Consolidation in the Skill Games Sector - SkillJam Acquires WorldWinner

FUN Technologies, a company that has undergone massive expansion in the skill-gaming space in the last two years, has consolidated the industry further with the announcement that its subsidiary, SkillJam Technologies Corporation, has acquired rival WorldWinner.com Inc. for US$23 million.

"Skill-gaming is in its infancy, and we believe it makes tremendous sense to consolidate the sector in its early stages to capture market share, increase supplier concentration, enhance distribution and acquire customers at low cost per acquisition." - Lorne Abony FUN Technologies

Based in Newton, Mass, WorldWinner is perhaps FUN Technologies' biggest rival in providing skill games. Like the SkillJam network, WorldWinner allows customers to participate in free games as well as to pay to play in real-money tournaments for cash prizes. The privately held company reported $10.67 million in revenue, a pre-tax loss of $680,000 and net assets of $3.91 million for the year ended Dec. 31, 2005.

WorldWinner classifies its online skill games into five categories--card games, word games, arcade games, strategy games and sports games--and hosts more than 10 million games with millions of dollars in prizes each month. An average of 35,000 games are played on WorldWinner daily.

"The acquisition of WorldWinner is a significant strategy achievement for FUN Technologies," Lorne Abony, CEO of FUN Technologies, explained. "WorldWinner was until now our largest competitor, and by consolidating the two businesses, we will achieve significant operating efficiencies, leverage and synergies.

"Skill gaming is in its infancy, and we believe it makes tremendous sense to consolidate the sector in its early stages to capture market share, increase supplier concentration, enhance distribution and acquire customers at low cost per acquisition. The synergies that exist in merging SkillJam and WorldWinner are enourmous, as the businesses are complementary in every way."

For now, WorldWinner will continue to operate its games on its Web site, but the site will gradually integrate with the SkillJam network.

FUN Technolies President Rick Weil stated, "We will acquire millions of new non-overlapping customers, increase our liquidity and offer customers a variety of new online games. We also intend to move quickly to take advantage of the cost synergies which exist in redundant operations."

The acquisition is the latest in what has been a seemingly continuous string of mergers and acquisitions since the company's emergence in 2003. Founded by former CryptoLogic directors, the company was originally called CES Software, and it focused on the peer-to-peer betting exchange market. CES raised £3.7 million in December 2003 through an IPO on the Alternative Investment Market of the London Stock exchange at a price of 68p per share.

CES seemed poised to take on the betting exchange world with its September 2004 soft-launch of Betbull as part of a joint partnership with Austria-based gaming operator BetandWin, but the course of events caused the company to alter its plan.

The company in July 2004 entered into an agreement to purchase the SkillJam network from eUniverse, Inc. At the time, SkillJam had over 5 million registered users and hosted private-label gaming solutions for its network partners that included MSN, iWon/Excite, Disney's Go.com, iVillage and Boxerjam. SkillJam had lost about $200,000 on $4 million in revenues in fiscal 2004.

Under the control of CES software throughout the rest of 2004, SkillJam signed such prominent network partners as America Online, GSN Network for Games, GoldenPalace, Virgin Games, the Sunny Group and Don Best before changing its name to FUN Technologies in January 2005.

Today FUN Technologies offers a wide range of skill games to its over 9 million registered users and offers services via Internet, wireless applications, interactive television and stand-alone kiosks through the SkillJam subsidiary.

FUN Technologies in December 2005 sold off a majority of its equity interest in Betbull in what it called a demonstration of its desire to concentrate on skill gaming. The company ended up selling an aggregate of 686,700 ordinary share of Betbull at 7 euros per ordinary share for an aggregate price of 4.8 million euros. FUN Technologies still holds 413,000 ordinary shares in Betbull, which represents about 5.83 percent of its issued and outstanding shares.

FUN Technologies' shareholders in February 2005 voted unanimously in favor of being acquired by American holding company Liberty Media Corporation, which holds ownership interests in some of the world's most recognized brands and companies, including QVC, Encore, Starz, IAC/InterActiveCorp, Expedia and News Corporation.

Under the agreement, a newly incorporated Canadian subsidiary of Liberty Media, called New Fun, acquired all of the issued and outstanding ordinary shares in FUN Technologies in exchange for £83.7 million in cash and 32.4 million shares of New Fun. Liberty funded the cash consideration paid by New Fun by way of a subscription for 33.8 million common shares of New Fun for the aggregate consideration of US$50 million plus approximately £83.7 million payable in cash. The amount was determined as if Liberty has purchased 10.5 million common shares at 267p each plus 23.2 million common shares at 360p each. The price of 360p was established as a 40 percent premium to Fun's stock price in London as of Nov. 18.

When the transaction is complete, FUN will become a wholly owned subsidiary of New Fun; Liberty will own 51 percent of New Fun's common shares and will appoint a majority of the members of New Fun's 11-member board of directors.

Liberty CEO John Malone explained, "We believe we can help FUN Technologies strengthen its industry leadership through collaboration with many of our programming and distribution affiliates. We have already been working successfully with FUN through GSN ('The Network for Games'), a Liberty affiliate--a relationship which underscores the effectiveness of combining compelling interactive media with television."

In its preliminary results for 2005, FUN Technologies Plc reported £13.7 million in revenue (compared to £12.7 million last year) for the full year, £9.4 million of which is attributable to acquisitions made throughout the year. FUN also recorded a positive pro forma EBITDA of £1.8 million for the year, driven primarily by fantasy games. Consolidated revenue for the fourth quarter reached £5.6 million.