McIver the engine: while many leisure firms are struggling, gaming group Sportingbet has just reported a 23% rise in revenues. Dominic Walsh investigates its progress

Leisure Report, Nov, 2008 by Dominic Walsh

At a time when so many corporations, particularly those in the leisure sector, are struggling to keep their heads above water, it is a relief to write about a company that is doing well--in spades.

Step forward Sportingbet, which has just reported a 23% increase in full-year net gaming revenues and is currently running at 30% up in the first two months of the new financial year. Not bad at the best of times, but in the face of a global economic meltdown it is a truly stunning performance.

It is two years since America stunned the world by passing the Unlawful Internet Gambling Enforcement Act (UIGEA), in the process almost wiping out Sportingbet as a going concern. Some people might have given up and left to seek an easier challenge, but Andy McIver, the group's chief executive, simply rolled up his sleeves and started rebuilding.

The latest numbers were, he said, the "fruits of two years of hard work following the withdrawal from America".

Sportingbet, which once used to derive two-thirds of its revenues from America, made an operating profit of 60m [pounds sterling] in the year before the ban.

It has just reported a profit of 23m [pounds sterling] and in the next three years is forecast by analysts to make 29m [pounds sterling], 35m [pounds sterling] and 42m [pounds sterling] respectively.

McIver is in no doubt about what he wants to achieve. "My personal goal is to get back to 60m [pounds sterling] within five years."

This phoenix-like rise from the ashes has resulted from a mixture of new and improved products and, more importantly, from an ever wider geographical reach.

Having learnt a painful lesson from having most of its eggs in one basket, the company now sets itself a limit of having no single country that provides more than 20% of revenues. It also focuses more of its marketing bucks on countries where it can be the market leader. This means a strong focus on countries like Australia and Greece (where they bet like mad on football and basketball), and less emphasis on, say, the UK, which accounts for just 8% of its revenues.

The theory is that with such long-established rivals like Ladbrokes and William Hill ruling the roost, there is not much point in spending a fortune pursuing market share.

Of course, regulatory issues mean international expansion is not as easy as it might be, as shown by its experiences in Turkey. Until relatively recently, Turkey was regarded as another key growth area for the company--one of the territories where it could be number one in a market with huge potential. Well, the arrest in May of two of its employees, both Turkish nationals returning home from London for a short break, soon put paid to such ambitions. Although it continues to take bets from Turkish citizens, insisting it has done nothing wrong, Sportingbet has been winding down the proportion of revenues it derives from the country. While both employees have just been released, only one has been allowed to come back to the UK. The other must remain in the country pending a trial in the New Year, although the good news is that he has had the more serious charges of money laundering and racketeering dismissed by the judge, leaving only charges directly relating to internet gambling.

Experts say that the decision by the judge not only to strike out half the charges but also not to ask the second employee to surrender his passport are very good signs.

Despite the regulatory mess, there are still plenty of new territories to go at. Sportingbet will launch in South Africa at Christmas, a market it believes has similar characteristics to Australia, while it is working on an entry into Romania in February or March in conjunction with its Greek marketing partner. But most potent of all could be its strategy for Latin America, where it launched into the Brazilian market a year ago. McIver is looking at using the group's Spanish brand, Miapuesta, to tap into Latin America's huge Spanish-speaking population.

But is crystal clear that McIver has not yet given up on making a triumphant return to the biggest gambling market in the world. For that to happen, there would have to be a resolution to the long-running negotiations with the US Department of Justice over a settlement. When the discussions kicked off in the aftermath of the UIGEA, it was pretty clear that the DoJ was seeking nothing less than the repatriation of all the money taken out of America by foreign internet gambling operators together with a short jail term for at least some of the principle directors and founders.

But of late there appears to have been a realisation in the hallowed halls of the DoJ that something so draconian was hardly likely to bring the likes of Sportingbet and PartyGaming to the negotiating table, let alone elicit a settlement.

McIver is understandably coy about what's happening, but my impression is that the two sides are, at last, vaguely close to being on the same page. It is clear that jail terms are off the agenda and that a financial penalty that does not bankrupt the company is now the likely outcome.