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Bally's Corporation has announced it will offload control of Japanese online gambling and "certain other international markets" to the same operation's managers while retaining "licensing and royalty revenues".

Bally’s entered into an agreement with the unnamed company consisting of managers of its Asian and associated foreign online gambling business on Thursday (October 31), according to Bally’s filing to the US Securities and Exchange Commission (SEC) on Friday. The size of the deal was not disclosed.

The agreement appears designed to distance Bally’s in particular from the Japanese market, which is under a darkening cloud as police and other government agencies probe payment companies, intermediaries, gamblers and foreign companies linked to Japan’s lucrative gambling ecosystem.

In February 2023, Bally’s Corp’s regional partner Breckenridge Curaçao, a variable interest entity (VIE) of which Bally’s was the primary beneficiary via subsidiary Gamesys Group, acquired Japan-facing gambling website CasinoSecret, the fourth website in its stable alongside Vera & John, InterCasino and Yuugado.

That transaction came four months after Japanese police warned in an advertising campaign that gambling on foreign websites is a criminal act.

It was not immediately clear if the buyer in Thursday’s agreement is Breckenridge Curaçao or a combination of its managers under a new name, or another entity.

In any case, in exchange for a Bally’s “note” of undisclosed value, the buyer will take full control of management, operations and governance of online gambling operations in Asia and certain other territories — operations referred to in the filing as the “carved-out business”.

The buyer will also receive “certain transition services” and continue to use “certain intellectual property” of Bally’s under licence for at least five years, the filing said.

“The transaction is intended to allow Bally’s to focus its capital and resource allocation on North American and European business, and this Carved-Out Business will benefit from focused management attention and aligned ownership,” it said.

Bally’s said it expects no material impact on adjusted EBITDA or cash flow from the deal, and that remaining licensing and royalty revenues will be lower than revenue to date.

However, in addition to cost mitigations, “the profitability margins associated with those licensing revenues are expected to be higher as is customary in the gaming industry for IP license business models”, the filing said.

Bally’s entered the Japanese gambling market by virtue of its purchase of Gamesys in October 2021, just as Japanese police began quietly mobilising against the industry.

At the time, industry observers considered enforcement action was inevitable considering the scale of the market, but that a punitive response would not likely occur in the short term.

In its prospectus for the Gamesys takeover, Bally’s said there “remains doubt over the applicability” of Japanese law on gambling on foreign websites, an impression reinforced by a legislative vacuum for modern gambling, judicial uncertainty and a seeming reluctance to prosecute.

Even so, Bally’s counsel was cited in the prospectus as saying that “sufficient nexus may be created for Japanese law to apply if the effects of [foreign] supply are felt in Japan”.

During the company’s second-quarter earnings call in late July, Bally’s CEO Robeson Reeves also complained of the weakening yen and “stifled” demand that drove a 7.4 percent fall in overall international online revenue.