British company completes Scientific Games deal

Sportech U.K., a British gambling company, has completed its acquisition of the racing assets of Scientific Games, a deal that includes one of the three large bet-processing operations in the U.S. racing industry, the companies announced on Friday.

Sportech, which operates a variety of online poker, bingo, casino, and sports-betting sites, is entering the U.S. market at a time when the racing industry is undergoing a significant retrenchment because of double-digit declines over the past two years in handle, the size of the foal crop, and bloodstock prices. Bet-processing companies derive the vast majority of their revenue on the amount of wagers that they handle on behalf of their racetrack clients.

With the exception of horse racing, online betting is illegal in the United States, though some companies believe that the market may open up in the future, a prospect that has enticed some on-line gambling operators to seek footholds in the country. In addition, many gambling companies are seeking to expand into international locations in the hopes of developing new cross-country wagering products.

Scientific Games's most prominent bet-processing clients include all of the major racetracks in California and New Jersey, along with the account-wagering company Television Games Network; Philadelphia Park and its account-wagering operation; and the Nassau and Suffolk county offtrack betting companies in New York State, along with other sites. Under a former name, Autotote, Scientific Games was once the dominant bet-processing company in the United States, but its market share began eroding in the past 10 years as it focused more heavily on its lottery business. Its competitors include United Tote, owned by Churchill Downs Inc., and AmTote, owned by MI Developments.

The deal also includes several offtrack betting parlors in Connecticut that were previously owned and operated by Scientific Games Racing.

Chris Scherf, the president of the Thoroughbred Racing Associations, a racetrack trade group that works closely with all three bet-processing companies, said that Sportech officials have told racing officials that the company will continue to provide its existing services while exploring new avenues for the business. Brooks Pierce will remain in his position as the company's president under Sportech, Scherf said.

"We've been reassured every step of the way that the company will continue the way it always has," Scherf said.

The deal was first reached in January but was awaiting regulatory approvals. Under the agreement, Sportech will pay Scientific Games $33 million in cash and transfer 20 percent of its shares to Scientific Games, a bloc that is worth about $26 million as of Friday's closing price. In addition, Sportech will pay Scientific Games $10 million in cash by Sept., 2013.

In financial statements for 2009, Scientific Games included a $54.4 million non-cash charge for the assets that it agreed to sell to Sportech. In a previous release, Scientific Games had said that its racing assets had generated a total of $110 million in revenue in 2009.