Back a winner with Sportingbet

Online bookmaker Sportingbet celebrated its 10th anniversary this week, and it has certainly had an eventful history. Like many of its competitors, shares in Aim-traded Sportingbet were initially carried high by the wave of euphoria that accompanied the rise of internet gambling. Then its fortunes crashed earthwards after the US took a hard-line stance against offshore operators.

The rapidly unfolding events of 2006 first saw the arrest of Sportingbet's former chairman, Peter Dicks, then the criminalisation of internet gambling through the highly controversial Unlawful Internet Gambling Enforcement Act shortly after. That meant Sportingbet had to quickly dump its US businesses, which at the time generated 62 per cent of its gross win.

In fact, Sportingbet is still in talks with the US Department of Justice over a settlement for its activities in the US prior to the passing of the gambling act. Although recently the company has said the talks were "amicable", it added that there was "little visibility of the likely timing or quantum". While it couldn't put a figure on the likely size of the pay-off, it will certainly be significant. Partygaming recently agreed to pay $105m over 42 months in its settlement.

That said, the closure of US troubles is one of the few dark clouds remaining over Sportingbet. And, despite the significant financial upheaval at the time, Sportingbet has refocused its business on markets where attitudes to gambling are more liberal, such as the UK, Australia and Spain. And while it's true that the European regulatory situation is still somewhat fragmented, there should be enough opportunity in Sportingbet's existing markets to keep growth ticking over until new markets open up. So much so, in fact, that management feels confident enough to re-instate dividend payments.

In the year to end July, the company saw underlying operating profit climb by more than a quarter to £31m, thanks to a 17 per cent rise in the amounts wagered by its customers to £1.6bn. With 90 per cent of its bets taken outside the UK, that performance was flattered by the weakness of sterling. But a 10 per cent increase at constant exchange rates was still an impressive performance, given weakness in consumer spending, which has manifested itself in lower betting activity at some bookmakers.

That trend has been particular pronounced across the UK's high street operators, so it is no surprise they have been investing in their online offerings. While that threatens increased competition for Sportingbet, it also highlights the advantages it already has as an online only, predominately sports-focused, bookmaker with a wide spread globally. The group has 3.9m customers in 23 countries, after expanding into Romania and South Africa during the year. Elsewhere, in Brazil, revenues grew four-fold in the year and management plans to use its Brazilian experience as a launch pad for expansion into other South American countries.

What's more, the group's focus on sports betting means that it tends to attract more serious gamblers than rivals, who derive a greater proportion of their revenues from online poker and casino games. Casino and poker tend to attract a more fickle punter. The online poker industry in particular has suffered this year, as players have defected to casino games, and European poker operators have also struggled to compete with well-funded US operators targeting the region.

However, poker accounts for just 12 per cent of Sportingbet's net revenues, while the proportion generated from sports betting has risen from 60 per cent to 64 per cent year on year. Sportingbet's sports book focus does bring its own problems, though, in that it is more exposed to results that don't go its way. That's already proved problematic in its new financial year, especially in Australia - which accounts for around a third of wagers - where its profits have been hit by a high proportion of favourites winning.

But other factors are working in its favour. Media deflation means its been able to make its marketing budget go much further - it now sponsors several football teams around the world, including Wolverhampton Wanderers, as well as numerous horseracing events. That is translating to strong current-year growth in European sports betting.