Online Sports Betting Industry: Our view, our beliefs, our value added

Online Sports Betting Industry:Our view, our beliefs, our value added Quentin Toulemonde OSBI Consulting January 2011

Agenda • Sports Betting Industry: history and figures • France’s legal framework and its challenges • How we can help Quentin Toulemonde OSBI Consulting

Sports Betting has been around for long… • Sports betting is “as old as the hills”. • The first widely acknowledged piece of evidence goes back to the Greeks and the Olympic Games. • King George II organized the first national lottery in the UK (18th century) • In 1865, the “Pari Mutuel” form appears in France. • Michel Oller, a French entrepreneur, sold tickets on racetracks, which allowed punters to bet on the winning horse. • Bets are pooled on a “winner-takes-it-all” basis. • Oller remunerated himself by levying a small percentage on the overall pot. • “Pari Mutuel” became legally authorized in France in 1887. • In 1927, British and American governments followed this example. • PMU (“Pari Mutuel Urbain”) was founded in 1930. • Nowadays, online bookmakers usually manage a wider portfolio. • Online bookmaking rose in Northern Europe during the 90s, with names such as Betsson and Unibet. • Activity portfolio may now include sports betting, poker, horse racing, bingo, etc. Quentin Toulemonde OSBI Consulting

… and is now a worldwide industry Total amount bet in all forms of games • Games of Chance are often split between 3 poles • Sports Betting in its widest form (i.e., including Horse Betting). • Games, such as Bingo, Scratch cards, Slots, etc. • Poker. • Sports Betting represents a major activity. • The worldwide market is expected to grow at a 4.7% CAGR between 2009 and 2011. • Online Sports Betting is twice as important as Online Poker, on a worldwide basis. • These figures hide strong geographical preferences. • Sports Betting accounts for 26% of bets made in the UK… • Whereas it reaches 78% in Asia. Source: H2 Gambling Capital Breakdown of online stakes by game (2010) Source: H2 Gambling Capital Quentin Toulemonde OSBI Consulting

France ranks 6th worldwide and is statistically categorized as a “poker lover” Breakdown of stakes by country (2010) • The USA rank first, thanks to a strong poker sector. • France accounts for 30 million “land” players. • In France, more than €4.5bn were bet between June (market opening) and December 2010. • Poker (€3,705m) greatly dominates Sports Betting (€448m). • Poker predominance can be regarded as a statistical artefact. • Money changes hands very quickly and benefits from a lower taxation rate. • 1 euro deposited on one’s account is bet 23 times on average for poker vs. 4 for sports betting. • Therefore, €161m were genuinely deposited for poker purposes (vs. €112m for Sports Betting). • Soccer and Tennis are the most popular sports. • Together, they gather 85% of bets taken. • Soccer benefits from its huge popularity, whereas Tennis generates significant turnovers mainly thanks to the high betting frequency. Source: H2 Gambling Capital Breakdown of online stakes in France between June and December 2010 Source: ARJEL Quentin Toulemonde OSBI Consulting

The typical player fits an “identikit” • Men are more attracted by online as well as by land Sports Betting. • However, Online Sports Betting players show significant discrepancies with other categories. • Online players are, on average, younger (45 vs. 30 years old). • The typical player’s socio-professional category is higher than in any other kind of activity (considering either land or horse betting). • Online Sports Betting’s penetration rate is quickly increasing (reaching 10.5% of the UK population in 2009) thanks to two main drivers. • Internet network’s is getting more and more accessible, with higher speeds, allowing punters to play “live betting”. • The offer is expanding year after year: a bookmaker covers, on average, 25 different sports. Breakdown of UK online stakes by media (2010) Source: UK Gambling Commission Quentin Toulemonde OSBI Consulting

At a worldwide scale, there are major discrepancies between legislations Online gambling legislation status for some European and Pan European countries Regulated or authorized de facto Banned Under legalisation Germany Belgium Spain Italy EUROPE United Kingdom -- Portugal Denmark France China Argentina South Africa WORLD New Jersey* - United States* -- Japan Source: Pauline Pelletier, Relevant Authorities update * US legislation regarding online gambling is defined at State level Quentin Toulemonde OSBI Consulting

France opened its market following a bone of contention with the European Commission • France’s State monopoly on games of chance had been established for long. • A 1836 law bans lotteries. • The National Budget first encompassed National Sport Lotteries (still under State monopoly, namely the “Française des Jeux” or FdJ) in 1985. • Online Sports Betting was opened to Française des Jeux in 2006. • Before opening, overall turnover reached €20bn (2009 figures). Profits generated from these activities were partially used to fund the various sports federations. • In 2006, French law still showed major inconsistencies with European Law. • The Treaty on the Functioning of the European Union (article 49) stipulates that “within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.” • The situation regarding online games of chance was clearly in breach of this article. • On the 12th of May 2010, France set a milestone by opening and regulating its online games of chance. • However, this law only comes on top of previous measures and does not affect land-based activities. • A Regulatory Authority was created: ARJEL, which stands for “Autorité de Régulation des Jeux En Ligne”. • From this moment on, companies need to ask for a renewable, 5-year license. • A set of laws defines the legal and fiscal framework and answers three major questions. • What are ARJEL’s main objectives? • Which sports are authorized? • How can we compensate the shortfall for sports federations due to entrants’ competition? Quentin Toulemonde OSBI Consulting

