Let the World Play for Real’ by Extending Our Reach Into New Areas of Digital Entertainment on a Global Scale

Annual report & accounts 2011

For more information Annual report visit us online at & accounts let the world www.bwinparty.com 2011 play for real Inside 02 Overview 66 Board of Directors 03 Pro forma financial highlights 70 Governance this report 04 Our product verticals 75 Audit Committee report 06 Our business environment 77 Ethics Committee report 08 Chairman’s statement 78 Integration Committee report 10 Co-CEO’s review 79 Nominations Committee report 18 Our business model 80 Directors’ Remuneration report 20 Strategy 97 Other governance and statutory disclosures 22 Regulated and to-be- 100 Annual General Meeting regulated markets 102 Statement of Directors’ 24 Invest in our core assets responsibilities 26 Strategic alliances 28 New areas of digital entertainment 103 Financial statements 30 Act responsibly 104 Auditors’ report 32 Review of 2011 105 Consolidated statement of comprehensive income 47 Markets and risks 106 Consolidated statement 48 Sports betting of financial position 50 Casino & games 107 Consolidated statement 52 Poker of changes in equity 54 Bingo 108 Consolidated statement 55 Key risks of cashflows 110 Notes to the consolidated 58 Responsibility and relationships financial statements 59 Corporate responsibility 150 Company statement 61 Customers and responsible gaming of financial position 63 Employees 151 Company statement 64 Suppliers of changes in equity 64 Shareholders and other providers 152 Company statement of capital of cashflows 65 Environment and community 153 Share information 158 Notice of Annual General Meeting 162 Glossary and definitions

See our online report at www.bwinparty.com Welcome Our strategy and vision stretches far beyond real money gaming on the internet: our aim is to ‘let the world play for real’ by extending our reach into new areas of digital entertainment on a global scale. Technology, consumer tastes and government regulations are changing fast. This makes for a challenging business environment but, given the underlying growth prospects for our sector, we are embracing change to secure long-term outperformance. 02 bwin.party Overview Annual report & accounts 2011

Integration update We completed the merger of bwin Interactive Entertainment and PartyGaming on 31 March 2011, creating the world’s largest listed online gaming company. It also marked the start of our operations as one company and the implementation of our detailed integration plans.

Key facts In 2011 our focus was very much on As more governments embrace integration and regulation. Delivering the regulation of online gaming • 2,700 employees with offices in the targeted €40m of synergies from markets, so the dynamics of our Europe, India and the United States the Merger in 2012 remains a top industry are shifting. Real money and • Headquartered in Gibraltar where priority, as well as ensuring that we social gaming, together with other we are licensed and regulated foster and protect the value of forms of digital entertainment are opportunities relating to newly converging. At the same time mobile • Also licensed in Alderney, Denmark, regulated and to-be-regulated markets. platforms are increasingly important France and Italy Balancing these two sometimes channels of distribution – each of • Listed on the London Stock Exchange competing objectives has been a these developments is being driven (ticker: BPTY) challenge, having been forced to by advances in technology, new reschedule certain of our integration regulations and changes in plans in order to meet strict schedules consumer demand. Operational highlights imposed by governments and regulators alike. • Reorganisation into four business verticals completed in Q4 2011 • On-track to deliver approximately €40m of synergies in 2012 and €65m in 2013 • 27% of revenue from newly regulated markets (France, Italy and UK) • Strategic alliances with MGM, Boyd Gaming and Danske Licens Spil • Launched new products into Italy and prepared for launch into Denmark and Spain 03 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Pro forma financial highlights1 Financial statements 103

Total revenue Performance €m Gaming segmentation

2011 2010 Change 2010 814.0 2010 ¤m ¤m %

2011 816.0 2011 Sports betting 260.6 258.6 1

2011 2011 816.0

2011 Casino & games 263.7 241.0 9

2010 814.0 2010 Poker 213.0 227.4 (6) €816.0m Bingo 64.6 72.4 (11) Unallocated corp0rate 14.1 14.6 (3) +0% Total 816.0 814.0 –

Clean EBITDA Performance €m Gaming segmentation

2011 2010 Change 2010 193.2 2010 ¤m ¤m %

2011 199.3 2011 Sports betting 64.3 64.6 (0) 2011 2011

199.3 Casino & games 92.3 79.2 17

2010 2010 193.2 Poker 30.0 27.7 8 €199.3m Bingo 20.6 21.1 (2) Unallocated corporate (7.9) 0.6 n/a +3% Total 199.3 193.2 3

Clean EBITDA margin Net gaming revenue by country

Germany 22% 24.4% Italy 10% UK 10% (2010: 23.7%) France 7% Americas 6% Greece 4% Clean EPS Spain 5% Denmark 2% Rest of EU 18% 18.5€c Rest of World 17% (2010: 19.0€c)

1 Continuing operations 04 bwin.party Our product Annual report & accounts 2011 verticals

Sports betting Casino & games

We offer bets on a pre-event and With traditional casino games live basis on all key sports in all and some of the largest jackpots of our markets in the industry, this is our largest vertical

Key brands Amount wagered in 2011 Key brands Amount wagered in 2011 bwin ¤3.8bn PartyCasino ¤7.7bn Gioco Digitale bwin betoto GD Casino Gamebookers 2011 net gaming revenue 2011 Clean EBITDA1 2011 net gaming revenue 2011 Clean EBITDA1 ¤259.7m +0% €64.3m (0%) ¤262.7m +9% €92.3m +17%

Daily average players in 2011 Net gaming revenue via mobile in 2011 Daily average players in 2011 Largest jackpot win in 2011 114,200 €20.5m +92% 28,200 US$4.5m 23 May 2011

1 Excludes unallocated corporate 05 bwin.party Annual report & accounts 2011

Poker Bingo

The second largest poker With leading market positions in network in the world2, we have both the UK and Italian markets, thousands of players each day, we are looking to expand into covering all levels of stakes new territories

Key brands Amount wagered in 2011 Key brands Amount wagered in 2011 PartyPoker ¤11.2bn Foxy Bingo ¤1.2bn bwin Cheeky Bingo GD Poker Gioco Digitale

2011 net gaming revenue 2011 Clean EBITDA1 2011 net gaming revenue 2011 Clean EBITDA1 ¤209.7m (7%) €30.0m +8% ¤63.7m (11%) €20.6m (2%)

Daily average players in 2011 Market share Daily average players in 2011 Largest geographic market 100,500 10% in dotcom markets3 23,300 UK – 73% of total 15% in France4 bingo revenue 14% in Italy5

2 Source: PokerScout.com 4 Combined liquidity across all Group platforms based on company estimates 3 Source PokerScout.com, based on assumed combined liquidity for PartyPoker.com 5 Source: AAMS and bwin.com 06 bwin.party Overview Annual report & accounts 2011

Spotlight on: Key growth drivers 1. 2011 Broadband penetration and expected Our business environment growth to 20152

The global online gaming industry is a growing and valuable 100 segment of the digital economy with an increasing share of the global gaming market. Excluding the US, 2011 online Gross 80 Gaming Revenue or Yield (‘GGY’) for the four major product 60 segments, sports betting, poker, casino and bingo was estimated to be worth ¤18.8bn, up 7.4% versus the previous 40 year. This growth is forecast to continue, reaching ¤24.7bn by 20 2015, implying a compound annual growth rate (‘CAGR’) of 7.2%1. 2011 Broadband penetration % penetration Broadband 2011 0 5 10 15 1 Online gaming market size (excluding US) Estimated CAGR 2011–2015 (%) Estimated CAGR 2011 gross gaming revenue 2011 – 2015 China US Japan Germany UK France South Korea Italy Russia Spain Brazil Canada Netherlands Australia Denmark Sports betting €9.6bn 6.8%

Casino €5.0bn 8.4% 2. Smartphone and tablet growth3 Global Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones + Tablets Poker €2.9bn 5.7% 2005–2013E Units (m) Bingo €1.3bn 8.5% 700 600 500

For further details on each of the key online gaming markets see pages 47 to 54. 400 Note: Notebook PCs include Netbooks.

300 Notebook PCs Smartphones Tablets Desktop PCs

2 200

2013 2012

2010 2006 2007 2005 2008 2009 Online gaming as a % of total gambling 2011

E E

1000 1000 E E

¤bn % 2005 2006 2007 2008 2009 2010 2011 2012 2013 400 10 200

Desktop PCs Notebook PCs Smartphones Tablets 300

Note: Notebook PCs include Netbooks.

300 9 400 but this proportion is forecast to increase.

Online gaming currently makes up only a small percentage of total gambling, 500

200 6 4 600

Percentage interactive All gambling (land-based and interactive) 3. Propensity to play games online

700

2 2 2 2 2

2 0 0 0 0 0 2 2 2 2

0 0 0 0 100 0 3

11 12 13 14 15

Units (m) 10 0 0 0 0

9 8 7 6 E E E E E 0 0 Younger generation online

0 6 7 8 9 E E E E E 0 % of 9–16 year olds playing games online

0 0 0 0 10 11 12 13 14 15 3 100 0 0 0 0 0 2 2 2 2 2 20 20 20 20 20 Not playing

All gambling (land-based and interactive) Percentage interactive

200 6 The Internet is one of the primary sources Online gaming currently makes up only a small percentage of total gambling, of entertainment for the next generation.

but this proportion is forecast to increase. As they reach adulthood, this is likely to

300 9 act as a further driver for real money gaming online.

1 400 Source: H2 Gambling Capital, February 2012 10

2 ¤bn % Source: PricewaterhouseCoopers, Global entertainment and media outlook 2011–2015 * Based on a survey of 25,000 children across the EU 3 Source: Morgan Stanley research 4 Source: ‘Risks and safety on the Internet – the perspective of European Children’ – London

School of Economics, co-funded by the European Union, January 2011 * Based on a survey of 25,000 children across the EU

gaming online.

act as a further driver for real money

As they reach adulthood, this is likely to

of entertainment for the next generation.

The Internet is one of the primary sources

Not playing

% of 9–16 year olds playing games online Younger generation online 07 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

4. The changing regulatory landscape

Europe Several countries in Europe have introduced or are planning to introduce online gaming regulations.

1 UK 5 Germany7 Products S, P, C, B Products S, P, C (slots only) Tax rate5 15% onshore Tax rate5 20% 0% offshore Ring-fenced No Ring-fenced No Market size6 €0.89bn Market size6 €2.2bn 6 Denmark 2 France Products S, P, C Products S, P Tax rate5 20% Tax rate 9.3% S turnover Ring-fenced No 2% P turnover Market size6 €0.2bn Ring-fenced Yes 6 Market size2 €1.1bn 7 Italy Products S, P, C, B 3 1 Spain Tax rate5 20% S, P, C, B Products S, P, C, B 5 Ring-fenced Yes Tax rate5 25% Market size6 €1.1bn Ring-fenced Yes 6 2 Market size €0.4bn 4 8 Greece Products S, P, C 4 Austria Tax rate5 30% 7 Products S, P, C, B Ring-fenced Not known 5 6 Tax rate 2% S turnover 3 Market size €0.26bn 40% P, C, B Ring-fenced No Market size6 €0.2bn 8 USA An opinion issued by the Department of Justice on 23 December 2011 prompted several states to initiate proposals that would seek to implement online gambling regulations. With a number of draft bills in both the Senate and House of Representatives, there is speculation that the federal government may also seek to introduce a nationwide regulatory framework. Below is a summary of some of the initiatives that have been seen in individual states to date. 5 New Jersey* 1 California* Products P, C Tax rate5 12.5 – 15% Products P 5 Ring-fenced Yes Tax rate 10% Population8 6.9m Ring-fenced Yes 8 Population 29.1m 6 Mississippi* Products P, C 2 Nevada 2 4 Tax rate5 5% Products P 5 5 Ring-fenced Yes Tax rate 6.75% 1 Population8 2.3m Ring-fenced Yes 8 Population 2.1m 7 Florida* 3 Hawaii* Products P 5 6 Tax rate 10% Products P, C Ring-fenced Yes Tax rate All proceeds to state Population8 14.6m Ring-fenced Yes 3 8 Population 1.0m 7 4 Iowa* Products P Tax rate5 24% Ring-fenced Yes Population8 2.4m Key 5 As a % of gross gambling revenue S = Sports betting 6 Source: H2 Gambling Capital, February 2012, all products P = Poker 7 Regime in Schleswig‑Holstein, Germany’s most northern state C = Casino & games 8 Population over 21 years old B = Bingo Source: US census bureau * Proposed, not enacted 08 bwin.party Chairman’s Annual report & accounts 2011 statement

Twelve months into the merger of bwin and PartyGaming, the combined enterprise is ahead of schedule in integrating the businesses and delivering the synergies expected and is on track to extend its reach into new areas of digital entertainment.

Simon Duffy Chairman

• Completion of Merger on Integration and regulation opening of the Danish market at 31 March 2011 the beginning of 2012, as we will be The rapid evolution of the online when Spain opens later this year. • On-track with integration – gaming industry is continuing, driven Our agreements with MGM and Boyd delivering synergies by advances in technology and changes mean that we are well-placed to be in to the regulatory landscape, resulting • Ready to enter new markets – the first wave when regulations allow in a business environment that is both including US entry into the United States, either challenging and full of opportunity. on a federal or state-by-state basis. • Extending our reach into digital In such an environment, where the entertainment The early performance and the competitive landscape is usually settled potential of bwin.party are • Final dividend of 1.56p per share within a short space of time, late entry encouraging, as detailed in the into any newly-regulated market is not • Over 31 million shares repurchased ‘Co‑CEOs’ Review’ on pages 10 to 17, an option. The enlarged enterprise of where they expand upon the Group’s bwin.party provides a unique platform progress and business strategy. In from which to launch into new markets addition to reaping the rewards from with the requisite scale to take full our investment in technology, brands advantage of the freedom to advertise, and people, we will extend our reach often for the first time. As part of our into new areas of digital entertainment, goal of participating in all major newly- such as social gaming, by capitalising regulated markets, we were among the on the Group’s existing resources to first wave of operators to launch on the create new revenue streams. 09 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Governance • The Chairman of the Board was Dividend independent on appointment; and As we navigate this critical phase in the The Board is recommending a final Company’s development, the Board’s • The Board had the appropriate dividend of 1.56p per share which, approach to corporate governance balance of skills and experience to together with the interim dividend of has to be mindful of both the need to manage the imbalance appropriately. 1.56p per share, makes a total dividend avoid disrupting the integration of two of 3.12p per share for the year ended This matter, together with details about businesses with different governance 31 December 2011 (2010: nil). The final how the Board oversees the interests backgrounds and the detailed dividend, if approved at the Annual of bwin.party through its operating and negotiations that led up to the Merger. General Meeting will be payable to management structure, is explored in During those negotiations bwin and shareholders on the register of more depth in the Governance Review PartyGaming agreed a balanced Board shareholder interests on 11 May 2012. on pages 70 to 101 of this Annual report. would be in the best interests of the It is expected that dividends will be paid combined Group, a decision that is The Board has considered Lord Davies on 12 June 2012. Shareholders wishing supported by the success of the of Abersoch’s review, ‘Women on to receive dividends in Euros rather integration to-date. However, this Boards’, which requested FTSE 350 than pounds sterling will need to file resulted in a Board structure that was companies to set out aims for having a currency election and return it to not in compliance with the Code on women serve on boards. Gender the Group’s registrars on or before Corporate Governance in terms of the diversity is an important factor that we 25 May 2012. Further details are balance between independent and non- will take into account when considering contained in Share information independent Directors. any new candidates to join the Board. on pages 154 to 156. However, gender is only one of many Despite this imbalance, the Board Share buyback issues that have to be considered is satisfied that it has maintained alongside a candidate’s experience, Since launching our €75m buyback a sufficient degree of independence knowledge and skills. Our aim is to programme in September, the Group for the following reasons: appoint at least one woman to the had purchased 15.7 million shares at • On the majority of business items Board by the end of 2013 and to have a total purchase price of £19.9m by considered by the Board, a non- at least two women serving on the 31 December 2011. As at 22 March 2012, independent Non-Executive Director Board by 2015. we had purchased a further 15.5 million is independent because the interests shares. All purchased shares have Directors of the relevant founder shareholders been cancelled. and the Company do not conflict; Further to the additions to the Board Outlook that became effective on completion • On issues when the interests of the of the Merger, Geoff Baldwin replaced Current trading has been robust Company and interests of a founder Rami Lerner as a Non-Executive and in-line with our expectations. shareholder may conflict, mechanisms Director of the Company on 15 July 2011. The enlarged Group is in a strong in the relationship agreement and/or Mr Baldwin’s appointment was made position to capture a greater share letters of appointment for the non- following a nomination under the terms of the expanding digital independent Non-Executive Director of a relationship agreement entered entertainment market. allow the independent Directors to into by amongst others, bwin.party exclude them from the decision- digital entertainment plc, Emerald Bay making process; Limited and Stinson Ridge Limited that • The independent Directors have not was approved by shareholders on been and will not be in a minority to 28 January 2011. All Directors will be the Executive Directors; standing for re-election at the forthcoming AGM. Norbert Teufelberger Jim Ryan Co-CEO Co-CEO Co-CEO’s review Integration and regulation 11 bwin.party Overview 02 Co‑CEO’s review Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

We have provided a detailed review of the operational performance in 2011 and our progress on integrating bwin and PartyGaming. In addition, we have set out our business strategy, achievements against that strategy to-date and our objectives for 2012.

We made excellent progress in 2011. As more governments embrace the Spotlight on: The swift execution of a number of regulation of online gaming markets, 1 integration plans for our technology, so the dynamics of our industry are 2011 people, products and brands has been shifting. Real money and social gaming rewarded with financial synergies together with other forms of digital • Revenue slightly ahead to €816.0m. coming through more quickly than entertainment are converging. • Clean EBITDA up 3% to €199.3m expected, offsetting increased gaming At the same time mobile platforms duties payable as markets regulate. are increasingly important channels of • Clean EPS of 18.5 € cents We remain on-track to deliver distribution – each of these developments • DPS of 3.12p2 approximately €40m of synergies is being driven by advances in technology, this year and €65m in 2013. new regulations and changes in • Alliances with MGM, Boyd Gaming consumer demand. and Danske Licens Spil 2011 results • Sale of Ongame for up to €29.5m The Group’s robust operating performance in 2011 is confirmation of • Synergies of €23.3m realised in 2011, our progress. Despite the operational ahead of plan challenges of integrating two • On-track to deliver €40m of synergies businesses in such a dynamic business in 2012 and €65m in 2013 as planned environment, the Group delivered total pro forma revenue from Continuing • Current trading robust operations of €816.0m (2010: €814.0m) and pro forma Clean EBITDA from Continuing operations of €199.3m (2010: €193.2m). However, the financial numbers do not tell the whole story: a simple comparison of the year-on-year financial performance appears to show modest growth on both metrics, but, as explained in our ‘Review of 2011’, this belies the transformation of our business, an increasing proportion of which is now licensed, regulated and taxed.

1 Pro forma, Continuing operations 2 Including recommended final dividend of 1.56p per share 12 bwin.party Co‑CEO’s review Annual report & accounts 2011

Integration Technology The integration process touched One advantage of the long lead-time upon each of our core assets in 2011: between the merger announcement our people, technology, products on 29 July 2010 and completion on and brands. 31 March 2011 was that we had several months to plan the integration, “We expect to move People including the assessment of our Following completion, our first step technology needs. Having two of to a single e-gaming was to appoint the members of the everything it was clear that choosing senior management team, each one technology platform for each task platform by the end with responsibility for leading the would release resources and generate integration of their respective value. This was challenging for the of 2012” disciplines and designing and senior team given the implications for implementing an organisation our staff and key locations. Drafting the structure to deliver the business technology roadmap was relatively strategy and synergies already straightforward compared with the identified. We reorganised the business complexity of moving from two systems into four product verticals so that all to a unified back-office platform, as well personnel, so far as practicable, are as having a single gaming platform for allocated to one of the verticals. This each of the product verticals. This was structure should help us maintain our complicated further by the introduction leadership position in each vertical of new regulated markets such as which is now able to allocate its own Denmark and Spain, that each have development and financial resources different technology requirements. to execute its plans. Following some Although these interruptions delayed initial adjustments, the target the integration of our technology organisation structure was completed platforms, we expect to move to a single in the fourth quarter of 2011. Aligning e-gaming platform by the end of 2012 business processes and controls is an and deliver the €40m of synergies as ongoing task but just 12 months after previously announced. A further €25m completion, the majority of our internal of synergies are expected in 2013. procedures are already up and running. With employees located on three Chip leader continents, differences of language and PartyPoker is our global culture posed additional challenges as poker brand we executed the integration plan and continued to drive the business forward. Thanks to the direction and diligence of our dedicated Integration Management Office and the enormous efforts of our management and employees, we are delivering on our plans. 13 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Products and brands a mainstream activity, one that can and response on 20 March 2012 stating that Choosing bwin as our lead brand for should be regulated (see ‘Spotlight on: the Länder needed to provide detailed sports betting was obvious given its our business environment’ on pages evidence in order for the Commission to leading presence across Europe. 6 to 7). While these long‑term drivers assess whether or not the restrictions Choosing PartyPoker as our lead poker remain, shifts in the regulatory, embodied within the draft State Treaty brand was also straightforward given competitive as well as technological comply with EU law. The Commission its brand strength not just in existing landscapes can and already have had a was also unable to assess the markets across Europe, but also significant impact on the online gaming consistency and coherence of the potential new markets, such as the market in the short-term. proposals due to a lack of notification of federal legislation amending the United States. Notwithstanding this, Regulation we will also continue to offer bwinPoker rules for slot machines and horse race A number of national developments across all key markets and intend to betting. In the absence of such took place in 2011, most of which continue to make full use of the World notifications and evidence, the represented a further positive step Poker Tour (‘WPT’). In Italy we will Commission did not give the Länder the in the transition from an embryonic continue to use GD Poker. In casino, ‘green light’ they required to proceed. unregulated activity just a few years as a large proportion of our customers Meanwhile, Schleswig-Holstein, ago into one that is increasingly continue to come from poker and Germany’s most northern Land has becoming fully licensed and regulated. sports betting, we will continue to adopted its own licensing regime for While this transition brings additional 4 offer games through both bwin and online sports betting, poker and casino compliance costs and gaming taxes, PartyPoker, as well as the industry- with a 20% tax on gross gaming revenue it is also likely to prompt industry leading PartyCasino brand. We believe and which has been approved by the consolidation as consumers gravitate that the quality of the product offering European Commission. bwin.party to the larger operators and brands. in casino is key and so have continued along with many other reputable to add new games to our suite using our Germany (22% of pro forma net operators has applied for a licence in-house development team as well as gaming revenue in 2011)3 in Schleswig-Holstein and intends through selective licensing deals with In April 2011, 15 out of the 16 German to operate under that licence across third parties. Bingo remains a localised states or Länder, put forward a proposal Germany. While the position of the product and Foxy Bingo and Cheeky for a new regulatory framework. While other 15 Länder remains unclear, Bingo will remain our core brands in it proposed to regulate, license and tax we remain committed to securing a the UK and Gioco Digitale in Italy. As we online sports betting for the first time, commercially viable regulatory regime, move into new markets we will launch it proposed to do so in a very restrictive one that complies with EU law and additional bingo brands that will be way that was not compliant with EU meets the needs and desires of tailored for local tastes. law. Following criticism from the consumers, operators and regulators. European Commission, the draft was Market environment Italy (10% of pro forma net gaming amended in December 2011 but revenue in 2011)3 We believe that the underlying drivers remains highly restrictive. Limited to Italy expanded its online gaming of revenue growth in the online gaming sports betting only it includes a de facto regime to include cash game poker and sector remain strong: the increasing ban on live betting, limits on the stakes certain casino table games in July 2011. prevalence of broadband; growth in wagered in any month and a maximum The Group launched both products smartphone and tablet technology; of 20 licensees. We believe this revised under its main brands including an expanding population of online proposal also fails to meet the bwin, PartyPoker and Gioco Digitale consumers with an increasing requirements of EU law. Having been and now has a strong market share propensity to socialise, transact and asked by the Länder for a ‘green light’ in all products. play games online; and a growing to proceed with the proposals, the acceptance that gaming online is European Commission issued a

3 Share of pro forma net gaming revenue in 2011 – Continuing operations 4 Excludes blackjack, baccarat and roulette 14 bwin.party Co-CEO’s review Annual report & accounts 2011

United Kingdom (10% of pro forma speculation in the media that some net gaming revenue in 2011)5 changes might be effected before the The UK Government has announced end of 2012 although any such changes that it intends to amend the existing are unlikely to take place until after Gambling Act and extend its licensing the Presidential election in May 2012. regime to include offshore online Whether or not this will include any operators. It is unclear when the reduction in taxation or an expansion legislation to effect such a change in the number of regulated products will be considered. Meanwhile, the UK is unclear. Treasury has announced a consultation Tower block Greece (4% of pro forma net gaming on changing the taxation regime in France is expected to review its revenue in 2011)5 restrictive gaming regulations after line with the Department for Culture, Greece has pressed ahead with its the Presidential election in May 2012 Media and Sport’s proposals and proposals for a new gaming law that taxing operators on the basis of was enacted in August 2011 despite customer location. The potential the receipt of a detailed opinion from outcome of its conclusions remain the European Commission that raised unclear. The industry argued strongly a number of concerns. The requirement that any changes to the basis of to have a legal presence in Greece taxation should only be introduced together with a proposal to impose if and when the requisite amendments taxes on operators retrospectively from to the UK Gambling Act have already 1 January 2010 are just two aspects that been effected, if at all. Such proposals, we believe are in breach of EU law and if introduced, may be subject to legal which are the subject of a formal challenge by online gaming operators. complaint submitted by the Remote France (7% of pro forma net gaming Gambling Association. In the absence revenue in 2011)5 of any clarity we continue to keep the Despite the calls for changes to the situation under review. French regulatory model put forward Spain (5% of pro forma net gaming by Monsieur Villotte, president of the revenue in 2011)5 French regulator, ARJEL, who argues It has been reported that over 290 that the regime is not working licence applications have been filed effectively, no change has yet been with the Spanish regulator by 59 made. Other senior figures such as companies, including bwin.party Senator Trucy and Jean-Francois ahead of the country’s new regulatory Lamour MP have also expressed framework coming into force. Whilst concerns that the regime is preventing the exact date upon which licences will regulated operators from making be issued remains unclear, we expect an economic return as they cannot that this will take place during the compete with black market operators – second quarter of 2012. The regulations evidenced by the decline in the French cover all forms of online gaming, regulated sports betting market in the including live betting and bingo fourth quarter 2011. There has been but excludes online slot games, with a 25% tax on gross gaming revenue. In accordance with the regulations we have been paying taxes on all Spanish revenue generated since 29 May 2011.

5 Share of pro forma net gaming revenue in 2011 – continuing operations 15 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Denmark (2% of pro forma net gaming that it needs to regulate this activity at Separately, the past 18 months have revenue in 2011)5 a national level. Estimated to have been seen the emergence of a new gaming The new regulatory framework that worth approximately $1.6 billion of phenomenon on the internet: social covers sports betting, casino and gross gaming revenue (‘GGR’) in 2006, gaming. Zynga, Playdom, Playfish and poker went live on 1 January 2012. assuming a federal bill was introduced other social gaming platforms have all We launched services in each licensed the US online poker market could be experienced spectacular growth with product category as well as on behalf worth up to $4.2 billion in GGR7 in the their virtual currency and virtual goods- of our local B2B customer, Danske first full year after regulation. driven business models that have Licens Spil, the leading Danish land- attracted millions of customers across Through our joint venture agreements based gaming operator. Gaming duty the globe. Zynga’s CEO, Mark Pincus was with MGM Resorts International and is payable at 20% of gross quoted recently saying that online Boyd Gaming Corporation that were gaming revenue. gambling is a “natural fit” with virtual concluded during the year, we believe goods and social games. While several other countries are in that we are well-placed to capitalise on the throes of discussing, drafting as any such opportunities as and when We believe it is only a matter of time well as legislating new laws to regulate, they arise. before the worlds of real money gaming the trend is clear: online gaming is and social gaming converge. This Competition becoming increasingly recognised as a represents a major opportunity for legitimate activity in most EU countries The competitive landscape is also bwin.party and we have a number of and is a branch of eCommerce that can continuing to evolve rapidly, partly initiatives already underway in this and should be regulated. Following the as a result of some of the regulatory area that we expect to drive value for adoption of a report by the European changes outlined above and partly due shareholders in the medium to long‑term. Parliament6 in 2011, there is also an to other factors. The indictment of the acceptance that agreeing a common founders of PokerStars, Full Tilt Poker approach to the regulation of online and Absolute Poker/Ultimate Bet on 15 gaming is in the interests of European April 2011 represented the start of what stakeholders and consumers. we believe will prove to be a fundamental shift in the shape and United States (Nil share of pro forma structure of the global online poker net gaming revenue in 2011)5 market. With the exception of An opinion from the US Department PokerStars, all of these sites have now of Justice on 23 December 2011 made closed. PokerStars’ relative size meant clear that regulated intra-state online that it was able to capture the lion’s games of chance did not breach any share of Full Tilt’s non-US players, federal laws. This prompted several consolidating its position as market initiatives in a number of states seeking leader in most territories. This makes for to regulate license and tax online a challenging operating environment gaming activities including California, for our poker business but we believe Iowa, Hawaii, New Jersey and that we can remain one of the largest Mississippi. The state of Nevada has networks in each market. Our position already enacted the requisite legislation should be further enhanced when we to allow intra-state online poker. With pool our player liquidity across our the prospect of a ‘patchwork quilt’ of poker brands in the dotcom as well as regulation, compliance and tax rules, the ring-fenced markets in Italy and the federal government may yet decide France later this year.

6 Source: “Online Gambling in the Internal Market” – own initiative report by the Committee on the Internal Market and Consumer Protection, adopted in Plenary Session of the European Parliament on 15 November 2011 7 Source: H2 Gambling Capital 16 bwin.party Co-CEO’s review Annual report & accounts 2011

Technology developments announced funding for ultrafast The continued evolution of smartphone, broadband and Wi-Fi in ten of the UK’s tablet and other mobile technology biggest cities, with additional funding has driven strong growth in the for smaller cities too. consumption of gaming products Against this backdrop, our business through the mobile channel. Customers is continuing to perform well and we no longer have to be in front of their PC remain on-track. or laptop to enjoy playing online games. We expect this trend to continue as Summary, current trading new devices emerge but also as and outlook network infrastructure continues to Since 31 December 2011, the Group improve and as payment processing has performed in-line with the Board’s and personal identification expectations with growth in all technologies evolve. verticals versus the previous quarter. In its recent filing with the Securities A summary of the current trading and Exchange Commission, Facebook performance relative to the fourth stated that 425 million or 50.2% of quarter of 2011 is shown below: users accessed its services via a mobile device. The penetration of Pro forma and Actual Period ended smartphones is continuing to expand Gross average 24 March and is already greater than PCs or daily revenue (€) 2012 Q4 11 Change

laptops. In its recent fourth quarter Sports betting 932,600 900,200 4% results for 2011, Apple Inc. announced Casino & games 923,800 902,700 2% that it had sold 37 million iPhones and Poker 747,300 747,200 0% over 15 million iPad’s, a 128% and 11% increase respectively over the Bingo 324,100 319,000 2% previous year. Total 2,927,800 2,869,100 2% Whilst transactional-based gambling The pace of regulatory, technological such as sports betting is already and competitive change is showing no flourishing over existing networks, sign of slowing down. But, the scale and the next generation of networks are breadth of our revenue base, coupled emerging and can be expected to with our significant resources all mean revolutionise the gaming experience that we are in a strong position to on mobile platforms. With transmission capture a bigger share of the expanding speeds of up to 10 Mbps (Megabits per digital entertainment market. Current second) these networks will be over trading has been robust with gross five times the speed of existing 3G average daily revenue in the 12 weeks networks, significantly improving the to 24 March 2012 up 2% versus the mobile gaming experience, particularly fourth quarter of 2011 to €2,927,800 for games such as poker, casino and (Q4 11: €2,869,100). While the current bingo that typically require greater macroeconomic environment appears volumes of data traffic. The other to be impacting performance in parts of dynamic that is driving the accessibility southern Europe, this is being offset by of online games is the increasing stronger performances elsewhere. prevalence of Wi-Fi that is available in Active player days increased in all public locations and that most mobile verticals versus the previous quarter devices are now able to use. In its March and amounts wagered in both sports 2012 budget the UK Government and casino were up strongly although 17 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 there was a small drop in gross win impact on our financial performance. margin to 7.9% in sports (Q4 11: 8.5%) While regulatory uncertainties and 3.9% in casino (Q4 11: 4.1%). continue, the prospect of the Euro 2012 championship later this year, the Should the proposed regulatory opening of the regulated Spanish framework in Schleswig-Holstein market and our delivery of additional become effective and we are awarded synergies mean that we remain a licence, we propose to offer sports confident about the Group’s prospects. betting, casino and poker products across Germany and pay the proposed 2011 was the year of integration and tax of 20% of gross gaming revenue regulation. 2012 will be the year of on all products. While this will impact integration, regulation and innovation – Clean EBITDA in 2012, we have identified we have made an excellent start. €10m – €15m of savings in 2012 and 2013 that will partially mitigate the

“Even in such a challenging business environment we continue to deliver positive cashflow thanks to the strength of our business model.”

