Regulatory
Change of Control
Definition
A transfer of ownership or effective control of a licensed gambling operator, such as a sale, a merger, a new controlling shareholder or a restructuring, which the regulator must be notified of and in most regimes must approve before or shortly after it takes effect, on the basis that the new controllers must themselves be fit and proper.
Key takeaways
- A change of control is a transfer of ownership or effective control of a licensee above a defined threshold, often 10 per cent.
- Regulators must be notified and in most regimes must approve, applying the fit and proper test to the new controllers.
- In M&A it is the regulatory critical path, with American state approvals the usual cause of delay.
- Commercial contracts often allow termination on the other party’s change of control.
Why it matters
A gambling licence is granted to a company under particular ownership, and regulators want to know when that ownership changes. Every licensing regime defines a threshold (commonly acquiring 10 per cent or more of the shares or voting rights, or otherwise gaining the ability to direct the business) above which a change of control occurs, and requires the licensee to notify the regulator and, in most regimes, to obtain approval. Britain requires an application within a set period after the change and can revoke the licence if the new controller is unsuitable; the American states require approval before closing; Malta and most European regulators require prior notification and approval.
For deal-making, change of control is the regulatory critical path. An acquisition of a licensed operator across several markets needs approvals from each regulator, each of which will assess the acquirer's owners and key people under its own fit and proper test, on its own timeline; the American state approvals in particular can take many months and are the usual reason a completion date slips. Deal documents allocate the risk: conditions precedent on regulatory approval, long-stop dates, and provisions for what happens if one regulator refuses or delays. Lenders and investors taking security over a licensed business face the same issue, because enforcing security can itself be a change of control.
The clause also appears in commercial contracts: platform, content and affiliate agreements commonly allow termination on a change of control of the other party, because the counterparty a supplier contracted with may not be the one it ends up serving.
Frequently asked questions
What counts as a change of control for a gambling licence?
Typically acquiring a defined share of the equity or voting rights, often 10 per cent or more, or otherwise gaining the ability to direct the business, including through changes higher up a group structure.
Does the regulator have to approve before a deal closes?
In the American states and most European regimes, yes. Britain allows the application to be made within a period after the change, with the licence at risk if the new controller is unsuitable.
Why do acquisitions of gambling companies take so long?
Because each regulator in each market must assess the acquirer’s owners and key people under its own suitability process, and the slowest one sets the timetable.