The share price of one of the UK’s biggest gambling operators has fallen by nearly 10% in the past week – slashing millions of its value – after it admitted a massive fine was imminent.
Entain, who count Ladbrokes and Coral amongst their brands, have become embroiled in a bizarre bribery scandal in Turkey, and have confessed to shareholders that a ‘substantial financial penalty’ is likely to be levied out by Her Majesty’s Revenue & Customs (HMRC).
The operator’s former Turkish subsidiary is under the microscope for alleged ‘corporate offending’, with the Crown Prosecution Service now overseeing the potential punishments that will be dished out to Entain – a huge fine, the amount of which remains undisclosed at present, is just one of the options available to prosecutors.
What Has Entain Done Wrong?
Entain has operated various subsidiary companies around the world at various times, and between 2011 and 2017 they ran a Turkish sports betting enterprise – it is this subsidiary that has fallen foul of the HMRC investigation, despite it being sold by Entain back in 2017.
The actual minutiae of the action have been kept under wraps for now, although Entain have admitted that one of the allegations made against them relates to Section 7 of the Bribery Act 2010 – ‘failure of commercial organisations to prevent bribery.’
A statement from Entain ‘acknowledges that historical misconduct involving former third-party suppliers and former employees of the Group may have occurred.’
But it’s the undisclosed size of the expected fine that appears to have spooked the stock market, with Entain’s share price dropping a mammoth 9.3% in the five days up to and shortly after the announcement was made.
“It is likely that they will include a substantial financial penalty, which is yet to be determined. The Company cannot identify reliably at this stage the size of any financial penalty,” the statement continued.
The Perils of Unregulated Betting Markets
One of the complications of this case is that sports betting is illegal in Turkey, which would lead many to questioning why Entain had a subsidiary there in the first place.
Each country has its own rules on gambling, and while sports betting is illegal in some countries there is unlikely to be any legal action taken if an online bookmaker’s site is accessed by local people via a VPN connection – a number of major betting firms are ‘active’ in India, for example, in this way.
These are often so-called ‘grey markets’, where gambling is neither expressly legal or prohibited, and in which betting firms can get away with operating as long as they don’t explicitly advertise to local customers.
For a number of years, Entain operated within a number of these grey markets like Turkey, which opens the door to potential problems down the line. They have now exited those countries where gambling is unregulated – a point made by Barry Gibson, the Entain chairperson, as he seeks to restore confidence in his firm.
He described the investigation as a ‘historical issue’ from which Entain had taken ‘decisive action.’ “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,” Gibson said.
Paying the Price
It’s unlikely that Entain will face any further penalties from authorities beyond a fine given that this is a retrospective investigation, although it’s worth noting that they – now and in their former guise of GVC Holdings – have racked up more than £20 million in fines over the past decade or so.
A huge proportion of that punitive action came back in August 2022, when Entain was fined £17 million by the Commission for a catalogue of social responsibility and anti-money laundering failures.
Their online arm, LC International Ltd, runs 13 websites under the Entain umbrella such as Party Poker, Party Casino, Bwin and Foxy Bingo, and it was this operation that ultimately fell foul of the regulator.
They were found to have been too slow to react to players that were exhibiting clear problem gambling behaviours – including one punter who deposited £230,000 into his account in just 18 months, allowing customers to open up accounts with more than one Entain brand when they had self-excluded from others, and failing to conduct a safe gambling review with a player that lost more than £11,000 in a single month.
Another punter deposited nearly £750,000 into their account in little over a year, with no source of funds checks carried out by Entain.