01/27/2010 12:00AM

Sportech to buy Scientific Games


Sportech, a British gambling company, has reached a deal to buy the bet-processing company owned by Scientific Games in a deal with a value of as much as $83 million, the companies announced Wednesday.

If approved by shareholders, Sportech would gain control of Scientific Games Racing, which processes parimutuel bets for a variety of racing companies in North America, including all of the racetracks and betting sites in California. Scientific Games Racing is one of three major bet-processing companies in the U.S., along with United Tote and AmTote.

In the deal, Sportech will pay Scientific Games $33 million in cash when the transaction closes, and Scientific Games will receive $32 million in stock in Sportech, or approximately 20 percent of the shares outstanding in the company.

The agreement states that Scientific Games will also receive $10 million in "deferred cash consideration" in 2013. It also will be eligible to receive $8 million in additional compensation that year if the bet-processing company hits "certain performance targets." A Scientific Games spokesperson said the performance targets could not be disclosed.

To reflect the loss of Scientific Games Racing on its balance sheet and fees associated with the transaction, Scientific Games will take a $55 to $65 million non-cash charge in the fourth quarter.

Scientific Games officials did not immediately respond to requests for comment Wednesday.

Scientific Games Racing, under the name Autotote, was once the dominant bet-processing company in the U.S. However, its market share began to weaken considerably in the last decade after the company began to focus more heavily on its lottery business, especially in overseas markets.

According to information on its website, Sportech runs various parlay-type pools on soccer matches and operates several online poker, bingo, and casino sites. Online betting is illegal in the U.S., except on horse racing, though many racing officials believe laws restricting online betting to racing will be relaxed in the next several years. As a result, many betting companies are seeking footholds in the U.S. in case the market opens up.

In a release, Scientific Games said its racing business, including a network of offtrack betting parlors in Connecticut that is included in the transaction, generated approximately $110 million in revenue in 2009. The company's full 2009 results have not yet been announced, but through the first three quarters of 2009, revenue from its lottery business was off 18.9 percent, according to financial documents.

Scientific Games Racing's biggest competitors are United Tote, which is being purchased by Churchill Downs Inc. as part of its acquisition of Youbet.com, and AmTote, which is owned by Magna Entertainment Corp., the bankrupt racing company. Under a reorganization plan, AmTote is expected to be transferred to Magna's parent company, MI Developments.

In addition to the California tracks and their offtrack sites, Scientific Games Racing processes the bets for Monmouth Park and the Meadowlands in New Jersey; the account-wagering company Television Games Network, which is owned by the British company Betfair; Philadelphia Park and its account-wagering company; and the Nassau and Suffolk offtrack betting companies in New York, among other betting sites.