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World Gaming Plc Announces Restructuring Of Its Relationship With Sportingbet Plc

9 Aug 2004

LONDON, UK -- (PRESS RELEASE) -- August 9, 2004 -- World Gaming plc and its affiliates, a UK-based Internet-gaming software and e-business services group of companies ("World Gaming") is pleased to announce the restructuring of its relationship with its major customer Sportingbet PLC and its affiliates ("Sportingbet").


World Gaming to enter into an agreement with Sportingbet to transfer a 50% interest in the World Gaming software for the following consideration:

- U.S. $10 million cash under staged payments;

- Additional consideration of U.S. $3.3 million as value for:

Cancellation of all economic and voting rights attached to Sportingbet's existing 29.5% holding in World Gaming;

Forgiveness of the convertible loan note owed to Sportingbet with a face value of U.S. $900,000.

Future development of the software to be funded by Sportingbet in an amount equal to at least $4.5 million over 4 years, in return for a perpetual royalty free licence to its use within the Sportingbet group.

Development Plan to improve the software for World Gaming licensees and Sportingbet to be agreed by both parties.

World Gaming to have full rights to full use of the software including enhancements for the duration of the partnership agreement plus the ability to continue sub-licensing the software to third parties.

World Gaming to enter into an exclusive hosting agreement for Sportingbet's U.S. facing database on a cost-plus basis.

World Gaming to acquire new marketing rights over Sportingbet's multi-lingual and multi-currency European software to market to existing and new licensees of World Gaming throughout Europe.

World Gaming to seek new licensees and explore other business development objectives.

Commenting on the transaction, Daniel Moran, Chief Executive of World Gaming said:

"We are pleased that we have now successfully resolved this issue with Sportingbet allowing for continued growth in the World Gaming software and infrastructure. The restructured relationship not only stabilizes World Gaming's future but will allow us to move forward and expand into new markets as well as open new investment opportunities that previously were not possible."

Nigel Payne, Chief Executive of Sportingbet said:

"We are pleased to have agreed new arrangements with World Gaming which will give Sportingbet greater control over the software platform for its U.S. facing business and, importantly, over the future development of that software. Furthermore, these arrangements will also reduce our costs significantly going forward. We are also pleased that these arrangements will allow World Gaming to emerge a stronger, more profitable business independent of Sportingbet's revenue streams."


World Gaming is incorporated in England and Wales and carries on business as an Internet gaming software and related services provider.

World Gaming licenses Internet gaming software to third party licensees enabling their customers to play casino games, place sports and horse wagers and enjoy other gaming services over the Internet (the "Gaming Software"). World Gaming earns royalties on the revenue licensees generate from the use of the Gaming Software.

The Gaming Software is owned by a Starnet Systems International Inc. ("SSII") a subsidiary of World Gaming, which licenses the Gaming Software to third parties. SSII is incorporated and carries on business in Antigua. SSII also carries out all hosting activities on behalf of its licensees. SSII owns equipment and maintains systems in Antigua that host all data that is processed on the Gaming Software in accordance with its licensees gaming licenses.

The Gaming Software was developed, and continues to be further developed, by Inphinity Interactive Inc. ("Inphinity"), a subsidiary of World Gaming, for the benefit of SSII. Inphinity is incorporated and carries on business in British Columbia, Canada. Inphinity has employees and owns certain computer and related equipment that are required for the purpose of developing the software (the "Ancillary Assets").

World Gaming's largest licensee is Sportingbet. Sportingbet is incorporated in England. In the financial year 1 January to 31 December 2003, approximately 80% of World Gaming's royalty revenues were generated from Sportingbet. Sportingbet currently owns 29.5% of the outstanding equity of World Gaming ("SB Shares"). Sportingbet, through a wholly owned subsidiary, also holds a convertible loan for U.S. $900,000 under an instrument dated 4 April 2003 (the "Convertible Loan"). Pursuant to this Convertible Loan, Sportingbet has an option to purchase a further 14% equity interest in World Gaming at twelve cents per ordinary share. Upon conversion of the Convertible Loan, Sportingbet would own approximately 39.2% of the equity in World Gaming.

