Hard Times For Eastern European Lottery Giants
In the heart of Central-Eastern Europe, the Czech Republic, a tumultuous restructuring of the gaming market is taking place. Fortuna Entertainment Group, a regional giant and the third largest sports betting operator in the country, is fighting its way to the top of the market.
Already operating some 600 betting shops, Fortuna has started its foray into the lottery business. Launching in mid-July, its Fortune Lotto will be a 6/49 draw game, shown on TV and with a payout of 55%.
Synot Tip, another Czech betting operator, has announced the launch of its own lottery game, to be offered through 1,200 lottery terminals in the first phase.
Fortuna’ lottery will have as its logo a tinted four-leaf clover, the ubiquitous symbol of luck. And luck is precisely what Sazka A.S., until recently the exclusive holder of a lottery licence, has been missing out on in recent months.
Founded in 1956, Sazka has for decades been the synonym for lottery in the Czech Republic.
However, on 9 May 2011, the Czech Ministry of Finance revoked Sazka’ licence for organising lottery games. The saga of Sazka’ demise, which has been dragging on for months, dates back to 2004.
In that year the Czech Republic is to host the world hockey championship, and Sazka, whose largest shareholder is the Czech Sports Association, eagerly steps in to build a brand new sports arena for the occasion, amiably dubbed Sazka Arena.
The construction is financed via ‚Ç¨215m in 15-year bonds. Fast forward to January 2011, the venue is now called O2 Arena and Sazka, despite no sign of financial difficulties in recent years and the reassuring tone of the annual reports, defaults on its January bonds payment worth ‚Ç¨4m.
Seemingly it was the construction of the arena that caused the tipping point, making Sazka unable to handle its debt – to over 1,800 creditors – any longer. Whatever the cause, after the default a slew of insolvency proposals against Sazka ensued – first by Radovan Vitek, one of Sazka’ main creditors who subsequently sold his debt claims to PPF investment group, followed by the one made by KKCG, another large creditor and one of the top contenders for taking over Sazka, and finally by Sazka’ vice president himself, Roman Jeƒçm√≠nek, even though this led to the termination of his post by the Board of Directors on the grounds of damaging Sazka’ reputation.
The court finally declared Sazka insolvent in April this year, amidst various ambitious plans for salvaging the company.
Sazka’ debt was estimated at CZK 40bn (US$2.3bn) at the beginning of May 2011. Standard & Poor’ has already withdrawn Sazka and its rock-bottom ‚ÄòD’ credit rating from its listings.
Even though the suspension of Sazka’ licence is temporary and does not halt its operations, the company’ goodwill and outlook have never been as corroded.
In such an environment, where a seemingly invincible colossus is all but swept from the playing field, we expect that Fortuna will profit handsomely from its new lottery operations, once launched.
In mid-April 2011, however, the proposal was rejected by the court without the option to appeal.
Tipos owes more than ‚Ç¨14m to the Cypriot Lemikon Ltd. who took over the legal claims for violation of intellectual property from the Czech lottery company Sportka, now owned by Sazka.
Yet on Friday 13 May 2011 the media reported the court had granted Tipos 30-day protection from the creditors as it decides on the restructuring proposal from the second attempt.
Reportedly, Tipos is losing a great deal of revenues to the increasingly popular foreign online casinos targeting Slovak players with a greater variety of games.
The formerly untouchable monopoly giants of Central-Eastern Europe are faced with unique woes. Both will require immense management skills and know-how – not to mention capital – to navigate to the light at the end of the tunnel.
And if they survive, they will find out that they are not in the proverbial Kansas anymore.