1.1 Instructions

1.2 Review criteria

You will give a quantitative assessment of all parts of the submission. Then, you will provide qualitative feedback for the submission as a whole.

The following represents a guide for the quantitative assessments of Parts 1-4:

• 0 points: No answer, completely irrelevant answer, inadequate material, and/or evidence does not fit the argument.
• 5 points: Insufficient answer, incomplete, lacks supporting evidence. An insufficient response is incomplete or incorrect. For calculations, the response fails to provide supporting calculations/steps.
• 7 points: Passing, meets expectations. A passing response addresses/answers the question, but some of the answer is not thoroughly explained. For calculations, the supporting calculations/steps are not clear.
• 9 points: Well above average, exceeds expectations An above average response addresses/answers the entire question and most of the answer is thoroughly explained. For calculations, most of the supporting calculations/steps are clear, but there are some minor deficiencies.
• 10 points: Superior performance, excellent. An excellent response answers the entire question, and thoroughly explains the answer. For calculations, all supporting calculations/steps are clearly presented.

Recommendations for Fair Peer Review:

• The score should not be based on whether or not you agree with the answer, rather on whether the answer is complete and well-supported.
• Both content and organization are important components of a response. Good writing is confident and clearly focused with relevant details to enrich the content. Good writing also follows instructions, such as word limits, and offers requested information.
• A clear and concise answer is preferable to a long response that lacks coherence.
• Focus should be on content; try not to unduly penalize responses for spelling or grammar.

1.3 Reminders

Using the Forums

Your fellow students are a great resource, and we encourage you to sharpen your ideas against them in the forums. You can post your arguments in the forums and receive feedback before submitting your assignment.

Honor Code

Please remember that you have agreed to the Honor Code, and your submission should be entirely yours. Our definition of plagiarism follows from standard literature: passing off someone else’s work as your own, whether from your peers or Wikipedia. If you need to quote material, remember to cite your source, for example: “But, as expressed by Spinoza, all things excellent are as difficult as they are rare (Baruch Spinoza,”Ethica" source: thinkexist.com)."

Summary

In order to conduct the assignment, I try to using sportsbook industry business as my assignment. Football Form Labs, Star Lizard, SmartOdds11 You can refer to Reference 03 and reference 04 to know the background of the sportsbook consultancy firms as well as the founders. are famous sportsbook consultancy firms in sportsbook industry. I try to put myself into stand point of view as a StarLizarder since I used to used work in Telebiz which is a backend sportsbookmaker while taking bets from high rollers and Star Lizard is the one of crucial client.

However there has no financial report since there are private company. Here I try to take a public listed company which is GVC22 You can refer to Annual & Interim Reports (including Sportingbet and bwin.party) for more details. as an observation for the assignment. The company has made some successful acquisation and takeover activities since decade.

graph 2.1.1 : Acquisition history of GVC group

Health of bwin Party before Acquisition

By refer to Operations Management - Module 1: Operations Strategy by ®γσ, Eng Lian Hu 201633 Refer to Reference 06, we know the : - Asset Turnover Ratio - Operating Margin - Return On Equity (ROE)

Now we try to evaluate if the acquisition is worth or value buy (short term analysis, but acquisition is a long term business decision)? Due to the acquisition has just made less than one year therefore we have inssuficient data and information for analyse. Here I try to refer to quarterly report as short term analysis.

Firstly, we review the annual financial statement of bwin.party digital entertainment from year 2010 to year 2014.

table 2.1.1 : Annual financial statement of bwin Party from year 2010 to 2014.

By refer to above table, we try to evaluate the company’s health.

Asset Turnover Ratio

Table 2.1.2: Asset Turnover Ratio (Year 2010 - 2014)

Assets (€m)	2014	2013	2012	2011	2010
Turnover	611.9	652.4	801.6	691.1	357.3
Net Assets	565.0	677.6	668.9	793.5	233.0
Asset Turnover Ratio	108.3%	96.28%	119.84%	87.1%	153.35%

table 2.1.2 : Asset turnover ratio of bwin Party from year 2010 to 2014.

Operating Margin

Table 2.1.3: Operating Margin (Year 2010 - 2014)

Assets (€m)	2014	2013	2012	2011	2010
Turnover	611.9	652.4	801.6	691.1	357.3
Operating Profit	(97.9)	51.9	(16.5)	(419.7)	46.3
Operating Margin	-16%	7.96%	-2.06%	-60.73%	12.96%

table 2.1.3 : Operating margin of bwin Party from year 2010 to 2014.

