Virtual Gaming Worlds shuns ASX, hits record profit

VGW is now raking in more than half the annual revenue of Aristocrat Leisure, the real-life pokies company which has been around for 26 years longer.

However, VGW seems unlikely to join Aristocrat on the Australian Securities Exchange.

“If we do IPO it will probably be in North America,” Mr Escalante said.

Staffing doubled

“We are attracted to the size and maturity of the US technology market for investment.”

VGW’s pre-tax profit of $358 million was a 361 per cent jump on the $99 million recorded in 2019-20, while its headcount has doubled to 800 in offices across Perth, Sydney, Manila, San Francisco, Toronto and Malta.

The growth appears to be continuing, with the note saying August 2021 was a record for monthly revenue on unaudited monthly management accounts, and that September looked to be a further record based on real-time indications.

VGW’s board, which includes Mr Escalante’s father Lorenzo, announced a 20 cent per share dividend to be payable around October 7, following a 13 cent per share dividend in March.

A gross dividend payout of $211 million was returned to shareholders in 2020-21, and $202 million paid in 2021-22 to date. As owner of around 65 per cent of VGW’s 613 million shares on issue, Mr Escalante has grossed around $268 million in dividends over the period, solidifying his position on the Financial Review Rich List which in June estimated his wealth at $2.68 billion.

Virtual gold coins

VGW uses a sweepstakes model to comply with US laws banning gambling on the internet in most states.

Working with US lawyers, VGW devised a system where customers buy virtual gold coins that allow them to play the games, but have no value outside Chumba Casino. However, buyers of most gold coin packages get bonus “sweeps coins”, which can also be used to play the games, and are redeemable for cash in most of the US and Canada.

Under US contests and sweepstakes law, the “sweeps coins” are in effect a trade promotion for the sale of the virtual gold coins, and therefore legal.

The risk hanging over VGW, which trades in the US via a Maltese gaming licence, is that changes to US federal sweepstakes law, or individual state laws, could disrupt its business model.

However, no known changes are afoot, and VGW’s rhetoric reflects confidence, as its note to investors hinted at a US listing.

Despite having no need for additional funding, the note said the potential benefits of an initial public offering lay in raised profile, talent acquisition and retention, having a currency for acquisitions, and offering liquidity to existing shareholders.

VGW’s shares trade occasionally on the over-the-counter PrimaryMarkets platform, but August saw Canaccord facilitate the first block trade when it sold 2.5 million shares at $5.50 each, valuing VGW at $3.38 billion

The note said VGW’s board considered going public on a regular basis, and that VGW’s executive team included “significant experience” in IPOs, including on listing venues such as the New York Stock Exchange.

“A North American listing venue is now far more likely than the ASX,” the note said.