Ladbrokes, the UK based gambling establishment, had been poised to take over Sportingbet, an online gaming company. The deal ran into complications because of Sportingbet’s operations in Turkey. According to Turkish law, online gambling is illegal. This made the buy-over potentially risky. Ladbrokes’ legal advisors have recommended caution as this buy-out may result in a legacy risk for the company. Sportingbet makes 22% of its profits from Turkey.

Reasons for Risk

Legacy risk was the reason cited for the fall-through of negotiations between Ladbrokes and 888 Holdings in 2007. Another deal was attempted in April 2011 but was dismissed over prices. Having already walked away from one deal, Ladbrokes is under pressure to make a decision soon. Both companies have online casinos that provide real money online roulette and other games.

Sportingbet is in the process of selling the Turkish side of its business to another gaming company, Gaming VC. This will remove Ladbrokes’ cause for concern, leaving the deal unencumbered by legal issues. Sportingbet’s shares are currently valued at £302.5 million in total.

Changes for Ladbrokes

The takeover was to be a part of the large scale organic re-vamping that the company intended to carry out for its internet operations. The company has invested in more modern technology (like mobile technology) and format adjusting software which allows machines to be customized to appeal to specific areas locally.

Sportingbet can be a valuable asset to Ladbrokes as it can help them move forward and away from their more classic image. It can also help them get a foothold in dynamic markets like ‘In Play’ and live sports betting. The acquisition of Sportingbet was intended to increase Ladbrokes online revenues and bring them up to the same level as rival, William Hill. The takeover was seen by many business analysts, as a good strategic move on the part of Richard Glynn, the Chief Executive Officer for Ladbrokes.

Problems Faced by Ladbrokes

Prices have not been a significant problem for either company, with the price of the each of Sportingbet’s shares standing at 70p or more. It appears, however, that Sportingbet is frustrated with Ladbrokes’ stalling the deal, as the issues with Turkey have been apparent right from the start and the company still entered into negotiations with Sportingbet. The delay in decision making has become a problem.

The deadline for the deal is October 17th, 2011. At this point, Ladbrokes will be asked to make their final decision regarding the takeover. If the company cannot make an offer by that time, they will have to walk away from yet another potentially successful deal.

Ladbrokes’ revenue from machines was good in the beginning of the year. The wins per games terminal rose by 15% each week. After the 2010 World Cup, the first half of the revenue increased by 2.8%. The operating profits also increased by 16.9%. However, the company’s shares have fallen by 25% because of concerns about the customer decrease on betting.

According to Broker Evolutions’ analyst, James Hollins, bet-making is a strong business and Ladbrokes will continue to be resilient despite the odds.