There is a $55 million black hole in the financial statements of Australia’s biggest corporate bookmaker William Hill, statements described by a leading accounting academic as “false”.
The British betting giant, whose Australian operations are now headed by prominent Sydney racing identity Tom Waterhouse, responded with “no comment” to a list of questions from Fairfax Media.
It also offered no comment two weeks ago when we ran a story about its secretive financing deal to funnel $40 million a year in Australian punters’ losses to Gibraltar.
William Hill acquired the nation’s largest online bookie, Sportingbet, and Tom Waterhouse’s eponymous online gaming business, last year. Waterhouse was later appointed chief executive.
Besides siphoning profits out to Gibraltar via an enormous £334 million ($580 million) loan to a mysterious entity called Steeplechase, it seems the Brits have set up their Australian operation to lose money.
By having no currency hedging in place – and bearing in mind the Steeplechase loan in pounds sterling – the British parent William Hill seems to be betting on a fall in the $A. It has effectively handicapped its local offshoot.
According to an analysis of the financial statements of William Hill Holdings Pty Ltd by University of NSW accounting expert Jeffrey Knapp, the accounts are “false” and “misleading”.
“They are showing a false exchange rate in the annual report,” said Knapp. “We can say with reasonable confidence that the amount shown for equity in the financial statements is out by £30 million ($55 million).
“The balance sheet has to balance. So that (the £30 million hole) means something else is wrong in the financial statements.”
Knapp also called into question the decision by William Hill to report in British pounds.
“This is an Australian business. Its Australian bookmakers are offering $A odds on Australian sport to Australian punters. Why are the Australian company accounts filed in British pounds?”
Knapp said some of the host of “irregularities” are likely to be tax related. As the G20 met in Brisbane over the weekend, professing its determination to act decisively on multinational tax avoidance, William Hill with its Gibraltar deal is a cracking example of just that – aggressive multinational tax avoidance.
Among the irregularities identified by Jeff Knapp, the local William Hill accounts were filed late, and therefore a suite of related companies – including Tom Waterhouse NT Pty Ltd – do not meet the conditions for accounting relief as suggested by Deloitte. Further, the exchange rate used by William Hill and its auditors Deloitte in the accounts assumes a nonsensically high $A and low pound.
“The company’s reserves show a loss of £95 million for foreign currency translation,” says Knapp.
“But here you have the unnatural hedge: an Australian business financed in pounds sterling. The currency risk resides with the Australian holding company. As the loans are in sterling they are betting $A will fall and currency losses can be used to shield Australian income tax.”
Meanwhile, about $31 million in interest for the year goes on the mysterious Steeplechase loan from Gibraltar. If the $A falls, the amount required to service the debt to Gibraltar increases.
The current extract filed with the Australian Securities and Investments Commission for William Hill Holdings Pty Ltd shows they issued 164.8 million shares at $1 apiece. In the accounts they are working on an exchange rate of 84 pence to the $A, but when the company was incorporated in December 2012, the actual exchange rate was 65.38 pence.
The $A has never been as high as 84p. “The question is, why?” asks Knapp. “Why are they showing a false exchange rate in their annual report?
In the absence of any response by William Hill we can only speculate as to the explanation for the irregularities in its share capital. In fact, we can do what William Hill does, run a book.
Here are the odds:
- $1.01 – part of a tax-avoidance strategy (you outlay $1 and get $1 and 1¢ back if you win).
- $9.25 – innocent human error.
- $15.75 – the shares were actually issued at 80p each.
- $30 – it was audited by Deloitte so it must be OK.
- And here is the field for how things will play out from here:
- $1.0001 – the poor taxpayers will have to compensate yet another multinational tax avoider.
- $7.50 – the ATO will do something about it
- $20 – the government and G20 will do something really useful in multinational tax minimisation
- $41 – William Hill will come out of hiding and explain itself.
- $180 – Deloitte will take accountability.
- $5000 – ASIC will take enforcement action over irregular accounting practice.
And this week’s value bet: $10,000 – the Institute of Chartered Accountants in Australia will do something.
Take the double of innocent human error and William Hill will come out of hiding and you get money back if political donations from William Hill to the LNP are less than $100,000.