The Finance Ministry has issued a sports betting licence to Tan Sri Vincent Tan’s Ascot Sports Sdn Bhd, Malaysia’s first legalised sports betting operation.

According to a statement from Berjaya Corporation Bhd (BCorp), of which Tan is chairman and chief executive officer, Ascot Sports was first granted a sports betting license (also known as a “bookie” licence) in 1987 and had commenced operations offering off-course horse racing bets.

It had to shortly thereafter surrender the licence on condition that the Government grant Ascot Sports the “first-right-of-refusal” should the Government decide to issue sports betting license in the future.

Ascot Sport’s plan is to launch products based on internationally popular sporting events such as soccer, basketball, motor racing, tennis, and golf. For a start, Ascot Sports will offer their products via 220 selected Sports Toto outlets in West Malaysia.

“Ascot Sports will also offer telephone betting convenience and only adults above 21 years old and non-Muslims will be allowed to open a telephone betting account. Muslims are strictly prohibited from betting with Ascot Sports,” the statement added.

In the statement, BCorp said it plans to buy a 70 per cent stake in Ascot Sports from Tan for RM525 million in cash, or RM9.375 per share.

“Ascot Sports has been re-issued the sports betting license by the Ministry of Finance which was first issued in 1987. Ascot Sports has the first-right-of-refusal in the event the Government decides to allow sports betting which it has now in view of the rampant illegal book making activities being conducted,” BCorp said.

It said Tan has agreed to guarantee that the company will make a cumulative after tax profit of at least RM375 million for the first 3 years of operations.

To back this guarantee, he has offered to deposit RM81.25 million worth of listed securities and BCorp will withhold RM125 million cash from the total consideration of RM525 million which will be released annually upon achievement of profits proportionate to the guarantee. Hence, the initial consideration will be RM400 million.

BCorp has also announced its proposal to call a rights of 8.0 per cent ICULS on the basis of one RM1 nominal amount 8.0 per cent ICULS for every eight BCorp shares held on the entitlement date.

This rights issue could potentially raise more than RM0.5 billion.

A portion of the funds raised will be used to pay the initial consideration of RM400 million with the remaining to be deployed for working capital of the Group.

BCorp said Tan has undertaken to subscribe to his and his private companies’ entitlements in full which would amount to at least RM400 million.

“Tan Sri Vincent Tan will not net in any cash as he will reinvest the entire initial consideration to be received to honour his rights issue obligations,” the statement added.

BCorp said Ascot Sports is set to become the next big money spinner for the group.

Comparing examples in Singapore and Hong Kong where legalized sports betting has been in operation for a number of years, the market is seeing consistent double digit compound growth rates, BCorp said.

The Hong Kong Jockey club for instance had revenues of about HK$35.0 billion (about RM15.0 billion) whilst Singapore Pools revenue is estimated at a few billion Singapore Dollars.

“By some estimates, the illegal sports betting market in Malaysia is thought to be as much as RM20 billion per annum. This represents a tremendous loss of tax revenue to the Government which Ascot Sports hopes to be able to mitigate.

“Based on the RM375 million profit guarantee, the net profit averages at about RM125 million per annum. At the implied value of RM750 million for 100 per cent of Ascot Sports, the acquisition PE multiple is about 6.0x, which is an exceptionally low multiple given the enormous potential for the industry.

“The Board of BCorp expressed its gratitude to Tan Sri Vincent Tan for having offered this remarkable ‘Sweetheart’ deal to the Company. The Board recognizes that typically, one would probably have to pay a high double digit PE multiple with no profit guarantee if such a business is sold with an established earnings track record,” the company said.