The contract, which was signed in March 2002 by Sportech to capitalize on the projected growth market of interactive TV betting, has been loss making for the parent company of Littlewoods BetDirect since inception, including an expected operating loss of £4m in 2005 due to low revenues.
“Following a through review of the business, it has been established that our contract with ITV is commercially unviable. After negotiations with ITV we have ascertained that this position will not change and have agreed to terminate the contract by mutual consent. Given the huge contractual payments due under the contract from February 2006 onwards, we are not prepared to expose the Company to this ongoing liability. Sportech will continue to participate in the interactive betting market and we look forward to updating the market about new launches we have in the pipeline early in 2006,” said Ian Penrose, Sportech Chief Executive.
The termination will result in Sportech eliminating the operating loss in 2006 and avoiding additional potential payments of £22.2m over the remaining three years of the contract. However, as a consequence of the termination, the 2005 results are expected to be impacted by an additional exceptional charge of approximately £14m reflecting the write off of payments already made to ITV, related assets and redundancies. The direct cash cost of the termination is expected to be less than £1m.
Industry analysts said the service failed to take off as potential bettors looked to the internet for a wider variety of online services. Sportech blamed lack of promotion of the service by ITV. While ITV said Sportech\’s services were simply not attractive enough.
“Littlewoods\’ Gaming products did not capture the imagination of our mass-market audiences. We will be looking for another provider,” said a spokesman for ITV.
Shares in Sportech fell 9.6% to 11.75p.
UPDATE: Sportech Finance Director Gary Speakman accused ITV of failing to adequately promote its interactive services.
“The responsibility for getting the viewers was with ITV. We provided the content, but ITV has not promoted the service. It is not as well known as the BBC\’s or Sky\’s interactive services,” said Speakman.
“The existing commercial terms of the contract made no sense in this context,” he added.
Sportech Chief Executive Ian Penrose said the company had been disappointed by the low revenues for the service in comparison with BSkyB\’s gaming product, which generated turnover of £261m last year whereas Sportech earned around £150,000 a year from the ITV deal.
“During a period of time where we have seen significant growth from Sky\’s behind-the-red-button service, the growth in revenues from behind the red button at ITV has been tiny,” said Penrose.
Calculators
