bwin Reports Mixed Results for First Half of 2006

21 August 2006

Austria-based bwin Interactive Entertainment AG is trying to become the world's No. 1 address for sports betting, gaming and entertainment on the Internet, and according to a remark in the financial half-year figures (for 2006), it is "the fastest-growing company in the online gaming industry."

But in the meantime, the group has cut its full-year revenue target by 13 percent to 435 million euro after a disappointing World Cup and regulatory problems in both the United States and Europe.

In the second quarter, 48 group matches were played for the World Cup in Germany. Above that, in the sixth month, eight round of matches were played as well as two quarter finals. In the third quarter (in July), two quarter finals, two semi finals, the match for the third place and the final were determined.

Record sports betting turnover of 541 million euro (up 97 percent) was realized in the second quarter. With a sports betting margin of 7.7 percent due to wins by favorites during the tournament, Bwin's second-quarter saw a loss of 18.6 million euro.

Gross gaming revenues for the period amounted to around 94.3 million euro, up 162 percent, and 1,117,000 active and 471,000 new active customers were recorded. EBITDA was 18.6 million euro (partly due to marketing expenses for Soccer World Championship) compared to 2.6 million euro during the same period in 2005. Losses after taxes were 28.6 million euro, partly attributable to depreciation following the acquisition of Ongame.

Highlights for the first half of 2006:

  • Gross gaming revenues: around 192 million eruo (up 216 percent).

  • Nearly 1.5 million active and 767,000 new active real-money customers. The company is still in hyper growth phase, with EBITDA of 3.8 million euro.

  • Loss after tax of 27.1 million euro due to depreciation of acquisitions.

  • Revised growth expectations for 2006: gross gaming revenues of around 435 million euro and EBITDA of at least 40 million euro.

  • EBITDA of 18.6 million euro, partly due to marketing expenses for Soccer World Championship (Q2 2005: 2.6 million euro).

Total marketing expenses during a second quarter dominated by marketing activities focusing on the Soccer World Championship in Germany amounted to 59.9 million euro, compared to 18.3 million euro for the same period in 2005 (excluding customer bonuses and promotions in the amount of 13 million euro). The company's internal objectives with respect to new customer acquisition were greatly exceeded, with a total of 400,000 new active sports betting customers.

The cost per new active customer (including bonuses) amounted to 155 euro, and therefore remained relatively steady compared to Q2 2005, when the cost was 145 euro. Since the company works on the assumption that the revenue potential of the new customers gained during the course of the Soccer World Championships will be realized only in subsequent periods, there was a corresponding charge to EBITDA in the second quarter.

Ongame's contribution to EBITDA fell below expectations in Q2 2006. Now that a new management team has been appointed, procedures defined and missing processes introduced, the steps that have been taken are expected to lead to an improvement in results by the end of the year at the latest. During this process of integration, the decision was made to concentrate decisions relating to customers and marketing in Vienna and Gibraltar so as to ensure that all measures taken are better coordinated and more efficient.

Regulatory Developments


The advocate general in the Placanica proceedings being heard by the European Court of Justice stated during his final pleading in May 2006 that Italian legislation banning the offering of bets across borders under penalty of imprisonment was an infringement of the freedom of establishment and services of the Treaty on European Union. With particular reference to the Gambelli verdict, the advocate general pointed out that the Italian regulations neither achieved their stated goal nor commensurated with respect to the legal interests they sought to protect. In the view of the advocate general, the authorities of a state in which a service was provided should assume that a provider was sufficiently respectable if he complied with the relevant legal requirements in his home country. The advocate general's final pleading represented a recommendation to the European Court of Justice. The court's verdict can be expected in the course of the next few months.

Apparently as a consequence of these proceedings being heard by the European Court of Justice, things have started to move in the Italian games of chance sector. Only a few days ago, the Italian parliament passed a law under which betting companies based in an EU country will in future be permitted to offer betting online from abroad provided they comply with the reliability criteria of the state monopoly (AAMS). The details of this important step toward liberalizing the market for games of chance in Italy are expected to be laid down in implementing regulations due to be passed by the state monopoly within the next few weeks.

Nevertheless, the European market is still characterized by the protectionist measures of individual governments designed to protect state monopolies. Even after the verdict of the Federal Constitutional Court in March 2006, the situation in Germany is still characterized by numerous legal disputes between government providers and authorities on the one hand, and private providers and their business partners on the other. The German Federal Administrative Court ruled in late June that a permit issued by a former state of the German Democratic Republic did not permit the holder to operate a sports betting shop in Bavaria. The verdict of the Federal Administrative Court made no reference to the internet products offered by bwin's associated company, bwin e.K. (Steffen Pfennigwerth). Under considerable political pressure from the Regional Council of Chemnitz, bwin's associated company bwin e.K. has nevertheless been banned from continuing its business operations by an immediately enforceable injunction with a 14-day appeal period. Over and above this, many of bwin e.K.'s business partners have also been prevented from advertising these products by similar measures. bwin and Steffen Pfennigwerth are of the opinion that these actions are against current law and will exhaust all legal remedies at disposal to challenge such measures.

United States

The United States House of Representatives recently passed a bill tightening up the regulations for games of chance. On the one hand, the scope of this bill is extended to online gaming by the so-called Wire Act, and on the other, financial institutions shall be banned from carrying out transactions for private online gaming providers. The Senate must also approve the bill by October for it to beome a law, and it remains to be seen whether this will actually happen.

Because bwin does not offer any sports betting products to U.S. citizens, the bwin Group is not affected by the current investigations into BetonSports.

Rebranding: betandwin Becomes bwin

For some time now, the original, descriptive and highly functional nature of the betandwin brand has not been in line with the actual range of entertainment offered. While developing an even more clearly formulated marketing strategy, the need for the creation of a more suitable generic brand was recognized.

The transition of the betandwin brand to "bwin" is based on an extensive analysis of the previous image with respect to its strengths and weaknesses with a view to optimally utilizing the existing potential of the original betandwin brand whilst at the same time creating a sound foundation for future developments.

The Extraordinary General Meeting approved the change of name to bwin Interactive Entertainment AG via an overwhelming majority of 99.9 percent, and the alterations necessary for this re-branding were completed by Aug. 1, 2006.


A new organizational structure been introduced to address the steadily growing number of employees following the acquisition of Ongame. bwin now employs over 750 people and handles the group's regional expansion and the continual enlargement of its product portfolio.

Marketing Focus on Sports Sponsorshiops

As the international vehicle and re-enforcer of the bwin brand, the marketing mix is shifting toward sports sponsorships. A number of long-term agreements have, therefore, been recently concluded with various top European soccer clubs.

Regional Expansion

bwin entered the Mexican market during the lead-up to the Soccer World Championships and is examining licensing regulations for additional markets in South America and Asia.

Rob van der Gaast has a background in sports journalism. He worked for over seven years as the head of sports for Dutch National Radio and has developed new concepts for the TV and the gambling industry. Now he operates from Istanbul as an independent gambling research analyst. He specializes in European gambling matters and in privatizations of gambling operators. Rob has contributed to IGN since Jul 09, 2001.