Entain has set aside a £585m provision in respect of its ongoing deferred prosecution agreement (DPA) negotiations with the Crown Prosecution Service (CPS).
The operator previously announced an investigation by HMRC into its legacy Turkey-facing business, which it is seeking to resolve via DPA negotiations with the CPS.
Entain, then GVC, sold the Turkish business in 2017.
Entain now believes it is likely to be able to agree a resolution of the HMRC investigation, although the full terms of a DPA are subject to judicial approval, which will be sought in Q4 2023.
The firm has therefore allowed for a provision of £585m against any potential settlement, which would be paid over a four-year period.
The settlement relates to alleged offences under Section 7 of the 2010 Bribery Act.
Section 7 relates to the failure of a relevant commercial organisation to have adequate procedures in place designed to prevent persons associated with it from undertaking bribery for the benefit of the commercial organisation.
The provision was calculated on the basis that Entain will receive full credit for its extensive co-operation with the investigation both before and after entering into a DPA.
“Following a complete overhaul of our business model, strategy and culture in the last few years, the Entain of today bears no resemblance to the GVC of yesterday.”
Entain said that since the start of the investigation, it has undertaken a review of anti-bribery policies and procedures and has taken action to strengthen its compliance programme.
In a statement, the board said it hoped to conclude the matter and draw a line under the legacy issues involving former third-party suppliers and former Entain employees.
Entain chairman Barry Gibson said: “We are pleased to be making good progress towards drawing a line under this historical issue, which relates to a business that was sold by a former management team of the group nearly six years ago.
“We have been working closely with the CPS throughout this process, and they have recognised our extensive cooperation.
“Following a complete overhaul of our business model, strategy and culture in the last few years, the Entain of today bears no resemblance to the GVC of yesterday,” he added.
Kenny Alexander was CEO of the company at the time of the alleged breach.
He had been touted for a return to the UK gambling sector this year as the potential CEO of 888 after investment vehicle FS Gaming built up a significant stake in the business.
However, 888 pulled the plug on the negotiations after the Gambling Commission expressed concern over the outcome of the HMRC investigation.
888 has terminated discussions with FS Gaming Investments over the prospect of former GVC boss Kenny Alexander becoming the company’s new CEO.
888 withdrew from the talks after the UK Gambling Commission (UKGC) expressed concern over HMRC’s ongoing investigation into GVC’s activities under Alexander’s leadership.
FS Gaming had built up a 6.6% shareholding in William Hill owner 888. It wanted to use its influence to install Alexander as CEO, alongside Lee Feldman as chair and Stephen Morana as CFO.
Investors were clearly excited by that prospect and were left disappointed by the collapse of the talks. The 888 share price stooped by more than 20% on the announcement.
Turkish business probe
Entain (formerly GVC) is expecting to be hit with a substantial financial penalty following a probe by HMRC and the public prosecutor into its former Turkish business unit.
In May, the operator revealed that historical misconduct involving former third-party suppliers and ex-employees of the group may have occurred.
Offences covered in the investigation include a potential breach of the Bribery Act.
This case clearly remains an area of concern for the UKGC, which has commenced a new licence review of 888 in light of FS Group’s investment in the company.
If FS Gaming obtained a stake of more than 10% in 888, it would have triggered a change in corporate control. The UKGC must approve any change in corporate control.
If the corporate control application is rejected for any reason, the regulator’s only course of action is to revoke the licence of the operator entirely.
“The board concluded that the appointments proposed by FS Gaming have no reasonable prospect of being approved by the UKGC at this time and any actions by FS Gaming to effect a change of corporate control would likely put the group’s licences to operate in the UK at immediate and significant risk. Therefore, the board has unanimously concluded to terminate discussions,” said the company in a statement.
888 executive chair Lord Mendelsohn added: “We will be fully cooperating with the review, arising from potential issues with respect to FS Gaming’s investment and proposal, and look forward to bringing the review to a conclusion expeditiously.
“As a board we devoted significant time to considering FS Gaming’s proposal. However, following in-depth regulatory due diligence including engaging closely with the UKGC, the board had no option but to terminate discussions as it simply could not put licences in our largest market at significant risk.
“While this engagement temporarily interrupted the very thorough search process to appoint a new CEO, the board is finalising its appointment and expects to make an announcement in the very near future,” he added.
Entain has revealed it will likely be hit with a “substantial financial penalty” following a probe by the UK tax authority and the public prosecutor into its former Turkish business unit.
The operator added that historical misconduct involving former third-party suppliers and ex-employees of the group may have also occurred.
“While the company cannot say at this stage what the consequences of the investigation will be, it is likely that they will include a substantial financial penalty which is yet to be determined,” the company said in a statement.
Entain said offences under investigation include, but are not limited to, a breach of the Bribery Act.
Entain added that it cooperates fully with HMRC and was in deferred prosecution agreement (DPA) talks with the Crown Prosecution Service (CPS) to resolve the issue.
DPAs are voluntary agreements where entities disclose their own criminal activities to authorities.
This means that companies can avoid criminal prosecution in exchange for full disclosure, financial penalties and remedial measures.
Investigation started in 2019
Entain, formerly known as GVC Holdings, first received a production order from HMRC in November 2019.
The order required the subsidiary to provide information related to the group’s former Turkish-facing online betting and gaming business, which was owned by Entain from 2011 until its sale in 2017.
At that time, the group believed that HMRC’s investigation targeted several former third-party suppliers, which processed payments for its operations in Turkey, where betting is illegal.
However, in July 2020, Entain announced that HMRC had expanded the scope of its investigation to examine potential corporate offences from within the group itself.
The news of the expanded investigation caused a sell-off among investors and came just days after the company revealed the departure of Kenny Alexander after 13 years as chief executive.
Ultimate outcome uncertain
Entain stated that it is currently unable to determine the exact size of a potential financial penalty, and the ultimate outcome of the investigation remains uncertain.
Although there remains a possibility of prosecution for certain entities within the group, Entain said it is actively pursuing a resolution through ongoing DPA negotiations.
However, any resolution would be subject to judicial approval.
Entain stressed that it has undertaken a comprehensive review of its anti-bribery policies and procedures and has taken action to strengthen its wider compliance programme and related controls since the investigation first commenced.
“Entain has been through a period of extraordinary transformation since then, and has taken decisive action to be a best-in-class, responsible operator with outstanding corporate governance.”
Entain chairman Barry Gibson
“Whilst the discussions with the CPS remain ongoing, the board is content with progress to date and looks forward to pursuing an orderly conclusion to this matter,” Entain said.
Entain chairman Barry Gibson added: “We are keen to achieve a resolution to what is an historical issue relating principally to a business that was sold by the group nearly six years ago.
“Entain has been through a period of extraordinary transformation since then, and has taken decisive action to be a best-in-class, responsible operator with outstanding corporate governance.
“The board and leadership teams have been overhauled, 100% of our revenue is now from regulated or regulating markets, and our business model, strategy and culture have been reviewed, analysed and stress-tested,” he concluded.
Wider repercussions
Paul Leyland of Regulus Partners described Entain’s issues in Turkey as a “valuable warning” for other operators.
He stressed that attempting to circumvent restrictive legislation through firewalls and third-party agreements might seem appealing in theory but becomes transparent and risky under effective scrutiny.
Leyland expects gambling regulators in both the UK and North America to view this development as significant, making them increasingly likely to request updates.
However, he acknowledged that Entain has demonstrated significant progress in corporate culture, business practices and risk management under new management since 2020.
“There is also a possibility that the payments-led investigation into Entain will further strain relationships between gambling and commercial banking, however counter-productive this may be,” he added.