A Double Dose of Bad News for Sportingbet

1 April 2003

March is typically the busiest month of the year for Sportingbet, the U.K.-based bookmaker, but a crooked bettor and "unfavorable" results at sporting events have made it a month to forget.

The company's gross margin performance during the month were weak, which it attributed, at least in part, to what it termed a "high number" of U.S. basketball and UK horseracing results were "unfavorable to bookmakers."

On Thursday the company's stock took a plunge, losing 25 percent of its value.

Then on Friday an Australian court hit the company with a £1.3 million fine to compensate for a customer who gambled with money stolen from his former employer. The customer was a rollover from Number One Betting Shop, Australia's largest private bookmaker and a recent acquisition of Sportingbet.

The company's stock dropped another 12 percent Friday to 23p. A year ago it was trading at 122p.

Sportingbet purchased Number One Betting Shop in early 2001 during a massive spending spree of business properties in ventures.

The case came about after it was discovered that one of Number One's high-rolling customers, who continued betting with Sportingbet after the acquisition was funding much of his activity through stolen money.

According to reports the customer was banking his betting through money he embezzled as an executive for an Australia-based company.

Sportingbet said it will appeal the ruling; it has 42 days to do so.

The company said a £1.3 million exceptional charge would be taken into account in its profits warning in consideration of legal fees, court costs and the possibility of losing the appeal. The company added, though, that there was no further cash impact as a result of the decision.

Once the appeal is made, a higher Australian court would hear the case, likely before the third quarter of this year.

The unfavorable court ruling came after Sportingbet suffered a series of bad results at Britain's Cheltenham Festival, one of the biggest horseracing events in all of Europe. The company has also seen poor results from the NCAA basketball tournament, both on and off the court.

Company officials also attribute a dramatic decline in new users directly with the increased media attention of the raging war in Iraq.

Despite the bad news of late the company still has a positive outlook. In January, the London-based firm said customer numbers had risen to 837,000, making it one of the biggest online sports bookies in the world, with operations in Europe, the U.S. and Asia. The company said its customers place an average of 92,000 bets a day.

It also said that gross margin performance in March was below the long-term average for the industry, but it still expects to report operating profits of about £14.5 million for the full-year to March 31.

The company added that turnover has been broadly in line with expectations for the fourth quarter as a whole, as growth in customer numbers and the number of bets placed had continued.

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