Upon 45 days notice prior to the annual contract anniversary each March, Sportingbet may terminate the existing licence agreement with SSII. While no actual termination notice has been given and Sportingbet has agreed in principle to an extension of the licence agreement to March 2006, Sportingbet has indicated that it will not be renewing its licence agreement with SSII thereafter. Sportingbet has provided the Board of World Gaming with the following reasons as to why it would not renew the licence:

(a) Sportingbet's own in-house platform could service its business on a more economic basis;

(b) Sportingbet requires a greater degree of security over the software being used;

(c) Sportingbet requires a greater degree of influence over the future development of the software.

Furthermore, since the existing licence agreement does not require Sportingbet to use World Gaming's software for all of Sportingbet's U.S. facing markets, there can be no guarantee that, even if Sportingbet did renew the licence World Gaming would generate sufficient revenues to continue as a going concern. If Sportingbet did not renew the licence, the loss of revenue would have serious cash flow implications for World Gaming and would also threaten its ability to continue as a going concern.

In April 2004, Sportingbet advised World Gaming and announced publicly that it was reviewing its options with respect to continuing to use World Gaming's Gaming Software on any or all of its brands. In addition, Sportingbet indicated that it might begin to sell its shares in World Gaming. The Board of Directors of World Gaming explored several alternative arrangements before proceeding with the transaction to be proposed to shareholders for approval, as set out below.


World Gaming has signed an agreement with Sportingbet which is conditional upon approval by a majority of World Gaming shareholders voting at the Annual General Meeting ("AGM"). The framework and other main proposals of the transaction comprise the following:

A. Joint Partnership for Gaming Software

1. A wholly owned Sportingbet group company ("IOE") will purchase a 50% interest in the Gaming Software from SSII. Both SSII and IOE will each contribute their 50% ownership of the Gaming Software to a newly formed limited liability partnership that will be incorporated in the Cayman Islands (the "Joint Partnership"). World Gaming and Sportingbet (through their respective affiliates) will be equal partners in the Joint Partnership and accordingly will jointly own the Gaming Software. World Gaming will be required to give warranties on the ownership and sufficiency of the Gaming Software.

2. The Joint Partnership will grant each of World Gaming and Sportingbet a perpetual royalty-free master licence to use the Gaming Software. World Gaming will have the right to continue to sub-license the Gaming Software to any third party whatsoever. Sportingbet may only use the Gaming Software royalty free for its existing licensees and for the benefit of members of its group. World Gaming and Sportingbet will only make payments in the following situations:

(i) Sportingbet will pay 5% of licensee's net win to World Gaming for any new white-label marketing partner taken on after completion of this transaction (where "net win" is the difference between amount wagered (bet placed) by a customer of a licensee and the amount back to (won by) that customer);

(ii) World Gaming will pay 5% of licensee's net win to Sportingbet if it acquires a controlling interest in a competitor of Sportingbet or enters into a transaction with a competitor which requires World Gaming or the competitor to consolidate any or all of each others revenues;

(iii) World Gaming will pay 5% of relevant websites' net win if it owns and operates its own gaming website;

(iv) Where such a payment is payable, these will continue for the duration of the Joint Partnership and for a period of three years from the date of its termination.

B. Newly incorporated company for development function

3. Inphinity will move its development, maintenance and second level support functions, including all of the Ancillary Assets to a newly formed limited liability company that will be incorporated in British Columbia, Canada ("NewCan"). NewCan, which will be owned by Sportingbet, will offer to take on all employees of Inphinity who presently carry out the above functions.

4. NewCan will report directly to the Joint Partnership. The Joint Partnership will be equally controlled by World Gaming and Sportingbet.