Return On Equity (ROE)

Table 2.1.4: Return On Equity (Year 2010 - 2014)

Assets (€m)	2014	2013	2012	2011	2010
Total Equity	565.00	677.60	668.90	793.50	233.00
Operating Profit	(97.9)	51.9	(16.5)	(419.7)	46.3
Return On Equity (ROE)	-17.33%	7.66%	-2.47%	-52.89%	19.87%

table 2.1.4 : Return on equity of bwin Party from year 2010 to 2014.

Summary

Table 2.1.5: Financial Analysis (Year 2010 - 2014)

Assets (€m)	2014	2013	2012	2011	2010
Asset Turnover Ratio	108.3%	96.28%	119.84%	87.1%	153.35%
Operating Margin	-16%	7.96%	-2.06%	-60.73%	12.96%
Return On Equity (ROE)	-17.33%	7.66%	-2.47%	-52.89%	19.87%

table 2.1.5 : Financial analysis of bwin Party from year 2010 to 2014.

From the table above, we observed that the asset turnover ratio fluctuates after 2010. Besides, the operating margin represents the cost management is not efficient. After that, the ROE ratio similar with asset turnover ratio which is not stable. We can know there might be some unexpected issues to cause the stability of growth of the business of bwin Party is bad. However the GVc dicided to takeover and reported generates profit within last quarter in year 2015 prior to acquisition44 Kindly read the article bwin.party reports revenue growth in fourth quarter and Bwin.Party has good fourth quarter before GVC takeover. Let’s look at the financial report of year 2015 in order to know more details as in Report of the Chief Executive.

We observed that the Sports wager has been increased 15% from EUR1.5 billion to EUR1.7 billion from 2014 to 2015 and the Net Gaming Revenue incaresed 10% from 225 million to 248 million. However the operating profit decreased 35% which was from EUR42.9 million to EUR27.7 million. The CEO has declared the one among the challenges for 2016 is the re-energize the bwin Party into the GVC group to drive cost synergies and revenue opportunities.

Above 1st table shows the revenue of bwin Party is EUR562.1 million compare to GVC group’s EUR247.7 million which is more than double. The sports margin gain around 9% from wagers. We can know the business size of bwin Party is greater than GVC. 2nd and 3rd tables display the average wager per day in 1st quarter of 2016 and 2015. The average stakes per day increase 180% compare to year 2015. You can refer to Preliminary Results for year ended 31 December 2015 - 2016 Trading Update for more details.

Part 1

For each of the two decisions you choose:

Describe a specific setting, the decision, decision alternatives, and any other information that would comprise an interesting and challenging problem.

1 Make or buy decisions

Based on above section, we know that the Net Gaming Revenue increases but there has no profit declared, secondly there has just only an quarter after acquisition, therefore we unable to conclude that the acquisition is worth in short term. Below information is required in order to determine if the acquisition is worth or not: - The breakdown financial statement between GVC and bwin Party in order to differentiate the ROI on GVC. GVC can dicide either expand its existing Sportingbet or takeover bwin Party. - The interim report doesn’t content financial statement in cost and also profit breakdown. - Besides, we can refer to page 9 inside Preliminary Results for year ended 31 December 2014, Trading Update for period from 1 January 2015 to 18 March 2015 which summarise the cash flow on acquisition activities. The cash flow and liabilities of the company need to be considered prior to conduct an acquisition decision.

2016 Trading Update

• Q1-2016 Total Group NGR at EUR167.7 million, up 180% (Q1-2015: EUR60.0 million) following the acquisition of bwin.party on 1 February 2016.
• Q1-2016, like-for-like, constant currency basis, average NGR per day, up 9%
• Year to 20 April 2016, like-for-like, constant currency basis, average NGR per day increases were:
  • Group: +13%
  • GVC brands: +18%
  • Bwin.party brands: +11%
• PartyPoker shows first year on year quarterly growth for five years
• On track to secure €125 million of synergies by the end of 2017 from enlarged GVC

Financial position

• Gross cash position as at 17 April EUR327 million
• Group net debt*** as at 17 April EUR193 million

Although the 2016 interim reports do not state the breakdown, however you can try to refer to year 2015.

You can refer to AGM trading update and Q1 2015 key performance indicators and Unaudited results for the six months ended 30 June 2015 for more details.

2 Keep or drop a product line, business unit, department, etc.

Let us look at the key financial statement above regarding bwin Party 2013, 2014 and 2015 to know the income generates from online gaming and sportsbook. The revenue generates from online gaming is greater than sportsbook while both increasing beyond the year.

However below article descript which sportsbook increase but the other online games declined in revenue.

  Sport betting revenue increase by 1% although Casino & games, poker and bingo revenues declined, with poker revenues taking a massive 29% hit. Pulling out of Greece and “challenging conditions in several markets” were blamed for poker’s poor performance...