Key players (Left to right) Jim Ryan, Joachim Baca, Norbert Teufelberger and Martin Weigold head the Group’s executive management team 18 bwin.party Our business model Annual report & accounts 2011

Spotlight on: Our business model

We are focused on delivering long‑term profitable growth through growing revenue and managing our cost base. As a consumer-facing business we need to be consistent in the delivery of great content in a safe and secure environment, at a price that represents good value for money and in a way that is easy to use. Revenue Whilst the dynamics vary by product, our revenue model applies to each of our four verticals: how many players do we have on a daily basis and how much do they spend each time they visit? Multiply one by the other and we have gross gaming revenue. Other revenue comes from our business-to-business (‘B2B’) customers (such as PMU in France and Danske Licens Spil in Denmark) and non‑gaming activities such as WPT, InterTrader (our financial spread betting site) and payment services supplied to third parties.

Revenue

Number of Average yield per Multiply active players active player day

Player New player Existing Frequency Mix of games Player mix retention sign-ups active players of play

Key Performance Indicators Each of our KPIs lies behind one of our core revenue drivers, affecting either the number of active players or average player yield. We provide quarterly, data on each of these metrics on our website. Other factors influencing revenue include player retention and the number of existing players that leave the site through ‘churn’; the mix of games played (as different games/bets have different revenue characteristics); how often people play and the mix of players i.e. are they experienced high value players or novice low value players? To find out more, visit Each of our product KPIs are detailed in the Review of 2011 on pages 37 to 42. www. bwinparty.com. 19 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Cost base Distribution costs as a % of total revenue1 35% 36% We categorise costs as follows: ‘distribution’ or marketing-related costs €m

300 1% 1% that tend to be more variable in nature, rising and falling with revenue; and Customer acquisition and retention 3% 2%

‘administrative expenses’ that tend to include those items that are more fixed 4% 250Afﬁliates 4%

in nature and therefore provide a source of operational leverage. 8%

200Third-party content9%

We maintain a tight control on costs and have identified €65m in annual 150Webhosting and technical services synergies from the Merger, three quarters of which are cost savings such as Customer bad debts 21%

rationalisation of surplus systems and technology, greater purchasing power 100 18%

2011 0

from our increased scale and reduced reliance on third-party suppliers. 50 2010 The balance is expected to come from revenue synergies such as cross-selling 050 2011 2010

and improved yield management. 18%

100

Customer bad debts 21% Balance sheet 150

Webhosting and technical services

9% We generate net cash and have no net debt. We paid a €15m half year dividend 200Third-party content

in October 2011 and are recommending a final dividend of approximately €15m. 8% 250 Afﬁliates 4%

Since September 2011 we have also repurchased 31.2 million ordinary shares 3%

Customer acquisition and retention 2%

1% 300

for a total consideration of approximately £44.9m. Our policy is to continue to 1% €m

36% manage our balance sheet whilst retaining the flexibility to seize opportunities 35%

should they arise. Distribution costs as a % of total revenue Clean EBITDA administrative expenses 1 1 Strategy as a % of total revenue 33% 35% Our strategy to deliver long-term revenue growth includes five key elements: €m 300

• focus on regulated and to-be-regulated markets; 250 Transaction fees 11% • invest in our core assets; 9%

• secure long-term strategic partnerships; 200Staff costs 3% 3%

• extend our reach into new areas of digital entertainment; and 150Outsourced services

• act responsibly Other overheads16% 16%

100

2010 2011 Organisation and business structure 0

50 5% 5%

5% 5%

We are organised into four product verticals: sports betting, casino & games, 050 2011 2010

poker and bingo. This provides greater control over resources for each product 100

16% and greater flexibility to manage the particular challenges and different Other overheads16%

dynamics faced by each. This also reflects the way in which the business is 150Outsourced services

3% 3%

being structured technically with each of the gaming verticals plugged into 200Staff costs

9% 250 a common technical platform that hosts all of the back-office functions such Transaction fees 11%

as loyalty, payments, data warehouse and customer service.

300

Target business structure €m 33% 35%

as a % of total revenue

1 bwin PartyPoker Casino & games Bingo Clean EBITDA administrative expenses

S P C G B P S C G B C G B C G B

New common platform (loyalty, player management, customer support, data warehouse and payments)

S Sports betting P Poker C Casino G Games B Bingo 1 Pro forma Continuing operations Strategy

Extending into a new digital landscape Our top priority remains completing the Merger integration as planned and delivering the annual synergies already identified. The shifting business environment has meant that our business strategy has continued to evolve and now comprises the following five elements:

1 2 Focus on regulated Invest in our core and to-be-regulated assets – technology, markets product, brands and people

read more read more p22 p24 3 4 5 Secure long-term Extend into new Act responsibly strategic alliances areas of digital entertainment

read more read more read more p26 p28 p30 22 bwin.party Strategy Annual report & accounts 2011

Focus on regulated and to-be-regulated markets The transition to regulated markets is continuing to gather momentum. Several countries in Europe are moving towards the implementation of a regulated framework for online gaming. The US is also moving in 1 a similar direction. This transition is a major opportunity for bwin.party although it comes at the cost of greater gaming duties.

2011 achievements Monsieur Villotte, the French regulator, who has called for an “analysis of the Following the expansion of permitted fiscal constraints and economic model”. games, we launched cash game poker Elsewhere, much of the second half of and casino games into Italy in July 2011 2011 was spent preparing our systems and have already secured meaningful and offerings for the newly regulated market share in each segment. In markets of Denmark and Spain. While France, we sustained our market share our poker, casino and sports betting in poker and increased it in sports offering launched successfully in betting despite the country’s Denmark on 1 January 2012 as planned, challenging fiscal and regulatory a change of government meant that the regime. We continue to lobby for opening of the Spanish market was change to the current regime and are delayed until later this year. encouraged by the recent comments by

French poker market share

Chilipoker/ipoker

Everest/Betclic

BarrièrePoker

20 bwin.party PokerStars Partouche

Winamax

10 pkr

0 1

0 1 10 pkr

PokerStars Winamax Partouche 20 bwin.party Everest/Betclic BarrièrePoker

Chilipoker/ipoker 30 Source: Company estimates based on player numbers

1 Combined liquidity across all group networks 40

% French poker market share 23 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Measures of success Pro forma NGR – regulated v non-regulated • Launched casino and cash game 2011 2012 poker into Italy in July 2011 • Launched poker, casino and sports 27% 31% betting in Denmark in January 2012 39% • Increased share of the online poker market in France

• 27% of 2011 net gaming revenue 73% To-be-regulated Unregulated

came from regulated markets (France, Regulated 30% Italy and UK)

• Introduced a new sports software Regulated To-be-regulated Unregulated 30% framework, increasing delivery speeds 73% and flexibility that is vital for newly regulated markets Regulated markets in 2011: UK, Italy France

Regulated markets in 2012: UK, France, Italy, Denmark

To-be-regulated markets in 2012*: Spain, Greece, Germany 39%

*(Based on NGR in 2011) 31% 27%

2011 2012 Pro forma NGR – regulated v non-regulated

Plans for 2012 The transition to regulated markets will continue with the opening of the Spanish market where we plan to launch sports betting, poker, casino and bingo. Should we be successful in securing a licence in Schleswig-Holstein, we plan to launch all products except bingo in Germany under this regime. The exact timing of when markets will open is always a challenge for operators as are additional amendments to legislative requirements by regulators. However, through an active programme of engagement with regulators and governments around the world, we aim to stay fully informed and are ready to mobilise our launch teams quickly. Our objective is always to launch as soon as regulations allow. Land of opportunity The Group is well-positioned to enter the US, should the requisite legislation be enacted 24 bwin.party Strategy Annual report & accounts 2011

Invest in our core assets – technology, product, brands and people To attract and retain real money players we have to provide the very best online gaming experience, which is why we continue to invest in our technology, products and brands as well as the people that make it all 2 happen. Through targeted allocation of our capital we enhance our reputation for trust and quality, driving revenue and cashflow.

2011 achievements into a single liquidity pool with bigger prizes and higher jackpots thereby Our live betting offer has improved making our offering more attractive significantly with a new interface and and this is beginning to feed through increased coverage by our live-betting into our financial performance. traders through greater automation, allowing us to redeploy bookmakers The challenge of merging two working to cover additional events. In casino cultures across multiple locations has we launched into Italy and added 21 been met through the implementation new casino games of which 14 were of several people-related initiatives developed in-house. We also launched including a new Leadership our own no-download casino product Development Programme spanning all onto the existing bwin technology levels of our management structure as platform in October 2011 and the early well as the introduction of a unified results have been very encouraging. In approach to training across the Group. If you can stand the heat... Satsumo is one of the characters from poker, we changed to a weighted We have also put in place a new identity Enter the Kitchen, one of our 28 new contribution rake calculation that and market positioning for IVY games that will launch in 2012 benefited more recreational players Comptech, our subsidiary that provides and helped us secure the clear number software development and IT-enabled two position behind PokerStars in the business process outsourcing. IVY has dotcom liquidity pool, a position that also relocated to a brand new, state-of- has been sustained into 20122. In bingo the-art facility and has put in place an we consolidated our UK bingo networks improved incentive scheme to attract and retain the very best talent in Hyderabad, India.

2 Source: PokerScout.com 25 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Measures of success Sports betting – Amount wagered and gross win margin • Improved live betting margins on ¤m % all labels with 9% more live events 1000 10 on bwin and 57% more on PartyBets and Gamebookers 800 8

• Launched 21 new casino games 600 6

Gross win margin % in 2011 Bet amount ¤m

400 4

2011 2010 2011 2011 2011 2010 2010

• Poker Operator of the Year – 2010

Q Q Q Q Q Q Q

200 Q 2 4 1 2 3 4 1 2 3

0 International Gaming Awards 0

0 1 2 3 4 1 2 3 4 0 200 • First ever spread betting app for the Q Q Q Q Q Q Q Q 2

iPad launched by InterTrader.com 2010 2010 2010 2010 2011 2011 2011 2011

400 4

• Spread Betting Operator of the Year – Bet amount ¤m Gross win margin % 600

EGR Awards 6 800

• Innovation in Payment Solutions 2011 8

1000 – EGR B2B Awards 10 %

• Launch of MegaGames on bwin.com ¤m Sports betting – Amount wagered and gross win margin

Plans for 2012 sports betting, poker, casino3 as well as a brand new Spanish bingo brand, As mentioned above, while completing all of which will be running on the new the integration of our products and integrated back-office platform. platforms is a key priority we will also continue to deliver a number To improve our appeal as an employer of operational and product we are launching a new total rewards developments in 2012. package and flexible benefits scheme for staff in our key locations. These will include expanding the number of live events covered in Market on the move our sports offer, repositioning the InterTrader’s spread betting iPad PartyPoker product and brand and app was an industry first completing the sale of Ongame. In casino we will launch a download casino for bwin.com and add 28 new casino games developed by our in‑house production team. The opening of the Spanish market will see us launch

3 Excluding slots 26 bwin.party Strategy Annual report & accounts 2011

Secure long-term strategic alliances We continue to leverage our own assets and the assets of others through a series of long‑term strategic relationships that include B2B relationships, sports sponsorships and 3 industry affiliations.

Our bwin brand is synonymous with which covers poker and casino games, sports, supported by our long-term is designed to augment our B2C offering marketing relationships with some of as well as generate additional revenue. the world’s most recognised brands We also announced similar arrangements such as Real Madrid and MotoGP. with MGM and Boyd Gaming two of the Our sports sponsorship strategy largest and most respected casino remains focused on European football, operators in the US, in anticipation of motorcycle racing and basketball where either state or federal legislation, the we sponsor Euroleague Basketball and objective again being to support our the industry association, FIBA. planned B2C franchise should regulations allow. 2011 achievements During the year we extended our Preparing for the launch of our sponsorship with FIBA and Euroleague B2B service for Danske Licens Spil in Basketball until 2014, MotoGP until Denmark on 1 January 2012 was a major 2013 and also began a multi-year project in 2011. Similar to our deals with sponsorship of the Pro Padel Tour. PMU and ACF in France, the agreement,

Competitive edge We again sponsored the famous Hahnenkamm downhill ski race in Austria in 2011 27 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Measures of success • Strategic agreements with MGM and Boyd • Successful launch of poker and casino for Danske Licens Spil in Denmark • Improved B2B integration technology makes it easier to launch services for our customers • Consolidation of position in French poker with strong growth by PMU

Plans for 2012 We are focused on delivering excellent service and product to our existing B2B customers . We also continue to explore regulated and to-be regulated markets for meaningful partners that can make a difference to our performance and/or deliver a strategic benefit that we cannot achieve alone.

Playing partners We have secured strategic relationships with some of the world’s leading gaming companies 28 bwin.party Strategy Annual report & accounts 2011

Extend into new areas of digital entertainment At the time of the Merger we recognised the opportunity to extend our assets and skills into new areas of digital entertainment, in particular social gaming. We also identified a major opportunity to exploit our existing 4 products and brands through mobile, touch and video.

As a result, the Board has added a new Mobile element to the strategy, one that is The mobile channel is not new to focused on extending our reach into bwin.party having launched our first these new and exciting markets. mobile sports betting in 2001. However, Social gaming the advent of smartphone and tablet technology in conjunction with Social gaming is a rapidly growing increasing connection speeds has market and shares many characteristics revolutionised the mobile gaming with our core business including the proposition. A fast-growing part of our need to develop high quality online business, mobile gross gaming revenue games, manage large numbers of increased by 104% year-on-year to simultaneous players with the support €25.3m (2010: €12.4m) and we expect of fully-integrated business intelligence further strong growth in 2012. and analytics, provide a payments Poker + platform as well as sophisticated online We launched our Aces 2011 achievements marketing through a range of channels. Hangout game on Google+ We established a dedicated resource However, we recognise that it is also very in March 2012 within the Group to manage all of our different in terms of what drives customer development and investment in each behaviour and how revenue is generated. of the mobile platforms. Called Mobile, Having researched the business case Touch, Video, we continued to expand thoroughly and balanced this against our mobile offer with the launch of other opportunities, the Board has multiple apps on both Android and formally adopted this addition to the iOS platforms – our products are now strategy and we have established a available in app stores in 18 countries stand-alone and dedicated vehicle and there were over 31,000 downloads to pursue social gaming opportunities of our bwin sports betting iPhone app that sits outside our core real money in January 2012. On the social gaming gaming activities. Recognising the front we launched a beta version of a different skills required we have new poker concept called Aces Hangout recruited a knowledgeable and on Google+ that has a social webcam experienced management team that platform connecting each of the will be supported by its own software participating players. development resource that will develop a range of social games for launch in 2012. 29 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Measures of success Total mobile GGR

• Established a dedicated internal €m resource for Mobile, Touch and Video 25

• Strong growth in gross gaming 20 revenue derived from mobile – up 104% 15

• Our gaming apps are now available 10

2011 2010 2009 2006 2007 2008 in 18 countries 50

• Launch of Android app for bwinPoker 05 in France 2006 2007 2008 2009 2010 2011

• Launch of Aces Hangout, a social 10

online poker game 15 • Established a dedicated vehicle to 20

execute our social gaming strategy 25

€m Total mobile GGR

In mobile we trust Plans for 2012 We will launch a dedicated coaching app in support During 2012 we will establish a of our sponsorship of proprietary social game technology Euroleague Basketball platform and launch online and smartphone applications in several of the Group’s core product verticals, as well as an independent social game destination website. The first social gaming product to launch will be a poker-based product followed by a casino and sportsbook application by the end of 2012. In Mobile, we will launch a new PartyPoker mobile app and plan to launch HTML5 mobile versions of our key gaming sites. As we complete elements of our integration plans in 2012, we will be able to redeploy even more resources into extending our business into these exciting new business areas. 30 bwin.party Strategy Annual report & accounts 2011

Act responsibly Being responsible is a prerequisite for success. However, to sustain our business model we choose to go beyond the requirements prescribed by regulation and statute with the objective of providing the 5 world’s safest and most innovative gaming platform founded upon operational excellence and scientific research.

Since 2005 we have been working commended as part of the independent with the Division on Addiction (‘DOA’), assessment of our working practices Cambridge Health Alliance, a Harvard by GoodCorporation (see page 60). In Medical School teaching affiliate in Europe, we helped to establish a Europe- order to both expand our knowledge wide agreement on responsible remote of gambling-related problems and also gambling measures. The European to help us develop a multi-layered Committee of Standardisation (‘CEN’) responsible gaming tool that can be adopted the agreement in February tailored to an individual’s requirements. 2011, outlining 134 practical measures aimed at safeguarding a high level of Good Citizen However, our approach to FTSE4Good again consumer protection and ensuring that responsibility extends beyond our recognised the Group as remote gambling operators behave core gaming business and includes all a responsible company responsibly in the European Union. In of our core stakeholders including the 2011, together with some of the world’s communities where we have a physical largest corporations including Google presence. For more details regarding and Vodafone, bwin.party became a our approach to stakeholder founding member of the ICT Coalition management please see the for a Safer Internet for Children and Sustainability section of our corporate Young People – details of the coalition website: www.bwinparty.com. were published in January 20124. 2011 achievements As well as these corporate initiatives, We continued our pioneering our employees have also been playing collaboration with the DOA that their part in acting responsibly by published three more peer-reviewed participating in pro bono activities for academic papers into gambling-related worthy causes in local communities. issues in 2011. As well as being widely In recognition of our efforts during the acclaimed in the academic world, year we were again entered into the our collaboration with the DOA was FTSE4Good Index Series.

4 http://www.gsma-documents.com/safer_mobile/ICT_Principles.pdf 31 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Measures of success • Received certification from CEN5 for our responsible gambling measures • Re-accredited as a member of the FTSE4Good Index Series • Re-certificated by GamCare as a responsible operator • Voted Socially Responsible Operator of the Year, 2011 at eGaming Awards • In 2011 our staff participated in 120 Setting EU standards separate pro bono projects We passed our audit of 134 • A further three papers published by CEN standards in 2011 the Division on Addiction

Our approach The graphic below summarises our approach to responsible and sustainable business practice Plans for 2012 We will continue to build on our K research programme with the DOA ty Society no fe w as we seek to improve our knowledge a l S ed and understanding and work towards & N g h ity e e lt n t D tw & a model of consumer protection tools u en akeholde ia o a m St rs lo r I e m g k n that can be tailored to individual m e u g n H o a s H e customers. Our investment in research C g e ea Sc o n ye lt i v E o h en l ca t a is not limited to the DOA, we are also p r i e fii t m usines c i E B s N o committed to supporting the GREaT e & t n ible A w

Foundation in the UK and other s pp n R li o o ng es e r p i e k

s a d responsible gaming charities around n m e r o a c i R G h

t the world. We will support local s c E

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communities through our pro bono

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across former bwin offices, as well g m

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5 European Committee for Standardisation 32 bwin.party Annual report & accounts 2011

Review of 2011 The year in play 33 bwin.party Overview 02 Review of 2011 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

The Merger was completed on 31 March 2011. For accounting purposes PartyGaming is treated as the acquirer of bwin and as a result the Group’s statutory results for the year ended 31 December 2011 include a full period from PartyGaming while bwin is included from 1 April 2011 only.

Introduction Spotlight on: In preparing these full year results for 2011, we have provided key highlights a detailed review of the operational performance of the combined business and our progress on integrating bwin • Clean EBITDA ahead of market expectations due to faster than Interactive Entertainment AG (‘bwin’) and PartyGaming Plc expected synergies (‘PartyGaming’). In addition, we have included a detailed review of our business strategy, achievements against that # • Pro forma total revenue slightly ahead at €816.0m despite closure strategy to-date and objectives for 2012. of French casino and World Cup in 2010. Actual total revenue up 93% to €691.1m primarily due to the Merger* To assist analysts and investors in assessing the performance of the Group, we have also produced pro forma results that • Pro forma Clean EBITDA from Continuing operations up set out the financial performance of the Group as if the 3% to €199.3m primarily due to synergies coming through combined operations had always been in place. more quickly than expected, offsetting increased gaming duties from regulated markets. Actual Clean EBITDA from Continuing While further details of the consolidated performance of operations up 79% to €168.3m primarily due to the Merger Continuing and Discontinued operations are contained in the financial information and the accompanying notes, all • Synergies realised in 2011 of €23.3m (including €5.0m related to references to financial performance or key performance Discontinued operations), ahead of target. Integration plans on- indicators throughout this document refer to the Continuing track to deliver €40m of synergies in 2012 and €65m in 2013 operations on a pro forma basis only, unless expressly • Continuing pro forma Clean EPS of 18.5 € cents per share (2010: 19.0 stated otherwise. € cents); actual Clean EPS of 17.9 € cents per share (2010: 17.8 € cents) • Non-cash impairment of intangible assets of €408.7m (2010: nil) “We made excellent progress following the introduction of proposed changes to the European in 2011. We remain on-track to regulatory and fiscal landscape in 2011 • Recommended final dividend of 1.56p per share (2010: nil) making deliver approximately €40m of a total FY11 dividend of 3.12p per share (2010: nil) synergies this year and €65m • Current trading robust with average gross daily revenue up 2% versus the previous quarter to €2.93m (Q4 11: €2.87m) in 2013.” * On 31 March 2011 PartyGaming Plc merged with bwin Interactive Entertainment AG Jim Ryan and Norbert Teufelberger (‘the Merger’) Co-CEOs # The actual results include PartyGaming’s results throughout 2011 and the results of bwin with effect from the Merger on 31 March 2011. Pro forma results set out the financial performance of the Group as if the Merger had always been in place 34 bwin.party Review of 2011 Annual report & accounts 2011

Financial summary Results overview Audited results for the year ended 31 December Pro forma# Actual# Total revenue was slightly ahead at €816.0m (2010: €814.0m) 2011 2010 2011 2010 with a strong casino performance offset by a soft first half in Year ended 31 December €million €million €million €million poker, the loss of French casino revenues in the second half of Revenue 2010 and the absence of the FIFA World Cup that flattered our Sports betting 259.7 258.6 193.9 20.7 overall performance in 2010. However, with merger synergies Casino & games 262.7 241.0 237.5 152.1 coming through more quickly than previously expected, pro Poker 209.7 226.3 184.6 124.2 forma Clean EBITDA increased to €199.3m (2010: €193.2m). Bingo 63.7 71.3 58.5 51.4 This was despite a €27.8m increase in gaming duties versus Net revenue 795.8 797.2 674.5 348.4 2010. On a like-for-like basis, excluding the impact of increased Other revenue 20.2 16.8 16.6 8.9 gaming duties, the closure of our French casino and the Total revenue 816.0 814.0 691.1 357.3 2010 FIFA World Cup, pro forma Clean EBITDA would have Clean EBITDA~ from Continuing operations 199.3 193.2 168.3 94.2 increased by 27% to €225.3m (2010: €177.1m). Clean EBITDA~ from Discontinued Actual total revenue for the period was up 93% to €691.1m operations^ (17.5) (25.8) (13.1) (0.2) (2010: €357.3m) primarily due to the Merger. Each of the Total Clean EBITDA~ 181.8 167.4 155.2 94.0 product verticals benefited from the Merger reflecting (Loss) profit after tax – Continuing the inclusion of bwin’s business activities for the first time. operations (401.2) 85.7 (414.7) 40.2 Actual Clean EBITDA from Continuing operations also (Loss) profit after tax (422.3) 50.4 (431.0) 38.9 increased primarily as a result of the Merger by 79% to 2011 2010 2011 2010 Earnings per share €cents €cents €cents €cents €168.3m (2010: €94.2m). Basic EPS (loss per ordinary share) – Although the Merger was effectively a merger of equals with Continuing operations all consideration satisfied in shares, IFRS requires the Merger Standard (47.1) 10.4 (56.0) 9.8 to be accounted for as if PartyGaming had acquired bwin. The Clean~ 18.5 19.0 17.9 17.8 accounting for this resulted in the recognition of goodwill at Basic EPS (loss per ordinary share) – the time of the Merger measured as the difference in the fair Total operations value of the consideration and the fair value of the separately Standard (49.6) 6.2 (58.2) 9.5 identified assets and liabilities of bwin. Proposed regulatory Clean~ 16.0 14.8 15.8 17.7 changes in Germany that were announced one week later resulted in a substantial reduction in the Company’s share * On 31 March 2011 PartyGaming Plc merged with bwin Interactive Entertainment AG (‘the Merger’) price. As a result, the financial statements include a non-cash # The actual results include PartyGaming’s results throughout 2011 and the results of bwin impairment of the goodwill of €391.7m. Had the Merger with effect from the Merger on 31 March 2011. Pro forma results set out the financial performance of the Group as if the Merger had always been in place completed one week later, no such impairment would have ~ Before the provision for costs associated with the Group’s Non-Prosecution Agreement, been required. These items together with one-off deal and amortisation and impairment of acquired intangibles, reorganisation expenses, merger restructuring costs associated with the Merger of €23.8m and acquisition expenses, exchange differences and before non-cash charges relating to share-based payments (see reconciliation of Clean EBITDA to operating profit (loss) on the (2010: €12.6m) meant that on a pro forma basis the Group’s next page) Continuing operations reported a pro forma loss before tax of ^ Discontinued operations refers to Ongame’s B2B business as well as operations located physically outside of the US but which relate to US customers that were no longer accepted €407.8m (2010: profit before tax of €85.8m). On an actual basis, following the enactment of the UIGEA the Group’s Continuing operations reported a loss before tax ~ EPS before the provision for costs associated with the Group’s Non-Prosecution Agreement, amortisation and impairment of acquired intangibles, reorganisation expenses, merger and of €422.9m (2010: profit before tax of €43.8m). acquisition expenses, share-based payments and foreign exchange differences (see reconciliation of Clean EPS to Basic EPS in note 9 to the financial statements) 35 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Discontinued operations relate to the Ongame B2B business Key developments that is in the process of being sold to Shuffle Master and on- In 2011 our focus was very much on integration and going costs associated with the Company’s Non-Prosecution regulation. Delivering the targeted €40m of synergies from Agreement (‘NPA’) that was reached with the United States the Merger in 2012 remains a top priority, as well as ensuring Attorney’s Office for the Southern District of New York (the that we foster and protect the value of opportunities relating ‘USAO’) on 6 April 2009. The total loss after tax after taking to newly regulated and to-be-regulated markets. Balancing Discontinued operations into account was €422.3m (2010: these two sometimes competing objectives has been a profit after tax of €50.4m). On an actual basis, the total loss challenge, having been forced to reschedule certain of our after tax was €431.0m (2010: profit after tax of €38.9m). integration plans in order to meet strict schedules imposed Clean EPS from Continuing operations was down 3% at by governments and regulators alike. 18.5 € cents (2010: 19.0 € cents), and on an actual basis Summary of Results Clean EPS from Continuing operations increased by 1% to 17.9 € cents (2010: 17.8 € cents). The increased amortisation Total revenue Pro forma Actual and impairment of acquired intangibles during 2011 meant 2011 2010 2011 2010 that on an actual basis the basic loss per ordinary share from Year ended 31 December €million €million €million €million Continuing operations was 56.0 € cents (2010: EPS 9.8 € cents). Sports betting 260.6 258.6 194.7 20.7 Taking into account Discontinued operations, Clean EPS was Casino & games 263.7 241.0 238.4 152.1 up 8% to 16.0 € cents (2010: 14.8 € cents) whilst on an actual Poker 213.0 227.4 187.5 125.3 basis was 15.8 € cents (2010: 17.7 € cents). Bingo 64.6 72.4 59.4 52.5 The following table provides a reconciliation of the Unallocated corporate 14.1 14.6 11.1 6.7 movements between Clean EBITDA and operating (loss) profit: Continuing operations 816.0 814.0 691.1 357.3 Discontinued operations 14.1 16.1 10.1 – Reconciliation of Clean EBITDA to Total 830.1 830.1 701.2 357.3 operating (loss) profit

Pro forma Actual Clean EBITDA Pro forma Actual 2011 2010 2011 2010 Year ended 31 December €million €million €million €million 2011 2010 2011 2010 Year ended 31 December €million €million €million €million Continuing operations Sports betting 64.3 64.6 46.0 9.0 Clean EBITDA 199.3 193.2 168.3 94.2 Casino & games 92.3 79.2 83.2 52.7 Exchange differences (4.7) 3.7 (4.5) 6.1 Poker 30.0 27.7 26.1 19.3 Depreciation (20.9) (15.0) (18.9) (6.4) Bingo 20.6 21.1 19.8 15.2 Amortisation (132.5) (61.0) (125.6) (32.8) Unallocated corporate (7.9) 0.6 (6.8) (2.0) Share-based payments (12.5) (17.0) (12.0) (9.1) Continuing operations 199.3 193.2 168.3 94.2 Acquisition expenses (17.4) (11.9) (12.0) (4.9) Discontinued operations (17.5) (25.8) (13.1) (0.2) Impairment losses (408.7) (0.1) (408.7) (0.1) Total 181.8 167.4 155.2 94.0 Reorganisation expenses (6.4) (0.7) (6.3) (0.7) (Loss) profit from operating activities – The actual results include PartyGaming’s results throughout Continuing operations (403.8) 91.2 (419.7) 46.3 the entire period and the results of bwin Interactive Discontinued operations Entertainment AG with effect from the completion of the Clean EBITDA (17.5) (25.8) (13.1) (0.2) Merger on 31 March 2011. The pro forma results set out the Exchange differences 1.7 (0.9) 0.4 – financial performance of the Group as if the Merger had Depreciation (1.4) (2.7) (0.7) – always been in place. Amortisation (2.3) (5.0) (1.3) – Share-based payments (0.2) (0.9) (0.1) – Acquisition expenses (0.3) – (0.3) – Loss from operating activities – Discontinued operations (20.0) (35.3) (15.1) (0.2) 36 bwin.party Review of 2011 Annual report & accounts 2011

Reconciliation of Clean EBITDA to Clean Pro forma results earnings used to calculate Clean EPS Total revenue increased slightly to €816.0m (2010: €814.0m)

Pro forma 2011 2010 driven by a strong and consistent performance throughout

Continuing Discontinued Total Continuing Discontinued Total the period from casino & games and other revenue that €million €million €million €million €million €million more than offset year-on-year declines in poker and bingo.

