The recent purchase of Paradise Poker by Sportingbet.com received
wide media coverage, but a deeper look into the arithmetic of this
deal gives a glimpse of the enormous potential of these two companies.
Paradise, formerly the top dog in online poker is currently accepted
as the third largest online poker operator worldwide, and Sportingbet
paid US$ 193 million in cash, raised through a US$ 104 million loan
through Barclays, and US$ 89 million from an issue of stock. 56.7
million Sportingbet shares were also agreed as part of the buying
price.
Depending on PP's performance over the next three years, up to a further
US $ 50 million could be paid. If PP generates between $126.6 million
and $150 million in profits over the next three years this payment
comes into effect. If 3 year profits exceed $150 million, a bonus
of 10 percent of the excess profit will be due.
IT integration is seen as the main problem and will take four months,
starting in the US. The aim is to have all facilities in the Sportingbet
group accessible through one client account.
Staff and management will be taken over in toto and in their current
positions at common locations in Costa Rica, London and Vancouver,
because cultural values of the two companies are seen as compatible.
Sportingbet estimate the online poker market is currently worth around
US $ 1.5 billion per annum and rising, based on daily rake. The dominant
market is the US with up to 80 million players, although Europe is
showing good growth.
PP has 720 000 registered poker players, almost 100 000 of them active.
Sportingbet has 1.2 million gamblers upwards - mainly sportsbook bettors.
The synergy of cross marketing is believed to be considerable and
major marketing investment is to be made with the objective of building
a wider geographical base for PP.
There has been a significant increase in rake since December 2003,
when multi-table tournaments were introduced, and a further growth
surge has been apparent since January 2004. September 04 rake and
tournament fee income reached $7 million a month, and with more concentrated
planning and marketing investment this is expected to increase.
Overall rake and tournament fees in the seven months to end July 2004
stood at $37.2 million yielding a pre-tax profit of $21.3 million
for the period. By way of comparison, the whole of 2003 produced $44.1
million giving a pre-tax profit of $24.6 million.