Following a prolonged three-year inquiry, the European Commission has finalised its examination of France’s arrangement with La Fran?aise des Jeux (FDJ) over exclusive lottery and sports betting rights. The decision confirms that FDJ’s arrangement with the French state does not constitute state aid, though it requires the gaming operator to make an additional payment to the state, bringing the total to 477 million euros, a 97-million-euro increase over the original fee. This outcome brings relief to FDJ and lifts uncertainty over its financial obligations and market positioning.
Ensuring fair competition
The EU investigation into FDJ began in July 2021 amid allegations that the 380-million-euro fee FDJ paid in 2019 for exclusive lottery and sports betting rights might fall short of fair market value. FDJ obtained these rights as part of a 25-year exclusivity agreement that accompanied its privatisation under France’s 2019 Pacte Law.
Concerns about potentially insufficient fees prompted the Commission to investigate if the state’s arrangement with FDJ offered it an unfair market advantage, constituting prohibited state aid. The inquiry received heightened attention due to complaints that the amount was insufficient given the exclusivity period and market potential. Over the years, the investigation cast a shadow on FDJ’s stock performance, with market analysts speculating that the EU could impose a significant adjustment—some estimates reaching up to 1.5 billion euros.
A controversial privatisation
The decision to privatise FDJ was initiated under President Macron’s government, sparking intense public criticism. FDJ, a highly profitable company and a steady source of revenue for the state, was seen by many as an invaluable asset. Critics questioned why the government would relinquish control of such a lucrative enterprise, viewing it as a loss of much needed public funds.
Additional payment for FDJ
The European Commission’s investigation concluded with an additional 97 million euros, pushing the total payment to 477 million euros. This adjustment ensures compliance with EU rules, confirming that the exclusive rights FDJ obtained are proportionately compensated and no longer raise concerns of unauthorised state aid. The EU deemed that the recalculated amount aligns with the fair value of the exclusivity deal, concluding the contentious issue.
FDJ’s CEO, Stéphane Pallez, had previously anticipated a modest increase and expressed confidence in the adjustment’s alignment with market expectations. Her prediction appears validated with the finalised amount, which is far less than speculated highs and aligns with FDJ’s financial projections.
Market reaction
Upon the European Commission’s announcement, FDJ’s stock jumped 4.6 percent on the Paris Stock Exchange, reflecting investor relief that the adjustment was lower than anticipated. The resolution ends years of regulatory scrutiny, restoring investor confidence in FDJ’s long-term stability. Analysts have noted that this outcome should bolster FDJ’s stock valuation, which had been impacted by the investigation’s uncertainties.
The additional 97 million euros will be accounted as an intangible asset, categorised under FDJ’s exclusive operational rights. FDJ plans to amortise this figure over the remaining exclusivity period, in line with the original 380 million euros, resulting in an annual amortisation increase. For the financial year 2024, FDJ projects a total amortisation of 37 million euros, up from 15.2 million in 2023, with the amount expected to decrease to 19.1 million in 2025.
Dividend strategy and adjusted net income
FDJ has indicated that the additional payment will not affect its dividend strategy. Starting in 2024, FDJ will calculate dividends based on adjusted net income, which excludes select amortisation and other non-cash items to provide a more accurate reflection of FDJ’s economic performance. This adjusted metric allows FDJ to align its financials more closely with competitors and maintain consistent dividend returns. The adjusted net income will consider factors such as the increased amortisation related to exclusive rights and exchange rate hedging effects following FDJ’s recent acquisition of the Kindred Group.
Legal and strategic closure
This resolution also signifies the end of years of legal disputes and regulatory reviews surrounding FDJ’s privatisation. With the EU’s endorsement, FDJ has effectively closed a chapter of scrutiny tied to its privatisation. It has also set a precedent for how state-controlled assets undergoing privatisation in the EU may be structured to avoid challenges under state aid regulations.
Looking ahead
As FDJ moves forward, this regulatory victory allows the group to concentrate on its broader business goals, including digital transformation and international expansion. The recent acquisition of Kindred Group demonstrates FDJ’s ambition to increase its digital footprint and solidify its market position in the online betting landscape. With regulatory clarity, FDJ is now better positioned to pursue growth strategies while leveraging its exclusive rights in France.
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