Clean EBITDA 199.3 (17.5) 181.8 193.2 (25.8) 167.4 Casino & games grew by 9%, despite the closure of our French casino business that generated revenue of €7.5m in Depreciation (20.9) (1.4) (22.3) (15.0) (2.7) (17.7) 2010. Sports betting was broadly flat in the period which Amortisation (132.5) (2.3) (134.8) (61.0) (5.0) (66.0) implied underlying growth as 2010 was flattered by the Amortisation on acquired FIFA World Cup. Poker declined year-on-year due to continued intangible pressure from US facing sites in the first half. However, assets 124.3 – 124.3 51.4 – 51.4 following the closure of Full Tilt and the launch of cash games Finance income 6.5 – 6.5 1.4 – 1.4 in Italy, poker was stable in the second half of the year. Bingo Finance continued to suffer from the intense competition in both the expense (9.2) (0.6) (9.8) (3.6) (1.3) (4.9) UK and Italy. Other revenue, that includes B2B revenue, WPT, Unwinding of payment processing fees and InterTrader, grew by 20%. Faster discount associated with than expected realisation of financial synergies from the the Group’s NPA – – – – 1.3 1.3 Merger meant that pro forma Clean EBITDA increased to Share of loss of €199.3m (2010: €193.2m) and with it the Clean EBITDA margin associates (1.3) – (1.3) (3.2) – (3.2) also increased to 24.4% (2010: 23.7%), slightly above the top Tax per end of our target range for 2011 of 22% to 24%. This has been accounts 6.6 (0.5) 6.1 (0.1) (0.2) (0.3) achieved despite the increase in gaming taxes that reached Tax on €65.7m (2010: €37.9m) together with the financial impact of amortisation on acquired marketing campaigns in newly regulated markets. intangible Actual results assets (15.1) – (15.1) (4.7) – (4.7) The year-on-year comparison of the actual results, while Tax on impairments also affected by the absence of the FIFA World Cup and the on acquired closure of French casino, were driven by the inclusion of bwin intangible from 1 April 2011 as well as a strong performance from the assets and goodwill (4.5) – (4.5) – – – casino & games vertical. Total revenue increased by 93% to Non-controlling €691.1m (2010: €357.3m) and actual Clean EBITDA increased interests 2.8 – 2.8 2.4 – 2.4 by 79% to €168.3m (2010: €94.2m). Clean earnings 156.0 (22.3) 133.7 160.8 (33.7) 127.1 Both pro forma and actual Discontinued operations represent primarily the Ongame B2B business along with costs associated with US customers that were no longer accepted following the enactment of the UIGEA. The underlying performance of each of our consolidated key performance indicators, which are based on net revenue, are highlighted below. 37 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Consolidated Key Performance Indicators Sports betting

Pro forma Actual Pro forma Actual

Year ended 31 December 2011 2010 Change 2011 2010 Change 2011 2010 2011 2010 Year ended 31 December €million €million Change €million €million Change Active player days (million) 86.6 93.7 (8%) 71.0 31.3 127% Total stakes 3,759.5 3,873.5 (3%) 2,887.0 355.9 711% Daily average players Gross win margin 7.7% 7.5% 7.6% 7.2% (000s) 237.3 256.7 (8%) 194.5 85.8 127% Gross revenue 291.1 291.4 (0%) 218.7 25.7 751% Yield per active player Bonuses and other fair day (€) 9.2 8.5 8% 9.5 11.1 (14%) value adjustments to New player sign-ups revenue (31.4) (32.8) 4% (24.8) (5.0) (396%) (000s) 1,726.4 1,968.8 (12%) 1,509.9 896.2 68% Net revenue 259.7 258.6 0% 193.9 20.7 837% Average daily net Other revenue 0.9 – n/a 0.8 – n/a revenue (€000) 2,180.3 2,184.1 (0%) 1,847.9 954.4 94% Total revenue 260.6 258.6 1% 194.7 20.7 841% Clean EBITDA 64.4 64.6 (0%) 46.1 9.0 412% On a pro forma basis, active player days declined by 8% Clean EBITDA margin 24.7% 25.0% 23.7% 43.5% reflecting the absence of the FIFA World Cup and a shift in our poker marketing strategy where we have continued to reduce Pro forma results our reliance on affiliates, a number of which were successfully Lower player volumes impacted the amounts wagered which generating large numbers of player acquisitions but that were down 3% year-on-year to €3,759.5m (2010: €3,873.5m) were only marginally profitable. This change in mix also fed primarily due to the FIFA World Cup in 2010. The impact on through into the movement in new player sign-ups and the gross revenue was offset by an increase in gross win margin daily average number of players that were down 12% and to 7.7% (2010: 7.5%) after a particularly strong second half that 8% respectively. However, there was also a corresponding benefited from operational improvements in our live betting positive impact on yield per active player day that increased product and an increase across the former PartyGaming by 8%, effectively offsetting the reduced volume of players. sports betting brands (PartyBets and Gamebookers), both of The net impact was that pro forma average daily net revenue which are now benefiting from being part of a larger sports remained stable at €2,180,300 (2010: €2,184,100). book operation. A small decrease in bonus costs meant that overall net revenue increased to €259.7m (2010: €258.6m). On an actual basis, most of our consolidated key performance Clean EBITDA was stable at €64.4m (2010: €64.6m) as increased indicators trended positively, reflecting the inclusion of bwin gaming duty was offset by cost savings elsewhere. for the first time. The one exception was yield per active player day that declined due to the shift in the revenue mix. Actual results The net effect was that actual average daily net revenue for The scale of the bwin sports business meant that all key the period increased by 94% year-on-year to €1,847,900 metrics increased substantially on an actual basis. Total (2010: €954,400). amount wagered increased by 711% driving both gross and net revenue. The increase in gross win margins to 7.6% There follows a more detailed review of the Continuing (2010: 7.2%) reflects the factors outlined above, as does the operations including each of the individual product segments increase in bonus costs, although as a percentage of the showing both actual and pro forma results. Full details of all amount wagered these have fallen to 0.9% (2010: 1.4%) due to of the Group’s historic quarterly key performance indicators the greater strength of the bwin brand and product offering. (on pro forma basis) can be downloaded from the Group’s website at: www.bwinparty.com The net impact was to increase yield per active player day to €6.2 (2010: €5.6) and average net daily revenue to €531,200 (2010: €56,900). The substantial increase in net revenue fed through to Clean EBITDA that increased substantially to €46.1m (2010: €9.0m). 38 bwin.party Review of 2011 Annual report & accounts 2011

A summary of the key performance indicators for sports As part of the preparation to integrate our existing sports betting during 2011 both on a pro forma and actual basis betting platforms into a single sports betting platform by the is shown in the table below: end of 2012, we made some important changes to our sports software in 2011 that is now much more flexible and allows us Sports betting – Key Performance Indicators to deliver any requisite changes for newly regulated markets Pro forma Actual much more easily and faster than before. We introduced new Year ended 31 December 2011 2010 Change 2011 2010 Change semi-automatic trading models for more sports, resulting Active player days in a marked improvement in all aspects of performance and (million) 41.7 44.5 (6%) 31.3 3.7 746% in live betting, that represented 72.9% of the total amount Daily average players wagered in 2011 (2010: 72.4%), we increased the number (000s) 114.2 121.9 (6%) 85.8 10.1 750% of events covered with a 9% increase on bwin and a 57% Yield per active player increase on PartyBets/Gamebookers. Our live gross win day (€) 6.2 5.8 7% 6.2 5.6 11% margin increased across all sports betting labels and for New player sign-ups the Group as a whole in 2011 it was 5.5% (2010: 5.2%). (000s) 696.9 857.5 (19%) 537.7 66.1 713% Average daily net Our mobile offer continued to grow strongly in 2011. Sports revenue (€000) 711.5 708.5 0% 531.2 56.9 834% net gaming revenue through the mobile channel increased by 92% to €20.5m in 2011 (2010: €10.7m) and in some of our larger The absence of the FIFA World Cup can clearly be seen from markets, represented between 20–35% of our active sports the year-on-year movement in player activity. Active player betting users (the average across all countries is 16%). WAP days were down 6% while new player sign-ups fell 19%. remained the largest platform and the iPhone our fastest However, the impact on average daily revenue was mitigated growing mobile channel with our iOS apps now available in through a 7% increase in yield per active player day as a result 19 countries. Mobile is a core element of our strategy in sports of higher gross win margins. betting and we will be continuing to drive it further in 2012. We have applied for a licence in Schleswig-Holstein and, assuming we are successful, we expect to offer online sports betting across Germany under this licence. We also expect to launch our new regulated Spanish sports offer as soon as the new regulations become effective later this year.

Increasingly mobile 16% of our active sports betting customers used the mobile channel in 2011 39 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Casino & games Actual results

Pro forma Actual The amount wagered increased by 38% to €7.1bn (2010: €5.1bn) reflecting the addition of the bwin casino 2011 2010 2011 2010 Year ended 31 December €million €million Change €million €million Change business that increased gross revenue by a similar percentage Total stakes 7,742.2 8,196.2 (6%) 7,054.2 5,118.0 38% to €283.3m (2010: €204.0m). As bwin had a much more casual player base with significantly lower average yields, bonus Gross win margin 4.0% 3.7% 4.0% 4.0% costs were also significantly lower and this fed through into Gross revenue 309.4 301.3 3% 283.3 204.0 39% net revenue that increased by 56% to €237.5m (2010: €152.1m). Bonuses and other fair value adjustments to Clean EBITDA margins increased to 35.0% (2010: 34.6%) driven revenue (46.7) (60.3) 23% (45.8) (51.9) 12% by the inclusion of bwin casino which generated additional Net revenue 262.7 241.0 9% 237.5 152.1 56% scale economies. Other revenue 1.0 – n/a 0.9 – n/a During 2011, we added 21 new games to our portfolio of Total revenue 263.7 241.0 9% 238.4 152.1 57% which 14 were developed in-house. This remains a core Clean EBITDA 92.5 79.2 17% 83.4 52.7 58% element of our casino strategy and a key differentiator from Clean EBITDA margin 35.1% 32.9% 35.0% 34.6% many of our competitors. Our own proprietary slot games remain some of our most popular representing approximately The casino & games vertical now includes backgammon, 50% of the amount wagered on casino slots in December (previously included in poker) and certain other games 2011. We continued to innovate with the launch of the first (previously included in sports). These changes are not ever raffle jackpot slot and new jackpot slots that are now material and prior year comparatives have been contributing towards our industry leading Big One jackpot restated accordingly. that currently stands at over $5m. For the current year we Pro forma results have increased our production capacity and expect to launch The Group’s casino & games business delivered another 28 new games in 2012. strong performance in 2011 with strong growth in revenue and Clean EBITDA. While the amount wagered was down on the previous year, this was due to the closure of the French casino business at the end of June 2010 and lower poker volumes that remain a major source of casino customers. The total amount wagered fell 6% year-on-year to €7.7bn (2010: €8.2bn). However, the trend seen in the first half continued during the second half with lower bonus costs and an improvement in the gross win margin that for the year as a whole was 4.0% (2010: 3.7%). This increase is as a direct result of the drive to improve the games mix as we continue to increase the proportion of player activity on higher hold games such as slots and jackpot slots. The launch of casino games (excluding slots) in Italy in July 2011 was also a positive factor helping to increase revenue in the second half. Overall net revenue increased to €262.7m (2010: €241.0m). Clean EBITDA increased by 17% to €92.5m (2010: €79.2m) reflecting the growth in net revenue and faster than expected synergies from the launch of the no-download casino for bwin customers, partially mitigated by the increased gaming taxes payable. 40 bwin.party Review of 2011 Annual report & accounts 2011

A summary of the key performance indicators for the Poker casino & games business during 2011 both on a pro forma Pro forma Actual and actual basis is shown in the table below: 2011 2010 2011 2010 Casino & games – Key Performance Indicators Year ended 31 December €million €million Change €million €million Change Gross revenue 263.8 294.1 (10%) 234.1 166.7 40% Pro forma Actual Bonuses and other fair Year ended 31 December 2011 2010 Change 2011 2010 Change value adjustments Active player days to revenue (54.1) (67.8) 20% (49.5) (42.5) (16%) (million) 10.3 9.9 4% 8.7 3.9 123% Net revenue 209.7 226.3 (7%) 184.6 124.2 49% Daily average players Other revenue 3.3 1.1 200% 2.9 1.1 164% (000s) 28.2 27.1 4% 23.8 10.7 122% Total revenue 213.0 227.4 (6%) 187.5 125.3 50% Yield per active player Clean EBITDA 29.4 27.7 6% 25.5 19.3 32% day (€) 25.5 24.3 5% 27.3 39.0 (30%) Clean EBITDA margin 13.8% 12.2% 13.6% 15.4% New player sign-ups (000s) 148.3 152.7 (3%) 135.8 92.0 48% Average daily net There has been a small adjustment to 2010 numbers to revenue (€000) 719.7 660.3 9% 650.7 414.8 57% reflect the fact that backgammon is now included within the casino & games vertical. Prior year comparatives have been Active player days increased by 4% buoyed by the opening of adjusted accordingly. the Italian casino market in July 2011 as well as the launch of Pro forma results our own no-download casino on bwin.com in November 2011. On a combined basis, the Group’s poker networks continue Player yields continued to benefit from our efforts to both to hold a significant share of the three major liquidity pools: improve the mix of games being played as well as increase dotcom, Italy and France although trading remains tough yields from bwin casino customers. Since we launched the given the competitive nature of all markets. In the aftermath PartyCasino no download version on the bwin platform we of the legal actions launched by the US authorities on 15 April have already started to see a marked improvement but yields 2011, Full Tilt Poker was forced to close at the end of June 2011 still remain below that on PartyCasino which is why there which helped the revenue performance in the second half. was a decline on an actual basis. The net result was that The Group is now a clear number two player ahead of iPoker average daily revenue in the period was up 9% on a pro forma in the dotcom market, while in France and Italy, where player basis, despite these factors, and up 57% on an actual basis. liquidity is ring-fenced, we continue to hold market shares of 15% and 14% respectively1. While net revenue declined by 7% year-on-year, the second half was stable versus the first half of 2011, reflecting the benefit from Full Tilt’s demise as well as the launch of cash game poker in Italy in July 2011. An increased focus on more casual players allowed us to reduce bonus costs to 20.5% of gross gaming revenue (2010: 23.1%) while other revenue benefited from another strong performance from our B2B partners in the period. The net impact was that total revenue fell by 6%. The impact of lower marketing spend in regulated markets meant that Clean EBITDA margins increased to 13.8% (2010: 12.2%) and Clean EBITDA increased by 6% to €29.4m (2010: €27.7m).

1 Source: Company estimates and AAMS based on combined share across all platforms 41 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Actual results Poker – Key Performance Indicators

The impact of the Merger, together with the launch of cash Pro forma Actual game poker in Italy resulted in a significant increase in gross Year ended 31 December 2011 2010 Change 2011 2010 Change revenue. The impact of lower bonus rates that fell to 21.1% of gross gaming revenue (2010: 25.5%) helped to drive net Active player days (million) 36.7 41.2 (11%) 31.2 18.5 69% revenue to €184.6m, a 49% increase over the prior year Daily average players (2010: €124.2m). Clean EBITDA increased by 32% to €25.5m (000s) 100.5 112.9 (11%) 85.5 50.7 69% (2010: €19.3m) due to the increased revenues arising from Yield per active player the Merger. However, margins fell from 15.4% to 13.6% due to day (€) 5.7 5.5 4% 5.9 6.7 (12%) the lower margin on the bwin poker business and increased New player sign-ups gaming taxes payable on poker revenues in France (000s) 720.7 726.4 (1%) 679.8 530.4 28% and Austria. Average daily net revenue (€000) 574.5 620.0 (7%) 505.8 341.9 48% A summary of the key performance indicators for poker during 2011 both on an actual and pro forma basis is shown While overall player activity was down year-on-year with an in the table below: 11% reduction in active player days and daily average players, this reflects our focus on overall player value management and in particular a shift in the ecology of our poker rooms. Our shift to a weighted contributed rake calculation for player points has helped us to rebalance the way that player rewards are distributed, making it better for the more casual player and reducing significantly our bonus costs. While this impacted player activity as a number of high volume players sought more generous offers elsewhere, the impact upon player yields has been positive, increasing by 4% . These steps, together with the closure of Full Tilt and the launch of Italian cash games meant that poker remained stable in the second half of 2011.

Liquid assets PartyPoker is the second largest pool of player liquidity in dotcom poker2

2 Source: PokerScout.com 42 bwin.party Review of 2011 Annual report & accounts 2011

Bingo Actual results

Pro forma Actual The addition of Gioco Digitale in Italy via the Merger was the primary driver behind the increase in both gross and net 2011 2010 2011 2010 Year ended 31 December €million €million Change €million €million Change revenue in the period. Similarly, the 30% increase in Clean

Gross revenue 130.4 143.9 (9%) 124.9 121.9 2% EBITDA to €19.8m (2010: €15.2m) was also primarily due to the Merger. We expect to launch a brand new bingo brand for Bonuses and other fair value adjustments Spain when the market opens later this year. to revenue (66.7) (72.6) 8% (66.4) (70.5) 6% A summary of the key performance indicators for bingo Net revenue 63.7 71.3 (11%) 58.5 51.4 14% during 2011 both on an actual and pro forma basis is shown Other revenue 0.9 1.1 (18%) 0.9 1.1 (18%) in the table below: Total revenue 64.6 72.4 (11%) 59.4 52.5 13% Clean EBITDA 20.6 21.1 (2%) 19.8 15.2 30% Bingo – Key Performance Indicators Clean EBITDA margin 31.9% 29.1% 33.3% 29.0% Pro forma Actual

Year ended 31 December 2011 2010 Change 2011 2010 Change

Pro forma results Active player days The performance of our bingo business was somewhat (million) 8.5 9.2 (8%) 8.0 7.4 8% disappointing with a softer performance in both Italy and to a Daily average players lesser extent the UK. Gross gaming revenue declined by 9% to (000s) 23.3 25.2 (8%) 21.9 20.4 7% €130.4m (2010: €143.9m) reflecting a more intense competitive Yield per active player day (€) 7.5 7.8 (4%) 7.3 6.9 6% environment in both countries but particularly in Italy, where New player sign-ups a number of operators have entered the market and Gioco (000s) 160.5 232.2 (31%) 156.6 207.7 (25%) Digitale’s first mover advantage has been eroded. In the UK Average daily net a number of our competitors launched aggressive marketing revenue (€000) 174.5 195.3 (11%) 160.3 140.8 14% campaigns in the second half that held back our financial performance. In an effort to defend our market position in While actual player activity levels benefitted from the both countries we increased bonuses as a percentage of inclusion of Gioco Digitale, underlying player activity was gross revenue to 51.2% (2010: 50.5%) and while successful down by 8% due to competitive pressures in each of our in maintaining a strong market position in both Italy major markets. Player yields also fell on a pro forma basis (30% market share3) as well as the UK (estimated 29% market reflecting increased bonus rates in an effort to hold market share4), it also meant that net revenue was impacted. Clean share coupled with a challenging economic climate. On an EBITDA reduced marginally year on year to €20.6m (2010: actual basis, the yield per active player day increased by 6% to €21.1m) as the reduction in revenue was almost fully offset €7.3 reflecting the higher yields enjoyed by the Italian bingo by a reduction in costs. business. While average daily net revenue increased by 14% on an actual basis it fell by 11% on a pro forma basis, reflecting the challenges faced in our two largest markets.

3 Source: Italy – AAMS 4 Source: UK – Company estimates based on H2 Gambling Capital data 43 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Other revenue Distribution expenses Other revenue, that includes revenue from network services, Pro forma Actual payment services to third parties, domain sales, WPT and 2011 2010 2011 2010 InterTrader was up 20% to €20.2m on a pro forma basis (2010: Year ended 31 December €million €million Change €million €million Change €16.8m) and up 87% to €16.6m on an actual basis (2010: €8.9m). Customer acquisition and retention 148.3 172.1 14% 124.4 71.4 (74%) Cost of sales Affiliates 69.7 64.7 (8%) 64.3 48.7 (32%) The largest element within cost of sales is gaming duties Customer bad debts 8.4 6.5 (29%) 8.0 4.6 (74%) payable in newly regulated and in some cases to-be-regulated Third-party content 33.3 31.8 (5%) 29.6 17.6 (68%) markets. The full year impact of gaming duties in France and Webhosting and Austria together with just over seven months’ duties in Spain technical services 21.7 19.6 (11%) 19.9 16.4 (21%) saw total cost of sales increase to €69.4m on a pro forma Distribution expenses 281.4 294.7 5% 246.2 158.7 (55%) basis (2010: €41.9m) and to €55.7m on an actual basis (2010: Distribution expenses as a % of total revenue 34.5% 36.2% 35.6% 44.4% €6.9m). Other items within cost of sales include television production costs in respect of WPT. As more markets regulate, Pro forma results cost of sales and in particular gaming duties as a proportion of total revenue can be expected to increase. Overall distribution expenses, that represent the majority of the Group’s variable and marketing-related expenses, fell Other operating expenses to 34.5% of total revenue (2010: 36.2%). The absence of the These are primarily merger and acquisition-related expenses FIFA World Cup together with a more focused approach on totalling €17.4m (2010: €11.9m) on a pro forma basis and marketing our core brands meant that customer acquisition €12.0m (2010: €4.9m) on an actual basis. We still expect and retention expenses fell year-on-year both in absolute that the total amount of pro forma merger-related and terms as well as a percentage of total revenue, representing restructuring-related costs, will be within the €50m 18.2% of total revenue in 2011 (2010: 21.1%). The scale of the estimate that we gave when the Merger was announced. reduction was flattered by the fact that in 2010 we conducted a major marketing push into the newly regulated French To-date a total of €29.2m of merger and acquisition market in order to secure a meaningful market position that related expenses and €7.8m of reorganisation costs have was not repeated in 2011. Affiliate costs increased to reach been incurred. 8.5% of total revenue (2010: 7.9%) due to increased affiliate Share buyback programme activity around the closure of Full Tilt and Absolute Poker on 29 June 2011. Third‑party content costs such as software and Having commenced our share buyback programme on brand licensing fees increased slightly to 4.1% (2010: 3.9%) of 6 September 2011, by 31 December the Company had total revenue due to the strong growth in casino and games bought back 15,710,401 shares for cancellation at a total revenue relative to the other product verticals. Webhosting cost, including commission of £19,915,861. Since the year end and technical services costs increased to 2.7% of total and up to 22 March 2012, the Company had purchased for revenue (2010: 2.4%) reflecting our expansion into newly cancellation a further 15,501,381 shares. The total number of regulated markets. bwin.party shares in issue as at 22 March 2012 is 821,882,694 and the total number of voting rights in issue is 819,161,516 (total number of shares in issue minus 2,721,178 shares held by the employee benefit trust in respect of which the voting rights have been waived). 44 bwin.party Review of 2011 Annual report & accounts 2011

Actual results Pro forma results All distribution expenses increased in the year as a result Transaction fees increased by 1%, in-line with the increase of the Merger. However, as a percentage of total revenue in revenue and remained stable at 5.3% of total revenue actual distribution expenses fell to 35.6% of total revenue (2010: 5.2%). Staff costs remained flat in absolute terms (2010: 44.4%). as inflationary pressures were fully mitigated by synergy benefits. Outsourced services fell by 10% to €20.4m (2010: Administrative expenses €22.6m) due to a reduction in the number and the off-shoring Pro forma Actual of certain technical contract staff. Other overheads have 2011 2010 2011 2010 continued to fall throughout 2011 reflecting lower expenses Year ended 31 December €million €million Change €million €million Change incurred ahead of the launch into regulated markets in 2010 Transaction fees 43.1 42.5 (1%) 37.0 18.9 (96%) and Merger-related synergies. The net effect was that Clean Staff costs 130.2 130.8 0% 110.9 57.4 (93%) EBITDA administrative expenses fell to 32.7% of total revenue Outsourced services 20.4 22.6 10% 13.6 – n/a (2010: 34.9%). Other overheads 72.9 88.5 18% 59.9 21.2 (183%) Investment in additional infrastructure as part of the Clean EBITDA administrative integration meant that depreciation increased to 2.6% of expenses 266.6 284.4 6% 221.4 97.5 (127%) total revenue (2010: 1.8%). As expected, the nature of the Depreciation 20.9 15.0 (39%) 18.9 6.4 (195%) assets acquired under the terms of the Merger meant that Amortisation 132.5 61.0 (117%) 125.6 32.8 (283%) there was a large movement year-on-year related to the Impairment losses – amortisation charge that totalled €124.3m or 15.2% of total other intangibles 408.7 0.1 n/a 408.7 0.1 n/a revenue (2010: 6.3%). The impairment losses on intangible Reorganisation assets relate to proposed changes to the regulatory and fiscal expenses 6.4 0.7 (814%) 6.3 0.7 (800%) landscape in a number of European countries, including Administrative Germany that remains the Group’s largest market as well as expenses before share- software acquired as part of the Merger, €15.3m of which was based payments 835.1 361.2 (131%) 780.9 137.5 (468%) accounted for in the first half of 2011. Reorganisation costs Share-based payments 12.5 17.0 26% 12.0 9.2 (30%) increased slightly in the second half versus the first six Administrative months of the year reflecting the completion of the expenses 847.6 378.2 (124%) 792.9 146.7 (440%) organisation blueprint. As mentioned above, total Merger- Clean EBITDA administrative expenses related transaction and reorganisation costs are still as a % of total revenue 32.7% 34.9% 32.0% 27.3% expected to be within than the €50m originally announced. Actual results All administrative expenses increased due to the Merger. The largest absolute movement year-on-year relates to the amortisation and impairment of acquired intangibles Network effect associated with the Merger (see note 10 to the financial A strong performance from our B2B statements on page 127). The underlying year-on-year customers, such as PMU, helped movements are more easily explained using the pro forma grow other pro forma revenue figures above. by 20% in 2011 45 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Taxation Cashflow The tax credit for the period is €8.2m (2010: charge of €3.6m) Actual 2011 2010 reflecting an effective tax rate for Continuing operations Year ended Continuing Discontinued Total Continuing Discontinued Total of 2.0% (2010: 8.2%). The tax credit is caused by deferred tax 31 December €million €million €million €million €million €million arising from increased amortisation that is partially mitigated Clean EBITDA 168.3 (13.1) 155.2 94.2 (0.2) 94.0 by an increase in the tax rate in Gibraltar. Exchange differences (4.5) 0.4 (4.1) 6.1 – 6.1 Net cash Movement in Actual inventory (0.1) – (0.1) – – –

As at As at Movement in 31 December 30 June trade and other 2011 2011 receivables (23.0) 2.1 (20.9) (12.3) – (12.3) €million €million Movement in Cash and cash equivalents 289.0 193.6 trade and other payables (24.8) (19.9) (44.7) 8.2 (22.4) (14.2) Short-term investments 39.7 3.1 Movement in Loans and borrowings (33.2) (40.0) provisions (7.3) – (7.3) (0.1) – (0.1) Net cash 295.5 156.7 Income taxes paid (3.9) – (3.9) (4.2) – (4.2) Payment service providers (less chargeback provision) 59.3 22.2 Other 0.9 – 0.9 – – – Net cash including amounts held by processors 354.8 178.9 Net cash inflow Less: Client liabilities and progressive prize pools (156.2) (93.1) (outflow) from Net cash including amounts held by processors less operating client liabilities 198.6 85.8 activities pre- merger related costs 105.6 (30.5) 75.1 91.9 (22.6) 69.3 Merger-related costs (12.0) (0.3) (12.3) (4.9) – (4.9) Reorganisation costs (6.3) – (6.3) (0.7) – (0.7) Net cash inflow (outflow) from operating activities 87.3 (30.8) 56.5 86.3 (22.6) 63.7 Issue of ordinary shares 1.0 – 1.0 1.8 – 1.8 Purchase of own shares (27.5) – (27.5) – – – Dividends paid (15.0) – (15.0) – – – Repayment of bank borrowings (8.6) – (8.6) – – – Net cash acquired 156.8 2.4 159.2 – – – Acquisitions – deferred payment (6.4) – (6.4) (9.2) – (9.2) Capital expenditure (28.8) (1.8) (30.6) (8.0) – (8.0) Purchases of intangible assets (9.6) (1.4) (11.0) (3.8) – (3.8) Purchase of investments (14.6) – (14.6) (1.7) – (1.7) Other – – – 5.8 – 5.8 Net cashflow 134.6 (31.6) 103.0 71.2 (22.6) 48.6 46 bwin.party Review of 2011 Annual report & accounts 2011

Continuing operations Pro forma income statement

Underlying cashflow from operations remained strong. 2011 2010 Adjusting for merger-related expenses and reorganisation €million €million costs that both increased versus the prior year, net cashflow Continuing operations from operating activities increased to €105.3m. Working capital movements were negative in the period primarily Sports betting 259.7 258.6 reflecting $30.0m of payments due under the NPA and the Casino & games 262.7 241.0 settlement of expenses associated with the Merger. Poker 209.7 226.3 The Group’s share buyback programme began in September Bingo 63.7 71.3 2011 and by the year end €23.2m had been spent out of the Net revenue 795.8 797.2 total cap of €75m to be achieved by the end of June 2012. Other revenue 20.2 16.8 The Group declared a half year dividend of €15.0m that Total revenue 816.0 814.0 was paid in October 2011 while investment in integration Cost of sales (69.4) (41.9) related activities and regulated markets as well additional Gross profit 746.6 772.1 infrastructure costs meant that capital expenditure Other operating income increased to €28.8m. The purchase of investments relates 0.7 0.2 primarily to investments in the Conspo joint venture and Transaction fees (43.1) (42.5) NewGame Capital. The effect of all these movements was Staff costs (130.2) (130.8) that net cashflow from Continuing operations increased Outsourced services (20.4) (22.6) to €134.6m (2010: €71.2m). Other overheads (72.9) (88.5) Discontinued operations Clean EBITDA administrative expenses (266.6) (284.4) The decrease in trade and other payables is largely due Customer acquisition and retention (148.3) (172.1) to the ongoing semi-annual payments relating to the Affiliates (69.7) (64.7) Non-Prosecution Agreement, netted against an increase Customer bad debts (8.4) (6.5) in creditors in Ongame’s B2B business. Third-party content (33.3) (31.8) Principal risks Webhosting and technical services (21.7) (19.6) The principal risks facing the Group are set out on pages Clean EBITDA distribution expenses (281.4) (294.7) 55 to 57 and are unchanged from those reported in the Clean EBITDA 199.3 193.2 Group’s Annual report for the year ended 31 December 2010 Other operating expenses – exchange gains (losses) (4.7) 3.7 and the Company’s prospectus and circular published on Other operating expenses – merger and acquisition costs (17.4) (11.9) 23 December 2010. Administrative expenses – amortisation (132.5) (61.0) By order of the Board of Directors Administrative expenses – depreciation (20.9) (15.0) Martin Weigold Administrative expenses – impairment losses (408.7) (0.1) Chief Financial Officer Administrative expenses – share-based payments (12.5) (17.0)

29 March 2012 Administrative expenses – reorganisation costs (6.4) (0.7) Profit (loss) from operating activities (403.8) 91.2 Net finance expenses (2.7) (2.2) Share of profit losses of associate (1.3) (3.2) Profit (loss) before tax (407.8) 85.8 Tax 6.6 (0.1) Profit (loss) after tax from Continuing operations (401.2) 85.7 Profit (loss) after tax from Discontinued operations (21.1) (35.3) Profit (loss) for the year (422.3) 50.4 Equity holders of the parent (419.5) 52.8 Non-controlling interests (2.8) (2.4) Profit (loss) for the year (422.3) 50.4 Markets and risks Balanced approach 48 bwin.party Markets and risks Annual report & accounts 2011 Our markets, products and brands

Market snapshot Spotlight on: The global sports betting market is highly fragmented, with a large number of privately owned companies in addition to Sports betting a few large publicly-listed operators. Excluding the US, the global online sports betting market was estimated to be Key brand: worth €9.6bn in GGY in 2011, an increase of 6.9% on the prior bwin year. This growth is forecast to continue, with the market Other brands: worth an estimated €12.5bn by 2015, a CAGR of 6.8%1. Gioco Digitale Success factors betoto Offering odds on a wide variety of sporting events is clearly Gamebookers important but so too is scale. By having a broadly-based pool Bet type: of bets, a sports book operator is better able to manage its Against the house or bookmaker portfolio of risk. Punters bet against the house and so it is possible for the operator to lose money if it fails to set odds Key offer: correctly. But, across a wide variety of bets and events, an Odds on a broad range of sports both pre-event and ‘live’ operator should be able to make a positive return, or gross or ‘in-running’ where punters can place a bet after the game win margin. The increasing popularity of live betting means or event has already started that operators also need to be able to offer an extensive Variations: range of live bets in order to remain competitive. Single bets as well as combination or accumulator bets Our offer on multiple results and special bets on individual elements Sports betting is our second largest product vertical, such as ‘first goal scored’ generating total revenue of €260.6m (2010: €258.6m) or 32% of How we make money: the total and Clean EBITDA of €64.3m (2010: €64.6m) 31% of the Gross revenue is total amount wagered less winnings. By total2. The Group’s offer is led by the bwin brand, a pioneer in offering odds that are attractive to customers, bookmakers online sports betting, which today offers odds on more than seek to balance the portfolio of bets taken on a particular 90 different sports in 22 different languages with up to 30,000 event so that they achieve a targeted return or ‘gross win bets being placed simultaneously. We also operate a number margin’ based on the expected outcome. By predicting the of smaller brands including Gamebookers and PartyBets, correct result more often than not, a bookmaker can achieve which are focused on regional markets. an average gross win margin of 6–8% of the total amount More than 100 bookmakers are responsible for managing our wagered, depending upon the mix of live and pre-event sports offer and work around the clock to manage odds on betting that tend to generate different returns as sports including all popular ball-related sports, US Sports and summarised below motorsport such as Formula 1 and MotoGP. By far our most popular sport is European football, where we offer odds on Example revenue model Live Pre-event Total more than 500 leagues in over 100 different countries. Amount wagered 700 300 1,000 As well as pre-event betting, we revolutionised the industry Typical Gross win margin 5% 15% 8% in 2002 with the creation of the first live bet on bwin.com, Gross revenue 35 45 80 enabling customers to bet on sports events while they were Less bonus costs 10% 10% 10% taking place. We now offer live multi-bets and integrate real- Net gaming revenue 31 40 71 time streaming of audio and video coverage including all games in the German Football Bundesliga, games from the Spanish Liga BBVA (Primera Division), as well as the qualifiers for the Champions League, the Europa League and the European Championships.

