Entain subject to dotcom market exit timeline as part of DPA

Details from Entain’s Deferred Prosecution Agreement (DPA) relating to a £585m settlement with HMRC have suggested the operator must shutter its dotcom businesses.

The DPA, which was approved by Dame Victoria Sharp, president of the King’s Bench division of the High Court, on 5 December, includes two clauses that indicate the Crown Prosecution Service has successfully required Entain to pull out of non-locally regulated markets.

Clauses 32 and 33 in the DPA laid out the requirements for the operator.

Clause 32 reads: “Entain shall exit all gambling markets in which it is currently operating and which markets are not yet subject to gambling regulation (each such market being ‘Regulating Market’) by the date 12 months after the exit date [of the DPA].

“Further, Entain confirms that it is not operating in, or offering gambling services in, any market (other than the regulating markets) where gambling is not currently lawful as a matter of local or EU law.”

The clause defines regulating markets as Brazil, Chile, Peru and Mexico, as the four Latam markets continue to move towards local regulation.

Entain had previously made the pledge to exit all non-locally regulated markets, but has remained in those it views as likely to regulate in the short- to medium-term.

However, clause 32 lays out a 12-month window for the FTSE 100 operator to exit the markets.

Although, clause 33 does specify that Entain may request an extension to the exit date in respect of specific markets, should there be a valid reason to do so.

Clause 33 reads: “If Entain considers that, for reasons specific to that regulating market, the process of gambling regulation has not yet been completed but that there are reasonable grounds to consider that the process of regulation will be completed within a reasonable time of the exit date, (and in any event not more than 12 months following the exit date), Entain may request from the CPS an extension to the exit date in respect of that regulating market.”

Given the fact regulation attempts in Brazil have rumbled on for more than five years, Entain may have the opportunity to apply for an extension in that case.

Under the DPA, Entain has been allowed to use the Treaty on the Functioning of the European Union (TFEU) to continue operating in Austria and Finland – despite those markets’ monopoly models.

The operator is required to inform the CPS should its “position change materially” relating to market exits and potential regulatory shifts.

Other key details from the document note that should Entain be sold during the four-year period it is subject to the DPA, then the new owners would continue to be subject to the ruling.

Of the £585m settlement, £465m is made up of a direct financial penalty while £120m will be disgorged from Entain’s profits.

The company is also subject to a £20m donation to charity and £10m in costs to the CPS and HMRC.

In a note published yesterday evening, Regulus Partners’ Paul Leyland wrote: “The CPS has effectively used Entain’s alleged historical malfeasance under the DPA to call time on dotcom markets.

“The CPS has therefore made it very clear that it does not consider any dotcom revenue to be appropriate levels of risk unless there is a clear and near-term pathway to regulation.                                      

Leyland continued: “This escalation of dotcom risk may have significant repercussions for debt providers and the availability of mainstream payment processing. More specific to Entain, the DPA restriction on dotcom revenue also continues if the group or businesses are sold, which could make any potential suitors very nervous until regulation occurs or markets are exited.

“Unfortunately, the legislators of Brazil, Chile, Peru and Mexico are showing few signs of hurry,” he added.