When businesses make investments in other businesses, a key metric they consider is Internal Rate of Return.  In simple terms, the IRR represents the expected total compounded annual returns on an investment, and a higher IRR indicates a more profitable investment. Hence, if the IRR of a project exceeds the opportunity cost of capital, it is a good use of funds.

Target rates of IRR vary. More conservative projects may demand a lower IRR. Say, 12-15%. Riskier or longer term ventures may demand a higher IRR. Say, 20-30% or more. What does this have to do with my thesis on NorthStar Gaming (TSXV: BET)?

In February, I suggested that Northstar might represent a good investment if valued on industry-standard metrics like Gross Gaming Revenue (GGR) multiples. At the time, my focus was on determining and valuing NorthStar’s ability to grow handle, improve margin, and move toward cash flow positivity. That blog post can be found here.

Since then, my opinion has morphed into a more strategic view of the situation, driven by a closer look at Northstar’s key backer, Playtech (PTEC: LSE). A deeper look at Playtech’s involvement and history of strategic investments suggests that the opportunity case is less about traditional multiples and more about the structure of Playtech’s economics. In other words, understanding NorthStar now requires understanding what Playtech stands to earn — and how their incentives are aligned. I’ve chosen an IRR approach to clarify what Playtech may be up to.

Playtech’s Position

Playtech has embedded itself into NorthStar through several channels:

• Equity ownership: ~25% stake today, with warrants that could increase this to 45–50%.
• Warrants: 32.7M exercisable at $0.055, issued in exchange for guaranteeing NorthStar’s $43M debt package.
• Service revenues: Playtech collects an estimated 40–50% of NorthStar’s GGR through technology and operational service fees.
• Influence: Two board seats and its role as guarantor of the company’s debt facility, as well as significant equity ownership, give Playtech substantial leverage over direction.

This layered position ensures Playtech benefits in multiple ways: from recurring service revenues, from potential equity appreciation, and from influence over strategic decision-making.

The Service Fee Model

The Q2 2025 financials show service provider fees of $3.37M, nearly half of reported GGR. Annualized, this equates to $12–15M flowing to Playtech.

If NorthStar’s handle grows from its current ~$1.2B run-rate to ~$2B over the next five years, Playtech’s annual service revenue could reach $30–35M. These revenues are independent of NorthStar’s bottom-line profitability, effectively insulating Playtech from operator-level risk.

Warrants and Equity

The warrant package represents another lever:

• At $0.15/share, the warrants would be worth about $5M, roughly a 3x uplift on exercise cost.
• At $0.30/share, the value approaches $10M, a ~5x return.

Coupled with Playtech’s direct equity stake, this optionality gives them material upside exposure if NorthStar scales.

IRR Scenarios

Looking across three scenarios over a five-year horizon:

• Base Case: Ontario growth with some Alberta contribution. Playtech earns ~$100M in service fees and equity is worth ~$14M. IRR estimated at 25–30%. An excellent economic prospect for Playtech, that will make its shareholders very happy.
• Upside Case: National expansion with 25% CAGR in handle. ~$150M+ service fees, ~$28M equity. IRR 40–45%. This would represent an exceptional use of capital for Playtech.
• Downside Case: Flat Ontario. ~$50–60M in service fees, minimal equity value. IRR 10–12%. Low, perhaps not as attractive as other opportunities, but still a successful venture.

My key point – The structure Playtech has created seems to ensure positive returns for Playtech in all scenarios

Per-Share Valuation for BET

Here’s how NorthStar’s share price could look under the same scenarios:

Scenario	2029 GGR	Valuation Multiple	Enterprise Value	Net Debt	Equity Value	Per-Share Value
Base Case	~$70M	1.5x	~$105M	~$35M	~$70M	$0.34
Upside Case	~$90M+	1.5x	~$135M	~$35M	~$100M	$0.48
Downside Case	~$40M	1.0x	~$40M	~$35M	~$5M	$0.02–0.03

These directional estimates highlight the range of outcomes for shareholders relative to today’s ~$0.05 price.

Comparison to Snaitech

Playtech’s approach here resembles its earlier strategy with Snaitech in Italy: secure ownership and influence, embed its technology, extract service revenues, and benefit from equity appreciation as the operator scales.

Playtech’s acquisition and later sale of Snaitech turned out to be one of its most lucrative investments – A huge win for the company and its shareholders.

• Playtech acquired a controlling stake in Snaitech in 2018 for about €846 million (enterprise value ~€1.05B).
• In June 2024, Playtech agreed to sell Snaitech to Flutter Entertainment for €2.3 billion EV.
• Based on Playtech’s disclosures and analyst estimates, this translated into an IRR (internal rate of return) of ~20–22% over the 6–7 year holding period.

That return came from:

1. Multiple expansion — sold at ~9x EV/EBITDA, compared to a lower multiple on entry.
2. Cash distributions/service fees received along the way.
3. The sizable uplift in valuation due to Snaitech’s market leadership in Italy.

In short: Playtech generated a ~20%+ annualized IRR on the Snaitech deal.

The difference I see is that with NorthStar, Playtech has structured the deal with less upfront capital outlay, using warrants and debt guarantees to secure influence and upside. The IRR profile is therefore potentially higher, relative to capital committed.

Implications for Investors

For NorthStar shareholders, the key point is that Playtech is structurally incentivized to scale the business. Service revenues give Playtech predictable returns, while warrants and equity exposure align them with shareholder value creation.

In February, the thesis relied mainly on applying industry multiples to NorthStar’s GGR. Today, the case has morphed: Playtech’s economics suggest the partnership may be de-risked, at least from the perspective of continued funding, growth, and alignment of interests.

Closing Thought

Whether this alignment translates into shareholder returns depends on execution and market expansion. But the Playtech angle changes the framing: NorthStar is no longer simply a small-cap Canadian operator trying to scale — it is also a vehicle through which Playtech has engineered a potentially attractive, low-risk IRR. BET is a Playtech project. That may be the most important signal for investors assessing the long-term outlook.

Disclosure  –  The Author is a Northstar Gaming shareholder.   The Author is not compensated in any way by Northstar and has no commercial or financial relationship with the company except as a shareholder.