5. NewCan's purpose will be to continue developing and maintaining the Gaming Software in accordance with a plan agreed between World Gaming and Sportingbet (the "Development Plan"). The Development Plan will be agreed at the commencement of the transaction and will be subject to review by World Gaming and Sportingbet on a quarterly basis. Sportingbet and World Gaming shall directly share in the objectives of the Development Plan on a 70/30 basis, respectively. World Gaming may purchase additional development time should the need arise. Given the nature of each business, it is expected that such objectives will often be entirely congruent.

6. Sportingbet has agreed to fully fund the operating costs of NewCan. Sportingbet has committed to spend at least U.S. $4.5 million per year on the operational and development costs of NewCan in the first 3 years and a minimum of U.S. $2.5 million in the fourth year. In addition to this, NewCan will also provide second level support services to World Gaming in the ordinary course of its business. Sportingbet has indicated that it may, although it is not required to, invest additional sums into development over and above this minimum commitment.

7. In accordance with its obligations described in the preceding paragraph, Sportingbet will have day-to-day control over NewCan. Such control will be predominately carried out through the jointly elected Chief Technology Officer. NewCan will enter into a Development Services Agreement to which World Gaming will be a party to ensure that NewCan operates according to the Development Plan.

C. Consideration and ancillary arrangements

8. The consideration for the Gaming Software (the "Sale Consideration") is in total U.S. $13.3 million value which will comprise:

(a) U.S. $10 million of which:

(i) U.S. $3 million cash is payable on completion of the transaction;

(ii) at least U.S. $3 million cash on or before 1 March 2005; and

(iii) U.S. $4 million cash to be paid in installments on or before 1 November 2005;

(b) Additional consideration of U.S. $3.3 million as value for:

(i) the 13.6 million shares in World Gaming owned by Sportingbet (29.5% of the World Gaming Equity) having restrictions attached to them by ordinary resolution of the Company with the effect that such shares will have no dividend, voting, participation or other rights; and

(ii) the cancellation of the convertible loan note and the options thereunder and to otherwise release World Gaming from all obligations under this instrument.

9. The full payment of the $10 million will be secured by a partnership pledge over Sportingbet's partnership interest in the Joint Partnership. This arrangement is to permit World Gaming to acquire exclusive access to the Gaming Software and development thereof in the event of a payment default by Sportingbet.

10. As part of the transaction NewCan will acquire the Ancillary Assets and assume various employer obligations related to the Inphinity employees.

11. The parties will also enter into the following ancillary arrangements:

(a) Information Technology Services

World Gaming will provide certain U.S. facing hosting services to Sportingbet on an exclusive basis for the life of the proposed transaction. Such services will be charged on the basis of actual cost plus a 10% margin.

(b) Sportingbet Ancillary Services

Sportingbet or its affiliates will continue to provide certain customer and transaction processing services to World Gaming's existing and future licensees on agreed terms that do not materially differ from those already offered.

(c) European Marketing

Sportingbet will provide World Gaming, through a joint marketing arrangement, with access to Sportingbet's in-house technology to allow World Gaming to market a European Gaming solution for the benefit of existing and future licensees.

The combination of services described in the above ancillary arrangements above effectively enables existing licensees and future licensees to access a turn-key gaming operation from World Gaming should they require such services.

D. Termination of the Joint Partnership and NewCan

12. Sportingbet may not terminate the Joint Partnership and NewCan for the first 3 years from completion of the transaction. Thereafter, Sportingbet may terminate upon 12 months notice to World Gaming. However, Sportingbet may terminate at any time if certain events of default occur, such as material breach by World Gaming or a material change in control of World Gaming.

13. World Gaming may terminate the Joint Partnership and the arrangements with NewCan at any time upon 3 months notice to Sportingbet, or upon the occurrence of certain events of default.