You can refer to Bwin.party digital entertainment plc Posts €97.9 Million Loss for more details.

Well, now we try to summarise if both online gaming and sportsbook business should be kept or dropped? Then the question come again due to insufficient information about independent cost and profit listing on both. Secondly, above financial statement states an exceptional item element which cost to company. We unable to know the profit generates seperately from both. Therefore I try to conclude that based on the limited information, both business should keep operating in year 2014 and then we try to compare to the revenue of year 2015.

Part 2

For each of the two decisions you choose:

Create a “deliverable” list for the person who would be completing the problem. This deliverable list should be comprised of (at least) two calculations and (at least) one qualitative discussion deliverable (i.e., requiring explanation, additional considerations, etc).

1 Make or buy decisions

When we talk about the calculation, there has insufficient information about the cost and profit breakdown for both individual sportsbook and online gaming departments. Here we can try to refer to Summary section in 2.1 (before section Part 1) for bwin Party business before acquisition. Then Part 1 eleborate the insifficient information to judge.

However we can refer to below video which has eleborate there must be profitable in order to make an acquisition. - The profit generates must be able to growth and more than the cost of acquisition. - There might probably resizing employees upon acquisition to cut cost. For example traders, customer service and also financial department might united to handle both Sportingbet and bwin Party.55 I am the one among the traders used to monitor few brands when I worked in Telebiz and Caspo. For example: SB1888 and 188Bet or Singbet1 and Singbet3, AS3388 and RCM - Sharing technology like platform, service and tools. Some products or technology might be fully utilised accross two brands.

For example :

Table 2.3.1: Comparison of the Benefit of Merging

Category	ComA	ComB	Combine	Merge	Diff
Customers	1200000	600000	1800000	2000000	-200000
Website & Server	100000	80000	180000	200000	-20000
Cost to Acquire a New Customer	200	400	600	200	400
Labor Cost	575000	33000	608000	585000	23000
Admin Cost	500000	50000	550000	510000	40000
Overhead	260000	23000	283000	265000	18000

table 2.3.1 : Example of merging.

From above table, we can know the basic cost of Company A and Comapny B, and Combined Figure is the lump sum figure of both company, Merged Company is the cost after merging, Difference is the cost save/waste upon takeover. After merge, there will not only lump sum the number of customer for the business group but also allowed customers to register account at another partner website.

Besides, the advertisement cost will be save since both sister-companies can promote to each other. The cost of acquire a new customer keep $200 after takeover which has saved cost. The labor cost and overhead can be saved due to resizing employees and daily expense or rental can be saved upon work in same office or branches. The server might probably upgrade upon invest some fund for long term use, but the data of customers and also stakes might link which easier to handle by employees (example: traders, customer service executives etc.).

• Customers number = additional 200000 upon takeover (since the customers from company website A might also auto awarded an account at company website B, geographical customers might enjoy different website which under same business group. For example: Sportingbet is a British company but bwin is an Austrian company but both under GVC. Let say British customers who familiar with bwin website will able to choose bwin but not only existing Sportingbet website. Some customers who are soccer fans always watching soccer matches will know bwin from advertisement of Real Madrid famous club etc. can also get an account of Sportingbet.)
• Website & server cost = additional 20000 (but linked the database of customers migh easier for GVC group. Especially similar with Macrogaming, easily handle anti-fraud and arbitrage activities among both websites.)
• Saved cost of acquire a new customer = 400 (saved cost. For example customers of Sportingbet will automatically awarded an account on bwin and verce vice.)
• Saved labor cost = 23000
• Saved admin cost = 40000
• Saved overhead cost = 18000

2 Keep or drop a product line, business unit, department, etc.

Similar with previous topic which is insufficient information to proof if casino & games, sportsbook, poker, bingo making profit and cost listing independently. An organization might decide to close a department which was not profitable.

For example :

Table 2.3.2: Department Breakdown of Company C

Category	Sportsbook	Casino & Gaming	Poker	Horse Racing
Revenue	800000	300000	100000	250000
Variable Cost	520000	210000	90000	190000
Fixed Cost	80000	50000	30000	40000
Operating Profit	200000	40000	-20000	20000

table 2.3.2 : Example of division breakdown of company C.