1 Source: H2 Gambling Capital, February 2012 2 Pro forma Continuing operations – excluding unallocated corporate 49 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Mobile Mobile Sports GGR Having launched our first mobile product in 2001, we have €m continued to innovate with the addition of dedicated mobile 30 apps on a range of different platforms. In 2011 we launched an updated sports app for both of the major smartphone 25 platforms, Apple’s iOS and Android, bringing together both 20 live and pre-event betting for the first time. We also launched 15 a prototype browser-based product that is optimised for

2010 2011 2007 2006 2009

tablet devices. These developments contributed to a 92% 2008

year-on-year increase in net sports betting revenue generated 50 from our mobile channel. In 2012 our offer in sports betting 05 will be further enhanced with the launch of a new touch- 2006 2007 2008 2009 2010 2011

based mobile portal and further optimisations to our existing 10 apps portfolio. 15

Sponsorship 20

Sponsorship has always been a key aspect of the Group’s 25

sports marketing programme and reflects our close 30 connection with the world of sport. Our focus is on European €m

football where bwin is the shirt sponsor for Real Madrid; is a premium partner to FC Bayern Munich; and is also the title Mobile Sports GGR sponsor of Italy’s second-tier football league, Serie B. Away from football, bwin sponsors MotoGP, the International Basketball Federation (‘FIBA’) European and World Championships, Euroleague Basketball and Pro Padel. Each of our sponsorships is subject to a continuous process of evaluation including the impact on brand awareness and the media value obtained. Both Real Madrid and MotoGP have delivered outstanding media performance and brand awareness in Spain and Italy as well as across Europe. The total TV audience viewing figures for Real Madrid games exceeded five billion across European markets in 2010/2011 meaning that the bwin logo was on screen for more than 200 hours.

International reach We extended our sponsorship of FIBA as well as Euroleague Basketball in 2011 50 bwin.party Markets and risks Annual report & accounts 2011 Our markets, products and brands

Market snapshot Spotlight on: Online casinos were some of the first online gaming sites to emerge in the mid-1990s and have been one of the Casino & games best performing segments of the online gaming sector. Excluding the US, the global online casino market was Key brands: estimated to be worth €5.0bn of GGY in 2011, up 10.2% PartyCasino versus 2010. It is forecast to reach €6.9bn by 2015, implying bwin a compound annual growth rate of 8.4%3. GD Casino Success factors Bet type: As players play against the house, player liquidity is not Against the house that extracts a statistical margin or ‘edge’ as important as in poker. However, scale does mean that being a fixed percentage of the amount wagered. The edge an operator is able to offer larger jackpot prizes and this varies depending upon which game is being played can act as a major draw for customers. Reputation is also Key offer: important as players need to be confident that games are fair A variety of slot games, jackpot slots and traditional table and that if they win a major prize, the operator will pay them. casino games such as blackjack and roulette Having a broad range of popular games that is continually being refreshed with new content is another important Variations: success factor, ensuring that players can always find a Casino tournaments, raffle jackpot slots, virtual racing, game they want to play. video poker Our offer How we make money: Our online casino business has a global footprint and is Gross revenue is total stakes less prizes paid out. Games pay a market leader. In 2011, Casino & games generated total out randomly and therefore over short periods, revenues can revenue of €263.7m (2010: €241.0m) or 32% of the total and be volatile but over time will gravitate to the pre-determined Clean EBITDA of €92.3m (2010: €79.2m), 45% of the total4. rate of return or ‘edge’. Prizes for progressive or jackpot slots These represent an increase of 9% and 17% over the are accrued out of gross revenue previous year respectively. In addition to our dotcom offer, our casino products are also Example revenue model Total now licenced in Italy (since July 2011) where we operate under Amount wagered 1,000 the local Gioco Digitale brand and also in Denmark (since Typical Gross win margin 3% January 2012) under the PartyCasino brand. Table-based Gross revenue 30 casino games are set to launch in Spain when the market Less bonus costs 15% regulates during 2012. Net gaming revenue 25 PartyCasino is our largest brand and is the world’s largest online casino. In casino, ‘content is king’ and the Group has developed a unique portfolio of games including those produced by our in-house production team such as Loot’em Khamun, Aztec Gold and Kung Food. To supplement our own branded content, we partnered with several Hollywood studios and other companies to build an exclusive range of unique slot games including The Godfather Part I, Rambo, Terminator, Sin City, Gone With The Wind and Resident Evil. Developing our own games is a key point of differentiation from other operators that rely on third-party suppliers for their content. While this differentiation is a key attraction for customers, we also offer many well-established online slot games licensed from third-parties such as Monopoly, Midas Millions and Cleopatra.

3 Source: H2 Gambling Capital, February 2012 4 Pro forma Continuing operations – excluding unallocated corporate 51 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

As well as creating our own versions of existing games, we Importance of proprietary content continue to develop new concepts such as Circus, the first role-playing slot game, and Raffle Jackpot which, instead of Trends in total amounts wagered on PartyCasino (scale removed) % paying out on a certain outcome, is instead guaranteed to 60 pay-out at a pre-determined time and date, just like a raffle. 50 Our mega jackpots are some of the largest and most popular in the industry: our biggest jackpot winners include $4.5m 40

that was paid out on our in-house produced Melon Madness 30

In-house games % from in-house games (RH scale)

slot. The chart opposite shows how our own games are an Third-party content 20

May

Nov Mar Dec Aug Feb Sep Oct Apr Jun Jan

increasingly important driver of our casino revenues. Jul

0 10 The Group’s casino products are offered in both download 0 100 and instant play variants, the latter, which is the most popular Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

of the two options, does not require the installation of any In-house games Third-party content % from in-house games (RH scale)20 software onto the customer’s computer. 30

VIP 40

Just as in the land-based casino environment, high value Mobile casino GGR 50 players are an important feature of any online casino. As a 60

€m

% result, we work hard to provide excellent customer support Trends in total amounts wagered on PartyCasino (scale removed) 3 for our VIP players and seek to ensure that they are well

looked after and have access to a variety of benefits including Importance of proprietary content a concierge service and dedicated customer support. 2 Mobile

Similar to sports betting, the mobile channel represents an 1

2011 2010 2006 2007 2008

exciting channel for future growth in our casino segment. 2009

In 2011 we enhanced our web-based mobile casino with 0 the introduction of new games and through the expansion 0

2006 2007 2008 2009 2010 2011 of the number of handsets supported on the Android 1 platform. In 2012 we will add further titles from the PartyCasino offer and enter new regulated markets.

The chart opposite shows the growth of revenue from 2 our mobile casino product since 2006.

€m CircusMobile casinoCircus GGR Our Circus slot was the first ever role-play slot 52 bwin.party Markets and risks Annual report & accounts 2011 Our markets, products and brands

Market snapshot Spotlight on: Online poker is the third largest segment of the online gaming market. Excluding the US, the global online casino market was Poker estimated to be worth €2.9bn of GGY in 2011, up 1.9% on 2010. It is forecast to reach €3.6bn by 2015, implying a compound Key brand: annual growth rate of 5.7%5. PartyPoker The online poker market has experienced two major shocks Other brands: over the past decade. The first was when the US enacted the bwin UIGEA that prompted many of the world’s largest poker GD Poker operators to withdraw from the US market. The second was Bet type: in April 2011 when the founders of three online operators Peer-to-peer (PokerStars, Full Tilt and Absolute Poker/Ultimate Bet), were indicted by the US Department of Justice and their dotcom Key offer: domains seized by the Federal Bureau of Investigation. Texas Hold’em is the most popular variant, played in both Whilst the legal proceedings against these individuals as well cash game and tournament formats. In cash games, players as related civil actions against the companies concerned have directly bet their own money against each other while in not yet run their course, the short-term impact prompted the tournament play, chips are used as a virtual currency, with collapse of Full Tilt and Absolute Poker/Ultimate Bet that had a knockout format adopted where the winner is the player insufficient funds to repay their players. who ultimately wins all of the allotted chips While our flagship brand, PartyPoker was able to pick up Variations: approximately 15% of Full Tilt’s active non-US player base, Other formats include Omaha and 7 Card Stud in both by far the greatest beneficiary was PokerStars that has standard and Hi/Lo versions consolidated its position as the world’s largest poker How we make money: operator in the dotcom market. PartyPoker remains the The Group does not act as principal but acts as the second largest poker network6. facilitator of games and in cash games takes a small The regulation of certain markets has resulted in the commission on the amount wagered on each hand referred fragmentation of the global poker player liquidity pool. to as ‘rake’. In tournaments the operator charges an entry fee In addition to the large dotcom liquidity pool, there is also a pool of ring-fenced player liquidity in France and a separate Example revenue model Total pool in Italy (i.e. Players in France cannot play against players Amount wagered 1,000 in other countries). Denmark is a recent exception to this Typical Gross win margin 2% trend, its players being allowed to play against international Gross revenue 20 players in the dotcom liquidity pool. Less bonus costs 18% While the total online poker market is expected to grow over Net gaming revenue 16 the next few years, given PokerStars’ size and player liquidity, they will remain a very strong competitor. However, an opening of the US online poker market could alter that course as it is not expected that PokerStars or other companies that continued to operate in the US post-UIGEA would be eligible to participate. Success factors In addition to excellent software and safe and secure payments, having sufficient player liquidity is a prerequisite for success in online poker. It means that players can quickly find a table to play at the stakes they want. Being able to offer attractive tournaments and promotions are also important for success.

5 Source: H2 Gambling Capital, February 2012 6 Source: PokerScout.com 53 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Our offer Poker liquidity – dotcom market Following the shutdown of Full Tilt in 2011, the Group is now the clear number two operator in the dotcom marketplace Average daily players in terms of average daily player numbers, through our 8,000 40,000 PartyPoker brand4 (see chart opposite). This position will be bolstered further in 2012, when we complete the migration 6,000 30,000 of bwin Poker customers onto the PartyPoker network. In 2011 our poker segment generated total revenue of €213.0m 4,000 20,000 (2010: €227.4m) or 26% of the total and Clean EBITDA of €30.0m (2010: €27.7m), 14% of the total7. 2,000 10,000

While PartyPoker is our global poker brand, we will continue 0 0 to operate bwinPoker due to both the strength of the bwin Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 brand and also the importance of cross-selling poker to bwin’s sports betting customers. In France and Italy we iPoker Ongame operate ‘dot.national’ PartyPoker sites. In France a large part FullTilt (RH scale) PokerStars (RH scale) of our liquidity is driven through our strategic alliance with PartyPoker PMU, the French horseracing giant. In Italy our largest brand is Source: PokerScout.com GDPoker, part of the Gioco Digitale brand acquired by bwin in 2010. The Group’s combined market share across all platforms Italian market share in Italy is shown in the table opposite. Based on turnover World Poker Tour 25% The World Poker Tour or ‘WPT’, while not included in our

poker segment from a financial reporting perspective, is 20%

an important part of our overall poker offer. WPT was a major 15% Lottomatica

bwin.party

PokerStars

force behind the explosive growth in the early years of online Eurobet

Sisal

10% Snai poker, breaking new ground by televising high stakes 0

tournaments that proved to be a hugely popular format. 5% Televised coverage of poker games has soared since the WPT 5%

enabled viewers to see each player’s cards during a game, 0 10% Snai Sisal enhancing the broadcasting appeal of the game. Eurobet

PokerStars bwin.party 15% Lottomatica

Since its acquisition by the Group in late 2009, WPT has Source: AAMS expanded its reach outside the US, hosting 22 main tour 20% casino events in 2011 (2010: 17) in addition to ten new smaller

events in the US (2010: 2). Now into its tenth season, WPT 25%

programming is broadcast in over 150 countries and the Based on turnover number of entrants who played in a WPT Main Tour event Italian market share increased by 33% from 2010 to 2011. Raising the stakes Mobile We have approximately 15% From a relatively low base, our mobile poker offer grew of the French poker market significantly in the past year, gross gaming revenue was up across all networks by 410% following the successful introduction of dedicated iPhone and Android apps. Whilst our mobile poker offer is mainly on bwinPoker, we plan to launch apps under the PartyPoker brand in 2012 as well as develop an HTML5-based product that works across multiple devices, channels and brands. Additionally our poker app is currently being optimised for tablet devices and a product launch is expected in the first half of 2012.

7 Pro forma Continuing operations – excluding unallocated corporate 54 bwin.party Markets and risks Annual report & accounts 2011 Our markets, products and brands

Market snapshot Spotlight on: Bingo, our smallest product vertical, is a highly disparate and dynamic market. Excluding the US, the global online bingo Bingo market was estimated at €1.3bn of GGY in 2011, up 13.4% on 2011. It is forecast by H2GC to reach €1.8bn by 2015, implying Key brands: a compound annual growth rate of 8.5%. Foxy Bingo (UK) Cheeky Bingo (UK) The UK is the world’s largest single bingo market, estimated to Gioco Digitale (Italy) be worth €358.8m in 2011 (2010: €330.5m), our primary brand is Foxy Bingo, the UK’s number one bingo site supplemented by Bet type: a number of secondary brands including Cheeky Bingo, which Bingo players buy draw tickets to win an accumulated targets a younger demographic. Gioco Digitale is our leading jackpot from which the house takes a rake brand in the Italian market. Key offer: Success factors 75 and 90-ball bingo, with guaranteed and Like poker, player liquidity in bingo is important for long-term progressive jackpots success. As a pari mutual game, the more players there are Variations: then the bigger the potential prizes on offer to customers Side games include tournament bingo, team bingo that itself acts as a draw for customers. The online bingo and casino games, especially slots experience has sought to replicate many of the offline bingo characteristics including the ability for players to socialise How we make money: through online chat rooms. The Group takes a percentage of each virtual bingo card sold, with the majority making up the prize fund. Another important success factor and business driver for Revenue on side games and casino games is statistical online bingo operators are side games that are played while gross win margin the main bingo game is taking place. Our offer Example revenue model Total Our online bingo business generated total revenue of €64.6m Amount wagered 1,000 (2010: €72.4m) or 8% of the total and Clean EBITDA of €20.6m 8 Typical Gross win margin 35% (2010: €21.1m), 10% of the total . Our primary markets Gross revenue 350 for bingo are currently the UK and Italy where we have built Less bonus costs 50% leading market positions through the historical acquisitions Net gaming revenue 175 of Cashcade and Gioco Digitale respectively. Currently our Cashcade brands remain hosted on a

Growth in Global Bingo GGR (excluding US) third‑party platform until at least 2014. Gioco Digitale operates on its own bespoke platform. As we move to an €m integrated back-office, we will look to add bingo to our 2,000 common platform.

1,500

1,000

2013 2015 2014 2012

2004 2009 2005 2006 2007 2008 2003 2011

500 2010

E E E E 0

E E E E

500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1,000

Source: H2 Gambling Capital, February 2012 1,500

2,000 Pro forma Continuing operations – excluding unallocated corporate

€m Growth in Global Bingo GGR (excluding US) 55 bwin.party Overview 02 Markets and risks Annual report & accounts 2011 Strategy 20 Key risks Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

The Merger has resulted in some changes to our key risks but our management of risk has not changed and reflects the previous approach adopted by both bwin and PartyGaming of asking: What if?

Assessing key risks Spotlight on: We conduct a continuous process of Group-wide assessments Our key risks that examine whether any risk has increased, decreased or become obsolete; identify any new risks, especially from recent key business events; and the likelihood of a risk occurring and what level of impact it would have on Change in risk versus 2010 Rationale for change the Group. Technology Following the completion of the Merger, we held eight risk Increased Impact of the Merger and changing systems workshops across key business areas as well as for the executive team, that included the Co-CEOs, Jim Ryan and Regulation and compliance Norbert Teufelberger, the Chief Financial Officer, Martin Increased Increased number of regulatory regimes and added complexity Weigold, and the Chief Operating Officer, Joachim Baca. mitigated by greater experience from operating in regulated markets In addition, the Group Risk Committee, chaired by Taxation Martin Weigold, has met twice since the Merger completed Increased Increased number of tax-paying to ensure that all strategic risks were identified and to reach jurisdictions a consensus on the significant risks identified by the eight Integration of bwin and PartyGaming functional workshops. These risks are then reported to the No change Audit Committee for review. Unlevel playing field in poker The workshops also serve to impress the importance Reduced Following action by the US authorities, of risk management throughout all business functions. the large US-facing sites are no longer active in that market. However, Facilitated by the Internal Audit & Risk Management team, PokerStars remains a large competitor the workshops involve key people from each of the Group’s prime functions including Technology, Marketing, each of the product verticals, Human Resources, Operations, Finance, Regulatory Affairs, Legal and Company Secretarial. Many of the threats and challenges faced by online gaming companies are similar to those faced by other leisure and entertainment industries. They include competition, changes to consumer tastes, maintaining healthy financial ratios in compliance with banking covenants and loss of key personnel. 56 bwin.party Markets and risks Annual report & accounts 2011 Key risks

There are also certain risks that are more specific to Regulation and compliance bwin.party and to the online gaming industry that deserve Regulation is probably the most complex of our key risks and particular mention. managing it effectively is a critical process for the Group, Our five main risk groups are: especially given the number of countries that are introducing regulatory regimes each of which have different requirements. • Technology Our compliance obligations range from administration of • Regulation and compliance our gaming licences in Gibraltar, Alderney, Denmark, France • Taxation and Italy to assessing what impact country-specific and pan‑regional rules and regulations might have on our business • Integration and the wider industry. Whilst political and cultural attitudes • Unlevel playing field in poker towards online gaming continue to evolve, there is always a risk that certain territories may seek to prohibit or restrict one or Technology more of the products that we offer or online gaming entirely. Technology is at the core of our business. Improving our We have a dedicated regulatory and compliance function gaming platform and products is a never-ending and vital that reports directly to the Co-CEOs and is closely supported process that maintains our competitive edge, keeps us by our legal and country management teams. We undergo abreast of evolving consumer tastes and upholds our a series of external audits as required under our gaming valuable reputation for offering responsible, safe and licences and also perform our own compliance assessment secure gaming products. process, ensuring that policies and procedures are being Most of our gaming technology is proprietary, which means followed and are working effectively. that we are better placed to manage risks associated with We advocate that the best way to protect consumers is to technological and regulatory change than competitors that license and regulate online gaming with a commercially rely on third-party software and systems. viable framework, one in which there is a greater incentive to However, we share the industry’s general risks that arise from be within the regulatory net than outside it. To do otherwise sourcing broadband and communications, data management serves the interests of black-market operators that are only and storage services as well as a raft of other services from too happy to accept wagers from unsuspecting consumers external suppliers. We seek to offset these risks by not focused on the best returns. Through our efforts, this is a becoming overly reliant on any single supplier as well as concept that is now being grasped by several countries having in place disaster recovery centres and business around the world and particularly so in Europe where a continuity plans across the Group. number of countries are actively considering developing their own regulatory regimes. The Merger has prompted an increase in technology risk as we migrate from separate platforms and systems to a single Taxation centralised operating system, one that supports four gaming Taxation is the third category of risk which we believe is verticals across multiple brands and territories. Other back- material. Group companies operate for tax purposes only office functions are also being harmonised and while less where they are incorporated, domiciled or registered. important from a revenue perspective, this also increases Revenues earned from customers located in a particular operational risk for the business. To mitigate this risk we have jurisdiction may give rise to further taxes in that jurisdiction. planned extensively and will run appropriate tests before If such taxes are levied, either on the basis of existing law switching to any new systems. or the current practice of any tax authority, or by reason of a change in law or practice, then this may have a material adverse effect on the amount of tax payable by the Group. We manage these risks by considering tax as part of our overall business planning. 57 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Integration The process of integrating bwin and PartyGaming is extremely complex, requiring substantial management attention and other resources. While there can be no guarantee that all elements of the integration will be successful, the significant investment in planning and preparation ahead of the Merger has proved worthwhile. The main risks in this category are achieving financial synergies; the loss of key personnel; and the eventual migration of players to a single e-gaming platform. To ensure we remain on target, a dedicated Integration Management Office was established to,inter alia, drive and monitor progress across each of the synergy streams as well as identify constraints and inter-dependencies. The Board has put in place a series of incentive plans, the details of which can be found in the Remuneration Report, in order to ensure that key personnel are retained. There remains a risk associated with the migration of players to a single technology platform, however we have put together a detailed plan to ensure a smooth transition that will take place during the second half of 2012 and have already assumed a 15% player loss into our financial synergy targets disclosed at the time of the Merger. Unlevel playing field in poker This risk arose principally from US-facing poker sites that up until 15 April 2011 had enjoyed a significant competitive advantage from the fact that they continued to accept On the ball Eight risk workshops were held wagers from US-based customers, providing superior player across key business areas following liquidity and cashflow that could be reinvested in European completion of the Merger markets. However, following the steps taken on 15 April 2011 by US authorities that resulted in the closure of the US-facing activities of PokerStars, Full Tilt and Absolute Poker/Ultimate Bet, this risk has now changed. While PokerStars remains the largest operator in most markets and a very strong competitor, the risk level has been reduced to one of ‘strong competition’. Full Tilt Poker has been closed since losing its gaming licence on 29 June 2011 and Absolute Poker/Ultimate Bet has also ceased trading. 58 bwin.party Annual report & accounts 2011

Responsibility and relationships Playing by the rules 59 bwin.party Overview 02 Responsibility Annual report & accounts 2011 Strategy 20 and relationships Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Our approach to corporate responsibility Financial statements 103 Our focus is on the long-term returns that can be obtained from committed investment in responsible and sustainable business practices, particularly in relation to our core business and our key stakeholders including the communities where we have a physical presence.

A core objective is to embed acting responsibility into There is no formal requirement to have an ethics committee, our business. As an industry leader, we aim to provide but the Board agrees that corporate responsibility is the world’s safest and most innovative gaming platform, important for the Group’s long-term success. The Ethics one that is based upon customer trust, a desire for Committee has a broad remit, including reviewing the operational excellence and supported by evidence- adequacy of our corporate responsibility-related policies; based scientific research. proposals and procedures, which in turn include responsible gaming, compliance with our gaming licences, anti-money There is no set definition for corporate responsibility, but it is laundering, fairness and integrity of gaming systems; and without question a complex area comprising many different our impact on the environment and communities where we components. We draw upon both internal and external have offices. expertise and procedures to uphold high standards. We have invested large amounts of human and financial capital in The remainder of this section of the Annual report provides building the requisite trust and confidence in our products insight into our overall approach to each of our key and brands: attributes that are valuable for our franchise stakeholder groups. and that we seek to protect. As well as ensuring that we have a high level and independent oversight of our corporate and responsible gaming practices, our approach also covers wider corporate responsibility initiatives, including our contribution to society through charitable donations and a pro bono scheme that enables employees to take time out from work to support local community projects. Martin Weigold, Chief Financial Officer, has executive responsibility for our corporate responsibility matters, a role he has held since 2005. The overall process is overseen by the Ethics Committee of the Board chaired by Tim Bristow, an Independent Non-Executive Director. The Committee has three other Non-Executive Board members, Per Afrell, Helmut Kern and Lord Moonie who meet regularly to review ethical and social matters relating to all of our activities. 60 bwin.party Responsibility Annual report & accounts 2011 and relationships

GoodCorporation At the positive end of the assessment spectrum, we were commended for our approach to corporate responsibility As part of our commitment to responsible and sustainable with GoodCorporation citing that: “The study on addiction business practice, towards the end of 2011 we commissioned and plans to use this to prevent problem gambling is industry- GoodCorporation to undertake an independent assessment leading.” As GoodCorporation noted, our challenge now is of our management processes and policies regarding key to convert the study on addiction into a workable model. stakeholders. GoodCorporation is recognised globally as This will take time, but we intend to make it happen. a leading organisation working in the field of corporate Our engagement with shareholders was also commended responsibility and business ethics. for “setting the standards for the sector”. Assessment of 55 business practices impacting five The responsibility to rectify areas of weakness and also stakeholder groups were conducted at six of our offices. improve what is already working well falls upon our senior The five stakeholder groups were employees, customers, management team that has an action plan to implement shareholders, community, and management. Almost 150 during the course of 2012. managers and employees were interviewed, equal to around 5% of the total workforce as well as a number of our key external stakeholders. For each of the stakeholder groups, the general scope of GoodCorporation’s independent assessment involved asking: • Does a policy exist? • Is there a system to implement the policy? • Do records show that the system works in practice? • Do stakeholders agree that it works and is fair? Given that the assessment was conducted just nine months after the completion of our merger, during an intense period of integration activity and regulatory change, we were satisfied with GoodCorporation’s findings. We anticipated that the review would identify matters that needed to be addressed and areas where we could improve. Whilst we were aware of most of the items identified, there were also some additional issues raised and we plan to address these in 2012. Not surprisingly, many of the observations made by GoodCorporation related to unfinished integration work. For instance, there remained some inconsistencies across locations regarding employee contracts, policies and procedures. Many of these have already been rectified or are in the process of being updated. A number of issues will be and are being resolved through improvements in both internal communications and training. 61 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Customers and responsible gaming Financial statements 103

Millions of customers around the world Protection of minors and vulnerable people place their trust in our promise to provide The vast majority of online gamblers play in a moderate way, purely as a means of entertainment – a claim that we can them with great entertainment in substantiate through analysis of our own players. However, a safe and secure gaming environment. gambling problems can arise for a small percentage of players – a number of national prevalence studies have shown that Trust is more than a fundamental typically between 0.5% and 2% of populations are estimated customer need: it is essential for our to gamble excessively, possibly indicating pathological gambling. Our aim has been to understand our customers’ long‑term success. behaviour and to be able to develop player protection tools We seek to engrain our approach to ‘act responsibility’ into based upon a solid body of scientific evidence. It was this everything we do. Our commitment to responsible gaming objective that prompted our close collaboration with the is underpinned by pioneering scientific research undertaken DOA to answer some fundamentally important questions: through our close collaboration with the Division on • How do gamers play on the internet? Addiction, Cambridge Health Alliance, a Harvard Medical School teaching Affiliate (‘DOA’). • How can we make online gambling safe? Responsible gaming at bwin.party is built around three pillars: • Is it possible to create an algorithm to help identify online players who may be at risk? Game fairness Since it began in 2005, this collaboration has resulted in the Independent organisations closely monitor the fairness and world´s largest body of scientific evidence for online gambling random nature of our gaming products. We design our based upon actual behaviour of tens of thousands of our marketing communications to try and ensure that they are customers. clear and not misleading and that they present a fair gaming offer. In addition, our in-house investigations teams and our The DOA has recognised the possibilities that the internet experienced bookmakers work together to ensure customers offers, utilising precise data about each individual gaming are protected against fraud and manipulation. This protective transaction to launch a stream of research documenting shield is reinforced by our close cooperation with the actual online gaming behaviour and creating new European Sports and Security Association (‘ESSA’), an opportunities to develop safer online gaming environments. international non-profit organisation dedicated to Our gaming sites use several different verification promoting integrity in sports betting through the monitoring mechanisms to prevent underage gambling and our policies of bookmaker odds to identify suspicious betting patterns are scientifically evaluated to protect players effectively. and report them within the framework of an early warning system to the relevant governing sporting body. Our approach to responsibility also led to the creation of our ‘Transparency Project’ that makes available Keeping crime and corruption out of sports helps to ensure all of the research data and studies online at: a level playing field for betting. The industry has developed www.thetransparencyproject.org/. a co-operation programme with the European Elite Athletes Association representing member associations from 15 To date, the collaboration with the DOA has resulted in 16 countries with over 25,000 professional athletes. The result scientific papers being published – three of them in 2011. has been a joint code of conduct to provide general advice to All research is published only after a strict peer-review all athletes throughout Europe about the issues surrounding process in recognised international scientific journals. the integrity of sport and betting. In 2011, the code of conduct was accompanied by a comprehensive educational campaign carried out by top athletes in the locker room. Hearing about the dangers of corruption in sport and betting from fellow athletes has proven to be a powerful channel of communication and the programme has already reached more than 8,500 athletes. 62 bwin.party Responsibility Annual report & accounts 2011 and relationships

We have continued to develop an international healthcare For our employees, we enhanced our online responsible network to facilitate a valuable exchange of best practise and gaming training programme in 2011. The training is called foster scientific-based co‑operation for the prevention of EMERGE (Executive, Management, Employee Responsible problem gambling. Two more members joined the network Gaming Education) and was developed by the DOA. in 2011 – the Federación Española de Jugadores de Azar Our efforts were rewarded in 2011 by being voted Rehabilitados (Spain) and the Research Clinic on Gambling Socially Responsible Operator of the Year at the eGaming Disorders of Aarhus University Hospital (Denmark). industry awards. A prime benefit of the network, which now spans seven EU Further information about all the aspects of our approach Member States, is that customers can quickly access contact to corporate sustainability can be accessed at: details for counselling services in several different languages. www.bwinparty.com/Sustainability Other player protection mechanisms on our sites include deposit limits, self-exclusion and tools to help them assess whether they are at risk of developing a gambling problem. Soon after the end of 2011, we became a founding member of the ICT Coalition for a Safer Internet for Children and Young People (‘ICT’). Twenty-five of the world’s leading companies from across the information and communications technology sector are signatories to the ICT’s principles, which aim to ensure that children and young people obtain the greatest benefit from new technologies while avoiding the challenges and risks which are of concern to people worldwide. As well as bwin.party, other ICT members include Facebook, RIM, Nokia, Vodafone, France Telecom-Orange, LG Electronics and Google. (See: www.gsma-documents.com/safer_mobile/ICT_ Principles.pdf) Player security Security is a key priority. The protection of our players, especially their confidential data, is based upon the requirements of our gaming licenses and also the robust industry framework for self-regulation stipulated by the European Gaming and Betting Association (‘EGBA’). Protecting players also includes our compliance with the EU Money Laundering Directive and the reporting of any suspicious activity to the relevant authority. Following our engagement in 2010/11 with the European Committee for Standardisation to develop an evidence- based standard for high level player protection on the internet, bwin.party has achieved certification for the High standards 134 control measures contained in the resulting CWA At the eGaming Review awards 16259:2011 standard. we received the award for Socially Our efforts to take player protection standards to a higher Responsible Operator of the year level also involved working together with leading European in 2011 non-profit organisations that included eCOGRA, which provides an international framework for best operational practice, and GamCare, the UK’s leading provider of information, advice, support and free counselling for the prevention and treatment of problem gambling. 63 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Employees Financial statements 103

