Detailed industry report analyzing one of the most relevant and controversial issues of state shareholders in the gambling industry - updated and revised 2nd edition (2009).
Four years ago we published our first privatisation study, which was very well received. In the past 12 months, as many new developments sparked increased interest in the market, more and more clients have asked for an updated study.
In our first report broke new ground by discussing potential privatisation of gambling operations; by now the situation has developed further and shows additional issues:
- Growing relevance of key drivers for privatisations – Ever increasing legal pressure (e.g., in most EU states), increasing liberalisation (e.g., in France), and/or tight state budgets (e.g., in the US) are putting pressure on state owners to evaluate a potential privatisation of their gambling assets.
- Drastic increase of likelihood that state gambling operations will be privatised soon – The number of experts surveyed who believe that some of the top state lotteries/operators will be privatised in the coming 2-3 years nearly doubled compared to MECN’s 2005 analysis and survey.
- Several privatisations are currently being considered – In addition to perennial “hot” privatisations, such as the UK Tote and Milli Piyango, many other ones are under discussion. According to our survey, several potential privatisations are expected to be at the top of the list: Some Australian and US lotteries/operators, the Hungarian State Lottery, and La Française des Jeux, to name just a few.
- Billions are on the table – Some of the lotteries/operators that are expected to be privatised in the near future are valued in the double-digit billion dollar range.
- Privatisation is no longer limited to only one method – In the future privatisation will not necessarily mean a change in ownership of shares, …. In addition, alternative forms, such as long-term licenses that transfer responsibility for operations to private companies, are also possible.
The report includes:
- Analysis of selected potential privatisations and overview of state operators most likely to be privatised in the near future.
- Case studies of already privatised lotteries/operators.
- Valuation of relevant state-controlled gambling operators.
- Discussion of advantages, disadvantages, and options for privatisation of state-owned gambling operations.
- Many results are based on a survey of more than 50 industry experts, including representatives from state lotteries, private online operators, and financial investors.
- In total, the second edition has nearly 100 pages and 36 graphs/exhibits.
- The report is co-authored by many renowned experts, among them the investment bank Sal. Oppenheim.
2 Privatisation of state gambling operations – status worldwide
2.1 Introduction to privatisations
2.1.1 Definition of privatisation in the gambling market
2.1.2 From state to private ownership – a step-by-step process
2.1.3 Number of privatisations expected to increase
2.1.4 Liberalisation not equal to privatisation
2.1.5 Different views of management and shareholders
2.2 Developments driving privatisations in the gambling market
2.2.1 Increased legal and political pressure on existing gambling regulations
2.2.2 Tighter state budgets due to economic crises
2.2.3 Unlicensed Internet offerings are still successful
2.3 Key regions and sectors for privatisation
2.4 Overview of different types of state-controlled gambling operators
3 Selected potential privatisations in the near future
3.1 La Française des Jeux
3.1.1 Privatisation in view of liberalisation
3.1.2 The privatisation story so far
3.2 Privatising the Turkish lottery Milli Piyango – a never- ending story?
3.2.1 A seemingly endless privatisation process
3.2.2 Company value of Milli Piyango
3.2.3 Allocation/split of sales among licensee, players, and state after the privatisation
3.2.4 Value of the 10-year license – was the starting price too high?
3.2.5 Overview of bidders
3.2.6 The main principles of the license and regulations
3.2.7 Company profile of Milli Piyango – the national lottery
3.3 UK tote – planned for a long time and hopefully implemented soon
3.4 US lotteries – many would like a privatisation, but will it happen?
3.4.1 Federal lottery statutes – the basis for lottery operations in the US
3.4.2 The opinion of the US Department of Justice and the reactions of the US lotteries
3.4.3 Massachusetts Lottery
3.4.4 California Lottery
3.4.5 Texas Lottery
3.4.6 Illinois Lottery
3.5 Planned privatisations Down Under - Australia
3.5.1 New South Wales Lottery
3.5.2 Tote Tasmania
3.5.3 Victoria betting
3.6 Lutrija Crne Gore - Montenegro
3.7 Loteria Electronica - Puerto Rico
3.8 Hungarian State Lottery
4 Advantages of privatisation
4.1 Advantages from introducing market competition
4.2 Are state-controlled companies inefficient compared to private operators - A benchmark analysis
4.3 Cost efficiency varies widely
4.4 Private operators - putting an end to the “regressive tax”
4.5 Regulation vs. self-regulation
4.6 Freedom to choose
5 Disadvantages of privatisation
5.1 Increase in negative social externalities of gambling
5.1.1 Does privatisation lead to market expansion?
5.1.2 Does privatisation lead to increased problematic gambling?
5.1.3 Incentive schemes of private gambling operators - focus on sales and profit?
5.2 Lottery - A need for a natural monopoly?
5.3 Guarantee of a basic supply of gambling products
6 Possible options for privatisation
6.1 Overview of alternative modes of sale
6.2 Placing shares on the capital market
6.3 Trade sale to a strategic or financial investor
6.4 If selling to private companies – which buyers would be best suited?
6.5 Sale to other/foreign state-controlled gambling operators
6.6 Sale to other state-controlled bodies
6.7 51% vs. 49% - how much to sell?
