BSH: Lottery Win II

Birmingham Sports Holdings made an announcement to the Stock Exchange of Hong Kong yesterday to clarify their acquisition of a Chinese lottery company. The announcement cleared up some of the confusion re prior connections between the holding company and the lottery firm, as well as offering more insight into how BSH are going to make money from the project.

Hong Kong Stock Exchange

When the original announcement was made back in July, I noted on this website that the lottery firm – Wangmei Online (Beijing) Information & Technology Co., Ltd (or 網梅在綫 (北京) 信息技術有限公司 in Chinese) – listed BSH chairman Zhao Wenqing as a director on Chinese company data websites.

Evidently, the Stock Exchange picked up on this as well, as BSH have been forced to clarify the relationship Zhao had with Wangmei Online.

BSH have now confirmed that while Zhao was previously a director and shareholder of Wangmei Online, he was only such as a nominee for another person, Gao Lei; and that when the company was reorganised two months prior to the acquisition the need for Zhao to be a nominee was ended and as such he stepped away.

This is intriguing as when the original announcement was made, BSH said that there was no connection between themselves and the company that they were buying.

They’ve had to now backtrack from that, which also means that they have had to justify to the stock exchange that the deal represents a fair one for shareholders and potential investors in BSH.

So is it a good deal?

On the face of it, the deal does sound quite interesting. The announcement confirms that BSH are looking to expand the lottery company business, stating

the Group will proactively explore cooperation opportunities with overseas lottery and online payment operators by leveraging on the business connections and experiences of the Group in other countries, such as the United Kingdom and the Kingdom of Cambodia (“Cambodia”).

While I don’t think that means that BSH will be competing with the likes of Camelot, I think what they will be doing is looking to partner up with smaller lotteries to sell software solutions.

The Cambodian market shows how this is possible. I took a lot at KTV Lottery, who already use a software platform created by a team from Beijing. The software providers provide the platform and critical support while the local company runs the lottery.

The deal has a guaranteed cumulative profit of RMB30million (about £3.3million) in the first three years of operation, with the selling company guaranteeing to make up the difference if that level profit isn’t made and the aforementioned Gao coughing up if the vendor doesn’t.

While it’s not a huge amount of money, it is diversification – which is absolutely essential if BSH is to become a profit-making company.

It’s interesting how much of BSH’s incoming money is coming from the Kingdom of Cambodia, and it’s something I’m intending to watch further as things develop.

What does this mean for Blues?

In some ways, it doesn’t affect Blues much at all and I can imagine for some people this whole article is somewhat of a snooze fest.

However, I think it goes to show that the Stock Exchange are watching what BSH do fairly closely. This means the the Hong Kong side of things have to be done by the book – which is better for Blues as it prevents issues in the long run.

I also think that it proves that the people running BSH are currently only interested in working within already established pathways and with known partners.

That could prove to be interesting in the future if BSH do decide to do what Wigan Athletic’s owners (another Hong Kong listed company) announced yesterday, which was to make plans to divest a portion of the club to a connected entity outside of the listed company.

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