By PETER GRIFFIN
New Capital Market company Feverpitch International wants to raise $4.5 million to complete its acquisition of associates FPH and Feverpitch Exchange, but is structuring the issue in a way that could point to safer bets for future NCM investors.
Feverpitch wants to issue nine million shares at 50c each to buy the technology to run its online operations, but is throwing in provisions as part of its obligatory key transaction to release four million of the shares gradually only if Feverpitch generates $14,850,000 over four years.
If the company fails to meet its annual revenue targets, the shares will not be issued, effectively reducing the price that will be paid to FPH's owner, Hyperfactory Investments.
Feverpitch, which closed its initial public offering in November 40 per cent oversubscribed, is building an online betting exchange that cuts bookmakers out of the gambling process and allows sports fans to bet directly with their mates.
Feverpitch's 23-year-old managing director, Derek Handley, said linking revenue results with the issue of shares was essential in gaining investor support in a volatile market.
"Trying to convince investors on projected cashflow values alone doesn't work any more," he said.
Bruce McKay, head of research at DF Mainland, the broker organising Feverpitch's key transaction, said it was the first time an NCM-listed company had structured the deal in a way that shared the risk between investors and vendors who are major shareholders.
"It's preferable to issuing all the shares on day one. You can't get away with the 'trust us and everything will be groovy' way of looking at the world any more."
Feverpitch plans to make its money by charging a 5 per cent commission on winning bets made through the exchange, exacting trade fees on "matched" bets and licensing the betting software it has developed.
Although gambling sites have proliferated on the web, few, said Mr Handley, allowed the flexibility of person-to-person betting and in-progress betting.
The latter would allow a punter to place a bet on a sports event such as a golf tournament and change the bet during play
Feverpitch hopes to steal a lead in this market and is nearly finished testing its exchange in Britain.
But the company is not without heavyweight competitors. Two of the biggest betting exchanges, British-based Betfair.com and Flutter.com merged last month, creating an online operation matching £10 million ($34 million) worth of bets weekly with 60,000 active members.
Feverpitch would concentrate on the Asian and Australasian markets, and tailoring the exchange to local audiences, said Mr Handley.
First-year revenue of $726,000 is predicted, jumping to $4.7 million in the second year. The company hopes to attract 4400 members in its first year. A first-year loss of $2.6 million is expected.
New Zealand punters would be able to place bets at the Feverpitch site, but a local operation would have to take place in conjunction with the TAB, the country's sole licensed betting operator.
Mr Handley is not ruling that out, but said incumbent betting operators were reluctant to support such ventures as it undermined their revenue structure.
"The only way something like the TAB could do [in progress betting] without losing their shirts is by partnering with an exchange."
He said the TAB's commission on racing bets was 20 per cent, far above what Feverpitch would charge its online gamblers.
But the exchange would take none of the risk the TAB did, as the betting would take place between exchange members.
Feverpitch's focus would be on the major American sports, but that could extend to "anything where there is liquidity" said Mr Handley.
Customers would eventually be able to place bets via WAP mobile phones.
The support of Feverpitch director and former All Black coach John Hart, who is also a member of the Sky TV board, would give the company leverage in developing interactive TV betting services, said Mr Handley.
Feverpitch will hold a shareholders meeting next Wednesday to consider the proposed key transaction.
The company hopes to raise a further $2.2 million by way of a subsequent public offering, to further develop its technology.