Intralot
All,
We understand that Sportoto has made no final decision yet and will take up to two weeks to do so.
In particular, we see the options break down as follows - in order of probability:
1) Intralot lose the Inteltek license to SG and SG moves to replace the Bilyoner JV with one of its own. Full loss of the planned E10m contribution. Conservation of E7m of CapEx.
2) Intralot lose the Inteltek license, but retain the Bilyoner license. That license is renewable annually. This option ranks #2 in our list, because it rests on the more likely first option - that the Inteltek license is lost. Once that is the case however, we think it unlikely that SG will leave this outstanding to a competitor. Bilyoner is one of five companies distributing the sports betting games under Inteltek’s license and thus SG would have to annually renew a license to Intralot. In our model therefore we are assuming that if Inteltek is lost, so is Bilyoner. We agree that that’s a little simplistic and maybe Bilyoner will retain its license for a little longer, while SG are ramping up, but ultimately we don’t see Bilyoner survive on its own.
3) Intralot retain the full license, if at materially reduced fees. We think it’s less than 50% likely, but it’s certainly possible. Previously the Trurkish contract was billed as a license to print money, with E7m of investment in return for the same amount in net cashflows for 10 years. Even in the best case, we see this coming down to a 5-year payback period - i.e. ~ E1.5m NCF p.a. In that case however, its Bilyoner license should be fine.
In all three events, a significant portion of the Turkish revenue / cashflow is lost, if not all.
Significantly however, we think the events undermine the industry’s claim that the installed infrastructure from an existing license protects the incumbent sufficiently to earn good money in the second license period. It seems all to easy for Turkey to line up a second bid to let the air out of Intralot’s balloon. If Embattled Turkey can do it, any state can.
Wolfgang