Playtech and Ladbrokes in new software and services deal

The lagging digital operations of UK online and land gambling group Ladbrokes will receive a boost following a new software and services agreement signed with Playtech plc and announced Monday.

The deal expands existing software and technology agreements between the two companies, with Playtech subsidiary PTTS entering into a landmark agreement to provide Ladbrokes with advisory services to assist in the development and growth of its digital business.

The new software agreement will provide Ladbrokes with access to Playtech’s full technology and product suite. The agreement, for an initial period of more than five years, will commence with the launch of a new ‘Vegas’ tab on Ladbrokes’ digital platforms, offering a suite of online casino and games products across online, mobile and tablet, with the other products to follow in due course.

It is anticipated that over the medium term, Playtech’s IMS will become the foundation of Ladbrokes’ digital back-end, enabling Ladbrokes and its customers to enjoy the benefits of a fully integrated experience across all products and channels.

The new software agreement builds upon Playtech’s existing relationship with Ladbrokes, through which it provides bingo and Videobet products.

Under the terms of the advisory services agreement, from May 2013 PTTS will advise and assist Ladbrokes to drive its digital revenues.

Ladbrokes announced Monday the proposed acquisition in May 2013 of an experienced marketing team based in Israel, which will join Ladbrokes with a proven track record in the sector and of working with Playtech’s products and player management systems.

PTTS will help ensure the smooth integration of this marketing team within Ladbrokes. Moving forward, Ladbrokes will introduce sophisticated methodologies and business intelligence systems, developed by PTTS within its Philippines and Bulgarian operations, in order to maximise customer lifetime values and accelerate the growth of Ladbrokes’ digital business.

Similar arrangements with Wiliam Hill Online were the root of tension between Playtech and William Hill last year , possibly leading to Will Hill electing this year to trigger its buy-out of Playtech’s interest in WHO .

In addition to the royalties to be generated under the terms of the new software agreement, Playtech will be entitled to a success fee for the advisory services provided by PTTS, based upon the improved performance of the Ladbrokes digital business over and above that achieved in the financial year ended 31 December 2012.

The success fee is payable based upon the results achieved in FY2017, with interim instalments falling due if Base EBITDA uplifts of GBP 35 million, GBP 70 million and GBP 100 million are achieved in an earlier year. 75 percent of the success fee is payable in cash, with the balance payable in Ladbrokes shares. Playtech can elect to receive a greater proportion of the success fee in Ladbrokes shares.

The success fee is calculated in accordance with the following formula: 27.5 percent x increase in adjusted EBITDA over Base EBITDA x the then prevailing group EBITDA multiple of Ladbrokes. 75 percent of any interim instalment is payable immediately with the remaining 25 percent to be paid only at the earlier of the achievement of the next interim instalment or to the extent payable when the success fee is determined.

If by 31 December 2017 the adjusted EBITDA uplift reaches more than GBP 100 million, Playtech would be entitled to an additional bonus fee, calculated as 75 percent of the amount exceeding GBP 100 million, subject to a cap of GBP 50 million. The aggregate success fees payable to PTTS under the advisory services agreement are capped at a level that does not require Ladbrokes’ shareholder approval.

Playtech says it has put in place an incentivisation package specifically designed to reward key individuals responsible for the delivery of the EBITDA growth of Ladbrokes’ digital business.

Mor Weizer, Playtech’s chief executive officer, said:

“This will be a landmark transaction for Playtech that clearly demonstrates the value of PTTS and the diversity of Playtech’s business offering. Ladbrokes is one of the largest and most respected brands in the betting and gaming industry, and we are delighted to have secured the opportunity to play an important role in accelerating the growth of its digital business.

“The breadth and depth of the software and services to be provided under these agreements are unique to Playtech, and reflect the Group’s successful acquisition strategy. We are very excited about the prospects for this venture with Ladbrokes and are committed to making it a great success.”

Commenting on the agreement Ladbrokes CEO Richard Glynn said:

“Ladbrokes has made significant progress over the past two years by investing in our core technology, revitalising our brand and making our customer offer more competitive. The next phase of this reinvigoration will see us work closely with Playtech to increase customer lifetime values through enhanced CRM, an area in which Playtech has a proven track record.

The formation of a new, Ladbrokes owned, ecommerce and digital marketing services function, in addition to an expansion of our existing product relationship is a material development. This relationship will accelerate our progress in a sustainable way over the next five years and beyond.”

A separate statement released by Ladbrokes advised that the deal with Playtech consisted of two agreements: Marketing Services and Software.

The key development on the Marketing side will be the acquisition of The Nation Traffic Services Ltd., an Israeli company specialising in online and offline CRM for online gaming operators and expert in operating on Playtech systems.

This will be renamed Ladbrokes Israel Ltd. on completion, expected to occur on 1st May 2013. The consideration for the acquisition of Ladbrokes Israel will be GBP 850,000.

The management of Ladbrokes Israel will be acquired from The Nation Traffic Ltd.

“From 1 May 2013, forty people will be employed by Ladbrokes Israel with the senior team acquired from The Nation Traffic, the Ladbrokes statement notes.

“Ladbrokes Israel will report into the existing Ladbrokes Digital operations.

“Ladbrokes is creating a new, wholly owned, ecommerce and digital marketing services operation, to be based in Israel and integrated with the company’s existing Digital teams in London and Gibraltar,” the betting company advised, stressing key points as:

* Accelerates ability to drive online and mobile revenues

* Acquisition of experienced and skilled digital marketing team with track record of success

* Use of Playtech products, CRM tools and multiple brand approach designed to drive customer lifetime values

* Consideration for marketing services entirely contingent upon growth in Ladbrokes’ Digital EBITDA.

* Accelerates anticipated benefits from investments made in Digital infrastructure, product, trading and website

* Enhances opportunity to provide customers with most compelling range of cross channel gaming product

* Period of integration expected before benefits of agreement are realised

Readers can find the Ladbrokes statement on the deal at: http://otp.investis.com/clients/uk/playtech/rns/regulatory-story.aspx?cid=263&newsid=325820