One of the unfortunate but inevitable We believe that the investment we make in supporting employees with their continuing career development helps consequences from a merger of equals is to create a sustainable approach to meet our current and the need to remove duplicate roles across future skill requirements. It also underpins our commitment to create a working environment that facilitates and a number of disciplines. This is never an enhances the career development and training of all easy process. Having determined the right employees. We provide employees with the time to develop organisation structure, we then had to skills and learn new ones to fulfil their personal potential. Improving our internal communications remains a key focus. select the right people for the right jobs We know that a well-motivated and engaged workforce will in the right locations. understand and commit to our business strategy. We make extensive use of our intranet, strategy road shows, Town Hall During 2011, 122 employees were made redundant with meetings, email and other information channels – channels a further 81 due to leave during 2012. We put in place an that are not just for managers to disseminate corporate Employee Assistance Programme, which includes utilising messages, but also for employees to feedback to outplacement services where practicable, to help employees management, recognising the merits of open dialogue whose role was being removed to find a new job outside that flows throughout the organisation. the Group. What’s it like to work for us? Find out at: Delivering the new organisation structure was of paramount www.bwinparty.com/Careers importance: it marked the beginning of our future as one company. This was only the beginning of the process as we still had to meld different cultures, working practices, policies, reward schemes, training programmes and much more besides. We made great progress during 2011, but there are still things to do including: Clear benefits • Unifying our approach to performance management, In March 2012 we launched especially learning and development and the setting Just.rewards, a flexible benefits of measurable personal objectives; scheme, in London and Gibraltar that we plan to extend to all employees • Ensuring that employees learn and benefit from bringing together different cultures; • Introducing a universal flexible approach to remuneration and benefits; • Creating a new employer brand to articulate to current and future employees what it is like to work for bwin.party; • Developing new employee values that enhance our business performance; and • Rolling out a specially-developed leadership training programme for managers. 64 bwin.party Responsibility Annual report & accounts 2011 and relationships

Suppliers Shareholders and other providers of capital

Just a few months after the completion Our approach to investor relations is to of the Merger, our procurement systems be as transparent as possible through a became fully integrated using a single regular programme of investor relations Enterprise Resource Planning system to activities supported by transparent govern each stage of the supply chain. financial reporting. Our procurement team in Gibraltar oversees the entire The Merger combined two shareholder registers with Group’s supply chain, adhering to policies and procedures different balances of institutional, retail and founder that have been put in place to reduce risk, develop mutually investors. Following completion there was some beneficial long-term business relationships, and deliver best readjustment of the enlarged shareholder register, in part value from our suppliers on a long-term basis. because a number of EU-based institutions were unable to hold sterling-denominated investments. We have a large and diverse supplier base. Our affiliate network, which markets our online gaming brands, contains We aim to build and maintain strong and long-term more than 11,200 unique active suppliers. In 2011 we used relationships with our investors and providers of capital 2,500 other suppliers for a diverse range of goods and services through direct access to our senior management, a high level including; broadband and telephony services, advertising of financial and operational transparency, and regular and marketing, computer hardware and software and media investor road shows led by Jim Ryan and Norbert Teufelberger, buyers. We conducted €10.5m of trade with our largest Co-CEOs of bwin.party, supported by Martin Weigold, CFO and supplier and there were 33 other companies that were paid Peter Reynolds, Director of Communications. over €1.5m in 2011. We raised the bar further with regards to our disclosure in Our procurement policy includes a ‘Supplier Acknowledgement 2011, largely reflecting the demands to compare and contrast and Self-Certification Checklist’, which requests information historic data and also to provide greater insight into our relating to: business strategy as a new company. • Financial strength, to ensure long-term reliability; Keeping analysts and investors informed about our trading performance and operational developments is • Ability to deliver enduring quality and value; also supplemented by a comprehensive investor section • Commitment to innovation and their ability to help us on the Group’s website where investors can access the develop new products, processes and ways of working that latest consensus of analysts’ forecasts as prepared by will give the Group a commercial advantage; and an independent third-party, presentations and webcasts, share price tools and regulatory news announcements. • Commitment to a wider corporate responsibility agenda relating to the environment, labour/employment standards, We know there is always room for improvement and we will equal opportunities and employee rights. aim to progress this year through the continued development of our corporate website www.bwinparty.com. For further In return, we seek to operate to the highest professional information about our significant shareholders see page 98. standards and treat our suppliers in a fair and reasonable manner and aim to settle invoices promptly. 65 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Environment and community Financial statements 103

As an online business we believe that tackling gambling addiction and PartyGaming’s bias towards greater community engagement through pro bono schemes we are a ‘low-impact’ company from an and charitable donations to responsible gaming organisations environmental perspective, but we are and other worthy causes. not complacent. While we are a relatively After assessing the merits of these differences, we decided to carry on with all of them. Why not? We have made some small company in terms of numbers refinements, but we now house all of the elements under a of employees versus many other single corporate responsibility roof. As highlighted in the ‘Customers and responsible gaming’ section on pages 61 corporations and produce little in the and 62, our industry-leading research into gambling addiction way of corporate ‘waste’, we do consume will continue. So too will our philanthropy and community electricity and other basic utilities. engagement – we plan that a greater allocation of our contribution to charities and good causes will be made As an international business we also available to the pro bono scheme that we plan to roll-out spend money on travel and recognise to former bwin offices in 2012. In aggregate we target approximately 0.2% to 0.25% of the prior year’s Clean EBITDA that we can continue to try and reduce to be allocated for charitable and responsible gaming causes. our environmental impact. At least 60% of which is earmarked for gambling-related charities such as the Gambling Research Education and We aim to minimise energy and resource usage; support the Treatment Foundation in the UK and the establishment of the reduction and recycling of materials; and ensure the legal international healthcare network referred to above. disposal of all waste arising from the activities of the business The pro bono scheme enables employees to spend throughout the Group. Wherever possible, product and 4-8 hours of Company time on charitable, community or materials purchased will be from sustainable sources with environmental projects so that they can enhance their an emphasis on using recycled materials. personal development whilst returning something to Measures undertaken in our offices to reduce electricity our local communities. Whilst only former PartyGaming consumption include switching off air-conditioning outside employees participated in pro bono initiatives in 2011, we of normal office hours, using energy efficient light sources are proud to say that a third of them took time out from and ensuring computer and electrical equipment is switched work to provide help and support for the less fortunate in off when not in use. their local communities. We plan to extend the pro bono scheme to all of our main offices by the end of 2012. We maintain tight control on employee travel. All flights by employees have to be approved by executive management. Greater use of video conferencing facilities between offices benefits the environment, our finances and also productivity by reducing travel time. We do not have a company car scheme and staff use public transport whenever possible. As referenced above, we assess our suppliers’ commitment to a wider corporate responsibility agenda relating to the environment – this alignment of interests means that we can try and make a bigger difference with regards to our impact on the environment. Our approach to reducing our environmental impact is not a new one – it was a common denominator for both bwin and PartyGaming. However, both companies differed in their approach to community engagement, with bwin heavily focused on advancing research in responsible gaming and 66 bwin.party Board of Directors Annual report & accounts 2011

1 2 3

4 5 6

1. Simon Duffy 2. Norbert Teufelberger 3. Jim Ryan Non-Executive Chairman Co-Chief Executive Officer Co-Chief Executive Officer Passionate about: Cricket Passionate about: Tennis Passionate about: Poker

4. Joachim Baca 5. Martin Weigold 6. Rod Perry Chief Operating Officer Chief Financial Officer Deputy Chairman and Senior Independent Passionate about: Skiing Passionate about: Motorsport Non-Executive Director Passionate about: Rugby 67 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

7 8 9

10 11 12 13

7. Per Afrell 8. Geoff Baldwin 9. Manfred Bodner Independent Non-Executive Director Non-Executive Director Non-Executive Chairman of the Passionate about: Mountain biking Passionate about: Pool Integration Committee Passionate about: Kite-surfing

10. Tim Bristow 11. Helmut Kern 12. Lord Moonie Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Passionate about: Chess Passionate about: Golf Passionate about: Shooting

13. Georg Riedl Non-Executive Director Passionate about: Motorsport 68 bwin.party Board of Directors Annual report & accounts 2011

1 Simon Duffy (62) 3 Jim Ryan (50) 6 Rod Perry (66) Non-Executive Chairman Co-Chief Executive Officer Deputy Chairman and Appointed: 31 March 2011 Appointed: 30 June 2008 Senior Independent Last re-elected: 30 June 2011 Last re-elected: 7 May 2009 Non-Executive Director Appointed: 31 May 2005 Background and other roles: Simon also serves as Background and other roles: Jim joined PartyGaming Last re-elected: 30 June 2011 a non‑executive director of Oger Telecom Limited in June 2008 as CEO. Prior to joining, he was CEO of and Modern Times Group AB and as a non‑executive St. Minver Limited and he has also held senior posts Background and other roles: Rod originally joined the Chairman of Cell C (Pty) Limited and mBlox Inc. at three publicly listed companies as President and Company in April 2005 and became a Non‑Executive Previous non‑executive directorships include Chief Executive Officer of Excapsa Software Inc and Director in May 2005, serving as Chairman of the Imperial Tobacco Group plc, GWR Group plc, HMV as Chief Financial Officer of CryptoLogic Inc. and Board from 29 August 2008 to 31 March 2011. He is Media Group Plc and Gartmore Plc. From 2007 until Chief Financial Officer of SXC Health Solutions Corp. Chairman of the Remuneration Committee and a 2008 he was Executive Chairman of Tradus plc Educated at Brock University in Ontario, Canada, member of the Audit, Nominations and Integration (formerly QXL Ricardo plc). Prior to Tradus, he where he obtained a business degree with first‑class Committees. Until 2009, Rod was a non‑executive was Executive Vice Chairman of ntl:Telewest Inc. honours, Jim obtained professional qualifications as Director at Gulf of Guinea Energy (a private Cayman (now Virgin Media Group) having previously been a Chartered Accountant from the Canadian Institute company with operations in Nigeria) and Indago President, Chief Executive Officer and Chief of Chartered Accountants. Petroleum, an AIM listed oil and gas exploration Operating Officer of ntl Inc., the major component company incorporated in Guernsey and operating in of Virgin Media Group. Prior to ntl, Simon was Chief 4 Joachim Baca (40) Oman. He is also an advisor, director and member of Financial Officer of Orange SA and before that Chief Chief Operating Officer the investment committee at Ithmar Capital, which is Executive Officer of Denmark based wireless data Appointed: 31 March 2011 a $250 million private equity fund focused on the GCC company, End2End AS. He joined End2End from Last re-elected: 30 June 2011 region from its base in Dubai. More recently he has internet service provider WorldOnline International become a Partner in Life Africa Emerging Markets BV, where he was Chief Executive Officer and Deputy Background and other roles: Prior to joining Capital. This is a new fund which is acquiring cellular Chairman. Previously he had spent eight years at the bwin.party Board, Joachim Baca was Chief phone operations across sub Saharan Africa. The first EMI Group plc, where he was Group Finance Director Operations Officer for bwin Interactive company (Madamobil) has just become operational and Deputy Chairman, and six years at Guinness plc, Entertainment AG from 2006, steering that business in Madagascar. Rod had previously been an executive including three as Operations Director of through a period of rapid growth, as it transitioned director at 3i Group plc, latterly responsible for United Distillers. from being a start-up to an industry leader. He was venture capital investment activities worldwide. instrumental in consolidating operations and He joined 3i in 1985 as an industrial adviser and 2 Norbert Teufelberger (46) leading product development, as well as overseeing was appointed to the executive committee in 1997. Co-Chief Executive Officer key business functions such as products and He retired from the 3i board in July 2005. Appointed: 31 March 2011 services, technology, organisational development Last re-elected: 30 June 2011 and human resources. Before joining bwin in 2004 7 Per Afrell (54) Joachim Baca had been engaged in e-commerce Independent Non-Executive Director Background and other roles: Norbert was the business, leading various projects for Red Bull GmbH Appointed: 31 March 2011 Co-CEO of bwin Interactive Entertainment AG from and Marchfifteen AG. Last re-elected: 30 June 2011 June 2001, having joined that company in September 1999 and was instrumental in drawing up the initial 5 Martin Weigold (46) Background and other roles: Per was a member of business plan of bwin and the subsequent Chief Financial Officer bwin Interactive Entertainment AG’s supervisory structuring and preparation for the public listing Appointed: April 2005 board from 2007 and chairman of Ongame e of bwin Interactive Entertainment AG. Norbert has Last re-elected: 30 June 2011 solutions AB before it was acquired by bwin in 2006. been involved in the national and international He is a founding partner in the real estate casino and betting business since 1989. He occupied Background and other roles: Martin joined the investment group Profi Management AB and is key positions with Casinos Austria, was a consultant Company in January 2005 and was appointed to the chairman of Profi’s two investment vehicles, Profi I to the Novomatic Group of companies and Board in April 2005. Prior to joining, he was the Chief AB and Profi II AB. Per has been a member of the co-founded a land based casino company currently Financial Officer of Jetix Europe NV, formerly Fox Stockholm Stock Exchange Listing Committee, the listed on the Nasdaq Capital Market and on the Kids Europe NV, for five years from its listing on Board of the Swedish Accounting Standards Prime Market of the Vienna Stock Exchange. Euronext in 1999. Before holding this position, he Committee and has held various management Norbert is chairman of the Supervisory Board of the was the Vice President of Finance of Walt Disney positions in the financial industry. European Gaming and Betting Association (‘EGBA’) Television International for four years and and held the post of non-executive director with previously was an Assistant Director of Guinness betbull Holding SE until he resigned at the Mahon Development Capital for six years following beginning of 2010. He holds a Masters in Business a three-year period as a management consultant Administration from the University of Economics with Arthur Andersen. He holds a joint honours and Business Administration in Vienna. degree in economics and accounting from Bristol University and is a member of the Institute of Chartered Accountants of England and Wales.

69 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

8 Geoff Baldwin (47) 10 Tim Bristow (56) 12 Lord Moonie (65) Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Appointed: 15 July 2011 Appointed: 4 May 2007 Appointed: 13 December 2007 Last re-elected: 29 April 2010 Last re-elected: 29 April 2010 Background and other roles: Geoff is an investment banking professional with more than 24 years’ Background and other roles: Tim became Background and other roles: Lewis joined experience, including serving as a M&A generalist an Independent Non-Executive Director of PartyGaming in December 2007 and served as the in New York for five years and a technology M&A PartyGaming in May 2007 and is Chairman of Senior Independent Director between August 2008 specialist for the last 19 years, primarily in Silicon the Ethics Committee. He is the Chief Executive and March 2011. He has previously chaired the Valley, California. He is a founder of GCA Savvian, a Officer of Gibtelecom, Gibraltar’s primary Remuneration Committee and the Audit Committee. global investment bank that is publicly listed on the telecommunications provider. His other Before being made a Life Peer he was the UK Member Tokyo Stock Exchange with dual headquarters in directorships have included subsidiaries of Parliament for Kirkcaldy between 1987 and 2005. Tokyo and San Francisco. In the United States, GCA of the Northumbrian Water Group, Verizon He held the position of Under Secretary for State at Savvian specialises in technology investment Communications and British Telecom, and he is the Ministry of Defence between January 2000 and banking and is recognised as having a leading currently on the Board of Tradewise Insurance. June 2003. Before becoming an MP, Lewis studied franchise in digital media, including social and Tim was a former Financial and Development medicine and was a consultant in public health mobile gaming, internet advertising and Secretary of Gibraltar and before that a director medicine, a senior medical adviser and clinical ecommerce. He currently serves on the board of at the National Audit Office in London, where he pharmacologist in the pharmaceutical industry. directors of GCA Savvian’s listed parent company trained as an accountant after graduating and (GCA Savvian Group Corp.) and its European was the Private Secretary to the UK Comptroller 13 Georg Riedl (52) subsidiary, is a member of the firm’s global executive and Auditor General. Non-Executive Director committee and is head of the firm’s M&A advisory Appointed: 31 March 2011 practice in the United States. Prior to founding GCA 11 Helmut Kern (46) Last re-elected: 30 June 2011 Savvian, Geoff was a Managing Director in Morgan Independent Non-Executive Director Stanley’s mergers and acquisitions group. Appointed: 31 March 2011 Background and other roles: Georg served as a Last re-elected: 30 June 2011 member of bwin’s supervisory board from 2005. 9 Manfred Bodner (49) He is a lawyer with the Riedl law firm in Vienna. Background and other roles: Prior to his He has sat on the boards of Österreichische Salinen Non-Executive Chairman of the appointment Helmut had served on bwin’s Integration Committee AG and group companies, AT&S Austria Technologie supervisory board since 2004. Helmut is owner & System technik AG, paysafecard.com Wertkarten Appointed: 31 March 2011 and CEO of Beyond Consulting GmbH and Beyond Last re-elected: 30 June 2011 AG and Wiesenthal & Co AG and bwin Services AG Holding GmbH and until October 2011 he was (now bwin.party services (Austria) GmbH). Georg is Background and other roles: Manfred was the also Head of Consulting Austria with also a director of Androsh Privatstifung, a large Co-CEO of bwin Interactive Entertainment AG from PricewaterhouseCoopers. Previously, he also acted bwin.party shareholder. June 2001, having joined that company in May 1999, as Global Partner of Deloitte Consulting and was where he started operations from scratch and was CEO of an Austrian Private Foundation (DFGJ responsible for marketing/sales and technology Privatstiftung) and interim director of Wellcon throughout his term of service. Manfred has Gesellschaft für Prävention und Arbeitsmedizin occupied various management positions since 1989. GmbH. Helmut Kern holds a Master in Business From 1989 to 1995 he was CEO of Trend Versand AG Administration (‘Magister’) from the University of which operated a mail order business in the Economics and Business Administration in Vienna emerging markets of Eastern Europe. He was one of and has completed an Executive Leadership the two founding partners of the company, and he Development Program at Columbia University, N.Y. built and ran its technology and the marketing sales department. The company was founded in Hungary in 1989 and quickly expanded into Poland, the Czech Republic and Slovakia. In 1995 he moved to the executive board of the Eastern European holding company of Neckermann Handels AG based in Vienna, and he remained in this position until 1998. In 1998 he co-founded Eastern Press AG a publishing house providing subscription services in Hungary, Poland and the Czech Republic. In 1997 Manfred started the gastronomy group Bar Italia GmbH.

Key to Committees Audit Committee member Integration Committee member Nominations Committee member Remuneration Committee member Ethics Committee member 70 bwin.party Governance Annual report & accounts 2011

Good corporate governance has become a necessary condition for A. Leadership sustainable success in business. The purpose of this section of the Annual report is to demonstrate how the Board oversees the interests of the Board structure Company through its operating structure and to review bwin.party’s The bwin.party digital compliance with the UK Corporate Governance Code (the ‘Code’). Audit Committee This chapter comprises the following sections: entertainment plc Board A Leadership B How the Board functions Ethics Committee C Effectiveness D Relations with shareholders Integration Committee E Audit Committee Report F Ethics Committee Report G Integration Committee Report Executive Directors Nominations Committee H Nominations Committee Report I Remuneration Report Senior Management Team Remuneration Committee J Other Governance & Statutory Disclosures and the 2012 AGM While being strongly committed to good governance, the Company has undergone considerable change in the recent past and consequently did The composition of the Board during 2011 and to date is set out on page 71. not comply with the Code in all respects during the reporting period. Biographies of the current Directors are set out on pages 68 and 69 . In particular, it did not comply in the following areas: Changes during 2011 1 Less than half the Board are determined to be independent. This matter is addressed below on page 71. During 2011 the following changes to the Board occurred: 2 The membership of the Audit Committee. However this was rectified • On completion of the merger with bwin on 31 March 2011, Simon Duffy, on 31 March 2011 with the completion of the merger with bwin Norbert Teufelberger, Joachim Baca, Per Afrell, Manfred Bodner, Helmut (see page 75). Kern and Georg Riedl were appointed Directors on 31 March 2011. • Rami Lerner stepped down as a Director and was replaced by Geoff 3 The membership of the Remuneration Committee. However this was Baldwin on 15 July 2011. rectified on 31 March 2011 with the completion of the merger with bwin (see page 81). Simon Duffy succeeded Rod Perry as Chairman on 31 March 2011 and Rod Perry became the Deputy Chairman and Senior Independent 4 In relation to various legacy share plans: Director, having been independent when originally appointed to the a) the performance-related elements of certain Executive Directors’ Board. Having served on the Board for six years, following a review of his remuneration (see page 91); independence by the Nominations Committee, Rod Perry was re‑elected as a Director at the 2011 AGM. b) executive share options being offered at a discount (see page 91); and The Chairman, Co-CEOs and Senior Independent Director c) certain Non-Executive Directors holding share options The responsibilities of the Chairman and the Co-CEOs are clearly defined (see page 91) and are summarised below: The explanations for these deviations and the actions that have already Chairman been taken or will be taken in an appropriate timeframe to remedy them • Overseeing the effective running of the Board are set out in this section. • Ensuring that the Board as a whole plays a full and constructive part Simon Duffy in the development and determination of the Company’s strategy and Chairman overall commercial objectives 29 March 2012 • Acting as the guardian of the Board’s decision-making process • Promoting the highest standards of integrity, probity and corporate governance throughout the Company and particularly at Board level 71 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Co-CEOs Despite the technical imbalance of independent and non-independent Directors, the Board is satisfied that it has maintained a sufficient • Running the Company’s business degree of independence for the following reasons: • Proposing and developing the Company’s strategy and overall commercial objectives, which they do in close consultation with • On the majority of business items considered by the Board, a non- the Chairman and the Board independent Non-Executive Director is independent, because the interests of the relevant founder shareholders and the Company • Responsible, with the executive team, for implementing the decisions do not conflict of the Board and its Committees • On issues when the interests of the Company and interests of a • Promoting, and conducting the affairs of the Company with, the founder shareholder may conflict, mechanisms in the relationship highest standards of integrity, probity and corporate governance agreement and/or letters of appointment for the non-independent Senior Independent Director Non-Executive Director allow the independent Directors to exclude them from the decision-making process As well as performing the normal duties expected of a Non-Executive Director, the Senior Independent Director is required to: • The independent Directors have not been and will not be in a minority to the Executive Directors • Be available to shareholders if they have concerns which contact • The Chairman of the Board was independent on appointment through the Chairman, Co-CEOs or CFO has failed to resolve or for which contact is inappropriate; • The Board had the appropriate balance of skills and experience to manage the imbalance appropriately • Lead the Non-Executive Directors in evaluating the performance of the Chairman, taking into account the views of the The Company stated in the Merger prospectus and circular that if the Executive Directors; composition of the Board remained non-compliant with the Code’s • Maintain sufficient contact with shareholders to understand their independence recommendation on 31 December 2011, the composition issues and concerns; and of the Board would be changed by the appointment of two additional independent Directors to ensure compliance. For the reasons given • Perform such other roles and responsibilities as the Senior above, the Board and in particular the independent Directors believe for Independent Director as may be contemplated by the Code or best the time-being sufficient independence exists to ensure the Board can practice guidelines in place from time to time. operate effectively and in the best interests of shareholders as a whole. Board independence Furthermore, with 13 members the Board is already larger than the boards of most comparable companies. Therefore, rather than choosing The Code recommends that at least half the members of a Board to increase the size of the Board to comply with the Code’s independence (excluding the Chairman) should be Non-Executive Directors who are criteria, which would have resulted in an unwieldy board of 15, the Board independent in character and judgement and free from relationships is going through a thorough Board performance evaluation using a or circumstances which are likely to affect, or could appear to affect, third-party (see page 74) with the aim of reviewing how well the Board their judgement. and its committees are operating and what improvements could be During 2011 the Company has not complied with this recommendation. made to ensure it has the right experience and knowledge to lead Prior to the completion of the merger with bwin on 31 March 2011, the the Company once the merger integration is complete. A statement Board was served by two independent Non-Executive Directors (Lewis regarding changes to the composition of the Board will be made Moonie and Tim Bristow), three non-independent Directors (Jim Ryan, later in 2012. Martin Weigold and Rami Lerner) and the Chairman of the of the Board The Board has also considered the review of Lord Davies of Abersoch (Rod Perry). A project to increase the number of independent Directors entitled ‘Women on Boards’, published in 2011, which requested FTSE was instigated in 2010, but following the announcement of the proposed 350 companies to set out aims for percentages of women serving on merger with bwin this recruitment exercise was suspended. boards. Gender diversity on the Board will be an important factor the Currently, excluding the Chairman, the Board is composed of five Nominations Committee will take into account when considering any independent Non-Executive Directors (Rod Perry, Per Afrell, Tim Bristow, new candidates to join the Board. However, gender is only one of a Helmut Kern and Lewis Moonie) and seven non-independent Directors number of issues that the Nominations Committee must consider and (Joachim Baca, Geoff Baldwin, Manfred Bodner, Georg Riedl, Jim Ryan, the Directors will always regard a candidate’s experience, knowledge Norbert Teufelberger and Martin Weigold). As part of the merger and skills as critical selection drivers. bwin.party will aim to appoint at negotiations, both the bwin and PartyGaming boards agreed a balanced least one woman to the Board by the end of 2013, with at least two management structure was in the best interests of the combined Group, women serving on the Board by 2015. Over that period the Board will drawing upon the considerable management strength and experience also be reduced in size so that the percentage of women on the Board of both organisations. The combined experience and knowledge of the will be greater than it would be if it remained at its present size. bwin.party Board, coupled with continuity of leadership, have been critical to the initial stages of integrating the bwin and PartyGaming online gaming businesses, whilst also guiding the Group to focus on new business opportunities. 72 bwin.party Governance Annual report & accounts 2011

B. How the Board functions Responsibility and delegation In accordance with the Code, the Company is headed by an effective The Directors have adopted a formal schedule of matters reserved to Board, which is collectively responsible for the success of the Company. the Board, setting out which issues must be referred to the Board for The Board provides entrepreneurial leadership of the Company whilst decision. These can be categorised into a number of key areas including ensuring that a framework of prudent and effective controls exists in but not limited to: order to assess and manage risk. • Long-term business plan, strategy, budgets and forecasts; Meetings • Restructuring or reorganisation of the Group and material acquisitions and disposals; The Board and its committees met in Gibraltar throughout 2011 and details of the number of meetings and attendance records are • The Group’s finance, banking and capital structure arrangements; set out in the table overleaf. The agenda of Board meetings usually • Approval of capital expenditure and financial guarantees above cover the following: certain levels; • Strategy, covering both the existing real-money gaming business • Financial reporting (interim and annual financial results and interim (poker, sports, casino and bingo) as well as adjacent businesses such management statements); as social gaming, monetised digital gaming and payment systems • Dividend policy; • Geographical expansion • Shareholder circulars, convening shareholder meetings and stock • Operational and business performance updates exchange announcements; • Financial updates • Approval of the Group’s remuneration policy (following recommendations from the Remuneration Committee); • Regulatory and licensing developments • Approval of the Group’s risk management and control framework and • Industry consolidation opportunities the appointment/re-appointment of the external auditors (following In order to ensure that the Board has an appropriate level of knowledge recommendations from the Audit Committee); and about the operations of the business and to enable it to assess the • Approval of the Group’s policies in relation to corporate and social calibre of management below Executive Director level, members of the responsibility, health and safety and the environment senior management team are regularly invited to attend meetings to present on and take part in discussions on particular items of business. Following the independent assessment of the functioning of the Board, the Chairman will meet with the Non-Executive Directors individually to review governance issues. The Senior Independent Director has met with the Non-Executive Directors as part of the process of reviewing the performance of the Chairman and has communicated the results of that meeting to him. He will take account of the feedback in his future management of the Board and of governance issues. 73 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

In addition, the Board has adopted a formal delegation of authority memorandum which sets out the level of authority for employees of the business below Board level. The Board has delegated certain responsibilities to the following committees of Directors:

Audit Ethics Integration Nominations Remuneration Committee Committee Committee Committee Committee Helmut Kern (C) Tim Bristow (C) Manfred Bodner (C) Simon Duffy (C) Rod Perry (C) Tim Bristow Per Afrell Simon Duffy Per Afrell Per Afrell Rod Perry Helmut Kern Rod Perry Rod Perry Helmut Kern Lewis Moonie Jim Ryan Lewis Moonie Norbert Teufelberger

During the year the Board and its committees met in Gibraltar and details of the number of meetings and attendance records are set out in the table below:

Total number of meetings held during the year ended 31 December 2011 and the number of meetings attended of the maximum number that each Director was entitled to attend

Board Audit Ethics Integration Nominations Remuneration Committee Committee Committee Committee Committee

Total held in year 7 5 3 4 2 6 Per Afrell 5/5 – 2/2 – 1/1 4/4 Joachim Baca 5/5 – – – – – Geoff Baldwin 3/3 – – – – – Manfred Bodner 4/5 (i) – – 4/4 1/1 2/2 Tim Bristow 7/7 5/5 3/3 – 2/2 – Simon Duffy 5/5 – – 4/4 1/1 – Helmut Kern 4/5(ii) 4/4 2/2 – 1/1 4/4 Rami Lerner 4/4 – 1/1 4/4 1/1 – Lewis Moonie 5/7(iii) 1/1 3/3 – 2/2 6/6 Rod Perry 7/7 4/4 1/1 4/4 2/2 6/6 Georg Riedl 5/5 – – – 1/1 – Jim Ryan 7/7 – – 4/4 2/2 – Norbert Teufelberger 5/5 – – 4/4 1/1 – Martin Weigold 7/7 – – – – –

(i) Manfred Bodner was absent from a meeting whilst on business in the United States representing the Company’s interests (ii) Helmut Kern was absent from one meeting through illness (iii) Lewis Moonie was absent in person from two meetings, because one meeting was convened in Gibraltar at short notice and in respect of the other meeting he had to remain in the United Kingdom to attend an important vote in the House of Lords. For both meetings he attended by telephone, however, the Company’s articles of association provide that any Director present by telephone from the United Kingdom cannot be regarded as present for the purposes of ascertaining a quorum 74 bwin.party Governance Annual report & accounts 2011

Internal controls ensuring Board procedures are complied with and advising the Board through the Chairman, on all governance matters. In accordance with the Code, the Board has reviewed, with assistance from the Audit Committee, the effectiveness of the Company’s risk Independent legal advice management and internal control systems put in place to manage the The Board has adopted a procedure for Directors to seek independent risks attaching to the business in pursuing its strategic objectives. This professional advice at the expense of the Company if they judge it review covers all material controls, including financial, operational and necessary to discharge their responsibilities as Directors. Each compliance controls. The Board is satisfied that the Company maintains Committee of the Board also has authority under its terms of reference an ongoing sound system for identifying, evaluating and managing risk. to obtain outside legal or other independent professional advice if the For more information on this subject please see the Audit Committee Committee considers it necessary in order to perform its duties. report on page 76. Induction and ongoing training Tenure Each new Director receives a full induction on joining the Board The Company’s articles of association require every new Director to and major Shareholders are offered the opportunity to meet new stand for re-election by shareholders at the next AGM immediately Non‑Executive Directors. The Chairman ensures that all Directors following their appointment. Thereafter each Director is required to continually update their skills, knowledge and familiarity with the seek re-election by shareholders at an AGM at least once every three Company to fulfil their roles on the Board and Board Committees years. The Code, however, recommends that Directors stand for via reports and information collated by management, the Company re‑election annually and in accordance with this recommendation, Secretary and the Company’s advisers. all the Directors are seeking re-appointment at the 2012 AGM. Performance evaluation The tenure of the current Board is as follows: Each year the Directors undertake a formal evaluation of the Number Period performance of the Board, its Committees and of individual Directors of Directors of service during the prior year. The evaluation of 2010’s performance (carried 8 Less than 12 months out in early 2011) resulted in a review of the content and format of management’s reports to the Board and a decision to increase the 1 3–4 years frequency of presentations by senior managers to Board meetings. 2 4–5 years 2 6–7 years Each year the Board has utilised the services of a third-party corporate governance consultancy to assist in the evaluation process. Even though Succession the Board has existed in its present form for less than a year, for the review of 2011’s performance, carried out in early 2012, the Board The Nominations Committee keeps under review the succession plans decided to use the services of Lintstock Limited, a third-party corporate for Directors and senior managers. In doing so, the Nominations governance adviser, to carry out a full questionnaire and interview Committee focuses on whether the Board is appropriately diverse with process. More information on the performance evaluation process is a range of generalist and specialist knowledge and skills. For further set out in the Nominations Committee’s report on page 79. information please refer to the Nominations Committee report. Insurance and indemnity D. Relations with Shareholders bwin.party maintains an insurance policy for its Directors and The Directors recognise the importance of maintaining effective officers and the Company has also entered into deeds of indemnity communications with shareholders. This is serviced in the with its Directors. following ways: C. Effectiveness • Throughout the year the Co-CEOs, Chairman and Director of Communications meet with existing and potential institutional Information flow to the Directors investors The Chairman oversees, with the assistance of the Company Secretary, • All Directors attend the Annual General Meeting and shareholders are the process of ensuring that all Directors receive timely and accurate invited to attend and ask questions either during or after the meeting. information in order to enable them to perform their duties. Notice of the AGM is set out on page 158 of this document and details Management provides detailed information ahead of each Board or of the meeting are set out on pages 100 and 101. In accordance with Committee meeting and additional information or updates between the Code, the AGM notice has been dispatched to shareholders more meetings when deemed necessary. than 20 working days before the AGM • The corporate website contains useful information for all Each Executive Director is readily available to the Non-Executive shareholders on the Company’s strategy, financial results, Directors if the latter should need clarification or amplification on any share price and announcements information provided. All the Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for 75 bwin.party Overview 02 Governance Annual report & accounts 2011 Strategy 20 Audit Committee Review of 2011 32 Report Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