14. Upon termination:

(a) Sportingbet is required to make a further payment to World Gaming of U.S. $3 million (if World Gaming voluntarily terminates and then sells the Gaming Software within 2 years, this additional payment to be reduced by the consideration received by World Gaming, up to a maximum of U.S. $3 million);

(b) The Gaming Software (as updated and improved) will be jointly owned by Sportingbet and World Gaming (or their respective affiliates), and both parties will have an unrestricted right to use, sub-licence and assign their interest in the software. Neither party will have the rights to any further improvements or developments made by the other party.


At the Annual General Meeting ("AGM") shareholders will be asked to vote on the transaction as discussed in this document.

The Board of Directors of World Gaming (or the "Company") will unanimously recommend this transaction to World Gaming shareholders. In forming this recommendation, the board considered the likely alternatives should Sportingbet commence removing any or all of its brands from the World Gaming platform, the Internet gaming market as a whole and the Company's position in that market and what the most valuable course of action would be for Shareholders. In addition, the Board has received a written opinion dated 6 August 2004, from Houlihan Lokey Howard & Zukin Financial Advisors Inc. ("HLHZ") that, as of the date of the opinion, the transaction, taken as a whole, is fair, from a financial point of view, to the existing shareholders of World Gaming other than Sportingbet (subject to final accounting and legal confirmation).

The key benefits of the transaction for World Gaming include:

i. Significantly lower cost base than that of our competitors;

ii. Cash injection of U.S. $10m over 18 months;

iii. Sportingbet relinquishes controlling interest in World Gaming;

iv. Cancellation of remaining World Gaming debt;

v. Expected continuation of profitability;

vi. Guaranteed improved products and stability for existing World Gaming licensees;

vii. Addition of European software platform to World Gaming's product suite;

viii. Continuation of market leading gaming operator utilizing the World Gaming software platform.

The entire existing holding of Sportingbet in World Gaming (29.5% of World Gaming equity) will have restrictions attached to them by ordinary resolution of the Company with the effect that will have no dividend, voting, participation or other rights. These shares will also be subject to an irrevocable right of World Gaming to buy-back the shares at a later date. This method has been adopted at this time instead of a share buy-back as World Gaming is unable to buy back shares under the UK Companies Act 1985 as it has insufficient retained earnings.


The benefits described above have had a significant influence over World Gaming's future strategic direction. World Gaming's revised business plan will focus on four key strategies:

1. Actively engage in marketing to seek new licensees for its existing software platform together with exploration of the European market.

2. Deliver a robust, industry leading software platform to existing and future licensees with the key advantages of:

i. Significantly lower cost base than our competitors;

ii. Access to both leading US and European software solutions with access to all development and enhancements utilized in the Sportingbet Group in addition to the flexibility to add other unique enhancements as required;

iii. Access to market leading customer service and transaction processing should licensees require these services.

3. Actively participate in management of the Joint Partnership ensuring that development objectives meet with its requirements.

4. Seek new markets for investment and potential listing opportunities to maximize shareholder value.

The Board of World Gaming is actively considering certain other business opportunities which are synergistic with the licensing business described above.

World Gaming has engaged industry consultants to provide analysis on the Internet gaming industry examining where opportunities exist. In this regard World Gaming plans to hire a sales and marketing team to exploit these opportunities.

A full update of World Gaming's strategy and the measures under which it will review the successful implementation of such strategy are expected to be provided to shareholders at World Gaming's AGM.


The final date for the AGM will be announced to Shareholders by early September, 2004. Shareholders will receive relevant circulars, proxies and other information in the coming weeks.

Corporate background

World Gaming is a UK-based I-gaming software and e-business services group. World Gaming is an international developer, licensor, and provider of online gaming products, including casino, sportsbook, and pari-mutuel betting. For more information about World Gaming, visit the Group's Web site at

Starnet Systems International Inc., a wholly-owned subsidiary of World Gaming incorporated and operating out of Antigua, licenses its gaming software to third parties for an initial licensing fee and monthly royalties. Inphinity Interactive Inc., a wholly owned subsidiary of World Gaming, develops gaming software and web pages for SSII.

Contact: Investor Relations

World Gaming plc

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