David O'Byrne in Istanbul -
Seven years on from a first failed sale attempt, Turkey finally succeeded in privatizing its Millipiyango national lottery on July 15.
The Millipiyango was sold to Net Sans-Hitay, a consortium of two Turkish groups, for $2.755bn after close to two hours of open bidding, which mostly featured the buyer and Turkish consortium ERG-Ahlatci. A third bidder, the Netherlands-based Turkish Lottery Holding, dropped out early in the auction while a fourth group which pre-qualified for the tender, Turkish group Talih Kusu, did not submit a written bid.
The sale price is considerably higher than the $1.622bn reserve price, which bidders in two previous attempts to sell the lottery had failed to match. That's good news for the Turkish government, which is heading towards general elections to be held by next June and is looking to indulge in some pre-election spending.
Net Sans Oyunlar, a subsidiary of Turkey's Net Holding and active in tourism, hotel and leisure management, retail, publishing and real estate development makes up one half of the winning consortium. The other half, Hitay Investment, is a subsidiary of Turkey's Hitay Group, a venture capital business founded by entrepreneur Emin Hitay in 1980 and which has interests in both gambling and online technology.
Hitay holds a 50% stake in Bilyoner.com, Turkey's first electronic platform for games of chance. The company has contracts to operate the online operations of Turkey's three main games of chance. That includes sports betting operators Spor Toto, which runs football pools and Turk Jokey Klubu (TJK), which operates horse race betting, as well as the Millipiyango lottery itself.
Unusually for a Turkish privatisation, the winning bidders chose not to make any statement following the conclusion of the sale. At the same time, neither consortium member has given any indication as to how they plan to finance the purchase and what they plan to do with the lottery, according to an analyst at one Istanbul brokerage.
However, recent media reports claim that one or more international groups with existing interests in gambling have maintained a close interest in the tender. They may be interested in forming a joint venture with the winning consortium, analysts suggest.
Czech investment groups KKCG and Emma Capital, as well as Italian gaming company GTECH, have all expressed an interest in forming a partnership with a local company to operate the Millipiyango. That could be a necessity given the challenging global financing environment. A number of Turkish privatisations have failed in recent years after winning bidders were unable to raise the capital to complete their purchases.
What is clear is that Millipiyango is highly profitable. In 2012, the lottery posted profit of TRY1.879bn (€691m) – a figure analysts suggest could increase several times over if more modern retail and promotion techniques are used to market the games. Currently, Millipiyango's prime product - the thrice monthly Millipiyango numbered ticket draw - is marketed mainly by freelance ticket sellers who are a familiar sight on Turkish high streets.
Despite the potential, two previous attempts at selling the company failed, due in part to lingering questions over whether Turkey's moderate Islamist government would increase restrictions on the marketing and sale of "gambling" products.
In any event what the winning bidders have bought is a ten-year license to operate Millipiyango's operations in return for annual fees totalling 25% of sales income and 28% of profits. Which, if analyst predictions of increased sales potential are correct, could result in a useful source of new income for the government, and one which might mitigate against further restrictions.
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