Sports books' sale reflects capital needs

Growing complexity in the sports book sector - and especially the demand for substantial fresh investments in technology - played a role in driving the sale of the Cal Neva Sportsbook Division and American Wagering Inc., the Las Vegas-based parent of the Leroy's group of sports books.

The two companies said last week they've agreed to be acquired by William Hill PLC, a British bookmaker.

The Reno-based Cal Neva operations, which are owned by Sierra Development Co., will be acquired for $21 million in cash, along with another $1.5 million to be paid if the 31-location company hits financial targets in the next year.

American Wagering, which operates 72 locations under the Leroy's brand, will be acquired for $9.4 million. William Hill PLC also will extinguish $4 million in American Wagering debt and will inject $4.5 million into the company through a convertible loan.

Assuming that the Cal Neva meets performance benchmarks, the acquisition values the company at slightly more than two times its 2010 revenues of $10.7 million.

The privately held Cal Neva sports book "has a long track record of profitable operation," William Hill PLC said in a news release.

That valuation placed on the company reflects the growth of the sports book business in Nevada, despite the economic downturn and despite the spread of casino gambling across the United States.

Sports books in Nevada - the only state with legal bookmaking - handled about $2.7 billion in 2010, and the handle has grown by 13.7 percent in the past five years.

The number of sports book locations, meanwhile, has grown by 11 percent in the past decade.

But the development of online gaming, as well as new options such as in-game wagering, requires the sorts of technology and capital that big operators such as William Hill PLC can bring to the market, said Jeff Siri, chief executive officer of Cal Neva. William Hill PLC already owns a 71 percent stake in a British online betting service. It also operates 2,350 betting locations across the United Kingdom.

Vic Salerno, CEO of American Wagering, noted that the British firm also brings expertise in setting the odds on European sports such as soccer than increasingly interest bettors in Nevada's sports books.

In fact, William Hill PLC's chief executive, Ralph Topping, is chairman of soccer's Scottish Premier League.

The three-way deal began to come together late last year when Salerno and Topping began kicking around a potential transaction.

Publicly held American Wagering had posted a loss of $1.8 million in the nine months ended Oct. 31, 2010, and it had cautioned investors that it might face a liquidity squeeze in mid 2011. William Hill PLC, meanwhile, was looking for an entry into Nevada's market.

Richard Wells, a gaming analyst with Wells Gaming Research in Reno, noted that an acquisition in Nevada might have been particularly attractive to the British firm as a way of gaining a foothold in the online gaming business in the United States. The British company offers a large array of games for Web and mobile-device markets.

State gaming regulators last autumn approved a Blackberry application developed by Amecian Wagering. The technology has drawn substantial attention, said Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno.

Another key to the deal may be Sturgeon's Inn & Casino, a small Lovelock property owned by American Wagering.

Salerno noted that online gaming proposals in Nevada might require operators to have a physical casino presence in the state - a requirement that Sturgeon's would fulfill for William Hill PLC.

While all those conversations were stirring, Siri got wind of William Hill PLC's interest in Nevada and met with representatives of the firm in January. He came away impressed.

"They know what they are doing," said Siri, whose 22-year-old sports betting company employs 120.

Eadington noted, too, the sale might provide a welcome shot of cash for the Cal Neva's casino operation in downtown Reno.

Salerno said the personalities played a major role in making sure the acquisitions came together, particularly because he and Siri have been friendly competitors for more than two decades.

On the other hand, Salerno said, "I haven't survived by burning any bridges."