• Founder shareholders of both bwin and PartyGaming (holding • Meet with the external auditors post-audit at the reporting stage to in aggregate 22% of bwin.party’s share capital) have Board discuss the audit, including problems and reservations arising from representatives which facilitates a productive dialogue with the audit, and any matters the auditor may wish to discuss (in the these investors absence of management, where appropriate); • Maintaining good communications with the investment analyst • Make recommendations to the Board concerning any proposed, community so that there exists a portfolio of research on the new or amended accounting policy; business. This also allows the Company to understand how it is being perceived by the investor community generally • Monitor and review the internal audit programme and its effectiveness; E. Audit Committee Report • Ensure co-ordination between the officers responsible for internal Purpose audit and the external auditors, and that the internal audit function is adequately resourced and has appropriate standing within The Board is required by the Code to establish formal and transparent bwin.party; arrangements for considering how it should apply the required financial reporting and internal control principles and for maintaining an • Consider any major audit recommendations and the major findings appropriate relationship with the Company’s joint auditors, BDO LLP of internal investigations and management’s response (in the and BDO Limited. absence of management, where appropriate); Membership • Monitor and review bwin.party’s systems for internal control, financial reporting and risk management; and The Board has done this by appointing an Audit Committee. The members of the Audit Committee are: • Reviewing the individual internal audit reports covering various areas and activities of the business • Helmut Kern (Chairman) • Tim Bristow Business during the year • Rod Perry During the year to 31 December 2011, the Audit Committee met five times to review and consider the following items of business: Helmut Kern has recent and relevant financial experience and was appointed to the Audit Committee with effect from 31 March 2011. February: From 1 January 2011 to 31 March 2011 Lewis Moonie chaired the Audit – 2010 Annual report Committee and Tim Bristow was regarded as the member with relevant – The external auditors’ report and the required letter of representation financial experience. from the Company – The non-audit services provided by the external auditors The Code recommends that a minimum of three independent directors – The re-appointment of the external auditors at the 2011 AGM should serve on the Audit Committee. From 1 January 2011 to 31 March – The internal audit status report 2011 the Company was not compliant with this recommendation, because there were only two independent Directors serving on the April: Board. Since 31 March 2011 the Audit Committee has complied with – The external audit process post-merger the Code in having three independent Directors. – The internal audit and risk management functions post-merger Responsibilities June: – External auditors’ management letters The Audit Committee has adopted terms of reference, approved by – The external auditors’ 2011 planning report and engagement letter the Board that are available on the Company’s website: http://www. – The level of non-audit services provided by the external auditors bwinparty.com/AboutUs/CorporateGovernance/AuditCommittee.aspx. – Latest internal audit status report In summary the main responsibilities of the Audit Committee are to: – Internal audit charter • Consider and make recommendations to the Board as regards the – Risk management status report appointment of the head of the internal audit function and also the August: external auditors as well as the re-appointment of the latter; – External auditors’ half year review relating to the 2011 half year • Recommend the audit fee to the Board and develop and recommend results and the required letter of representation from bwin.party to the Board bwin.party’s policy in relation to the provision of non- – Review of the 2011 half year results audit services by the external auditor; – The Company’s functional currency – The level of non-audit services provided by the external auditors • Monitor the integrity of the financial statements of bwin.party and – Latest internal audit status report any formal announcements relating to the Company’s financial – Five-year internal audit plan and universe performance and to review, and challenge where necessary, the – Update for treasury management policy and currency risk review actions and judgements of management in relation to the half-year and annual financial statements before submission to the Board; 76 bwin.party Governance Annual report & accounts 2011 Audit Committee Report

December: The Group continues to adopt and publicise a formal ‘whistleblowing’ – Group risk register procedure by which employees can, in confidence, raise concerns about – Latest internal audit status report and ongoing projects possible improprieties in financial or other matters. This procedure is set – Follow-up in respect of the management letter arising from the out in the Group’s employee handbooks and has been reviewed by the last audit Audit Committee. The Audit Committee is satisfied that arrangements – Updated code of conduct and whistle-blowing policy are in place for the proportionate and independent investigation of such – Updated report from the external auditors on their plans for auditing matters and for appropriate follow-up action. the 2011 annual financial results External Auditors – The level of non-audit services provided by the external auditors – Company balance sheet restructuring During the year ended 31 December 2011, BDO LLP was appointed under At these meetings, members met with management and with the an engagement letter to act as auditors to enable the Company to meet internal and external auditors. The Audit Committee members also met its obligations to prepare financial statements in accordance with the privately with the external auditors and separately with the internal Listing Rules. For the purposes of filing the Company’s financial audit function, without management representatives present. statements in Gibraltar, BDO LLP and BDO Limited have been appointed to act as joint auditors to allow an audit report to be issued under Through these meetings and review process the Audit Committee has section 10 of the Gibraltar Companies (Accounts) Act 1999. satisfied itself that proper and satisfactory internal control systems remain in place to identify and contain business risks and that the In accordance with its duties, the Audit Committee made integrity of the Company’s financial reporting is sound. In doing so the recommendations to the Board on the appointment of the external Audit Committee continues to exercise its authority to seek any auditors, approved their remuneration (both subject to Shareholder information it requires from any employee of the Company. approval) and also approved their terms of engagement. The Audit Committee has also established a policy regarding the appointment of In 2012, the Audit Committee has met once to review and recommend auditors to perform non-audit services for the Group and will keep this the approval of the 2011 full year results and the 2011 Annual Report. under continual review. This policy dictates that in the Company’s Risk management and effective internal controls financial year, the total fees for non-audit services provided by the external auditors, excluding non-audit fees for due diligence for The section, ‘Key risks’ on pages 55 to 57 of the Annual report sets out the acquisitions and other specific matters noted below, should not main risks impacting the Group’s business. exceed the total fees for audit services they provide. In the year ended 31 December 2011, the proportion of total non-audit fees bwin.party maintains a robust system of internal control for the purpose to total audit fees paid to the external auditors was 0.09:1.0. of safeguarding the investment of shareholders in the Company and the Group’s assets. At least annually the Board conducts a review of the In addition to their statutory duties, BDO LLP is also employed where, effectiveness of the Group’s system of internal controls, covering all as a result of their position as auditors or for their specific expertise, material controls, including financial, operational and compliance they either must, or the Audit Committee accepts they are best placed controls and risk management systems. bwin.party’s system of internal to, perform the work in question. This is primarily work in relation to control reduces the probability that business risks might impede the matters such as shareholder circulars, Group borrowings, regulatory Company in achieving its objectives, but it cannot eliminate these risks filings and certain business acquisitions and disposals. In such and can therefore provide only reasonable, not absolute, assurance circumstances the Audit Committee will separately review the specific against material misstatement or loss. service requirements and consider any impact on objectivity and independence of the auditors and any appropriate safeguards to this. The Group has an internal audit department, which also carries out the As such the Audit Committee believes it appropriate for these non-audit Company’s risk management monitoring. During the year, management services to be excluded from the 1:1 ratio set out above. In the year identified the risks attaching to the business and, on an ongoing basis, ended 31 December 2011 the total fees paid to the external auditors efforts are being taken to mitigate these risks. Throughout the year in respect of due diligence for acquisitions was €0.17 million. bwin.party’s internal auditors performed internal audits of offices and departments within the business to assess whether adequate internal Helmut Kern controls are in place to protect the Group, its employees and Chairman of the Audit Committee shareholders. The internal audit reports are presented to the Audit 29 March 2012 Committee and the Head of Internal Audit meets regularly with the Audit Committee as well as Chairman of the Audit Committee, to whom he has direct access. In accordance with the guidance contained in the Turnbull Report, the Board, with the assistance of the Audit Committee, has completed its annual review of the effectiveness of the internal system of control, and is satisfied that it is in accordance with that guidance. 77 bwin.party Overview 02 Governance Annual report & accounts 2011 Strategy 20 Ethics Committee Review of 2011 32 Report Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

F. Ethics Committee Report Business during the year Purpose During 2011 the Ethics Committee met three times to review and consider the following business items: The Board believes that the way in which the Group behaves and interacts with its stakeholders is key to the Group’s long-term success February: and development. Reflecting the importance the Group places on – CSR disclosures in the 2010 annual report corporate and social responsibility (‘CSR’), the Board has appointed an – Update reports from the Head of Regulatory Compliance and the Ethics Committee, despite there being no requirement to do so under Anti‑Money Laundering Officer the Code. – eCOGRA audit results – Charitable donations made by the Group in 2010 and proposed Membership for 2011 The members of the Ethics Committee are: – The Committee’s work in 2010 and its terms of reference June: • Tim Bristow (Chairman) – 2011 proposed charitable donations following the Merger • Per Afrell – Structure of regulatory affairs department • Helmut Kern – Reports from the Head of Regulatory Compliance and the Anti-Money • Lewis Moonie Laundering Officer Rami Lerner and Rod Perry were members until 31 March 2011. – CSR review and proposed strategy for the Group post-Merger – UK Bribery Act and updates to the anti-bribery policy and procedures Responsibilities – 2010 charitable donations The Ethics Committee has adopted terms of reference, approved by December: the Board that are available on the Company’s website: http://www. – Updated probity policy bwinparty.com/AboutUs/CorporateGovernance/EthicsCommittee.aspx. – Reports from the Head of Regulatory Compliance and the Anti-Money In summary, the main responsibilities of the Ethics Committee are to Laundering Officer ensure that the Group has policies and effective controls regarding – CSR report the following: – Sports betting integrity and regulation – 2012 CSR budget and proposed charitable donations • Responsible gaming including the prevention of underage or problem – GoodCorporation review gambling; In 2012 the Ethics Committee has met once to consider the CSR • Compliance with the gaming licenses held by the Company or any disclosures in the 2011 annual report and receive reports from the of its subsidiaries; Head of Regulatory Compliance, the Anti-Money Laundering Officer, • Gambling licence probity matters; GoodCorporation and to approve the proposed charitable donations for 2012. • Anti-money laundering; • The fairness and integrity of the Company’s gaming systems and the The Group’s approach to CSR and related issues is included in the process for managing any challenges to the fairness and/or integrity section of the Annual report on ‘Responsibility and relationships’ of these systems; on pages 58 to 65. • Privacy and data protection; Tim Bristow • Employment matters relating to codes of conduct and health Chairman of the Ethics Committee and safety; 29 March 2012 • Charitable donations and investment in the local community; • The Company’s suppliers and service providers; and • The Company’s impact on the environment From a day-to-day management perspective, the Chief Financial Officer has executive responsibility for CSR matters and he is invited to attend Ethics Committee meetings. The Co‑CEOs attend meetings from time to time.

78 bwin.party Governance Annual report & accounts 2011 Integration Committee Report

G. Integration Committee Report • Making recommendations to the Board regarding any decisions about the gaming platforms to be used by the Group or the software Purpose rationalisation process, including any decisions relating to the As many corporate mergers experience significant challenges in disposal of platforms and software; achieving their objectives, the Board wanted to ensure sufficient • Ensuring that any product branding, cultural or employee morale oversight was given to bringing about the delivery of economic issues arising from the Merger are effectively addressed and resolved synergies and effective exploitation of the combined PartyGaming and by management; and bwin assets. The purpose of the Integration Committee is to oversee • Monitoring communication of the progress of the integration process bwin.party’s Merger integration plan and ensure it is implemented to employees, shareholders, governments, regulators and any other effectively in a timely manner. stakeholders and making recommendations to the Board accordingly Membership Business during the year The Integration Committee was established on 31 March 2011 and its During 2011 the Integration Committee met four times to review and members are: consider the following business items: • Manfred Bodner (Chairman) April: • Simon Duffy – Integration plan and timetable • Rod Perry – Management structure and headcount • Jim Ryan – Sale of surplus assets • Norbert Teufelberger – Integration budget and synergies The Chief Financial Officer and Chief Operating Officer have also been June: invited to attend and participate in Integration Committee meetings. – Update on integration process and tracking – Sale of surplus assets Responsibilities – Employee headcount The Integration Committee has adopted terms of reference, approved – Updated synergy forecasts by the Board that are available on the Company’s website: http://www. August: bwinparty.com/AboutUs/CorporateGovernance/IntegrationCommittee. – Update on integration process aspx. In summary, the main responsibilities of the Integration – Technology and software resources and location Committee are to ensure that the Group has effective controls and – Impact of new gaming licenses on the integration process policies regarding the following: – Sale of surplus assets • Oversight of the preparations and implementation in a timely manner December: of an effective plan across the Group to integrate the businesses of – Status of integration projects bwin and PartyGaming; – Synergy status update – Integration project resource and capacity • Ensuring that the integration plan complements and supports the – Remaining 2011 projects Group’s rolling business strategy; – Sale of surplus assets • Resolving any management disputes over any element of the In 2012 the Integration Committee has met once to review the status integration process; of the integration projects and the latest forecast synergies. • Reviewing and making recommendations to the Board regarding any material investment management proposes making in order to Manfred Bodner facilitate the integration plan; Chairman of the Integration Committee 29 March 2012 • In consultation with the Company’s Audit Committee, overseeing that at all times the Group has in place the necessary management structure and staffing resource across all functions to continue to effectively manage the risks attaching to the Group’s business relating to integration matters; • Making recommendations to the Board regarding the sale of any of the Group’s material assets or businesses regarded by management as redundant following the Merger; 79 bwin.party Overview 02 Governance Annual report & accounts 2011 Strategy 20 Nominations Committee Review of 2011 32 Report Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

H. Nominations Committee Report February: – Agree the recommendation for the re-appointment of certain Purpose Directors at the 2011 AGM The Board has adopted a formal, rigorous and transparent procedure – Review the Committee’s work and its terms of reference for the appointment of new Directors to the Board by appointing a December: Nominations Committee to lead the process of appointment and make – Review the Board’s composition, size, independence and diversity recommendations to the Board. The Nominations Committee also The composition and size of the Board changed significantly in March advises the Board on its structure, size, composition and matters of 2011 following the completion of the Merger. The Board has functioned Director and senior management succession. well and effectively in overseeing the Merger integration process as Membership demonstrated by the fact that bwin.party is now forecasting larger synergy savings than forecast when the Merger was originally proposed. The members of the Nominations Committee are or have been: The Nominations Committee, however, is mindful of both the Board’s size and the independence issue, as well as of the need to ensure it has • Simon Duffy (Chairman) (appointed 31 March 2011) an appropriate balance of skills and experience. Consequently, • Per Afrell (appointed 31 March 2011) as disclosed on page 74, in 2012 the Board has undergone a detailed • Rod Perry performance evaluation with Lintstock Limited, an experienced • Manfred Bodner (from 31 March 2011 to 15 March 2012) third‑party corporate governance adviser. The aim of this exercise has been to review how well the Board and its committees are operating • Tim Bristow (until 15 March 2012) and what improvements can be made to ensure the experience and • Helmut Kern (from 31 March 2011 to 15 March 2012) knowledge of the Board are appropriate to lead bwin.party beyond • Lewis Moonie (until 15 March 2012) the Merger integration stage. This process required each Director to answer a series of questions on the performance of the Board, the • Georg Riedl (from 31 March 2011 to 15 March 2012) Chairman, individuals and committees and was followed up by each • Jim Ryan (until 15 March 2012) Director being interviewed by Lintstock’s consultants. The results will • Norbert Teufelberger (from 31 March 2011 to 15 March 2012) be presented to the Nominations Committee and the Board once the Chairman has discussed the conclusions of the review with each From 1 January 2011 to 31 March 2011, Rod Perry chaired the Director individually. Thereafter the Nominations Committee will agree Nominations Committee and Rami Lerner was a member. what recommendations to make regarding the Board’s composition. Responsibilities Terms of appointment The Nominations Committee has adopted terms of reference, The letters of appointment for each of the Non-Executive Directors approved by the Board that are available on the Company’s website: do not specify a fixed term of appointment. The Board has resolved, http://www.bwinparty.com/AboutUs/CorporateGovernance/ however, that if any Non-Executive Director remains in office for a NominationsCommittee.aspx. In summary, the main responsibilities period of six years, having satisfied annual performance evaluations and of the Nominations Committee are to: been re appointed by shareholders at an AGM at least twice, then that • Regularly review the structure, size and composition (including the Non-Executive Director’s re-appointment will be subject to a review by skills, knowledge and experience) required of the Board compared the Nominations Committee and Board, both bodies taking into account to its current position and make recommendations to the Board with the need to maintain an active and progressive Board. The Board does regard to any adjustments that are deemed necessary; not expect that any Non-Executive Director will serve for a period of greater than nine years. • Give full consideration to succession planning for Directors and other senior management in the course of its work, taking into account the The Code recommends that notice or contract periods for Directors challenges and opportunities facing the Company, and what skills and should be set at one year or less. As disclosed in the Remuneration expertise are needed on the Board in the future; Report on pages 93 and 94, the notice periods for all the Directors • Be responsible for identifying and nominating candidates for the comply with this recommendation. approval of the Board, to fill Board vacancies as and when they arise; The letters of appointment for the Non-Executive Directors and the and service agreements for the Executive Directors will be available for • Make recommendations to the Board concerning the re‑appointment inspection 30 minutes prior to and during the AGM. by shareholders of any Director. Simon Duffy Business during the year Chairman of the Nominations Committee 29 March 2012 During 2011 the Nominations Committee met twice to deal with the following business: 80 bwin.party Governance Annual report & accounts 2011 Directors’ Remuneration Report

I. Directors’ Remuneration Report Unaudited Introduction Purpose of the Committee bwin.party continues to operate in a dynamic and challenging The Board has appointed the Remuneration Committee to oversee environment and it remains a core objective of the Group’s the remuneration policy and practices adopted by the Group. The remuneration policy to provide competitive remuneration packages Committee’s terms of reference are available on bwin.party’s website, that support the business and its strategic goals, by recruiting and http://www.bwinparty.com/AboutUs/CorporateGovernance/ retaining high calibre individuals. It is essential that these individuals RemunerationCommittee.aspx. have the necessary skills and entrepreneurial drive to grow this fast The key objectives of the remuneration policy are to: moving business and ensure bwin.party continues to be a leader in digital entertainment. • Establish competitive remuneration terms that allow the Group to recruit, retain and incentivise the most talented managers; The Merger has been a time of significant change for employees and has raised retention challenges for the business. Simultaneously, the United • Promote the achievement of bwin.party’s rolling three-year business States looks increasingly likely to introduce regulated online poker strategy through the provision of appropriate targets that stretch which, while a welcome business growth opportunity for bwin.party, and motivate employees to deliver on the strategic objectives; creates additional employee retention issues, as US and other operators • Ensure effective risk management and sustainable performance seek to build up their online gaming teams and look to bwin.party as a is encouraged through reward; and valuable source of knowledgeable and experienced staff. Despite these • Ensure senior executive remuneration is aligned with the interests challenges, the remuneration policy, based on the new equity plans of bwin.party’s shareholders and other stakeholders introduced in 2011, continues to attract, incentivise and retain the experienced online gaming experts and entrepreneurs who are key The Committee’s main responsibilities are: to bwin.party’s success. • Agree the remuneration policy for the Chairman of the Board, The Remuneration Committee regularly reviews the Company’s risk Executive Directors, Company Secretary and senior executives policy against the operation of the Company’s incentive plans to ensure (together the ‘Senior Officers’) and review regularly the ongoing that their operation is consistent with this policy. The Committee appropriateness and relevance of the remuneration policy; believes that the opportunities within the incentive arrangements are • Ensure the remuneration policy provides for individuals to receive warranted by the challenges set out above and that these arrangements appropriate remuneration and incentives to encourage enhanced encourage the sustainable long-term value of the Company. performance and to be rewarded, in a fair and responsible manner, for their individual contributions to the success of the Group; This report has been prepared on behalf of the Board in accordance with Schedule 8 of the Large and Medium‑sized Companies and Groups • Review annually the total individual remuneration package of the (Accounts and Reports) Regulations 2008 (the ‘Regulations’). The report Senior Officers; also meets the relevant requirements of the Listing Rules of the • Liaise with the Nominations Committee to ensure that the Financial Services Authority and describes how the Board has applied remuneration of any newly appointed Senior Officer is within the the principles and complied with the provisions of the UK Corporate Company’s overall remuneration policy; Governance Code relating to Directors’ remuneration. An advisory • Set and monitor performance criteria for any bonus arrangements resolution to approve the report will be proposed at the Company’s for the Senior Officers and the framework of the bonus structure for Annual General Meeting on 7 June 2012. staff generally; The auditors are required to report on the ‘auditable’ part of this report • Approve the length and terms of all service contracts and the and to state whether, in their opinion, that part of the report has been appointment letter for the Board Chairman and Executive Directors; properly prepared in accordance with the Directors’ Remuneration • Review and approve the introduction of new share option and share Report Regulations 2002. BDO LLP and BDO Limited have audited the award schemes, set or recommend the performance criteria for sections headed ‘Summary of the long-term incentive plans’ and awards, determine each year whether awards will be made and the ‘Total emoluments overview’ to the extent they are required to overall amount of the awards and approve any awards proposed for do so by the Regulations. Senior Officers; and Rod Perry • Approve the terms of termination of the Chairman of the Board or any Chairman of the Remuneration Committee Executive Director and ensure such terms are fair and reasonable and 29 March 2012 not excessive, that failure is not rewarded and that the duty to mitigate loss is fully recognised 81 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Membership Business during the year The members of the Remuneration Committee are all independent During 2011 the Remuneration Committee met six times to review and Non‑Executive Directors: consider the following items of business: • Rod Perry (Chairman from 31 March 2011) February: – Approve the 2010 senior management bonuses • Tim Bristow (until 31 March 2011) – Set the 2011 performance formula for the Bonus Banking Plan • Per Afrell (appointed 31 March 2011) – Set the 2011 performance formula for the Bonus & Shares Plan – Determine the extent outstanding awards under the Executive Share • Helmut Kern (appointed 31 March 2011) Option Plan and Performance Share Plan have met their performance • Lewis Moonie (Chairman until 31 March 2011) objectives – Review the proposed Directors’ Remuneration Report for the year Advisers ended 31 December 2010 PricewaterhouseCoopers LLP (‘PwC’) in London provides guidance April: to the Remuneration Committee on remuneration trends, short and – Set the 2011 financial and individual objectives for the Bonus long‑term incentives and general market remuneration developments. Banking Plan PwC was appointed by the Committee following a tender process – Considered setting the initial price of the Value Creation Plan and in mid-2010 in which a number of potential advisers participated. allocation of the participation rights in any Value Creation Plan pool A separate department of PwC provided an internal audit review of of value bwin.party’s marketing function during 2011, however this work was – Set the 2011 financial objectives for the Bonus & Shares Plan. completely unrelated to and segregated from the work performed by – Agreed an amendment to the terms of the share awards granted PwC’s remuneration consultancy and in the Remuneration Committee’s to key Cashcade employees view did not undermine their independence. Whilst Helmut Kern was June: a management consultant partner with PwC in Austria until October – Further review of the 2011 personal objectives set for the Co-CEOs 2011, he was not a Director when PwC were appointed and took no part to ensure in practice they were complimentary and remained in any decision regarding their continued appointment. His function appropriate with PwC Austria was completely independent of and segregated from – Reviewed shareholder feedback from the setting of the initial price the work performed by PwC’s remuneration team in London. for the Value Creation Plan The Company Secretary is the secretary to the Remuneration August: Committee. – Agreed the remuneration of the new Group Director of Poker – Agreed the remuneration of the new Group Director of Bingo In performing its duties during the year, the Remuneration Committee December: consulted with the Chairman of the Board, the Group Human Resources – Advised by PwC on current market remuneration trends Director, the Co-CEOs and the CFO. The Remuneration Committee – Reviewed the Group’s remuneration policy ensured, however, that no individual was involved in any decisions – Met with PwC without management representatives present about their own remuneration. – Reviewed the remuneration consultants 82 bwin.party Governance Annual report & accounts 2011 Directors’ Remuneration Report

Remuneration policy As a result of the above considerations, the Group has adopted a highly leveraged incentive policy to ensure that the profile of the remuneration The Group’s remuneration policy continues to be to provide market- on offer is supportive of the Group’s business strategy and the effect of competitive total remuneration packages enabling the business to legislative changes. In conjunction with this approach, the policy adopts recruit and retain high calibre entrepreneurs required to drive the future comparatively modest elements for the fixed elements of the total growth and performance of its business. The online gaming sector remuneration package, with generally lower to median quartile salaries, continues to be a highly competitive and dynamic environment and minimal benefits and no pension provision. the following key factors are taken into account: Comparator groups – The nature of the market in which the Group operates and, in particular, the fact that the regulation and legality of online gaming The Remuneration Committee has adopted a combination of the varies from jurisdiction to jurisdiction, is subject to uncertainties and following comparator groups to benchmark its remuneration: may be impacted by adverse changes to regulation of online gaming (i) Companies in the FTSE 250 Index; or the interpretation of regulation by regulators; (ii) Companies in the FTSE 51–100; – The need for incentive arrangements to incorporate suitable (iii) A bespoke comparator group of the following international companies: risk adjustment provisions to ensure executives do not receive unjustified windfalls; – The need to attract and retain key talent and drive high performance; 888 Holdings Monster Worldwide – Increasing regulation impacting the Group’s margins due to ASOS NCR additional cost of compliance and taxation; Betsson AB Net Entertainment Ne AB Boyd Gaming Corporation Opentable – The requirement for the Executive Directors and certain senior Concur Techs Paddy Power executives to relocate and discharge all of their responsibilities Cybersource Playtech from Gibraltar; Digital River Rank Group – The opening of the US online gambling market under a federal or state E*Trade Financial Rightmove licensing regime, together with the timing of such a development, Expedia Sportingbet may have a substantial impact on the Group’s financial and share Fortinet Unibet price performance. The remuneration policy has to be flexible and IAC/Interactivecorp Verisign durable enough to accommodate these changes without becoming International Game Technology William Hill compromised; and Ladbrokes WMS Industries – The need to reconcile UK corporate governance guidance with Las Vegas Sands Yell Group market remuneration practices in all jurisdictions where the Group MGM Resorts Intl. has employees Moneysupermarket.Com Grp In this context particular focus is placed on providing a share-based remuneration package appealing to entrepreneurial and innovative executives. The current share-based awards were designed in 2010 and introduced in 2011 following the completion of the Merger and aim to take account of the risks associated with the online gaming business and seek to address the following: – Long-term incentives with standard three-year performance periods are difficult to use to motivate and retain senior executives due to the fast moving nature of the market; – Comparative total shareholder return targets are inappropriate as even direct industry comparators have a different focus on the various gaming verticals and different risk exposure; – Incentives need to be flexible enough to deal with the changing regulatory environment in which the Group operates; and – The remuneration challenge for the Group is to have remuneration arrangements in place where part of the reward provided to senior executives is linked to shareholder return and is not completely undermined by the risk factors impacting the sector and the Group 83 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

The following table summarises the Remuneration Committee’s policy for each element of the remuneration package against the previous comparators:

Potential total short-term Potential annual Potential total Base salary Bonus Pension Benefits in kind remuneration available share awards compensation value

Lower Quartile to Upper None Lower Median to Upper Median to Median Quartile Quartile Upper Quartile Quartile Upper Quartile This supports the performance based culture of the Company. Fixed costs are minimised and total The policy in respect of long-term incentives and short‑term remuneration will only reach and exceed the median if the performance-based bonus is earned potential compensation value is an extension for the relevant financial year. In certain circumstances, the Remuneration Committee will, at its discretion, of the policy on total short term remuneration. set base salary outside of policy in order to secure the recruitment and retention of the appropriate Executive Directors will only receive a market individual for the role. In such cases the Committee will take into account factors such as the individual’s competitive package if the annual bonus and long- skills and level of experience. term incentives are earned.

The charts on page 84 show the on target and maximum compensation for each of the Executive Directors based on the following assumptions for 2012:

Assumption On Target Maximum

Salary Salary Salary Benefits Benefits Benefits Bonus 50% of Maximum 100% of Maximum Contribution Contribution Fair Value of 50% of the 100% of the VCP Award at Grant Fair Value Fair Value

The Committee also considers corporate performance on environmental, social and governance (‘ESG’) issues when setting the remuneration of Executive Directors and senior managers, ensuring these good practice objectives are appropriately addressed in each individual’s objectives. The Remuneration Committee also reviews whether incentive structures may raise ESG risks by inadvertently motivating irresponsible behaviour and is of the view that this is not the case with the current incentive structures. 84 bwin.party Governance Annual report & accounts 2011 Directors’ Remuneration Report

Jim Ryan (Co-CEO) Target Jim Ryan (Co-CEO) Maximum

Salary Salary Beneﬁts Beneﬁts Bonus Banking Plan Bonus Banking Plan VCP (Fair Value) VCP (Fair Value)

Norbert Teufelberger (Co-CEO) Target Norbert Teufelberger (Co-CEO) Maximum

Salary Salary Beneﬁts Beneﬁts Bonus Banking Plan Bonus Banking Plan VCP (Fair Value) VCP (Fair Value)

Joachim Baca (COO) Target Joachim Baca (COO) Maximum

Salary Salary Beneﬁts Beneﬁts Bonus Banking Plan Bonus Banking Plan VCP (Fair Value) VCP (Fair Value)

Martin Weigold (CFO) Target Martin Weigold (CFO) Maximum

Salary Salary Beneﬁts Beneﬁts Bonus Banking Plan Bonus Banking Plan VCP (Fair Value) VCP (Fair Value) 85 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Remuneration components a. Salaries Policy – Lower Quartile to Median of Comparator Groups

2011 2012 Percentage Name & Role Basic Salary Basic Salary Increase

Jim Ryan Co-CEO £500,000 £500,000 0.0 Norbert Teufelberger Co-CEO £500,000 £500,000 0.0 Joachim Baca COO £428,500 £446,000 4.1 Martin Weigold CFO £428,500 £446,000 4.1

When determining the base salary of the Executive Directors the c. Pensions Committee takes into consideration: Policy – No pension provision • The levels of base salary for similar positions with comparable During 2011 there was no company pension scheme in Gibraltar. In April status, responsibility and skills in organisations of broadly similar 2012 the Group is introducing a flexible benefits programme and this will size and complexity; provide the option for employees to contribute to a company provided • The performance of the individual Executive Director; pension, with a modest contribution by the employing entity of 1% of salary if the employee contributes at least 3% of their salary. • The individual Executive Director’s experience and responsibilities; and d. Incentives • Pay and conditions throughout the Company. The Committee has (Bonus and long-term incentives) access to pay and conditions of other employees within the Group Policy – Upper Quartile of Comparator Groups when determining remuneration for the Executive Directors and also considered the relationship between general changes to pay and The incentive plans remain a core element of the remuneration policy in conditions within the Group as a whole. The general increase in incentivising and retaining executives and aligning their interests with salaries across the Group was 3 to 4% those of bwin.party’s shareholders. The Committee uses comparisons with caution to avoid increasing During 2011 the Executive Directors participated in the Bonus Banking remuneration levels without a corresponding improvement Plan and Value Creation Plan, which were both introduced in 2011 in in performance. conjunction with the Merger and following extensive shareholder consultation and a binding vote at the extraordinary general meeting b. Benefits of the Company’s shareholders on 28 January 2011. Policy – Lower Quartile of Comparator Groups (i) Bonus Banking Plan (‘BBP’) Benefits only include private medical insurance, permanent health The key features of the BBP are: insurance and life assurance. In line with the remuneration policy the level of fixed costs incurred as part of the executive remuneration • In 2011, at the beginning of the plan period of three financial years, package has been set at the minimum level. Details of the monetary participants were given a plan account to which contributions will values attributable to these benefits for 2011 are set out in the be made emoluments table on page 95. • No contribution is be made to a participant’s plan account unless the performance criteria are met • Each participant has a maximum annual contribution as a percentage of salary, set out in the table overleaf, which provides the following total cash opportunities for the Executive Directors 86 bwin.party Governance Annual report & accounts 2011 Directors’ Remuneration Report

Company Total Cash (including value of deferred share Maximum annual element under the contribution as a % BBP) Name / Role of basic salary £000’s

Jim Ryan Co-CEO 300 1,500 Norbert Teufelberger Co-CEO 300 1,500 Joachim Baca COO 250 1,071 Martin Weigold CFO 250 1,071 Top tier senior managers 150–200 236–690

* Total Cash is base salary plus targeted levels of bonus. It should be noted that under the BBP 50% of the element earned is deferred in shares.

