculation highlighted that compliance failures may have led to a 28-32% reduction of its cash flow.

The reduced cash flow resulted from several factors, according to Entain, including higher user acquisition costs and reduced player revenue.

VIP customers subsequently reduced, with the business ultimately moving to a “more conservative business model”.

Now, the entire BetCity business could be up for sale, if unnamed sources in the Financial Times are to be believed.

The business is reportedly planning to sell-off several non-core brands following investor criticism of the company’s M&A strategy.

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