Playtech Sold But Future Isn't Confirmed

Gambling and financial trading company Playtech became hot property in November of 2021 after a trio of rival firms battled it out for the various parts of the interactive entertainment’s provider. While the spoils ultimately went to Aristocrat Leisure over competing suitors JKO Play and Gopher Investments, of China, the acquisition isn’t quite as clear-cut as it might initially appear. In any case, though, Playtech, an FTSE 250 company, will change hands in Q2 2022.

Aristocrat Leisure

Playtech has been involved with a wide range of interactive software since it was founded in Estonia at the turn of the new century. Online, it’s perhaps best known for its gambling games, which include slot machines, live casino experiences, simulated sports, bingo, and poker. But Playtech also has a substantial presence in fintech, inclusive of trading and liquidity services, as well as marketing.

It’d be disingenuous to describe Playtech as a developer in its purest form. The company’s casino arm is actually a conglomerate of studios, including Quickspin, Rare Stone, Origins, Eyecon, and Vikings, that provide ready-made (or “turnkey”) solutions to major gaming sites. These include 888 Holdings PLC, the entity behind the casino and poker software of the same name, among others.

The deal for Playtech is unlikely to make any difference to people who use the company’s software but, to date, the acquisition process has made for some interesting reading. The takeover was initially finalized in mid-October, with Aristocrat, another slot machine developer, this time from Australia, offering £3bn (US$3.7bn) for Playtech. This figure represented £6.80p per share.

Gopher Investments

As the acquisition required approval from three-quarters of shareholders, though, there was always the potential for stalling. This is when minority owner Gopher Investments becomes important. Gopher and Playtech already have a storied history, which includes the sale of the latter’s financial services property Finalto to Gopher. Several days after Aristocrat agreed terms with Playtech, Gopher submitted a bid of its own.

Inevitably, Playtech would have been a valuable asset for Gopher due to its existing agreements with - as mentioned - companies like 888casino. 888 is one of the largest casino properties facing the US market and currently ranks fifth among the best online casinos in the USA, among names like BetMGM and Caesars Casino. The site is particularly notable for the 30x welcome bonus that it gives to new players.

Unfortunately, for Gopher Investments, at least, Playtech’s board recommended that the company go with Aristocrat, which also meant that JKO Play, another potential buyer, was left out in the cold, too. JKO Play (or JKO Capital) is the brainchild of former F1 chief Eddie Jordan, who created the company in 2021 specifically to invest in entertainment companies like Playtech.

Finalto and Barenboim

Worth explaining is the sale of Finalto to Gopher, which was approved at the same time as Aristocrat’s deal for Playtech. Playtech has been trying to get rid of Finalto for quite some time, now, with reports suggesting that its desire to offload the fintech company goes all the way back to the beginning of 2021. However, Gopher faced an uphill struggle for the purchase, this time against equity firm Barenboim Group, of Israel.

Barenboim Group had all but claimed Finalto for itself until May when Gopher managed to block a critical meeting of shareholders with a US$250m cash bid for the trading company. Oddly enough, Gopher almost scuppered its own offer by its failure to provide answers to questions about its ownership and operations in China. The latter could have caused regulatory issues for Finalto.

Gopher’s saving grace came in the shape of shareholders’ rejection of the Barenboim Group. This effectively meant that Gopher had no opposition to its interest in Finalto and, despite disapproval from Playtech itself, the investment company forged ahead with its acquisition of Finalto. Gopher, which also has interests in real estate, is part of the Noah Group of fintech businesses.

Interest Payments

So, what now? With Playtech’s sale to Aristocrat all but done, there are obviously going to be questions about how the company could change in the future. The gaming developer has long enjoyed the affection of investors due to its inexpensive share price and an excellent record of growth, with earnings up nearly 4,000% over the past twelve months and revenue expected to grow upwards of 9.86% year on year.

However, in November, commenters expressed concerns about a potential massive slump in earnings over the next three years, which could mean that interest payments are not covered by income. A fluctuating share price (while Playtech sold at £6.80p, its shares were trending at £7.26 at the beginning of November) also means that it could represent a risky, short-term investment with few potential returns.

Playtech’s share price jumped significantly from £4.20 on October 13th to £6.79 just five days later. The company is currently riding a year-high share price, following a peak of £5.11 in March. Unfortunately, for investors, diversifying into a non-Playtech stock may be a much more sensible option than sticking by this one, given the potential problems mentioned previously.

United States

Playtech’s fortunes are inextricably linked to the growth of the US economy, which is dependent on regulatory and political changes. While the company is optimistic about its performance in the United States recently, posting 103% growth in the Americans in the first half of 2021, it’s nevertheless pinning its fortunes on an unconfirmed reality. Playtech has at least been proactive in forcing change, though.

One of the largest US-based casinos, BetMGM, recently signed an agreement with Playtech to provide its games. A coup, no doubt, but one that still highlights the problems associated with working with casinos in the United States and, therefore, the concerns faced by Playtech. BetMGM only has a license to operate in certain states, including New Jersey and Philadelphia. This scenario applies to every gambling body that wants to operate in the USA.

Aristocrat Leisure has nevertheless purchased a company at its prime, though the next three years will be key to ensuring Playtech’s long-term profitability.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes