Multi-million-dollar problems

SportPesa Just Can’t Catch A Break In Kenya At The Moment

By  |  January 20, 2021

The never-ending woes of the one-time most-loved betting company in Kenya, SportPesa, has reached levels that could probably sink the company. Kenya’s “one week, one trouble” enfant terrible is in deeper trouble.

For some time now, SportPesa has been the subject of a lot of prying and probing by the Kenya Revenue Authority (KRA) which seems determined to make SportPesa pay for every bit of impropriety that it was allegedly involved in during its time in Kenya.

Initially, the KRA had slapped a KES 15 Bn (USD 136.2 Mn) penalty on the company which was essentially some measure of punishment on SportPesa for failing to remit several taxes and cooking its books.

But now Kenya’s tax body seems to be going for the kill as the KRA has now increased SportPesa’s punishment to KES 95 Bn (USD 862.7 Mn), based on some new findings that indicate that SportPesa had actually fallen way out of line than was initially thought.

SportPesa was set up in Kenya by Bulgarian operators in 2014, with the support of former Nairobi Mayor Dick Wathika, businessman Ronald Karauri, and billionaire Paul Ndung’u. Within a few years, it became Kenya’s second-largest company by revenue.

In many ways, the brand steamrolled the competition in the local betting scene and became the favourite among Kenyans. At some point, SportPesa even became a shirt sponsor for the English Premier League team, Everton, and for Formula 1.

However, those exploits may have masked some decay on the inside. For four years starting from 2017, SportPesa has been at loggerheads with the authorities having fallen into what looks like a self-dug hole.

According to sources at the KRA, buried deep inside SportPesa’s books are evidence that the business was quite determined to skip taxes on so many levels. It’s been reported that for four straight years, SportPesa allegedly cooked its books to avoid taxes even as it transacted in billions of shillings, insulating itself with layers of companies.

Among the many misdeeds disclosed by KRA sources to Nation is a software provision agreement dated April 17, 2017. This agreement stipulated that SportPesa was to pay 2.4 percent of its turnover to SPS SportSoft Ltd (UK), a service provider that owned the SportPesa gaming platform.

But it was found that this whole arrangement was essentially SportPesa moving money from its right pocket to its left one to avoid taxes. The story is that the said software company was found to be owned by one of the shareholders of SportPesa. It’s as though someone was determined to insulate a huge chunk of revenue from taxes.

The above is just one of the many allegations against the betting firm which had its operational license suspended by Kenya’s Betting Control and Licensing Board (BCLB) in 2019, and eventually ceased operations after disagreeing with a 20 percent tax imposed on winnings by the State regulators.

The other elements in the new findings which have caused the KRA to increase SportPesa’s penalty from USD 136.2 Mn to USD 862 Mn include;

  • Because betting advertisements are prohibited under the law, any expenditure incurred for radio and TV is treated as illegal unless such was approved by the Betting Board. As a result, the sum of KES 2.6 Bn (USD 23.5 Mn) which was allegedly deduced by SportPesa was in error, or at worse, illegal.
  • SportPesa allegedly failed to file withholding tax on all expenses, causing some KES 2.8 Bn (USD 25.4 Mn) to go unremitted. In 2014, Kenya placed a withholding tax of 20 percent on winnings before it was reduced to 7.5 percent in 2016 and revised again to 20 percent in 2019. Long story short; KRA demands KES 21.7 Bn (USD 196.9 Mn) as outstanding betting tax and KES 10 Bn as withholding tax on winnings from SportPesa.
  • It’s been reported that SportPesa had been allegedly deducting expenses that weren’t supposed to be deducted before tax to reduce the tax accruable, including KES 7.8 Bn (USD 70.7 Mn) that SportPesa used for both local and international sponsorships between 2016 and 2019, school fees for employees’ children, chartered flight for Everton’s visit to Kenya, and business class air tickets.

All these add to an already big pile of mess that has forced SportPesa out of Kenya and saw its parent company, Pevans East Africa Limited, shift base to Tanzania under a new firm, Milestone.

Besides all the tax troubles, there are also some internal squabbles simmering at the company. For one, a shareholder fallout over a dodgy transaction that saw USD 278 Mn move from the company’s coffers to overseas accounts, as well as disagreements over the sale of shares in the firm’s holding company, has caused a huge internal rift that caused Ndung’u to be kicked off the board.

Throw that in with the fact that the KRA is out for blood from the look of things and the picture seems quite bleak. 

In 2019, SportPesa reported a net profit of KES 10.1 Bn (USD 9.3 Mn) on annual revenue of KES 149.7 Bn (USD 1.35 Bn). A tax penalty of the kind demanded by the KRA (USD 862.7 Mn) does look like a death sentence for the company which just can’t catch a break in Kenya at the moment.

Featured Image Courtesy: Calvin Ayre

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