Exclusive: Playtech-Scientific Games JV breaks down, senior sources claim
Joint venture reduced to "strategic partnership", eGR learns " announcement imminent as both companies decide how to break share price sensitive news.
Playtech’s two-year old Sciplay exclusive joint venture with US lottery and gaming supplier Scientific Games has ended, according to numerous senior sources close to the matter.
The exclusive 50/50 equity joint venture is now known to have been reduced to a “strategic partnership” with both parties free to pitch to prospective customers separately from one another, whereas under the previous terms of the deal they would only offer joint products and services. According to one source, who chose to remain anonymous, Scientific Games will still be able to offer Playtech software if it chooses, but if it does not, now has the option to offer rival products.
According to a source connected to one of the firms both businesses are meant to jointly pitch to potential clients, but it is believed this has increasingly failed to happen in recent months.
Executives at Scientific Games are understood to be “upset” at the news that the formerly exclusive deal has ended in such circumstances with many holding the belief that the JV put them in a strong position to exploit the US once it regulates in the near future. Scientific Games failed to respond when contacted by eGR.
Both companies are said to be on the verge of releasing an official announcement after having spent months deciding how and when to inform both US and European stock markets and their respective shareholders due to the share price sensitive nature of the deal. This could come as soon as tomorrow morning when Playtech announces its Q4 KPIs and a trading update to the stock market.
The breakdown in the terms of the joint venture will come as a particular blow to Playtech. Since the Department of Justice’s clarification on the Wire Act last December, with US regulation via an intrastrate route looking increasingly likely, its share price has risen 30% and it will now almost certainly seek a similar deal. A Playtech spokesman refused to comment.
This is the second Playtech JV that has experienced problems following online partner William Hill taking out a High Court injunction to ensure the software supplier was unable to sign a similar deal with competitors, while relations soured further last year culminating in a mass walkout at its customer management offices in Israel, Bulgaria and Manila over rumours jobs were moving to Gibraltar. The William Hill Online deal however remains extremely profitable for both firms. In its most recent trading update Hills’ said its full-year operating profit is expected to be 17% ahead of the prior year at £106m, with a non-controlling interest for Playtech of £7.4m for the quarter and £31.3m for the year as a whole. William Hill has a call option on the five-year JV in 2013.
Playtech signed the joint venture with Scientific Games almost two years ago to the day on 21 January 2010 in order to target state lottery operators, as well as signing a new tie-up for games machines. The move was seen as a coup in particular for the Israeli supplier with Scientific Games’ huge global client list of 120 state gaming providers, including the Chinese State Government, giving it access to potential deals as and when the US market opens as well as the rest of the world. Fun Technologies president Rick Weil (pictured) was hired as managing director. When contacted he failed to return calls or emails.
Sciplay was set up to target government lottery contracts, or what the companies term the ‘business-to-government (B2G)’ market, to deliver online technology to government-backed lottery operators. A statement at the time said this would combine Playtech’s business-to-business gaming software and product portfolio with Scientific Games’ links providing solutions to government-backed gaming operators in regulated and soon-to-be-regulated jurisdictions.
Since the JV was sealed two years ago, however, Sciplay has only announced one deal of note marking Playtech’s “return to the US” by signing an initial play-for-fun poker software licensing deal with the California Online Poker Association (COPA) last June, a consortium that makes up 60% of poker revenue in the state and includes Commerce Casino in Los Angeles, one of the world’s largest poker rooms. This saw the launch of free-play poker site Calshark.com last October.
It remains unclear how the COPA deal will now progress, or whether both, or just one of the former JV partners, will continue to run Calshark.com following the significant change in the terms of the partnership.
The COPA contract is initially based on play-for-fun with Sciplay providing intrastate online poker services, and Playtech licensing its poker software and IMS operator management system to COPA ahead of possible legislation which would eventually allow cash gaming. The exact terms of the deal remain unknown, however a Playtech spokesman said at the time that it would decide whether to set up a poker network or focus on a “mega brand” on behalf of COPA if and when real money play was an option. When asked to comment on the future of the COPA deal a spokesman for the consortium refused to comment.
CalShark.com features ring games, tournaments and sit ‘n’ gos, which can be played through a downloadable client or through a non-download flash platform. There is a strong aspect of social media integration, with players able to sign into the flash client using their Facebook login, while they can also invite friends to join them at the tables through social media.
A spokesperson for COPA suggested in October that these features would set up the partnership for the launch of a Facebook app “in the near future”.
In an announcement to the stock exchange in June Playtech called the move a “return to American operations”, its first since UIGEA was implemented in 2006. It added that California’s estimated 2m poker players, who currently play “illegally”, would be able to “become acquainted” with the new system and “hone their skills” ahead of real money play. California, that has an estimated population of around 37m, is the largest poker playing state in the US. Playtech has since set up a base in California.
Playtech said it had the potential to become a “very substantial” revenue source, as and when a real money option is permitted. “The deal puts Playtech in the strongest position to take advantage from anticipated changes to US regulation as California is likely to be one of the first to regulate on a state level and have a sustainable domestic market,” a statement read.
“Timing of revenues are wholly dependent on regulation, but Playtech will build franchise through play-for-fun “ starting this year,” it added.
Mor Weizer, CEO of Playtech and Rick Weil, CEO of Sciplay, both said: “COPA is supremely well positioned to become a licensed operator should internet poker become legal in the state of California”, and that both companies were delighted to have the opportunity to work with COPA, both for the provision of software and also through the Sciplay joint venture.”