Betting company will go public

Fortuna Entertainment Group is the biggest sports-betting company in Central Europe. In the first half of this year, the company had revenues of 4.76 billion Kč, a 12 percent growth over the same period in 2009. On the momentum of recent good fortune, the company has announced it will list on the Warsaw and Prague stock exchanges in the final quarter of this year and has its eye on the Polish online betting market as legislation in that country is on track to become more welcoming to local companies. Michal Vepřek started working at Penta, Fortuna's largest investor, two years ago and in April joined Fortuna as its chief financial officer in order to oversee the public listing. He sat down with The Prague Post to talk about the company's imminent expansion.

The Prague Post: When did the company decide to list shares?

Michal Vepřek: We've been looking at this option for longer than nine months, I would say. For the last six months, we've done a lot of the tough work. It's quite a long process; we'd been looking at other options on the table, and at the end of it we decided to list the company. We're going to list in the fourth quarter of this year. There are many regulations and procedures we have to follow first, before we file the prospectus and get approval from the regulators.

TPP: Is it a separate process for the Warsaw and Prague stock exchanges?

MV: The first step was we had to register our prospectus in the Netherlands, where Penta is registered. After that, we register in Prague and in Warsaw.

We're actually also registering in Bratislava. It might be famous as the first IPO in Slovakia [laughs]. There is actually an exchange there, but no one knows it, and nothing is traded there. But Slovakia is such a big market for us we wanted to make a point of showing people Fortuna is grateful for the customers there, and it's a company that can be proud to bet with. For marketing purposes, we decided to list there.

TPP: Are you confident there's going to be a high share demand when you do list?

MV: I do expect a lot of demand for shares. The reason is we have been able to offer quite a good dividend over the past years to shareholders, nearly 100 percent of net income. There are also significant opportunities for us in the future, thanks to upcoming legislation in Poland that will open the market, and we are taking a greater part of the market share from offshore competitors.

TPP: How many shares will you be listing?

MV: We are only announcing that Penta will remain a majority owner of the group. You have probably seen numbers circulated in the media, but those are false, and we are not commenting at the moment.

TPP: Have there been significant management changes at Fortuna in preparation for taking the company public?

MV: We definitely have had some management changes; one year ago, I was sitting on the other side as an employee at Penta. There has been a strengthening of the team, and we're keeping a lot of the management who have helped the company do so well the past four years.

TPP: Fortuna is present in the Czech Republic, Poland and Slovakia. Where is the majority of your business coming from?

MV: The majority of our business is in the Czech Republic, but in the last two years Slovakia has been catching up quite fast. The Czech Republic and Slovakia are our core markets. Poland's market has the biggest potential for us, though. Proposed legislative changes are expected to open up the gates to online betting in Poland, and this will be a huge opportunity for the company and increase the share of Poland's operations in the total revenues of the company. Right now, roughly, our business is broken down into 20 percent from Poland, 30 percent from Slovakia and 50 percent from the Czech Republic.

TPP: Why is Poland so much stricter with its betting laws?

MV: There isn't a very long history of betting in Poland. Polish law is also much more conservative than Czech law. We are starting to see a convergence of Polish law with the European standard, not just to the Czech or Slovak models, and we're seeing that the government there is realizing there's no way to stop online gambling businesses, and they're not getting money from taxing business. Right now, they have on the table legislation that will open Poland to local companies in order to push out offshore companies.

In Poland, there are no legal online betting companies. You are not allowed, and they do not license local operators. So what you have is a market dominated by offshore (foreign) companies. It was legalized in Slovakia in 2007 and in the Czech Republic in 2009, and since then we've been quite competitive with offshore companies. We are able to offer not only online betting services, but if you have a problem with your account you can come to one of our physical shops to help solve issues. We can also better control underage clients. 

TPP: How do you manage keeping underage clients off the website?

MV: The process in the Czech Republic requires that people who want to bet online must go into the shops first so we can check your ID and make sure you're over 18. After that, you can activate your account and play.

TPP: Do you know what the market share breakdown is between local companies such as yourselves and offshore companies?

MV: It's very tough to estimate, as usually offshore competitors are not showing revenues by country. We've estimated in the Czech Republic it's split about 50-50. I would say there's a trend that local companies are getting a bigger share of the market from offshore companies. These offshore companies have been in business for 10 years, but we are catching up quite fast. In Slovakia, we launched in 2007, so that was an early enough state of development for online companies that local companies have the majority share of business there. We see a trend where if a country has reasonable regulation from the state, local companies are able to push offshore companies off the market.

Claire Compton can be reached at
ccompton@praguepost.com