• The Remuneration Committee sets the performance criteria for each The Remuneration Committee believes that the BBP is appropriate and plan year. The performance criteria are as follows: supports the remuneration policy for the following reasons: – a minimum threshold level of Clean EBITDA for each financial year (i) the BBP provides flexibility for the Remuneration Committee to set is required for there to be any payment under the BBP; annual targets mitigating against some of the risks of the sector; – assuming the threshold is met a percentage of Clean EBITDA (ii) the use of strategic key performance indicators as additional is used to create the bonus pool; conditions for payments to be made under the BBP allows a more holistic, flexible and durable approach rather than focusing purely – a participant’s annual payment from the bonus pool is also on a relatively narrow set of financial metrics; subject to the satisfaction of additional individual performance objectives; (iii) it ensures that any objectives based on integration and synergy savings from the Merger are underpinned by profit performance – where the forfeit threshold Clean EBITDA is not achieved 50% before any bonus is earned; of the deferred balance in a participant’s plan account will be forfeited; and (iv) the minimum performance thresholds ensure that key executives are encouraged to focus on sustainable long‑term performance; and • Participants are entitled to an annual payment of 50% of their plan account at the end of each plan year. All balances are deferred into (v) the deferral in shares and the real risk of forfeiture through shares. On the fourth anniversary of the start of the plan period claw‑back ensure a balance between the interests of shareholders (1 January 2014) the remainder of the balance of participants’ plan and key executives accounts will be paid 87 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

2011 Outcomes The following table sets out the Clean EBITDA targets for 2011 and their level of satisfaction:

Clean EBITDA Clean EBITDA Clean EBITDA Threshold on Target Maximum

EBITDA €161.9m €202.4m €242.9m % of EBITDA credited 2.4% 3.8% 3.2% to the Bonus Pool %age of Clean EBITDA Value of Contribution 2011 Outcomes Clean EBITDA credited to the Bonus Pool to the Bonus Pool €199.3m 3.8% €7.67m

€m

2011 EBITDA

Clean EBITDA Maximum

Clean EBITDA on Target

Clean EBITDA Threshold

0 50 100 150 200 250

In addition, the Remuneration Committee has reviewed the performance of the Executive Directors and senior executives against their personal objectives set for 2011. The objectives for the COO, CFO and senior executives were set by the Co-CEOs, whilst the objectives for the Co-CEOs were set by the Chairman. All the personal objectives were reviewed and approved by the Remuneration Committee at the beginning of 2011 before being rolled out. The 2011 objectives included:

Co-CEOs COO CFO – Oversee the delivery of the integration plan – Manage the process of capturing the – Oversee the combined Group’s profit and and forecast synergies forecast synergies loss account and budget and financial tracking – Implement strategic plans to exploit new or related – Manage the form and delivery of the Group’s and control business channels products and services – Integrate the bwin financial systems with – Embed innovation into the Group’s strategy – Oversee the optimisation of software development those of PartyGaming – Identify and enter into new strategic partnerships and IT operations – Conduct a budgeting exercise for the combined Group – Implement the tactical plan to re-enter the US online – Align the bwin and PartyGaming processes poker market when it becomes regulated – Enable quick and effective entry into newly – Track and oversee the realisation of the Merger synergies – Implement tactical plans relating to new markets regulated markets and Group culture – Enhance the Group’s payment processing operation – Support the strategic decision‑making process – Improve the customer experience 88 bwin.party Governance Annual report & accounts 2011 Directors’ Remuneration Report

As a result of this review process, the Remuneration Committee has determined that the Executive Directors are entitled to the following contributions in respect of 2011:

Deferred % of Cash shares/ Total Basic Name/Role payment Value value salary

Jim Ryan Co-CEO £453,125 327,095 £906,250 181 £453,125 Norbert Teufelberger Co-CEO £453,125 327,095 £906,250 181 £453,125 Joachim Baca COO £319,813 230,862 £639,626 149 £319,813 Martin Weigold CFO £320,486 231,348 £640,972 150 £320,486

* Number of shares calculated using the average share price for the 30-day measurement period to 31 December 2011, which was 138.53 pence. The following chart shows the actual Company contribution to the plan accounts for the Executive Directors for 2011 compared to their maximum annual contribution:

% Jim Ryan (Co-CEO)

Norbert Teufelberger (Co-CEO) Joachim Baca (COO)

Martin Weigold (CFO)

0 50 100 150 200 250 300

Maximum Contribution (% of Salary)

Actual Bonus Contribution (% of Salary)

2012 maximum annual contribution and performance targets The Company 2012 maximum annual contribution for Executive Directors participating in the BBP is the same as the levels set for 2011. For 2012 the Remuneration Committee has again set the minimum threshold for a payment under the BBP. This is not disclosed in this report because the information is commercially sensitive, but will be disclosed in the 2012 Directors’ Remuneration Report (using the format set out above). The personal objectives for the Executive Directors and senior executives have also been set and agreed by the Remuneration Committee. 89 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

(ii) Value Creation Plan (‘VCP’) The key features of the VCP are: • Under the VCP, participants have been allocated a number of VCP points from a total pot and the Executive Directors have received the following:

Name Number of % of VCP Pool VCP Points

Jim Ryan 1,000,000 10 Norbert Teufelberger 1,000,000 10 Joachim Baca 1,000,000 10 Martin Weigold 1,000,000 10 Top-tier senior manager 200,000 – 400,000 2-4

• These VCP points have no value on grant but give the participants • The annual hurdle will be the higher of: the opportunity, during the three‑year performance period, to share – 10% compounded annually from the initial price; and in 4% of the total value created for shareholders in excess of an annual hurdle of 10% share price growth from the initial share price at annual – the average share price at the start of the relevant year (or measurement points previous measurement date if this is higher than at the start of the relevant year); and • The value to each participant will be set by reference to the number of VCP points held in proportion to the total VCP points allocated and • The initial price for determining the level of value required to be will be delivered in shares generated in 2011 was 151.52 pence • The size of the VCP Pool is not capped The VCP fits with the Group’s remuneration policy because: • At each measurement date participants will bank shares (in the – it incentivises participants to focus on building shareholder value; form of a nil-cost option) with a value equivalent to the excess value – key executives will only benefit from material increases in absolute created using the prevailing share price. 50% of any banked shares total shareholder return ensuring a direct alignment between the will become exercisable at the end of year 3 (2013), with the remainder benefits received and value to shareholders; and at the end of year 4 (2014) – the annual banking of shares under the VCP results in an immediate • The level of value created for shareholders will be determined by shareholding which because of the restrictions on disposal provides reference to the appreciation in the Company’s share price, the an ongoing exposure to the share price of the Company, encourages amount of dividends paid and any share buybacks (absolute total decisions maintaining and enhancing shareholder value shareholder return) The average share price for the 30-day period to 31 December 2011 • The shareholder value created at each measurement date will be was 138.53 pence. With an initial price of 151.52 pence the share price calculated using the average share price over the 30 day period prior had to reach a minimum of 166.67 pence before a VCP pool was created to the relevant measurement date and therefore there are no awards to be granted under the VCP in respect of 2011.

Share price on measurement date is 138.53 pence The price at which a VCP pool will begin to be created in respect of 2012 is if the average share price for the 30-day period to 31 December 2012 10% p.a. 10% p.a. Depends on the is 183.34 pence. Year 2 outcome at the Year 1 Threshold end Threshold Price of Year 2; Price 183.34 pence however 166.67 pence minimum Threshold Price would be 201.67 pence

Year 1 (2011) Year 2 (2012) Year 3 (2013) 90 bwin.party Governance Annual report & accounts 2011 Directors’ Remuneration Report

Total remuneration Policy – median to upper quartile of comparator groups The Remuneration Committee’s policy is to set the potential total remuneration at the median to upper quartile of the comparator groups. The level of total remuneration actually received will be dependent on the level of bonus earned under the BBP and the shares awarded under the VCP. The table below shows for each of the Executive Directors the following information: • the total remuneration payable under the Company’s remuneration policy against the comparators. Total remuneration consists of: – base salary – on target bonus – fair value of long-term incentives – pension contributions • the actual total remuneration provided by the Company for 2011

Average of Comparators

Company Company Policy Level Median Upper Quartile 2011 Actual Name £000’s £000’s £000’s £000’s

Jim Ryan 2,101 1,980 2,831 1,406 Co-CEO Norbert Teufelberger 2,101 1,980 2,831 1,406 Co-CEO Joachim Baca 1,772 1,037 1,445 748 COO Martin Weigold 1,772 1,077 1,475 749 CFO

Other share plans bwin.party Bonus & Shares Plan (Current Plan) (bwin.party mid to senior management excluding those in the VCP In addition to the above plans, the Company also operates the following and BBP) plans some of which the Directors do or may participate in: The Bonus & Shares Plan, launched in 2011 after the completion of the bwin.party Global Share Plan (Current Plan) Merger duplicates in many respects the BBP. It uses the same Clean (All bwin.party employees including Executive Directors) EBITDA target set for the BBP and in determining a participant’s Under the Global Share Plan launched in 2011 following the Merger contribution performance against individual objectives set at the participants are able to purchase a maximum of £1,500 shares annually. beginning of the year are considered. As with the BBP, bonuses are paid Subject to retaining these purchased shares for three years and in the form of a cash payment and deferred shares (awarded as nil-cost continued employment, the Company can provide a matching share for share options or restricted stock), but unlike the BBP there is no each employee share purchased. Participants, excluding the Executive clawback mechanism for underperformance in future years. Deferred Directors, may also be awarded a nil-cost option (no cost on grant and shares vest over a three‑year period. The maximum annual contribution no strike price) or restricted bwin.party stock up to a value of £25,000 per that can be earned under this plan is 150% of basic salary. The deferred annum (Executive Directors can only be granted an award up to £3,000 shares are funded through the allotment of new shares. in value per annum). These discretionary free share awards generally do not have any performance conditions and vest over a three-year period. New shares are used to satisfy free share awards, whilst shares are purchased in the market in respect of the purchased share and matching share programme. 91 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

PartyGaming Plc Share Option Plan (legacy pre-Merger plan) bwin.party Rollover Option plan (legacy pre-Merger plan) (Jim Ryan, Martin Weigold and former PartyGaming employees and (Norbert Teufelberger, Joachim Baca, former bwin non-executive consultants only) directors and former bwin employees only) Under this plan launched in 2005, option awards have been awarded The Company introduced the bwin.party Rollover Option Plan (‘ROP’) at with no cost on grant or exercise and generally without any the time of the Merger. The purpose of this plan was to effect the grant performance conditions. The shares used to fund exercised awards of rollover options over bwin.party shares to replace unexercised under this plan come solely from the employee benefit trust, no new options granted under the two bwin fair market value option plans, shares are allotted to satisfy awards and the shares were largely some of which were subject to performance conditions. On the day the donated to the employee benefit trust by the founder shareholders of Merger took effect the bwin options over bwin shares were rolled over PartyGaming in 2005 and 2006. Whilst the Remuneration Committee at into equivalent options under the ROP over bwin.party shares on the time these options were granted recognised the recommendation terms which reflected the same exchange ratio as applied to bwin in the Combined Code on Corporate Governance (predecessor to the shareholders – 12.23 bwin.party shares for each bwin share. The shares UK Corporate Governance Code) not to award Executive Directors continue to vest on the same vesting timetable as the original long‑term incentive awards without performance conditions or to bwin options. award options at a discount, the Remuneration Committee deemed New bwin.party shares will be issued to satisfy exercised ROP awards, it necessary at the time to make these awards in order to attract and however, as explained in the Merger prospectus and circular, these bwin. retain the services of the recipients. The awards generally vest over a party shares will not count towards the Company’s 10% dilution limit. period of five years. Other employees of the Group have participated in this plan and the majority of awards were made in the period 2005 Details of the awards under the ROP granted to Norbert Teufelberger, to 2007. No awards have been made under this plan since 2010 and no Joachim Baca, Per Afrell, Manfred Bodner, Helmut Kern and Georg Riedl awards will be granted in the future. are contained in the table in the section below. Whilst the UK Corporate Governance Code recommends against granting options to Non- PartyGaming Plc Performance Share Plan (legacy pre-Merger plan) Executive Directors, Per Afrell, Manfred Bodner, Helmut Kern and Georg (Jim Ryan, Martin Weigold and former PartyGaming senior management Riedl received their original bwin options under a different corporate team only) governance regime (Austrian) and the ROP awards simply convert the Under this plan launched in 2007, awards of restricted stock were value of these original awards into bwin.party shares. No further share made and vested subject to the Company’s total shareholder return awards will be made under the ROP. performance over a three‑year period versus that of a peer group. PartyGaming Plc Executive Share Option Plan (legacy pre-Merger plan) Only the Executive Directors of PartyGaming and the senior (Jim Ryan, Martin Weigold and former PartyGaming senior management management team participated in this plan. Details of how this legacy team only) plan operated were set out in the 2010 Remuneration Report and all outstanding awards had their performance measured to 28 January Under this plan launched in 2007, Executive Directors and senior 2011, when shareholders approved the Merger. The vesting schedule for managers were awarded fair market options vesting after three years all outstanding awards did not change. As a result, the Remuneration subject to the satisfaction of a Clean EPS growth target. All awards Committee determined as follows: made under this plan have lapsed. No future awards will be granted under this plan. – April 2009 awards: TSR performance outperformance of 11.2% so 100% of each award will vest on 31 March 2012. As a result Jim Ryan PartyGaming All-Employee Option Plan (legacy pre-Merger plan) will receive 125,000 shares and Martin Weigold will receive (All former PartyGaming employees except Executive Directors) 337,500 shares Under this plan launched in 2007, all employees excluding the Executive – September 2009 awards: TSR performance of 4.4% determining that Directors were eligible to receive fair market options. These awards 57.8% of each award will vest on 30 September 2012. None of the vested over three years and were not subject to any performance Executive Directors received an award conditions. These awards, when exercised are satisfied by the issuance of new shares. No new awards have been granted since 2010 and no – April 2010 awards: The TSR threshold was not met and therefore these future awards will be granted under this plan. awards have lapsed in their entirety. Jim Ryan and Martin Weigold had 250,000 and 200,000 shares respectively under these grants No awards have been made under this plan since 2010 and no awards will be granted in the future. New bwin.party shares will be issued to satisfy vested awards. 92 bwin.party Governance Annual report & accounts 2011 Directors’ Remuneration Report

Summary of the long-term incentive plans

Number of Number of shares over shares over which which awards Number of awards remain shares over granted Exercise unvested or which during the price of unexercised awards year ended award Vested Exercised at granted at 1 31 December granted Vesting number of Exercise number of 31 December Expiry Director Award January 2011 2011 (pence) Date shares Date shares Lapsed 2011 date

Jim Ryan* Executive 1,020,000 Nil – – Nil – Nil 1,020,000 Nil 22.02.11 Co-CEO Share Option Plan Performance 1,020,100 Nil – 31.08.11 358,030 31.08.11 358,030 537,070 125,000 31.03.12 Share Plan Share Option 775,000 Nil – 31.03.11 87,500 31.03.11 87,500 Nil 450,000 30.06.18 Plan 30.06.11 87,500 30.06.11 87,500 30.09.11 75,000 30.09.11 75,000 31.12.11 75,000 31.12.11 75,000

Norbert Rollover Nil 2,503,958 123.0 31.03.11 2,503,958 – Nil Nil 2,503,958 01.04.20 Teufelberger Option Plan 2,503,958 157.0 31.03.11 2,503,958 – Nil Nil 2,503,958 01.04.20 Co-CEO 2,503,971 154.0 31.03.11 2,503,971 – Nil Nil 2,503,971 18.05.20 Joachim Baca Rollover Nil 244,600 113.0 31.03.11 244,600 – Nil Nil 244,600 02.01.17 COO Option Plan Martin Executive 797,262 Nil – – Nil – Nil 797,262 Nil 22.02.11 Weigold Share Option CFO Plan Performance 708,902 Nil – 31.03.11 171,402 200,000 337,500 31.03.12 Share Plan Share Option 929,554 Nil – 31.12.11 50,000 829,554 Nil 100,000 Plan Per Afrell Rollover Nil 163,075 155.0 31.03.11 163,075 – Nil Nil 163,075 22.05.20 NED Option Plan Nil 163,063 151.0 31.03.11 163,063 – Nil Nil 163,063 22.05.20 Manfred Rollover Nil 2,503,958 123.0 31.03.11 2,503,958 – Nil Nil 2,503,958 01.04.20 Bodner Option Plan Nil 2,503,958 157.0 31.03.11 2,503,958 – Nil Nil 2,503,958 01.04.20 NED Nil 2,503,971 154.0 31.03.11 2,503,971 – Nil Nil 2,503,971 18.05.20 Helmut Kern Rollover Nil 163,075 155.0 31.03.11 163,075 – Nil Nil 163,075 22.05.20 NED Option Plan Nil 163,063 151.0 31.03.11 163,063 – Nil Nil 163,063 22.05.20 Georg Riedl Rollover Option Nil 163,075 155.0 31.03.11 163,075 – Nil Nil 163,075 22.05.20 NED Plan Nil 163,063 151.0 31.03.11 163,063 – Nil Nil 163,063 22.05.20

*In addition to the above awards, part of Jim Ryan’s 2010 annual bonus was deferred into bwin.party shares. The total number of deferred shares he was awarded was 272,278, vesting in four tranches of 68,182 shares on 30 June 2011, 30 September 2011, 31 December 2011 and 31 March 2012. The information contained in this table has been audited by BDO LLP and BDO Limited. 93 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Dilution summary

Issued share capital as at 19 March 2012 822,901,408 10% of issued share capital 82,290,140 5% of issued share capital 41,145,070 New issue limits No more than 10% of issued share capital can be committed to the Global Share Plan, BBP, VCP, Bonus & Shares Plan, PartyGaming Plc All‑Employee Option Plan and PartyGaming Plc Performance Share Plan. Within the above limit, no more than 5% of the issued share capital can be committed to BBP, VCP, Bonus & Shares Plan and PartyGaming Plc Performance Share Plan. Total Number of free shares committed to the Global Share Plan 1,514,920 Total number of shares committed to the PartyGaming Plc All-Employee Option Plan 18,351,601 Total number of shares committed to PartyGaming Plc Performance Share Plan 958,837 Total Share commitments as at 19 March 2012 20,825,358

To date no share awards have been made under the BBP, VCP or Bonus & Shares Plan. As described above, shares allotted in respect of the bwin.party Rollover Option Plan (32,105,881 bwin.party shares), which addresses the legacy bwin.party options awarded prior to the Merger, do not count towards the Company’s 10% dilution limit.

Service agreements

Notice Periods

Compensation provisions for early Name Date of appointment Nature of contract From bwin.party From Director termination

Joachim Baca 31.03.11 Rolling 12 months 12 months None Jim Ryan 30.06.08 Rolling 12 months 12 months None Norbert Teufelberger 31.03.11 Rolling See below See below See below Martin Weigold 04.04.05 Rolling 12 months 12 months None

If Norbert Teufelberger’s employment is terminated prior to 31 March to exercise its right to terminate the service agreement by making a 2014 by the Company or by Norbert Teufelberger in certain prescribed payment in lieu of notice. If Norbert Teufelberger accepts the Company’s circumstances under the Regulatory Process Agreement or on a change offer, he will have no right to claim compensation in respect of the of control, in each case where there are no grounds for summary termination of his contract of employment under the provisions termination by the Company, the Company will offer to engage him described above. as a consultant until 31 March 2014 on terms which are in respect of If a change of control of the Company (as defined in each service remuneration (including incentive arrangements) no less favourable agreement) takes place, each of the Executive Directors may, in when taken as a whole than the terms of his employment arrangements the 12 months following the change of control, terminate his would have been had they continued until 31 March 2014. employment if the Company makes a material adverse change to No compensation will be payable upon expiry of the term on the his title, responsibilities or status or changes his principal place of third anniversary of his appointment date unless the period of the work to a place other than Gibraltar by giving three months’ notice to consultancy agreement is less than 12 months, in which case Norbert the Company in writing. The Company will then be required to pay the Teufelberger will receive an additional payment on the expiry of the relevant Executive Director a payment equal to the amount he would consultancy agreement equal to the amount (if any) by which the have received had his employment been terminated in accordance with aggregate of any termination payments under the service agreement the payment in lieu provision in his service agreement. and payments under the consultancy agreement is less than the The service agreements are governed by English law and contain payment in lieu of notice which Norbert Teufelberger would have non‑compete provisions which apply during employment and for received under the service agreement if the Company had chosen 12 months following termination. 94 bwin.party Governance Annual report & accounts 2011 Directors’ Remuneration Report

Non-Executive Directors The fees paid to the Non-Executive Directors, excluding the Chairman of the Board, are determined by the Board on recommendation from the Executive Directors. The Chairman’s fee is determined by the Remuneration Committee. Fees are determined by reference to market information and the particular risks attaching to online gaming.

Position Annual Fee

Chairman of the Board* £350,000 Deputy Chairman & Senior Independent Director** £250,000 Chairman of the Integration Committee £465,000 Independent Non-Executive Director £130,000 Non-Executive Director £100,000 Additional fee for chairing the Audit Committee £20,000 Additional fee for chairing the Ethics Committee £20,000

* This fee includes chairing the Nominations Committee ** This fee includes chairing the Remuneration Committee

The Chairman of the Integration Committee is a temporary appointment and his personal objectives relate to the achievement of synergy cost for a three-year period to 31 March 2014 and is a position held by realisations. The Board resolved that in respect of his performance in Manfred Bodner. The role is important in overseeing that management 2011 he would receive a total contribution of £697,500 (equivalent to implements an effective integration of the bwin and PartyGaming 150% of his annual fee), payable £348,750 in cash and in 251,750 deferred businesses and recognises many merging businesses fail to deliver the bwin.party shares (this number calculated using the average share price synergy savings and other benefits from a consolidation. In recognition for the 30-day measurement period to 31 December 2011, which was of the importance and special duties of the role, the Chairman of the 138.53 pence and has a value on the date of calculation of £348,750). Integration Committee receives a higher fee than a Non-Executive With the exception of the Chairman of the Integration Committee, the Director performing normal duties. Non-Executive Directors cannot participate in the Value Creation Plan As part of the Chairman of the Integration Committee’s remuneration and Bonus Banking Plan or any other incentive arrangements operated package, he also participates in the Value Creation Plan and Bonus by the Company. Banking Plan. Under the Value Creation Plan, Manfred Bodner has been Each of the Non-Executive Directors has been appointed under a letter awarded 1,000,000 VCP points, representing an entitlement to 10% of of appointment. With the exception of the Chairman of Integration any available VCP pool. As disclosed earlier in this report, no value was Committee, these agreements do not provide for a fixed term of created under the Value Creation Plan in respect of 2011. Under the service, but each Director stands for re-appointment by shareholders Bonus Banking Plan, Manfred Bodner is entitled to a maximum annual each year and the Nominations Committee and Board reviews matters contribution of 300% of his annual fee (equivalent £1,395,000). The of independence, commitment and performance before recommending mechanics of the Bonus Banking Plan have been described earlier in this a Director for re-appointment. report and Manfred Bodner is subject to the same Clean EBITDA target

Notice Periods

Dates of letters of Compensation provisions Name appointment Nature of contract From bwin.party From Director for early termination

Simon Duffy 21.10.10 Rolling 6 months 6 months None Per Afrell 16.12.10 Rolling 3 months 3 months None Geoff Baldwin 14.07.11 Rolling 3 months 3 months None Manfred Bodner 24.12.10 Rolling See below See below See below Tim Bristow 01.05.07 Rolling 3 months 3 months None Helmut Kern 16.12.10 Rolling 3 months 3 months None Lewis Moonie 16.12.10 Rolling 3 months 3 months None Rod Perry 16.12.10 Rolling 3 months 3 months None Georg Riedl 16.12.10 Rolling 3 months 3 months None 95 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

If the appointment of Manfred Bodner is terminated prior to 31 March Upon termination of the appointment of Manfred Bodner (except 2014 by the Company, by him not being re-elected by the shareholders where terminated summarily or where the appointment is terminated in a general meeting, or by Manfred Bodner in certain prescribed in circumstances where the Company is required to offer him a circumstances under the Regulatory Process Agreement or on a change consultancy agreement – as described above), the Company will offer of control, in each case where there are no grounds for summary him a new appointment letter on its standard terms then applicable termination of the appointment by the Company, the Company will offer to Non-Executive Directors. to engage him as a consultant until 31 March 2014 on terms which are no If a change of control of the Company takes place, Manfred Bodner less favourable in terms of fees (including incentive arrangements) than may, in the 12 months following the change of control, terminate his the terms of his letter of appointment would have been had it continued appointment if the Company makes a material adverse change to his until the third anniversary of his original appointment date. title, responsibilities or status or changes his principal place of work No compensation will be payable upon expiry of the term on 31 March to a place other than Gibraltar by giving three months’ notice to the 2014 unless the period of the consultancy agreement is less than 12 Company in writing. The Company will then be required to pay him months, in which case Manfred Bodner will receive an additional a payment equal to the amount he would have received had his payment on the expiry of the consultancy agreement equal to the appointment been terminated in accordance with the payment amount (if any) by which the aggregate of any termination payments in lieu provision in his letter of appointment. under the appointment letter and payments under the consultancy External appointments agreement is less than the payment in lieu of notice which Manfred Bodner would have received under the appointment letter if the Executive Directors are required to seek the consent of the Board before Company had chosen to exercise its right to terminate the appointment accepting external appointments as non-executive directors of other letter by making a payment in lieu of notice. If Manfred Bodner accepts companies. None of the Executive Directors is a director of a company the Company’s offer, he will have no right to claim compensation in outside the Group for which they or the Company receives or received respect of the termination of his appointment under the provisions a fee during the year to 31 December 2011. described above. Total emoluments overview The information contained in this table has been audited by BDO LLP and BDO Limited.

Bonus Net proceeds Basic Banking Plan Allowances/ Total from exercise 2011 2010 fee/salary (Cash element only) benefits emoluments of options total total Name € € € € € € €

Chairman Simon Duffy 300,825 – – 300,825 – 300,825 – Executive Directors Joachim Baca 409,217 366,506 6,700 782,423 – 782,423 – Jim Ryan 573,000 519,281 15,933 1,108,214 – 1,108,214 1,724,562 Norbert Teufelberger 429,750 519,281 7,241 956,273 – 956,273 – Martin Weigold 491,067 367,277 8,933 867,277 1,072,830 1,940,107 918,206 NEDs Per Afrell 111,735 – – 111,735 – 111,735 – Geoff Baldwin* 52,599 – – 52,599 – 52,599 – Manfred Bodner 399,668 399,656 3,453 802,776 – 802,776 – Tim Bristow 171,900 – – 171,900 – 171,900 174,791 Helmut Kern 134,655 – – 134,655 – 134,655 – Rami Lerner* 61,921 – – 61,921 – 61,921 116,527 Lewis Moonie 160,317 – – 160,317 – 160,317 198,096 Rod Perry** 313,425 – – 313,425 – 313,425 402,018 Georg Riedl 85,950 – – 85,950 – 85,950 –

* Rami Lerner resigned as a Director with effect from 15 July 2011 and was succeeded by Geoff Baldwin ** Rod Perry was the Chairman of the Board (annual fee £345,000/€395,370) until 31 March 2011, when he became the Deputy Chairman and Senior Independent Director (annual fee £250,000/€286,500) 96 bwin.party Governance Annual report & accounts 2011 Directors’ Remuneration Report

Directors’ interests in bwin.party shares

Shares Shares held under share plans

1 January 31 December 1 January 31 December Total at 31 December Director 2011 2011 2011 2011 2011

Per Afrell 0 40,114 0 326,138 366,252 Joachim Baca 0 0 244,600 244,600 Geoff Baldwin 0 100,000 0 0 100,000 Manfred Bodner 0 12,298,427 0 7,511,887 19,810,314 Tim Bristow 8,000 8,000 0 0 8,000 Simon Duffy 0 22,192 0 0 22,192 Helmut Kern 0 0 0 326,138 326,138 Lewis Moonie 15,940 16,152 0 0 16,152 Rod Perry 5,086 5,086 0 0 5,086 Georg Riedl 0 856,100 0 326,138 1,182,238 Jim Ryan 725,000 1,469,394 2,815,200 786,364* 2,255,758 Norbert Teufelberger 0 12,298,427 0 7,511,887 19,810,314 Martin Weigold 68,444 319,400 2,435,718 437,500 756,900

* Includes 68,182 shares awarded in respect of the 2010 annual bonus deferred into bwin.party shares

Performance graph Value of £100 since December 2006 To assist shareholders in reviewing the appropriateness of bwin.party’s remuneration policies and practices, the Company is required by regulation to set out a graph in this report showing the total shareholder 140 return (‘TSR’) of bwin.party’s shares against the TSR performance of a 120 suitable index over a five-year period. The Remuneration Committee 100 have chosen to use the FTSE250 Index as the comparator, because the Company has been a constituent of this index for the last five years. 80 The following graph plots the value of £100 in bwin.party’s shares and 60 in the FTSE250 Index from 31 December 2006 to 31 December 2011. 40 The change in value of the holdings in the FTSE250 Index reflects any 20 changes in the constituent companies over the period. The value of 0 dividend income is treated as reinvested in the period. 31 Dec 31 Dec 2006 2007 31 Dec2008 31 Dec2009 31 Dec2010 31 Dec2011

bwin.party FTSE 250 97 bwin.party Overview 02 Governance Annual report & accounts 2011 Strategy 20 Other Governance and Review of 2011 32 Statutory Disclosures Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

J. Other Governance and Statutory Disclosures and the 2012 AGM Share capital (i) Authorised share capital: £225,000 dividend into 1,500,000,000 ordinary shares of £0.00015 pence each. (ii) Share allotment history:

Event Shares allotted/(purchased) Total shares in issue

28 February 2011 (2010 annual results released) – 413,065,372 31 March 2011 (completion of the bwin merger) 439,209,325 852,271,026 Shares allotted for share plans during 2011 638,245 852,909,271 Shares bought back for cancellation in 2011 (15,710,401) 837,198,870 Shares allotted for share plans in 2012 (to 19 March 2012) 185,205 837,384,075 Shares bought back for cancellation in 2012 (to 19 March 2012) (14,482,667) 822,901,408

bwin.party maintains a primary listing on the London Stock Exchange. The Directors were also empowered at the 2011 AGM, pursuant to the As securities issued by non-UK companies cannot be held or transferred articles, to allot shares for cash, pursuant to the above 2011 AGM through the CREST paperless settlement system, the Company has put authority, as if pre-emption rights did not apply to the allotment, in place arrangements for a depositary to hold bwin.party shares and provided that such authority be limited to (i) the allotment of shares in issue dematerialised depositary interests representing the underlying connection with a rights issue, open offer or any other pre-emptive offer shares which are held on trust for the holders of the depositary in favour of shareholders, but subject to such exclusions as may be interests. necessary to deal with the fractional entitlements, or legal or practical problems under any laws, or requirements of any regulatory body in any The rights attaching to the ordinary shares and depositary interests jurisdiction; and (ii) the allotment (otherwise pursuant to (i) above) of are contained in the bwin.party articles of association and deed poll shares for cash up to an aggregate nominal amount of £6,396 (42 million respectively. Both these documents are available on the bwin.party shares). This authority also expires at the Company’s 2012 AGM (or, if corporate website, www.bwinparty.com. earlier, at close of business on 30 September 2011). Further information regarding bwin.party’s shares and depositary The 2011 AGM authorities have not been utilised to date. The Directors interests are set out in the ‘Shareholder Information’ section on pages do, however, believe it is in the Company’s best interests to have the 153 to 157 of the Annual report. flexibility to issue new shares within these parameters and are seeking (iii) Allotment authority a renewal of these authorities at the 2012 AGM. On 28 January 2011 shareholders authorised the Directors to allot up (iv) Share buyback authority to 450 million new shares to bwin shareholders to effect the Merger. At the 2011 AGM shareholders granted the Board authority to purchase This authority was used to allot 439.21 million shares and lapsed at on behalf of the Company 85,286,000 bwin.party shares, representing the 2011 AGM on 30 June 2011. at the time 10% of the Company’s issued share capital. bwin.party At the 2011 AGM the Directors were authorised to allot new shares up to announced on 30 June 2011 a distribution policy which included a an initial aggregate nominal amount of £42,643 (284 million shares), with commitment to buyback up to €75 million of the Company’s issued a further authority to allot further new shares up to an aggregate of share capital over the following twelve months. Information about the £42,643 to be used only for a fully pre-emptive rights issue. This 2011 AGM number of shares purchased is set out in the table above and is available authority expires at the Company’s 2012 AGM (or, if earlier, at close of on the bwin.party corporate website (www.bwinparty.com). As there is business on 30 September 2012). no facility to hold shares in treasury under Gibraltar company law, all purchased shares have been cancelled. The Board will review in June 2012 bwin.party’s distribution policy and in particular future share buybacks. The Directors believe it is in the Company’s best interests to have the power to purchase a proportion of its share capital and therefore the Board is seeking a renewal of this authority at the 2012 AGM. 98 bwin.party Governance Annual report & accounts 2011 Other Governance and Statutory Disclosures

Non-voting shares (vi) Significant shareholders (v) Employee Benefit Trust Set out below is a list of shareholding notifications disclosed to the Company in accordance with the Disclosure and Transparency Rules, As at 19 March 2012, of the 822,901,408 shares in issue, 2,721,178 shares the Company’s articles and deed poll and Gibraltar Disclosure of were held in the Company’s employee benefit trust, the bwin.party Interests in Shares Act 1998: Shares Trust (the ‘Employee Trust’). The trustee of the Employee Trust has waived all dividend and voting rights in respect of Shares held by the Employee Trust to satisfy the future exercise of share options under all the bwin.party share plans except the Global Share Plan. This waiver only subsists while the shares are held in the Employee Trust. The shares are transferred out of the Employee Trust upon exercise of share options under certain share plans.

