iGaming M&A Deal Structures and Best Practices

Article By Stephen Crystal and SCCG Research

Deal Structures and Best Practices

Asset vs. Stock Deals in Regulated Industries

In gaming and betting M&A, the decision between an asset purchase and a stock purchase is not just about liability—it is often dictated by regulatory realities.

In a typical asset deal:

• The buyer cherry-picks assets (licenses, player databases, technology, brands) and avoids legacy debts, lawsuits, or regulatory violations.
• This structure provides maximum risk insulation for the acquirer.

However, in the regulated gaming industry, asset deals are often impractical because:

• Gaming licenses are frequently non-transferable.
• Licenses are issued to specific corporate entities, not portable between owners.
• Significant operational disruptions would occur if the assets were stripped from the licensed entity.

Example:
When Caesars Entertainment acquired William Hill’s U.S. assets, it had to structure the deal as a stock purchase of the U.S. subsidiary, ensuring no interruption to licensing continuity across multiple states.

In cases where licenses are portable (e.g., technology suppliers, sports engagement tech without direct wagering operations), asset deals are still viable. For example, acquisitions of player analytics platforms or predictive gaming tech often involve asset transfers without operational licensing concerns.

Best Practice:

• In stock deals, buyers protect themselves with robust indemnity agreements, reps and warranties insurance, and escrow holdbacks to guard against hidden liabilities.
• Pre-closing regulatory approval clauses are included to ensure that a deal does not close until regulators approve the change of control.

Earnouts, Contingent Payouts, and Risk Mitigation

Given the volatility of player engagement trends, regulatory shifts, and unpredictable user acquisition costs, earnouts are standard practice in gaming and sports tech M&A.

An earnout structure means:

• Part of the total purchase price is tied to future performance metrics.
• Sellers “earn” this additional payout only if agreed milestones are met post-acquisition.

Common Earnout Structures in Gaming Deals:

• Revenue targets (e.g., additional $20M payout if annual gross revenue exceeds $100M within two years).
• Player acquisition or retention milestones (e.g., maintaining 80% active player retention over 24 months).
• Regulatory licensing triggers (e.g., bonus payouts if the platform secures entry into three additional U.S. states).

Real-World Examples:

• DraftKings’ acquisition of Golden Nugget Online Gaming included performance-based consideration tied to future revenue generation.
• Bally’s acquisition of Gamesys included deferred payments contingent upon expansion targets and margin achievements.

Best Practices for Earnouts:

• Clear, auditable definitions of revenue, user growth, or regulatory triggers.
• Objective measurement periods and dispute resolution mechanisms.
• Caps on maximum earnout amounts to limit overall buyer exposure.

Earnouts allow buyers to de-risk paying inflated upfront valuations based on seller projections that may not materialize.

Cross-Border Structuring and Tax Efficiency

Because gaming and betting companies increasingly operate across multiple jurisdictions, cross-border M&A structuring is critical for:

• Tax optimization
• Regulatory approval efficiency
• Cash repatriation flexibility

Common Cross-Border Structures:

• HoldCo Structures:
  Buyers often use holding companies domiciled in favorable jurisdictions such as the Isle of Man, Malta, Jersey, or Gibraltar. These locations offer:
  • Friendly gaming regulatory frameworks.
  • Favorable corporate tax rates.
  • Easier multi-jurisdictional licensing.
• Double Tax Treaty Optimization:
  Deals are often structured through entities located in countries with strong double taxation treaties, reducing withholding taxes on dividend distributions, licensing fees, and acquisition payouts.

Example:
Flutter Entertainment, operating globally through FanDuel (U.S.), Paddy Power (U.K.), and Betfair (global), uses layered HoldCos to optimize tax burdens and regulatory filings across the U.K., U.S., Ireland, and Australia.

Transfer Pricing Considerations:
When gaming companies license IP (e.g., data models, gamification engines) across subsidiaries, they must comply with OECD transfer pricing guidelines to avoid regulatory scrutiny and double taxation risk.

Cash Repatriation:
Acquirers must plan post-deal structures to facilitate repatriation of profits without punitive tax leakage, especially from high-tax markets like the U.S. or Brazil.

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