The former BLP partner on taking the GC seat at a fast-growing online gaming firm
When David McLeish left Berwin Leighton Paisner (BLP) to become general counsel (GC) of the world’s largest publicly-traded gaming software company, he figured it would present a new challenge. The FTSE 250-listed Playtech has certainly not disappointed. A fast-paced Israeli company with a pronounced work ethic, acquisitive mind-set and cash burning a hole in its pockets, the company is also operating in jurisdictions around the world where the licensing rules surrounding gambling are far from black and white.
McLeish left BLP in May 2012 to join Playtech, a client of four years, which was about to list on the main market of the London Stock Exchange. Describing his specialism at BLP as ‘corporate, gaming, hotels and leisure’, he says ‘the opportunity to become the GC of a FTSE 250 company was too good to turn down’. Like many private practice lawyers who have worked for a client for many years, he was also attracted to the idea of seeing deals through to the end and being part of a business.
Two months after his arrival, then AIM-listed Playtech – which provides branded software for online casinos, poker rooms, bingo games and sports betting for the likes of bet365, William Hill and Ladbrokes – floated with a market capitalisation of around £1bn. That figure is now £2bn and the company’s revenue has risen from €111.5m in 2008 to €317.6m in 2012.
The listing was the first in a succession of corporate deals led by McLeish and his relatively lean but growing legal team (there were seven lawyers when he joined, which has now risen to 11). In March this year, William Hill exercised an option to buy Playtech’s 29% stake in William Hill Online – a joint venture seen as hugely significant to William Hill’s online offering.
The joint venture was drafted by McLeish in 2008 while he was at BLP, meaning he was in the unsettling position of returning client-side to an agreement he drafted five years ago. McLeish was assisted on the sale by BLP corporate partner Alex Latner, who co-managed the Playtech relationship with McLeish while he was at the firm. William Hill paid Playtech £424m for its share, bringing to an end a relationship described by The Financial Times’ Roger Blitz as a ‘mutually beneficial but at times fractious relationship, punctuated by injunctions and staff walkouts’.
These reports have done nothing to deter betting rival Ladbrokes from tying up its own joint venture with Playtech in March, in the hope that the software company will transform its online business in the way it has for William Hill. McLeish closed the five-year deal under which Playtech will open up its technology and product suite to Ladbrokes and manage an experienced Israel-based marketing team acquired by Ladbrokes from a third party.
The deal will see Playtech receive royalties and a success fee based on improvements in the performance of Ladbrokes’ digital business over and above that achieved in 2012.
Underpinning all this corporate activity is the increasingly complex international gaming and sports betting licensing framework, governing not only the monetary interactions between gamers playing across multiple sites but the basis on which they are allowed to play – or not – in various jurisdictions. McLeish comments: ‘There are so many moving parts, from the pace of regulatory change to the volume of contracts and M&A on top, at any one time you can be looking at any number of different issues.’
Gambling is as old as the hills but the online industry is still young, and, particularly in Europe, where there are many grey areas, McLeish says: ‘We work closely with our customers to ensure as best we can that people who want to play illegally are prevented from doing so.’
In most countries in Europe, such grey areas are around tax and licensing, specifically whether providers should pay tax at the point of supply (where office equipment and staff are based, often cheaper offshore jurisdictions) or consumption, which is inevitably a far more expensive proposition and forces providers to pay for a licence to operate in numerous countries.
Countries such as Germany and Belgium have in recent years introduced local licensing and tax systems, under which gambling operators must obtain licences or face sanctions. However, these regimes are being challenged and operators continue to supply those markets, asserting their European freedoms and right to provide services.
The UK, meanwhile, is currently seen as a friendly regime but as of next year proposes to introduce far more stringent regulations.
Inevitably, Playtech keeps the position under review for each jurisdiction but in most cases it is gaming and sports betting providers – not suppliers such as Playtech – that are caught by these regulations. Current exceptions include France, which operates sanctions against suppliers, and Spain, which requires suppliers to obtain their own licence.
This complex operating tapestry is helped little by European case law, which often turns on the individual facts of the case and has little widespread application in the area. McLeish, who works closely with the regulatory and compliance team, comments: ‘Case law has developed but there is nothing definitive, which is down to the fact that there is hardly a territory that has the same arrangement and the pace of change is so fast.’
One might imagine that these operating challenges and the fact that many countries are moving to tax at the point of consumption would have a constricting effect on the market and mean less work for McLeish and his team. Not so. This lucrative industry is showing no sign of slowing its growth. As McLeish comments: ‘The regulatory changes are bringing in more legal work as customers need contracts for all the different markets they operate in.’
The company generally tries to keep as much work as possible in-house, which explains why the legal team is growing. However, its legal spend is in the millions and McLeish turns to BLP for extra assistance on corporate work, DLA Piper for regulatory and commercial work and Linklaters for litigation.
Playtech’s acquisitive run does not look to be over any time soon, with chief executive Mor Weizer known to be looking for opportunities in which to invest the millions received from Ladbrokes. ‘We see exciting alternatives and opportunities for the company given the firepower we now have,’ Weizer told Reuters in April. All of which suits McLeish.
He comments: ‘We’re always working on a number of things and having been an M&A lawyer, I wanted to move to an acquisitive company where M&A remained a large part of my role.’ Job done.