Sportech 2015 digital revenues fall 38%

Operator sees digital revenues drop to $5.6m as the firm continues to consider bids for its Football Pools business  

Sportech saw online profits within its Racing and Digital business tumble 50% to $0.9m during 2015 off the back of a chunky fall in revenues, the company announced this morning. [private]

A 38% decline in digital revenues to $5.6m was mirrored across its other business assets, with group revenues falling 4% to $141.2. Overall EBITDA was down by the same percentage to $32.5m.

On a constant currency basis, group revenues for the 12-month period ended 31 December 2015 fell 6%, while EBITDA fell by 5%.

Sportech CEO Ian Penrose said the group had reached “an important stage” in its development and looked forward to a year of growth in 2016.

“Our US business makes continued progress on many fronts, and our Football Pools business arrives at the inflection point of expected stability after years of modernization,” Penrose said.

“Overall, the board is pleased with the strategic position that each of its divisions has secured, but recognizes that each division will also require further investment, ahead of anticipated revenue and profit benefits, to better enable them to deliver their full potential,” he added.

Sportech attributed the decline in digital revenues and profits to the loss of two significant customers during the period, but said securing contracts with the Hawthorne Racecourse in Chicago and Penn National Gaming should help mitigate the loss moving forwards.

Revenues from tote services and equipment sales remained flat YoY at $45.2m, while EBITDA increased from $10m to $11m.

The uptick in EBITDA was driven by its deal to overhaul Betfred’s tote system, increased maintenance revenues from new customers, and cost efficiencies.

Sportech said revenues from the Football Pools declined 11% to $47.6m – in line with expectations – due primarily to fewer customers playing via the collector channel.

EBITDA for the asset was down 8% to $21.4m, with new subscription customers falling from 23,000 in FY 2014 to 18,000 last year.

During H2 Sportech released a newly configured version of the footballpools.com website, which it said offered the flexibility to create new game formats and features, including new payment options, and allowing the operator to better analyse player behavior.

These changes, Sportech said, would provide the launch pad for developing an iOS app for the Football Pools, allowing it to reach out to more mobile customers. The changes have seen a 59% YoY increase in revenues for the first six weeks of the year.

Sportech is currently considering a number of bids to acquire the Football Pools asset, with former COO Ian Hogg in the processing of putting together a $140m bid for the business. A decision on whether to sell is expected in the coming months.

Revenues from Sportech’s land-based venues business remained flat YoY at $46.1m, but included a $2.3m boost from FX. EBITDA, however, fell from $4.5m to $3.9m during the period despite receiving a $0.3m helping hand from favorable FX.

Last year the firm sold its 50% stake in its New Jersey-facing SNG Interactive joint venture back to NYX Gaming for pre-tax gain of $11.4m, while also fending off a takeover bid from Canada-based Contagious Gaming.

The operator also acquired daily fantasy sports operator DraftDay, and will learn whether its $130m VAT refund claim is successful at a court hearing due to take place in April.

Peel Hunt analyst Nick Bartram said the results showed “potential and strategic value” within the business, but also the need to extract it.

“We realize investors/the market may be frustrated in terms of the time taken to extract value, but importantly we believe management and the board recognize this as well,” Batram said.

“For those prepared to be patient the potential returns are significant, not forgetting the potential for $130m VAT refund” he added.

Sportech’s share price was up 3% to 51.50p at the time of writing.