The recent sale of Pinnacle Sports may open the door for obtaining a UK license, but the company will most likely exit some markets.
It has been widely reported that Pinnacle Sports was bought on the weekend by an unidentified party. There is little known about the sale other than Alternative Trading Partners, a Las Vegas based mergers and acquisition firm, issued a notice to Pinnacle shareholders about the sale and disclosed that the buyers are somehow connected to England.
For those unfamiliar with Pinnacle Sports, the company made a name for itself because of extremely high limit, low vigorish betting. It created a niche with bettors around the world but especially in the U.S. where big time bettors could wager obscenely large amounts on major sports like football and basketball. That changed for Americans in 2007 when Pinnacle withdrew from the U.S. market. The exact reasons for this decision were unknown although it is suspected the feds warned Pinnacle to exit or face a sting like the one that happened with BetonSports management. Consequently Pinnacle managers looked at the whole situation and decided they had too many U.S. assets and far too much to lose to take the gamble. It is also well known that banks indicated they would no longer deal with the company as a result of the UIGEA. At the time of the exit Americans represented over 60% of the company’s action. Without U.S. customers Pinnacle changed their focus to Asia and Europe although they still had a sizeable Canadian customer base and the result was a slight change in Pinnacle’s strategy. Limits shrank, hold expanded and U.S. sports offerings dropped off. To this day Pinnacle has stopped offering NASCAR which they apparently deemed unprofitable and of no interest to their new customer base even though many Europeans and Canadians still like to watch and wager on the sport.
Despite the exit from the U.S. market the company still flourished but was met with another setback in 2012 when Michael Colbert, a Cantor Gaming sports book vice president was charged with illegal online gambling and apparently used Pinnacle Sports to place the bets. According to the complaint filed by prosecutors, Pinnacle Sports served as a high-tech “wire room” where bettors and their agents placed wagers and maintained accounts. Pinnacle denied any direct involvement but 2 shareholders in the company settled with the feds on seemingly unrelated charges and one left the company altogether shortly thereafter. Allegations, nevertheless, still stuck with the company which would come back to haunt them when applying for a UK Gambling Commission license as they were forced to cede an Alderney gaming license they hoped to use to expand in Europe.
Nothing further was heard about Pinnacle until late in 2014 when I received a copy of a memo released to Pinnacle employees following a company meeting which indicated that all prior owners and shareholders had left the company due to failing health and just a desire to pursue new endeavors. Only one shareholder stayed on board but apparently with a minor role. The company was sold for all intents and purposes to a Swedish businessman with a connection to the Asian market who became the main shareholder. Whether this is who Alternative Trading Partners is referring to or whether it was sold again after that is unsure but there’s a good chance that individual is still the one at the helm. One notable line from the memo was as follows:
“This is a new beginning in all respects we are in a positive transition mode. We can take opportunities to ensure our business is compliant, sound and ready for growth. We can take advantage of opportunities with our new “clean” start and ensure long-term success of the business and grow to its full potential with our current momentum.”
Not long after the release of this memo, Pinnacle withdrew from the UK market citing new UK regulations and the inability of the company to meet the new requirements. It’s well known that Pinnacle was seeking a UKGC license prior to the new regulations so more than likely the company withdrew hoping that they could indeed come back with a new “clean slate” and acquire the license claiming that they are no longer associated with any of the old management and have withdrawn from both the U.S. and UK market as soon as there was an indication of the new laws. It’s uncertain why Pinnacle is so anxious for the UKGC license since it doesn’t appear that many of their clients are from the UK but more than likely they feel that a UKGC license will be more highly valued in Asia and Europe which will open up the doors to other legal markets should laws change. The current license from Curacao obviously doesn’t carry the same clout, particularly in the Eastern Hemisphere.
If this is indeed what Pinnacle has in mind, they likely will have no issue with paying the tax from UK bets to the UK government as required by terms of the license but they will have one problem and that is the requirement that in order to keep the UKGC license a company must justify their presence in grey markets if more than 3% of their revenue comes from any of those jurisdictions and they have to show they are adhering to local laws if less than 3% of revenue comes from grey markets. It’s not certain what percentage of Pinnacle’s revenues come from individual countries but it can be safely assumed that more than 3% of revenue come from each of China and Canada which Pinnacle still happily caters to. In fact I know personally of 3 individuals who actually moved to Canada for the sole purpose of being able to bet with offshore bookmakers unimpeded including Pinnacle. If that’s the case Pinnacle must decide what’s more important to them their current customer base or the UK license. If this was the old/original ownership the decision would be fairly straightforward but with a new European ownership and a new focus it may not be so clear cut. This is especially true with Canada which likely accounts for a much smaller customer base than China does and which is outside of the Europe/Asia new focus area.
Consequently one shouldn’t be surprised that if the company announces it is withdrawing from certain grey markets like Canada as soon as they are given any indication that they have the green light for a UKGC license.6 comments