7 Valuation - what are state-controlled gambling operators worth?
7.1 Methods, peer groups, and multiples for valuation
7.2 Valuation of relevant state-controlled gambling operators
7.3 Valuation using multiples approach
8 Explanation of the trade sale process
8.1 Analysis and preparatory phase
8.2 Marketing and due diligence phase
8.3 Negotiating phase
8.4 Ancillary conditions imposed by the seller in privatisation processes
9 Case studies of privatized gambling operators
9.1 UK National Lottery
9.5 UniTAB – Tatts Group
9.6 Casinos Lower Saxony
9.7 An Post Irish National Lottery Company
9.8 South Africa – from Uthingo to Gidani
10 The other way around – nationalisation of lottery operators
11 Future developments
11.1 Increase in privatisations in the near future?
11.2 Overview of state operators most likely to be privatised in the near future
12.1 Recommendations for state shareholders
12.2 Recommendations for potential investors
15 List of exhibits
16 About the authors and contact information
17 Related MECN reports
Exhibit 1: Criteria for a definition of privatisation
Exhibit 2: Different forms of privatisation – a step-by-step process
Exhibit 3: Level of success of privatisations so far – Results of MECN survey
Exhibit 4: Ownership vs. market structure – important factors
Exhibit 5: Drivers of the privatisation discussion
Exhibit 6: Key regions for future privatisation activity – Results of MECN survey
Exhibit 7: Key industry sectors for future privatisation activity – Results of MECN survey
Exhibit 8: Different types of state-controlled gambling operators
Exhibit 9: Structure of directly owned state gambling operators – Examples
Exhibit 10: Privatisation process of Milli Piyango
Exhibit 11: Growth comparison of Milli Piyango and OPAP
Exhibit 12: Allocation/split of sales among licensee, players, and state
Exhibit 13: Most relevant advantages of privatisation – Results of MECN survey
Exhibit 14: Cost efficiency of state-controlled operators compared to private/privatised operators
Exhibit 15: Economies of scale - Operating expenses in relation to total sales
Exhibit 16: Most relevant disadvantages of privatisation – Results of MECN survey
Exhibit 17: Comparison of growth rates of private vs. state-owned gambling operators
Exhibit 18: Sales development of privatized gambling companies since their privatisation
Exhibit 19: Possible options for privatisation
Exhibit 20: Main privatisation methods in the OECD
Exhibit 21: Bookbuilding process
Exhibit 22: Alternative transaction procedure
Exhibit 23: Potential groups of strategic investors
Exhibit 24: Predominant forms of privatisation – Results of MECN survey
Exhibit 25: Best suited private companies to run former state-controlled gambling operators – Results of MECN survey
Exhibit 26: Various 2007 and 2008 multiples (company value/…) of OPAP
Exhibit 27: Stock development of OPAP in 2007 and 2008
Exhibit 28: Valuation of top state-controlled gambling operators using sales multiples
Exhibit 29: Valuation of top state-controlled gambling operators using gross revenue multiples
Exhibit 30: Example of the auction and bidding process
Exhibit 31: Areas and structure of a due diligence process
Exhibit 32: Multi-stage pricing- and terms-based competition
Exhibit 33: Estimated number of privatisations in the next 2-3 years – Results of MECN survey
Exhibit 34: Likelihood of top gambling operators to be privatised in the near future – Results of MECN survey
Exhibit 35: Major shareholders of survey participants’ companies
Exhibit 36: Industry sectors of survey participants
- An Post National Lottery
- Associated Supplies
- Austrian Lotteries
- Austrian Mint / MünzeÖsterreich
- Austrian National Bank
- BerjayaSports Toto Berhad
- Black Management Forum
- Cadbury Schweppes
- California Lottery
- Casinos Austria
- Casinos Austria International
- Casinos Baden-Wuerttemberg
- Casinos Lower Saxony
- China Sports Lottery
- Citicorp Nominees
- CONI Czech Sports Association
- De La Rue
- De Lotto
- Far East Asset Berhad
- Fujitsu Services
- Hotel SacherGmbH
- Irish National Lottery
- Jockey Club of Türkiye
- JP Morgan Nominees Australia
- La Françaisedes Jeux
- LAELLI Investment
- Lottery Romania
- Lotto Bavaria
- Mauritius National Lottery
- Medial BeteiligungsGmbH
- MGM Mirage
- MotswediTechnology Holdings
- MTB Private Foundation
- NAFCOC Investment Holding
- New South Wales Lotteries
- New York Lottery
- OECDONCE OPAP
- Philippine Charity Sweepstakes Office
- Players Group
- Rehab Lotteries
- Royal Mail Enterprises
- Schellhammer& Schattera
- Scientific Games
- Sisal Group
- SociétéduCheval Français
- Sports Toto Malaysia
- UK tote
- Westpac Custodian Nominees
- West Virginia Lottery
- William Hill