Oh, what tangled webs we weave.
No one likes the idea of the tax man coming to call. Not when they come armed with court orders and specialist investigation teams with an expertise in uncovering financial shenanigans.
In part, we can pity the current management team at Entain, having to deal with a mess that, as chairman Barry Gibson was at pains to stress last week, was not of the current top brass’s making.
“The Entain of today bears no resemblance to the GVC of yesterday, which had a different management team, a different strategy, and to be blunt, different standards,” he told analysts on the company’s earnings call last week.
“Over the last few years, we’ve taken very deliberate steps to drive a complete transformation to become a best-in-class responsible operator with outstanding corporate governance,” he added. “Every aspect of our business-model strategy and culture has been reviewed, analysed, and changed. We’ve also completely overhauled the board and leadership team.
“I’m very confident in saying that the cultures of the two businesses are worlds apart. And Entain today is a very different business.”
You would say that, wouldn’t you?
But the problem for Entain can perhaps best be summed up by some lines from William Faulkner, “The past is never dead. It’s not even past,” and that is certainly the case with the UK tax man.
It might be surmised that Gibson is going to such great lengths to distance Entain from its own past activities as an act of penance. But of course, in reality, the words are meant for shareholders, to reassure them that multi-hundred-million-pound settlements with HMRC don’t happen every day.
There are also other audiences. One is the global regulators. “We now have a very straightforward approach when choosing where in the world we operate,” Gibson said on the call. “All of our revenue is from regulated markets. And we’re proud to be the only global operator that can make that 100% claim. If a market isn’t showing signs of having a clear road to regulation, then we leave. It’s as simple as that.”
So, no more Turkeys for Entain, which can hope the regulators are listening to these words. But as Gibson admitted, there is more information on the nature of its crime to come. The deal with the Crown Prosecution Service is still subject to a judicial process, which he said the company hopes will be completed by mid-October. At which point, he noted, a statement of fact will be laid before the court. This will finally give us some insight into what HMRC views as the scale of the infraction against Section 7 of the Bribery Act.
All we know at the moment about what is to come is what we have been told by Entain. For obvious reasons, this being a legal process, HMRC is keeping its own counsel on what it has unearthed.
The only other nugget of information we have about the nature of the HMRC investigation came recently from rival 888.
When it informed the market that it cut short negotiations with the FS Gaming Group over the investors’ plan to install ex-GVC CEO Kenny Alexander as CEO, 888 made it plain that worry on the part of the Gambling Commission over the HMRC investigation was the main issue.
The merest hint of Alexander taking the top job imperilled 888’s UK licence. The 888 statement gave little by way of any further solid information, but it spoke volumes about how the Gambling Commission views the toxicity of the investigation for those involved.
It leaves us guessing as to what exactly HMRC has found. As Gibson suggested on the call, GVC as it then was “made a lot of profit during that period” and a substantial chunk of that came from Turkey.
In fact, between 2012, when it bought Sportingbet with its substantial presence in Turkey, and up until the point in 2017 when it sold the Turkish-facing Superbahis brand to a company called Ropso Malta for £150m, it can be assumed the country was GVC’s biggest market.
What surprised the market this week was the size of the DPA provision. What Entain will be hoping is that the final reveal in October of the nature of what it has accepted as part of that DPA is less damaging than the vacuum of information that shareholders, regulators, and the media have at present.
The denouement comes in October. Depending on what is said, the ramifications could be more long-lasting.
