In January of the previous year, global sports betting and gaming group, Entain, made a strategic move to acquire BetCity, a pioneering licensee in the Netherlands, for €450 million ($572.15 million). The acquisition was seen as a promising opportunity for Entain to expand its reach and capitalize on the evolving regulatory landscape in the Netherlands.

However methodology suggests that BetCity could be worth up to €156 ($198.3 million) million less than initially assumed. This estimation factors in adjustments to BetCity’s projected future cash flows, with Entain foreseeing a substantial decrease in net gaming revenue for the year 2024.

In tandem with its legal pursuit, Entain has issued cautionary warnings regarding potential financial ramifications, including an anticipated reduction in EBITDA for the fiscal year 2024. Additionally, the company has embarked on reviews of its markets and brands, aiming to optimize shareholder value amidst regulatory uncertainties.

Controversy and legal battles

The acquisition has since been shrouded in controversy due to undisclosed regulatory investigations that surfaced post-purchase. The acquisition of BetCity, initially for €300 million and potentially rising to €450 million, was completed in January 2023 with the aim of generating €28 million in synergies by 2026. Despite BetCity’s early licensing and 20 percent market share in the Dutch online gambling market, recent scrutiny over Entain’s acquisitions has raised concerns about the returns on investment.Entain alleges that it was blindsided by these investigations, asserting that BetCity’s former owners failed to disclose pertinent information during the acquisition process.

BetCity’s former owners signed statements indicating their unawareness of any ongoing regulatory investigations. However, subsequent disclosures painted a different picture, leading Entain to question the veracity of the information provided during the acquisition.

In response to the alleged discrepancies, Entain initiated legal proceedings against BetCity’s former owners, Sports Entertainment Media BV. While the exact compensation it seeks remains undisclosed, Entain has outlined two distinct methodologies to estimate the financial impact of the undisclosed regulatory investigations.

The first calculation suggests that BetCity’s value may have plummeted by €124 million ($157.6 million) due to heightened risks arising from regulatory violations. This assessment hinges on the assumption that regulatory infractions have exposed BetCity to increased legislative, operational, and reputational risks, thereby eroding its intrinsic value.

This alarming scenario suggests that the potential pitfalls of failing to uncover hidden regulatory investigations may have a significant impact on a company’s financial health and reputation. As the legal proceedings progress, it will be intriguing to observe the resolution of this contentious matter. The outcome is anticipated to have significant implications for the industry’s requirements for thorough due diligence in corporate acquisitions.