Walton group is looking to new markets to prove it is more than just a football pools company. Alistair Houghton reports

SPORTECH may be best known for its UK football pools business – but the company is rapidly expanding its global reach.

Chief executive Ian Penrose and the rest of the board at the Walton group have a vision to “transform Sportech into a profit-orientated, sport and gaming business with international reach”.

The group has launched a joint venture in India and is soon set to complete the takeover of US gaming company SGR.

Sportech owns the famous Littlewoods, Vernons and Zetters brands, but has now rebranded those games as The Football Pools. Those games remain at the heart of its business, but Mr Penrose says its new international ventures give it a strong platform for further growth.

He said: “When we have completed the SGR deal, we will be one of the world’s largest pools and tote gaming businesses – and we will have our operational headquarters in Liverpool. We will be turning over $13bn in bets.”

In January, Sportech announced it was to buy US lottery and horse racing specialist SGR from Scientific Games Corporation in a deal worth £51.4m.

The takeover is expected to result in £10bn of bets being handled at Sportech’s base. It would also see Scientific Games become Sportech’s largest shareholder, with a 19.9% stake.

Sportech is, however, still awaiting US regulatory approval for the deal.

The process has, chairman Piers Pottinger said last week, “been more demanding than originally anticipated and consequently has taken longer than initially expected.”

But the company said it was confident the deal would complete “in the near future”.

“We’ve worked hard pushing towards regulatory clearance,” said Mr Penrose.

“We need clearance in three states in America – New Jersey, Connecticut and Maine. In the last few week, we’ve made good progress with that. We hope to complete this deal shortly.”

Gambling regulations in the US are notoriously tough, explaining in part why it has taken Sportech so long to secure approval.

But Mr Penrose believes that securing US licences will be greatly beneficial to Sportech, as the company will have won the trust of the regulatory authorities and will be well-placed to expand there in the future.

Also in January, Sportech announced it had signed a 50-50 joint venture with Indian conglomerate Essel Group to launch a multi-platform sports prediction and “fantasy gaming” business in the Indian market.

Sportech and Essel are each investing £2m in Essel’s lottery and gaming subsidiary Playwin.

They hope they will be able to tap into the massive interest in sport among India’s 1.2bn people, and will initially focus on the most popular sports of cricket, football and Formula One.

Playwin’s first venture, www. sportshero.com, was launched in May to offer sports prediction games.

By the end of June, the site had received 225,000 unique visitors and 45,000 registrations. Mr Penrose said: “Since June, the sign-up has continued to progress very strongly.”

He said India was already a strong sports betting market, but said it had the potential for more growth as its economy strengthened.

“India has clearly got a significant population,” he said. “It’s got a massively growing economy, and that growth is set to continue over the years going forward.

“There’s also a major interest in sport.

“We’ve been evaluating for a good 18 months the position in India. We used to say regularly that we were looking to move into the Asian marketplace. It was very important to get a good partner.”

The joint venture company is also investigating whether it will be able to apply for gaming licences to operate in the small Himalayan Indian state of Sikkim.

Mr Penrose said Sportech was not looking to make any more overseas acquisitions or create any more joint ventures, but said it would look to sell its existing products in other new markets.

As well as its international work, Sportech is also working hard to modernise its core tote betting business – its football pools games.

It is working to attract more customers online and has created a range of new games online to attract people who have not played pools before.

It is also working to sell its pools games through third-party websites, such as Ladbrokes’ site.

Sportech last week reported a £5.9m loss for the six months to June 30 – an improvement on last year’s £17m deficit.

The group would have made a £5.8m profit but for costs linked to the SGR deal and other finance-related costs. Revenues fell from £32.4m to £28.6m, but Sportech successfully completed a £29.2m share issue and renegotiated its banking facilities in its half year.

Greg Johnson, leisure analyst at stockbroker Shore Capital in Liverpool, said small companies such as Sportech had found it hard to attract the attention of investors in recent months.

He said: “Generally speaking, there’s a big apathy out there for small caps as we stand.

“From a share price perspective, things have been tough for them.”

Mr Johnson said Sportech’s directors faced tough challenges ahead.

“Trading in their core business has been tough,” he said.

“It has been tough since the introduction of the lottery.

“Revenues in the core business have declined, but profitability has remained pretty robust.

“Their introduction of new retail channels has no doubt been impacted by the decline in consumer spending across the piece. They probably haven’t seen the uptick they would have hoped for.

“The big strategic change is the proposed acquisition in the US. That was done in January this year, and as yet we’re still waiting for it to complete.

“It’s been a frustrating process for everyone concerned, no doubt particularly for management.

“Horse racing in the US is a tough market. They’ve no doubt been hit by recession as well. Gambling in the US is quite restricted.

“We will wait and see how it will help the business once the deal is completed.”