Laurence Escalante’s $200m dividend despite profit fall

Virtual Gaming Worlds is now one of Australia’s biggest private companies as revenue nears $5bn. But profits have taken a hit as the online social gaming firms spends up big.

Laurence Escalante’s Virtual Gaming Worlds is closing in on $5bn annual revenue.

Billionaire Laurence Escalante has reaped about $200m in dividends from his Virtual Gaming Worlds, but profit from the online social gaming giant has fallen despite its revenue nearing $5bn for the first time.

VGW has spent big on marketing, including a sponsorship of the famous Ferrari formula one team this year, and incentives for its customers to keep playing its social casino games, which has cut the company’s earnings.

Net profit for the year to June 30 fell about 17 per cent to $377.6m from $454m in the previous corresponding period, despite revenue surging 40 per cent to a record $4.84bn.

Mr Escalante’s group, which derives all of its revenue from customers in North America but has its headquarters in Perth, spent $125m more on marketing in the 2023 financial year than the previous 12 months.

Financial accounts sent to its shareholders this week show marketing spend of $360m this year, up from $235m in 2022, and promotional sweepstakes prizes that VGW paid out reached about $3.35bn, an increase of 47 per cent from the $2.29bn it outlayed in 2022.

Mr Escalante’s group derives all of its revenue from customers in North America but is headquartered in Perth. Picture: Abigail Harman

Mr Escalante founded the business in 2010 and has quickly worked his way up to 28th position on the Richest 250.

He clinched a lucrative sponsorship deal with Ferrari in March, but made headlines in August when he was handed a good behaviour bond by the Melbourne Magistrates Court after being caught with small quantities of cocaine and ecstasy left over from partying after flying into Melbourne from overseas in May on his private jet.

Mr Escalante’s VGM operates under a sweepstakes model that gives users the chance to win promotional sweepstakes that can be redeemed for cash.

The company’s customers play social casino virtual games such as its Chumba Casino suite of online poker machine, poker and blackjack table games, and Luckyland Slots. The customers pay real money to buy virtual coins.

Chumba Casino accounts for about $3.36bn in revenue, Luckyland Slots another $1.23bn and Global Poker almost $250m.

VGW paid its shareholders almost $320m in dividends during the 2023 financial year, its accounts show, and the company paid almost $170m in corporate tax.

But several categories of expenses on the VGW balance sheet rose markedly, including sponsorship, general and administrative spending, which more than doubled to $33m, and legal and professional fees, up more than 90 per cent to $65m.

Employee benefits expenses rose from $80m in 2022 to almost $117m, including a $30m increase in wages and salaries.

In a statement, Mr Escalante described the 2023 results as “solid” and said VGM had generated “strong revenue growth, entertaining more customers and experiencing high engagement with our products, games and promotions.”

Regarding the higher expenses, Mr Escalante said: “We continued to invest in our business and people to support growth. This included increased marketing spend and our headcount grew as we continued to attract great people.”

VGW has about $535m in cash and cash equivalents on its balance sheet, and is the sixth largest privately-owned Australian company by revenue, behind only big names such as Gina Rinehart’s Hancock Prospecting and Anthony Pratt and his family’s Visy.

Escalante, 41, has about a 65 per cent shareholding in the privately held public unlisted company, which accounts for the bulk of his $3.48bn estimated wealth on this year’s edition of The List – Australia’s Richest 250.

Mr Escalante has contemplated a stockmarket listing. The company has previously said an “IPO was the most likely path” to further liquidity and that a “North American listing … is now far more likely than the ASX”.

Shareholders of the business can access some liquidity via an over-the-counter trading platform at Primary Markets.

When asked about the outlook for VGW this year, Mr Escalante said: “Macroeconomic and market conditions continue to evolve coming out of the pandemic. But we’re running our own race and investing for growth both today and into the future. Opportunity abounds and my confidence in our amazing team’s ability to execute on our strategic objectives remains as strong as ever.”