To justify all its measures, ARJEL sets three top priorities • To provide the consumer (i.e., the punters) with more transparent betting markets, therefore enabling more efficient fight against fraud and pathological gambling. • ARJEL set up a national database listing all individuals banned from games (land and online). • 70 million requests were sent to this database in 2010 and prevented 20% of “banned” people from opening an online account. • Payback rate is limited to 85% (vs. 96% in the UK, for instance) to dampen addiction risks. • To strengthen competition between bookmakers, which would finally benefit to the consumer. • FdJ’s payback rate used to be in the region of 75%. Competition forced them to increase it up to the legal limit. • Licensed companies are allowed to advertise on the French soil, whereas illegal bookmakers face threats of fines and prosecution. • To tax financial flows which were illegal, thus hidden, in the past. • Under the monopoly era, the French State levied up to €5bn a year (PMU and FdJ altogether). • The newly created taxes will provide sports federations with a more stable, more sustainable source of funding. • Part of the raised amount will be devoted to prevention and information campaigns, such as “Joueurs Info Service” (Information Service for Players). Quentin Toulemonde OSBI Consulting

According to insiders, the tax burden weighs too much on profitability French tax status as of January 2011 • France’s tax status is clearly divided between State and Sports Federations funding. • As the highest in Europe, this tax rate is often criticized. • ARJEL’s opinion is to consider online gambling as a public matter and not as a lucrative activity. • It has already planned to take a new look at the whole legal framework by the end of 2011. • However, entrants urge it to sketch a revised scheme as soon as possible, since none of them managed to make profits in 2010. • The Italian precedent is likely to affect ARJEL’s view. • The Italian government had to slash its tax rate to efficiently fight against illegal gambling, which was corrupting the legal offer. • Ireland is currently facing vivid disapproval as they intend to raise taxes. Source: ARJEL Quentin Toulemonde OSBI Consulting

Despite the new legal framework, entrants and incumbents do not fight on an equal footing Sports Betting market share as of end October 2010 • Many Online Gambling companies have showed great interest in the French market. • By the end of 2010, 35 companies had one or more license, and 15 were allowed to act as bookmakers. • However, the Sports Betting market remains very concentrated. • By end October 2010, the top 3 players were controlling a 80-percent market share. • From the very beginning, most entrants have been lacking visibility on the consumer end and could not fight against incumbents’ fire power in terms of marketing and advertising. • Entrants rely on two levers to invert this trend. • They have formed alliances with existing media groups to foster their activity, e.g. Bwin with L’Equipe (sports newspaper). • A recent Autorité de la Concurrence’s decision (Competition Authority) advises PMU to re-brand its online activity, since the 12/05/2010 law forces companies to clearly set their online activity apart. Source: ARJEL Marketing expenditures share as of end August 2010 Source: Le temps libre des Français dédié au sport Quentin Toulemonde OSBI Consulting

Opportunities and challenges arise out of the French context: a SWOT analysis for entrants Weaknesses Strengths • France’s customer base is one of the largest in the world, with an estimated 30 million “land” players. • Soccer and tennis are highly popular in France and generally generate significant turnovers. • Historical monopoly (FdJ and PMU) have already instilled a small, but existing, “betting culture” within the French society. • The taxation rate is too high, therefore the French market lacks competitiveness compared with other countries (including illegal offer). • ARJEL faces technical challenges to implement part of its measures, such as illegal site blocking and IP detection. • Autorité de la Concurrence has released only advice, which are thus non-binding for incumbents. • Restrictive technical requirements are costly and often become a barrier to entry. Opportunities Threats • Autorité de la Concurrence’s recent decision may get enforced and thus weaken incumbents’ position and favour smaller entrants. • Legislation (including tax framework) could be reviewed before end 2011, as requested by entrants. • France may follow Italy’s example, which eradicated illegal gambling by deeply cutting its tax rate. • No company made profits thanks to the French market in 2010. Since the legislation is to legally evolve only by the end of 2011 entrants may face liquidity problems this year (such as Eurosportbet). • FdJ and PMU may make use of their strong lobby to freeze legislation as is. • As 15 licenses were already granted to Sports Betting, there is a continuing threat of excess offer. Quentin Toulemonde OSBI Consulting

