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SportPesa billionaires take hit from closure
4th October, 08:50Wealthy and influential investors behind SportPesa are the biggest casualties from the closure of the sports betting platform that was estimated to generate about Sh100 billion in annual sales.
SportPesa on Wednesday declared its 362 workers redundant after a prolonged tax standoff with the Kenya Revenue Authority (KRA), setting stage for its Kenya exit.
SportPesa grew rapidly in Kenya to dominate online betting with the government, KRA and the investigative website, Finance Uncovered, all estimating the firm's monthly revenues at between Sh6 billion and Sh8 billion -- translating to annual sales to about Sh100 billion. The company, however, put its annual revenue at Sh20 billion under what it calls Gross Gaming Revenue.
Before sending its workers home, Sportpesa had questioned the government's taxation model
"Being the first taxation model, saying it amounted to double taxation.For instance, it questioned KRA's decision to impose a 10 percent Excise Duty on stakes in addition to the betting tax of 15 percent.
Founded in Nairobi as a partnership of wealthy, politically influential Kenyans and Bulgarian investors, SportPesa made its huge fortune from the growing online betting craze in Kenya.
Among the owners the company's CEO Ronald Karauri, businessman Paul Wanderi Ndung'u and Asenath Wachera Maina, the brains behind the 'Shinda Smart' lottery.
Three investors from Bulgaria -- Guerassim Nikolov of the ill-fated Toto 6/49 lottery, Valentina Nikolaeva Mineva and Ivan Kalpakchiev -- as well as American businessman Gene Grand are also in the list of top shareholders of Pevans East Africa, the entity behind SportPesa.
Two other Kenyans, Francis Waweru Kiarie and Robert Kenneth Wanyoike Macharia, also have minority stakes in the firm, according to regulatory filings at the registrar of companies.
Mr Karauri owns a six per cent stake in Pevans East Africa, the holding company, while Mr Nikolov has a 21 per cent shareholding.
The son of former Tigania MP Mathew Adams Karauri worked at Kenya Airways for more than a decade where he rose to the rank of captain. He left the airline in 2015 to try his hand in the world of betting.
Mr Ndung'u, who has a 17 per cent stake in SportPesa, is a major player at the Nairobi Securities Exchange, where he holds significant stakes in multiple firms. Ms Wacera is the widow of Dickson Wathika, who served as an assistant minister in the President Mwai Kibaki's government.
In past interviews with Business Daily, SportPesa officials have disputed the mentioned Sh100 billion annual sales, saying the figure was overstated.
They have also questioned the way the company, and the industry is taxed.
"The government should not tax Excise Duty on the entire value of the transaction," the company has said in earlier communication with the media. "If excise duty is charged on the revenue of the betting company or as winnings for a player, this would amount to double taxation."
The performance of Betika, a smaller rival of SportPesa offers an insight into the world of betting and gaming.
Betika's business statistics were recently disclosed by Gibraltar-based gaming technology provider Nektan with which it recently merged.
"Nektan has recently completed integration with Betika in Kenya. The integration was completed within 4 weeks and the site went live in July 2019," Nektan said in disclosures seen by Business Daily.
"After 7 weeks' live trading, the Group has seen Gross Gaming Revenue ('GGR') increase week-on-week, with the number of bets exceeding 1.6 million daily."
While Kenya was the biggest market for SportPesa, the company still has operations in other countries including South Africa, the UK and Tanzania.
In announcing the closure of its Kenyan operations, SportPesa blamed taxes levied on the gaming and betting industry. KRA, for instance, has asked the firm to pay Sh21 billion in taxes.
The tax demand on the entire industry stands at Sh61 billion.
SportPesa's runaway success attracted more competitors and the sector now has some 70 players, with most of them failing to remit withholding taxes according to KRA.
In a report to Parliament, the taxman says it collected a total of Sh13.2 billion from the sector in the 13 months ended July.
Other firms that were listed as non-compliant include Premier Betting Kenya Limited, Gameco LLP, Magic Slots and Cheza Gaming Limited.
KRA says its tax assessment on the players is based on data obtained from the Betting, Control & Licensing Board (BCLB).
"We have been engaging the industry in a bid to arrive at an acceptable payment plan on a case by case basis," KRA said in the report.
"The majority of the firms have come forward and made acceptable payment arrangements and commitment to comply with the law moving forward."
Besides shrinking SportPesa's revenues, the closures of the Kenyan operations has seen the company lay off some 400 employees and terminate its sponsorship of local sports.
SportPesa, however, says it will continue to support foreign sports including football clubs in the UK to which it has committed millions of shillings.
The clubs that have partnered with SporPesa are Everton, Hull City, Southampton and Arsenal.
The Kenyan gaming, lottery and betting industry has experienced some of the most tax revisions as the government moved to collect more revenue from the players.