• Total profit = 2.410^{5}
• Total revenue loss = -100000
• Saved Variable Cost = 90000
• Saved Variable Cost = 30000
• Total Saved Cost = 2.610^{5}

Part 3

For each of the two decisions you choose:

In general, ensure that your exercise tests the person’s knowledge related to the use of relevant information in decision making. That is, your exercise should contain some relevant and some “irrelevant” information, so that the person must distinguish between the two types of information. Further, your exercise should allow the person to demonstrate their understanding related to at least two of the following items:

• Opportunity costs
• Sunk costs
• Allocated fixed costs
• Fixed-cost per unit information

1 Make or buy decisions

• Opportunity costs
  • The decision of acquisition bwin Party is an opportunity cost before they invest the fund for takeover the company since they can acquire other companies or use the fund to expand existing Sportingbet’s business.
• Sunk costs
  • When GVC decide to takeover Sportingbet and signed the agreement. All the payment will became sunk costs if GVC want to terminate the agreement with penalty fees. You can read the article GVC Hldgs Takeover Rumours (GVC) to know the stock price blooming 2 times from February. There is another article Online betting company Bwin accepts GVC takeover bid but there is another decision Accept a special order or Sell or process further which is decided by Sportingbet.

2 Keep or drop a product line, business unit, department, etc.

• Opportunity costs
  • The choice of either keep operates or close the department which made loss constantly.
  • We can know from table 2.3.2 which is Poker game (product) made loss, however we need to observe if it is made loss constantly accross few quarter, the cost management factor as well as if it is due to product quality or unprofessional/unskillful of anti-faud team. (For example: I temporarily closed my server to save cost as I have quite some short term debt which need to be settle within 1 year. Meanwhile the studying fees is an opprtunity for me as well which is option to me for self improve.)
• Sunk costs
  • If the company C decide to close Poker business, then the cost spent will became sunk costs. (For example: when we purchased a movie ticket but we didn’t attend to watch the movie, then the cost will became sunk cost since the ticket is not refundable.)
  • If the Poker product is constantly make profit accross the years but only made loss in specific quarter, then it will be another issue while accounting department need to breakdown all revenue and costs spent throughly.

Part 4

Finally, provide a solution for your exercise.

From the case study for GVC and bwin Party. The income statement after acquisition shows a negative operating profit figure where the CEO’s report declared that the cost synergy is one of crucial action need to implement. From the history statement which is from 2010 to 2014, bwin Party is keeping making loss on opearing profit before sell to GVC, and now made loss after acquisition but the revenue is keeping increase every year. Therefore we can concludes that the problem is with the cost management as declared in CEO’s report as well.

With regards to Part 3, I simply made an example of company with a ramdom figure to eleborate about the profitable/unprofitable business and decision making.

4.1 Documenting File Creation

It’s useful to record some information about how your file was created.

• File creation date: 2016-07-02
• File latest updated date: 2016-07-07
• R version 3.3.1 (2016-06-21)
• R version (short form): 3.3.1
• rmarkdown package version: 0.9.6
• tufte package version: 0.2
• File version: 1.0.0
• Author Profile: ®γσ, Eng Lian Hu
• GitHub: Source Code
• Additional session information:

[1] “2016-07-07 15:40:15 JST” setting value
version R version 3.3.1 (2016-06-21) system x86_64, mingw32
ui RTerm
language (EN)
collate English_United States.1252
tz Asia/Tokyo
date 2016-07-07
sysname release version nodename “Windows” “10 x64” “build 10586” “RSTUDIO-SCIBROK” machine login user effective_user “x86-64” “scibr” “scibr” “scibr”

4.2 Versions’ Log

• July 02, 2016: version: 1.0.0

4.3 Speech and Blooper

I do appreciate that University of Illinois at Urbana–Champaign provides the Improving Business Finances and Operations specialization via Coursera. I used to study Certified Accounting Technician (CAT) course at PAAC more more decade. Now I need to review the finance and accounting course prior to conduct my research Analyse the Finance and Stocks Price of Bookmakers. There are few books that I need to read for further understanding. - Managerial Accounting - Financial Statement A Step-by-Step Guide to Understanding and Creating Financial Reports by Thomas R. Ittelson 2009

The biggest driver of sales growth was Bwin's sports betting and casino operations. That will reassure GVC investors because the company plans to move its sports punters onto Bwin’s betting platform following the acquisition, which is officially due to complete on February 1...

I can access Sporting.com yesterday on 06-Jul-2016 but not today. Believed that is because of wizards. You can refer to Bwin returns to growth as GVC takeover nears completion for more details.

4.4 References

1. HFR Industry Reports
2. The Evolving Dynamics of the Hedge Fund Industry 2015 Global Hedge Fund and Investor Survey
3. Mugs and Millionaires: Inside the Murky World of Professional Football Gambling by Ed Hawkins 2014
4. Inside Starlizard: The story of Britain’s most successful gambler and the secretive company that helps him win by Oscar Williams Grut 2016
5. Annual & Interim Reports (including Sportingbet and bwin.party)
6. Operations Management - Module 1: Operations Strategy by ®γσ, Eng Lian Hu 2016 Assignment 2, Alternative link