OSBI Consulting helps Sports Betting Industry Firms developing their potential • OSBI Consulting is a French firm, launched in January 2011, aimed at enhancing Online Sports Betting Industry (OSBI) Firms’ development and performance throughout the Globe. • Within this industry, our cross-sectional talents perfectly fit into a broad panel of challenges. • Board Level: General Corporate Strategy. • Commercial & Business Development: Sales Development, Market Insight. • Marketing: Acquisition & Affiliates, Customer Retention & Relationship Management, Product Management. • Operations: Risk Management, Odds Compilation, Corporate Finance, Payments Optimization. • Our guidelines rely on three core principles. • Pay specific attention to our clients’ needs and objectives. • Commit ourselves to think of jointly defined actions rather than abstract ideas, including realistic objectives and achievable milestones. • Never self-assess that our work is done; our clients’ satisfaction is the only key to success. • Our motto, “Betting on your future”, reflects these beliefs. • We are fully committed to improve our clients’ performance. • Our clients’ achievements are our best reward. Quentin Toulemonde OSBI Consulting

Our approach consists in a three-step process Implementation and Follow-up Problem solving Strategy defining Description • Listen and challenge the client’s specific needs and objectives • Always back qualitative impressions with quantitative data • Define the problem as an actionable issue • Set up a custom-fitted action plan for each client and each particular situation • Switch needs into levers, jointly with our client’s people • Agree on a shared timeline including milestones and intermediary deliverables • Communicate action plan throughout the relevant entities • Define Key Performance Indicators to identify gaps and monitor performance • Ensure that the agreed action plan is accurately delivered, on time Examples • Fight against decline in market share • Enter a new, promising market • Redefine offer (sports, schedule, type of bets, etc.) • List and schedule all regulatory and financial requirements • Number of bets placed (breakdown by sport, live betting vs. pre-match betting, etc.) • Tracking of application file and continuous dialog with internal and external stakeholders Our value added • Experience in problem-solving learnt from top consulting firms • Significant hands-on experience of Sports Betting • Extensive knowledge of the Sports Betting Industry • Strong reactivity and adaptability to new situations • Analytical skills and tools allowing precise performance tracking Quentin Toulemonde OSBI Consulting

We put great emphasis on Web 2.0 to trigger off exchanges within the community LinkedIn: Quentin Toulemonde Blog: http://osportsbetting.wordpress.com Book: Les Paris Sportifs en Ligne (French, May 2011) Email: quentin.toulemonde@gmail.com Quentin Toulemonde OSBI Consulting

Our blog offers new perspectives on hot issues • The “Online Sports Betting Industry Blog” deals with topical issues linked to the Sports Betting Industry under various angles. • Strategy, such as New Markets Penetration, New Product, Business Development. • Corporate, such as Mergers & Acquisitions, Partnerships, Financial Results. • Legal, such as Compliance, Competition. • Events, such as Conferences, Seminars. • Academic, such as Applied Microeconomics Theory, Game Theory. • Extraprofessional, such as Movies, Books. • The blog is fuelled with original, fresh contentonce every two to three days. • Each post aims at providing a concise (c. 400 words) and soundly argued point of view on a precise subject. • Its main purpose is to generate debates by using the Web 2.0 technology. • Each reader can freely leave comments. • One-click integration into social networks (Facebook, LinkedIn, Twitter, etc.) is made possible. • Examples of issue already tackled: • Is there a gap for a “Sports Betting Facebook”? • Are Danish and French legislation comparable? • Should tipsters be given a bonus? • Corruption and insider trading in top level sport: where is the weak link? • To which extent does the movie Even Money illustrate pathological gambling? Quentin Toulemonde OSBI Consulting

“Les paris sportifs en ligne” is a comprehensive, multi-purpose guide for all kinds of punters • This 380-page book, written in French, is aimed at all kinds of readers, from beginners to experts. • For novices, it can be read as a preliminary guide to understand odds compiling, bookmakers’ payment, bet placing, etc. • It helps occasional players in winning their bets by sorting out all types of material and advice they can find on the Internet. Losing and winning methods are therefore clearly divided. • Experts may be interested in further looking at the underlying Mathematics, which include basic probabilities and weighted averages. • The book broadens the reader’s perspective as well, by dealing with applied psychology as well as well as legal issues. • Some milestones put rhythm into the reading. • The essential concepts and their definitions are clearly highlighted. • The most technical paragraphs, which may put off some readers, are isolated. • A “humoristic” multiple-choice questionnaire which allows the reader to chill out while checking his knowledge. • A series of increasingly difficult exercises will allow each type of reader to improve and use its knowledge on paper before putting them in practice in front of his computer. • It will be published in May 2011 by Amphora, a well-known French player in the Sports Publishing market. • It will be made available at major physical (FNAC, Virgin, etc.) and online (Amazon) retail networks. • The first run may reach an expected 5,000 copies. Quentin Toulemonde OSBI Consulting

Thanks for your attention Quentin Toulemonde OSBI Consulting Email:quentin.toulemonde@gmail.com Blog:http://osportsbetting.wordpress.com LinkedIn:http://fr.linkedin.com/in/quentintoulemonde Cell phone: 00 33 (0) 6 24 34 34 44

Online Sports Betting Industry: Our view, our beliefs, our value added