Shares held as at Shareholder 19 March 2012 % of total issued shares % of total voting rights

Janus Capital Management LLC 68,240,798 8.06 8.10 Emerald Bay Limited (1) 58,498,667 6.86 6.91 Stinson Ridge Limited (2) 58,498,666 6.86 6.91 SRS Investment Management LLC 42,851,000 5.05 5.09 Androsch Foundation 38,650,591 4.53 4.56 New Media Gaming & Holding Limited (3) 24,596,854 2.89 2.90

(1) Emerald Bay limited is a company wholly-owned by Ruth Parasol. Ruth Parasol and Russell DeLeon (see note below) are married

(2) Stinson Ridge Limited is a company wholly-owned by Russell DeLeon. Russell DeLeon and Ruth Parasol (see note above) are married

(3) New Media Gaming & Holding Limited is wholly-owned jointly by Manfred Bodner and Norbert Teufelberger The disclosures in the table above are based on the last notifications received and have not been changed to take account of changes to the total voting rights or issued share capital. The interests of the Directors in the Company’s issued share capital are set out in the Directors’ Remuneration Report on page 96. Emerald Bay Limited and Stinson Ridge Limited entered into a relationship agreement with the Company when it floated on the London Stock Exchange in 2005, governing their combined rights to nominate a representative for appointment to the Board and governing the process for them selling their shares. This agreement was superceded by a new relationship agreement which took effect on 29 January 2011. Under this new relationship agreement Emerald Bay Limited and Stinson Ridge Limited have the right whilst they both hold in aggregate 5% or more of the Company’s issued share capital, to nominate a suitable individual for appointment to the Board. Geoff Baldwin is their current nominee. This nomination right may be transferred to another party where Emerald Bay Limited and Stinson Ridge Limited transfer 6% or more of the Company’s share capital to that other party. Emerald Bay Limited and Stinson Ridge Limited are also required to give the Company not less than four days’ notice of any proposed sale. Emerald Bay Limited and Stinson Ridge Limited are subject to the Company’s share dealing code whilst they maintain a representative on the Board. The relationship agreement also contains restrictions limiting Emerald Bay Limited and Stinson Ridge Limited and their associates from investing in other online gaming businesses. Androsch Foundation and New Media Gaming and Holding Limited, founder shareholders of bwin Interactive Entertainment AG, have also entered into a relationship agreement with the Company on the same terms as detailed above. This relationship agreement came into effect on 31 March 2011. Their representative on the Board is Manfred Bodner. 99 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Dividend After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue During the year ended 31 December 2011 bwin.party paid an interim in operational existence for the foreseeable future. Accordingly, dividend of 1.56 pence per share which was paid on 7 October 2011. they continue to adopt the going concern basis in preparing the The Board is recommending a final dividend of 1.56 pence per share Annual Report. payable on 12 June 2012, with a record date of 11 May 2012. Audit Customer and creditor payment policy The Directors who held office at the date of approval of the annual The Group is committed to prompt payment of customer cashout report and financial statements for the year ended 31 December 2011, requests and maintains adequate cash reserves to cover customer confirm that, so far as they are each aware, there is no relevant audit withdrawals and balances. Normally payments will be made to information of which bwin.party’s auditor is unaware; and each Director customers within seven days of receiving a customer instruction. has taken all steps that they reasonably ought to have taken as a In the case of other creditors, it is the Group’s policy to agree terms at Director in order to make themselves aware of any relevant audit the outset of a transaction and ensure compliance with such agreed information and to establish that the Company’s auditor is aware of terms. In the event that an invoice is contested then the Group informs that information. As recommended by the Audit Committee, a resolution the supplier without delay and seeks to settle the dispute quickly. for the re-appointment of BDO LLP and BDO Limited as joint auditors to Going concern bwin.party is being proposed at the 2012 AGM. The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the ‘Overview’, ‘Strategy’ and ‘Review of 2011’ sections of the Annual report. The financial position of the Group, its cashflow, liquidity position and borrowings are set out in the aforementioned section. In addition, note 28 to the financial statements on pages 142 to 146 includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Group has considerable financial resources together with a large number of players and long-term contracts with a number of corporate customers and suppliers across different geographic areas and industries. As a consequence, the Directors believe the Group is well placed to manage its business risks successfully despite the current challenging economic outlook. 100 bwin.party Governance Annual report & accounts 2011 2012 Annual General Meeting

2012 Annual General Meeting all the other Directors to see re-appointment. However, in accordance with the recommendation of the Code, all the Directors are standing for The Annual General Meeting will be held on Thursday 7 June 2012 re-appointment at the 2012 AGM. The biographies for each Director are at 12.30 p.m. at The Caleta Hotel, Catalan Bay, Gibraltar. The AGM notice set out on pages 68 to 69. is set out on pages 158 to 161 of this document. The following is a summary of resolutions to be considered: The Nominations Committee has reviewed these re-appointments and on the basis of experience, performance, skills and commitment Resolution 1: To receive and consider the Company’s Annual report demonstrated, has recommended to the Board that each Director and accounts together with the Reports of the Directors and Auditor be re-appointed. The Board has considered and agrees with this for the year ended 31 December 2011. recommendation and is therefore advising shareholders to support The Directors present to the meeting bwin.party’s audited annual the re-appointments of all the Directors. accounts for the year ended 31 December 2011 together with the Directors’ Report and Auditors’ Report. Resolution 6 – to re-appoint Per Afrell Resolution 2: To approve the Directors’ Remuneration Report for the Resolution 7 – to re-appoint Joachim Baca year ended 31 December 2011. Resolution 8 – to re-appoint Manfred Bodner The Directors’ Remuneration Report is set out on pages 80 to 96 of this document. The vote will have an advisory status only and will be in Resolution 9 – to re-appoint Tim Bristow. respect of the remuneration policy and overall remuneration packages Resolution 10 – to re-appoint Simon Duffy generally and will not be specific to individual levels of remuneration. Resolution 11 – to re-appoint Helmut Kern Resolution 3: To re-appoint BDO LLP and BDO Limited as auditors of the Company with BDO Limited acting as auditor for the purposes Resolution 12 – to re-appoint Lewis Moonie of section 10 of the Gibraltar Companies (Accounts) Act 1999. In accordance with section 180 of the Companies Act 1930 (as amended) Resolution 13 – to re-appoint Rod Perry the Company at each annual general meeting has to appoint an auditor Resolution 14 – to re-appoint Georg Riedl to hold office until the next annual general meeting and BDO LLP and BDO Limited have expressed their willingness to be re-appointed as Resolution 15 – to re-appoint Jim Ryan auditors. The Audit Committee recommends and the Board agrees with Resolution 16 – to re-appoint Norbert Teufelberger the re-appointment of BDO LLP and BDO Limited as auditors. Resolution 17 – to re-appoint Martin Weigold Resolution 4: To authorise the Directors to set the auditors’ remuneration Resolution 18 – to re-appoint Geoff Baldwin The resolution authorises the Directors to set the remuneration payable Resolution 19: Share allotment authority to the auditors, in accordance with best practice. The Audit Committee is tasked with reviewing the auditors’ remuneration and making a The Board is proposing to update the Company’s authority to issue recommendation to the Board. new share capital in accordance with UK corporate governance guidelines, specifically those of the Association of British Insurers. Resolution 5: To declare a final dividend The Company is seeking authority to issue new shares up to an amount The Board is proposing a final dividend in respect of the year ended equal to one-third of the existing issued share capital. If these shares 31 December 2011 of 1.56 pence per ordinary share. This is in line are issued and paid-up wholly or partly otherwise than for cash (for with bwin.party’s distribution policy announced on 30 June 2011, example, in connection with an acquisition by the Company using its under which the Board proposed a progressive dividend policy. If shares for consideration), then pursuant to the provisions of the Articles, approved by shareholders this final dividend will be payable on 12 June no pre-emption rights will apply to such an issue of shares. 2012 to those shareholders on the register of members on 11 May 2012. In addition, the Company is seeking authority to issue further new Resolutions 6 to 18: Director re-appointments shares in an amount up to a further one-third of the existing issued The Company’s articles of association require any Director appointed by share capital. This further additional authority will only be used for the Board to seek re-appointment at the following AGM. Geoff Baldwin a full-pre-emptive rights issue. was appointed a Director on 15 July 2011 and is therefore standing for re‑appointment at the 2012 AGM. The articles also require one-third of This authority if granted will expire at the 2013 AGM or, if earlier, 7 September 2013. 101 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Resolution 20: Disapplication of pre-emption rights The Articles require any new shares to normally be offered to the current shareholders in proportion to their existing holdings to prevent their shareholdings being significantly diluted by the Company acting unilaterally. To give the Company a degree of flexibility in managing its share capital and raising new funds, the Board is seeking shareholder authority to issue up to 5% of the Company’s issued share capital for cash without pre-emption rights applying to such an allotment. It is normal practice for UK-listed companies to have this limited authority, which accords with UK corporate governance best practice guidelines. In accordance with the latter, the Board confirms its intention that no more than 7.5% of the issued share capital will be issued for cash on a non pre-emptive basis during any rolling three-year period. Resolution 20 is subject to resolution 19 being passed. Resolution 21: Share buyback authority In certain circumstances, it may be advantageous for the Company to purchase its own shares and Resolution 21 seeks authority from the shareholders to do so. The resolution specifies the maximum number of shares that may be acquired (10% of the Company’s issued shares) and the maximum and minimum prices at which they may be bought. Any shares purchased in this way will be cancelled and the number of shares in issue will be reduced accordingly. The Directors will only purchase such shares after taking into account the effects on earnings per share and the benefit for shareholders. As disclosed previously, bwin. party announced on 30 June 2011, as part of its distribution policy that for the following 12 months the Company would acquire up to €75 million of its shares and so the current purchase authority has been utilised. The current authority will lapse at the 2012 AGM. The proposed new authority will expire at the conclusion of the 2013 annual general meeting or, if earlier, 7 September 2013. Directors’ report Together with the Overview, Strategy and Review of 2011 sections of the Annual report, this governance section constitutes the Directors’ report for the year ended 31 December 2011. By order of the Board Robert Hoskin Company Secretary 29 March 2012 102 bwin.party Governance Annual report & accounts 2011 Statement of Directors’ responsibilities

Statement of Directors’ responsibilities in respect In preparing the financial statements the Directors are required to: of the Annual report and financial statements (i) Select suitable accounting policies and then apply them consistently The Directors are responsible for preparing the Annual report and (ii) Present information, including accounting policies, in a manner consolidated financial statements in accordance with the Gibraltar that provides relevant, reliable, comparable and understandable Companies (Consolidated Accounts) Act 1999, the Gibraltar Companies information (Accounts) Act 1999, the Gibraltar Companies Act 1930 (as amended), International Financial Reporting Standards as adopted by the (iii) Provide additional disclosure when compliance with the specific European Union (‘IFRS’) and Article 4 of the IAS Regulation, and requirements in IFRS is insufficient to enable users to understand the the FSA’s Disclosure and Transparency Rules and Listing Rules. impact of particular transactions, other events and conditions on the Group’s financial position and financial performance The Directors are also responsible for preparing the Company’s financial statements in accordance with the Gibraltar Companies (Accounts) Act In accordance with DTR 4.1.12 of the FSA’s Disclosure and Transparency 1999 and the Gibraltar Companies Act 1930 (as amended). The Directors Rules, the Directors confirm to the best of their knowledge: have also chosen to prepare the Company’s financial statements in a) the Group’s financial statements have been prepared in accordance accordance with IFRS. with IFRS and Article 4 of the IAS Regulation and give a true and fair The Directors are responsible for keeping proper accounting records view of the assets, liabilities, financial position and profit and loss which disclose with reasonable accuracy at any time the financial of the Group; and position of the Company, for safeguarding the assets, for taking b) the Annual report includes a fair review of the development and reasonable steps for the prevention and detection of fraud and other performance of the business and the financial position of the Group irregularities and for the preparation of a Directors’ Report which and the Company, together with a description of the principal risks complies with the Gibraltar Companies (Consolidated Accounts) Act and uncertainties that they face 1999, the Gibraltar Companies (Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended), and a Directors’ Remuneration By order of the Board of Directors Report which complies with the requirements of the UK’s Large Robert Hoskin and Medium-Sized Companies and Groups (Accounts and Reports) Company Secretary Regulations 2008, Schedule 8. 29 March 2012 Financial statements are published on the Group’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. In accordance with International Accounting Standard 1 the Directors are required to prepare financial statements for each financial year that present fairly the financial position of the Group and the Company and the financial performance and cashflows of the Group and the Company for that period. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. Financial statements 2011 the numbers 104 bwin.party Financials Annual report & accounts 2011 Independent auditors’ report

Independent auditors’ report Opinion on financial statements In our opinion: We have audited the financial statements (the ‘financial statements’) of bwin.party digital entertainment plc for the year ended 31 December – The financial statements give a true and fair view of the state of the 2011 which comprise the Group statement of comprehensive income, Group’s and the Company’s affairs as at 31 December 2011 and of the the Group and Company statements of financial position, the Group Group’s loss for the year then ended; and Company statements of changes in equity, the Group and Company – The Group and Company’s financial statements have been properly statements of cashflows and the related notes. The financial reporting prepared in accordance with IFRSs as adopted by the European Union; framework that has been applied in their preparation is applicable law – The financial statements have been properly prepared in accordance and International Financial Reporting Standards (‘IFRSs’) as adopted by with the Gibraltar Companies (Consolidated Accounts) Act 1999, the the European Union. Gibraltar Companies (Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended); and This report is made solely to the Company’s members, as a body, – The part of the Remuneration report described as having been in accordance with our engagement letter. Our audit work has been audited has been properly prepared in accordance with section 421 undertaken so that we might state to the Company’s members those of the UK Companies Act 2006 matters that we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do Opinion on other matters prescribed by legal and not accept or assume responsibility to anyone other than the Company regulatory requirements and the Company’s members as a body, for our audit work, for this In our opinion information given in the Directors’ report for the year report, or for the opinions we have formed. ended 31 December 2011 for which the financial statements are prepared is consistent with the financial statements. Respective responsibilities of Directors and auditors As explained more fully in the Statement of Directors’ responsibilities, Matters on which we are required to report by exception the Directors’ are responsible for preparation of the financial We have nothing to report in respect of the following: statements and for being satisfied that they give a true and fair view. Under Gibraltar legal and regulatory requirements we are required Our responsibility is to audit and express an opinion on the financial to report to you if, in our opinion: statements and in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to – The Company has not kept proper accounting records; comply with the Auditing Practices Board’s (‘APB’s’) Ethical Standards – If we have not received all the information and explanations for Auditors. we require for our audit; or – If information specified by law regarding Directors’ remuneration bwin.party digital entertainment plc has complied with the and other transactions is not disclosed. requirements of rules 9.8.6 and 9.8.8 of the Listing Rules of the UK Financial Services Authority and in accordance with section 421 Under the Listing Rules we are required to review: of the UK Companies Act 2006 in preparing its Annual report, as if it – The Directors’ statement in relation to going concern; was incorporated in the United Kingdom. As auditors, we have agreed – The part of the corporate governance statement relating to the that our responsibilities in relation to the Annual report will be those Company’s compliance with the nine provisions of the UK Corporate as set out below. Governance Code specified for our review; and We report to you our opinion as to whether the financial statements – Certain elements of the Remuneration report. give a true and fair view and whether the financial statements have been properly prepared in accordance with the Gibraltar Companies BDO LLP (Consolidated Accounts) Act 1999, the Gibraltar Companies (Accounts) Chartered Accountants 55 Baker Street Act 1999 and the Gibraltar Companies Act 1930 (as amended), and the London W1U 7EU part of the Remuneration report to be audited has been properly United Kingdom prepared in accordance with section 421 of the UK Companies Act 2006. We also report to you whether in our opinion, the information disclosed 29 March 2012 in the Directors’ report is consistent with the financial statements, Christian Summerfield (Statutory Auditor) if the Company has not kept proper accounting records, if we have not For and on behalf of received all the information and explanations we require for our audit, BDO Limited or if information specified by the Listing Rules and Gibraltar legislation Registered Auditors regarding Directors’ remuneration and other transactions is not disclosed. Regal House PO Box 1200 Scope of the audit of the financial statements Gibraltar A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private. cfm. 29 March 2012 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). BDO Limited, a Gibraltar limited company, is registered in Gibraltar with company number 52200. 105 bwin.party Overview 02 Financials Annual report & accounts 2011 Strategy 20 Consolidated statement Review of 2011 32 of comprehensive income Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

2011 2010 Year ended 31 December Notes €million €million Continuing operations Net revenue 674.5 348.4 Other revenue 16.6 8.9 Total revenue 2 691.1 357.3 Cost of sales (55.7) (6.9) Gross profit 635.4 350.4 Other operating income 0.5 6.2 Other operating expense 3 (16.5) (4.9) Administrative expenses (792.9) (146.7) Distribution expenses (246.2) (158.7) Clean EBITDA 168.3 94.2 Exchange (losses) gains (4.5) 6.1 Merger and acquisition costs (12.0) (4.9) Amortisation (125.6) (32.8) Depreciation (18.9) (6.4) Impairment losses (408.7) (0.1) Share-based payments (12.0) (9.1) Reorganisation costs (6.3) (0.7) (Loss) profit from operating activities 4 (419.7) 46.3 Finance income 6 6.4 0.9 Finance expense 6 (9.1) (3.4) Share of loss of associates and joint ventures (0.5) – (Loss) profit before tax (422.9) 43.8 Tax credit (expense) 7 8.2 (3.6) (Loss) profit after tax from Continuing operations (414.7) 40.2 Loss after tax from Discontinued operations 8 (16.3) (1.3) (Loss) profit for the year (431.0) 38.9 Other comprehensive (expense) income: Exchange differences on translation of foreign operations, net of tax (7.5) 3.7 Total comprehensive (expense) income for the year (438.5) 42.6 (Loss) profit for the year attributable to: Equity holders of the parent (428.9) 38.9 Non-controlling interests (2.1) – (431.0) 38.9 Total comprehensive (expense) income for the year attributable to: Equity holders of the parent (436.4) 42.6 Non-controlling interests (2.1) – (438.5) 42.6 (Loss) earnings per share (€ cents) Basic 9 (58.2) 9.5 Diluted 9 (58.2) 9.0 Continuing (loss) earnings per share (€ cents) Basic 9 (56.0) 9.8 Diluted 9 (56.0) 9.3 106 bwin.party Financials Annual report & accounts 2011 Consolidated statement of financial position

As at As at 31 December 2011 31 December 2010 Notes €million €million Non-current assets Intangible assets 10 738.6 211.9 Property, plant and equipment 11 32.8 9.5 Investments 13 23.1 1.7 794.5 223.1 Current assets Assets held for sale 51.3 2.2 Inventories 0.6 – Trade and other receivables 14 129.7 48.3 Short-term investments 15 39.7 3.1 Cash and cash equivalents 16 289.0 193.6 510.3 247.2 Total assets 1,304.8 470.3 Current liabilities Trade and other payables 17 (112.7) (60.9) Income taxes payable (28.7) (8.2) Client liabilities and progressive prize pools 18 (156.2) (93.1) Provisions 19 (10.8) – Loans and borrowings 20 (33.2) (9.9) Liabilities held for sale (27.7) – (369.3) (172.1) Non-current liabilities Trade and other payables 17 (5.2) (27.7) Provisions 19 (77.7) – Loans and borrowings – (30.1) Deferred tax 21 (59.1) (7.4) (142.0) (65.2) Total liabilities (511.3) (237.3) Total net assets 793.5 233.0 Equity Share capital 24 0.2 0.1 Share premium account 1,018.4 49.5 Own shares 24 (7.1) (2.8) Capital contribution reserve 24.1 24.1 Retained earnings 340.6 733.5 Other reserve (573.7) (573.7) Currency reserve (5.2) 2.3 Non-controlling interests (3.8) – Equity attributable to equity holders of the parent 793.5 233.0

These consolidated financial statements were approved by a duly appointed and authorised committee of the Board on 29 March 2012 and were signed on its behalf by Simon Duffy and Tim Bristow, Directors. 107 bwin.party Overview 02 Financials Annual report & accounts 2011 Strategy 20 Consolidated statement Review of 2011 32 of changes in equity Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Total Acquisition comprehensive Other As at As at of subsidiaries Other issue Dividends Purchase expense for share-based 31 December 1 January 2011 and businesses of shares paid of shares the period payments 2011 Year ended 31 December 2011 €million €million €million €million €million €million €million €million Share capital 0.1 0.1 – – – – – 0.2 Share premium account 49.5 967.9 1.0 – – – – 1,018.4 Own shares (2.8) – – – (4.3) – – (7.1) Capital contribution reserve 24.1 – – – – – – 24.1 Retained earnings 733.5 62.1 – (15.0) (23.2) (428.9) 12.1 340.6 Other reserve (573.7) – – – – – – (573.7) Currency reserve 2.3 – – – – (7.5) – (5.2) Total attributable to equity holders of parent 233.0 1,030.1 1.0 (15.0) (27.5) (436.4) 12.1 797.3 Non-controlling interests – (1.7) – – – (2.1) – (3.8) Total equity 233.0 1,028.4 1.0 (15.0) (27.5) (438.5) 12.1 793.5

Total As at Acquisition of Other comprehensive Other As at 1 January subsidiaries issue of Dividends Purchase income for share-based 31 December 2010 and businesses shares paid of shares the period payments 2010 Year ended 31 December 2010 €million €million €million €million €million €million €million €million Share capital 0.1 – – – – – – 0.1 Share premium account 47.7 – 1.8 – – – – 49.5 Own shares (2.8) – – – – – – (2.8) Capital contribution reserve 24.1 – – – – – – 24.1 Retained earnings 685.4 – – – – 38.9 9.2 733.5 Other reserve (573.7) – – – – – – (573.7) Currency reserve (1.4) – – – – 3.7 – 2.3 Total equity 179.4 – 1.8 – – 42.6 9.2 233.0

Share premium is the amount subscribed for share capital in excess of nominal value. Capital contribution reserve is the amount arising from share-based payments made by parties associated with the original Principal Shareholders and cash held by the Employee Trust. Retained earnings represent cumulative profit / (loss), share-based payments and any other items of other comprehensive income not disclosed as separate reserves in the table above. The other reserve of €573.7 million is the amount arising from the application of accounting which is similar to the pooling of interests method, as set out in the Group’s accounting policies. Currency reserve represents the gains/losses arising on retranslating the net assets of overseas operations into euros. Non-controlling interests relate to the interests of other shareholders in certain subsidiaries. 108 bwin.party Financials Annual report & accounts 2011 Consolidated statement of cashflows

2011 2010 Year ended 31 December €million €million (Loss) profit for the year (431.0) 38.9 Adjustments for: Depreciation of property, plant and equipment 19.6 6.4 Amortisation of intangibles 126.9 32.8 Impairment of goodwill 391.7 – Impairment of acquired intangible assets 15.3 – Impairment of investments 1.7 – Impairment of assets held for sale – 0.1 Share of loss of associates and joint ventures 0.5 – Interest expense 9.7 4.5 Interest income (6.4) (0.9) Increase in reserves due to share-based payments 12.1 9.2 (Profit) on sale of intangible assets (0.3) – Loss (profit) on sale of property, plant and equipment 1.2 (0.1) Income tax (credit) expense (7.6) 3.6 Operating cashflows before movements in working capital and provisions 133.4 94.5 Increase in inventory (0.1) – Increase in trade and other receivables (20.9) (12.3) Decrease in trade and other payables (44.7) (14.2) Decrease in provisions (7.3) (0.1) Cash generated from operations 60.4 67.9 Income taxes paid (3.9) (4.2) Net cash inflow from operating activities 56.5 63.7 Investing activities Net cash acquired on acquisition of subsidiaries and businesses 159.2 – Acquisition of subsidiaries and businesses, net of cash acquired – deferred payment (6.4) (9.2) Purchases of intangible assets (11.0) (3.8) Sale of intangible assets 0.3 – Purchases of property, plant and equipment (30.6) (8.0) Sale of property, plant and equipment 0.2 0.2 Purchase of investments (14.6) (1.7) Sale of assets held for sale – 1.8 Interest received 6.4 0.9 Decrease in short-term investments (5.9) 4.9 Net cash generated (used) by investing activities 97.6 (14.9) 109 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

2011 2010 Year ended 31 December €million €million Financing activities Issue of ordinary shares 1.0 1.8 Purchase of own shares (27.5) – Dividends paid (15.0) – Repayment of bank borrowings (8.6) – Interest paid (1.0) (2.0) Net cash used in financing activities (51.1) (0.2) Net increase in cash and cash equivalents 103.0 48.6 Exchange differences (7.6) (0.1) Cash and cash equivalents at beginning of period 193.6 145.1 Cash and cash equivalents at end of period 289.0 193.6

Segregated cash Included within cash and cash equivalents is €22.7m (2010: €3.9m) related to cash held in segregated accounts in certain regulated markets. Major non-cash transactions Details of the Merger with bwin, which was an equity-based transaction, are contained in note 26. 110 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

1. Accounting policies Basis of preparation The Group and parent financial statements have been prepared in accordance with those International Financial Reporting Standards including International Accounting Standards (IASs) and interpretations, (collectively ‘IFRS’), published by the International Accounting Standards Board (‘IASB’) which have been adopted by the European Commission and endorsed for use in the EU for the purposes of the Group’s full year financial statements. The consolidated and company financial statements comply with the Gibraltar Companies (Accounts) Act 1999, the Gibraltar Companies (Consolidated Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended). Statutory accounts for the year ended 31 December 2011 will be filed with Companies House Gibraltar following the Company’s Annual General Meeting. Due to the Merger (which was treated as an acquisition by PartyGaming for accounting purposes), certain accounting policies that were not previously relevant for the Group, but relevant for bwin, have been adopted in these consolidated financial statements pages. All other material accounting policies and presentations of bwin have been aligned to those of the enlarged Group. Functional currency of the parent company Reflecting the fact that the Company has hedged its remaining US dollar exposure, the effect of the Merger, and that going forward most transactions will be in pound sterling but funded by excess euros generated by the rest of the Group, the Company has changed its functional currency from US dollars to euros. In line with IAS 21 the change took effect from the date the Company determined that the characteristics required to identify the functional currency had changed. The Company determined this occurred during 2011 and for accounting purposes this is effective from 1 January 2011. All financial data for the Company for prior periods has been converted using the exchange rate at 1 January 2011 of 1 euro = US dollar 1.3416. Adoption of new and revised Standards and Interpretations The following new and revised Standards and Interpretations issued by the International Accounting Standards Board (‘IASB’), are effective for the first time in the current financial year and have been adopted by the Group with no effect on its consolidated results or financial position: IFRIC 14 (Amended) and Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for annual periods IAS 19 (Amended) beginning on or after 1 January 2011). The following relevant standards and interpretations were issued by the IASB or the IFRIC before the period end but are as yet not effective for the 2011 year end: IAS 1 (Amended) Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012) IAS 12 (Amended) Deferred tax: Recovery of Underlying Assets (effective for annual periods beginning on or after 1 January 2012) IAS 19 (Amended) Employee Benefits (effective for annual periods beginning on or after 1 January 2013) IAS 27 (Amended) Separate Financial Statements (effective for annual periods beginning on or after 1 January 2013) IAS 28 (Amended) Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2013) IAS 32 (Amended) Offsetting of financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2014) IFRS 7 (Amended) Disclosures – Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011) IFRS 7 (Amended) Disclosures – Offsetting of financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2013) IFRS 7 (Amended) Disclosures – Initial application of IFRS 9 (effective for annual periods beginning on or after 1 January 2015) IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2015). IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013) IFRS 11 Joint arrangements (effective for annual periods beginning on or after 1 January 2013) IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2013) IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013) The Group is currently assessing the impact, if any, that these standards will have on the presentation of its consolidated results. 111 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

1. Accounting policies (continued) Basis of accounting The consolidated and company financial statements have been prepared under the historical cost convention other than for the valuation of certain financial instruments. Critical accounting policies, estimates and judgements The preparation of financial statements under IFRS requires the Group to make estimates and judgements that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Included in this note are accounting policies which cover areas that the Directors consider require estimates, judgements and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. These policies, together with references to the related notes to the financial statements, can be found as follows: Functional currency note 1 Revenue recognition note 2 Intangible assets and impairment of goodwill note 10 Regulatory compliance, litigation and contingent liabilities note 23 Acquisition accounting and value of acquired assets and liabilities note 26 Provisions note 19 Tax including deferred tax note 7 Held for sale disposal groups note 8 Share-based payments note 29

Basis of consolidation Under section 10(2) of the Gibraltar Companies (Consolidated Accounts) Act 1999, the Company is exempt from the requirement to present its own statement of comprehensive income. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Accounting for the Company’s acquisition of the controlling interest in PartyGaming Holdings Limited The Company’s controlling interest in its directly held, wholly-owned subsidiary, PartyGaming Holdings Limited (formerly Headwall Ventures Limited), was acquired through a transaction under common control, using a form of accounting that is similar to pooling of interests. Accounting for subsidiaries A subsidiary is an entity controlled directly or indirectly by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. On the date of acquisition the assets and liabilities of the relevant subsidiaries are measured at their fair values. The non-controlling interest is stated at the non-controlling interest’s proportion of the fair values of the assets and liabilities recognised. The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder’s share of changes in equity since the date of the combination. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. Investments in subsidiaries held by the Company are carried at cost less any impairment in value. 112 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

1. Accounting policies (continued) Business combinations Acquisitions of subsidiaries are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the income statement as incurred. The acquiree’s identifiable assets and liabilities are recognised at their fair values at the acquisition date. The interest of the non-controlling shareholders in the acquiree may initially be measured either at fair value or at the non-controlling shareholders’ proportion of the net fair value of the identifiable assets acquired, liabilities and contingent liabilities assumed. The choice of measurement basis is made on an acquisition-by-acquisition basis. Investments Investments include investments in associates, joint ventures and available‑for‑sale investments. Available‑for‑sale investments Non-derivative financial assets classified as available-for-sale comprise the Group’s strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in equity. In accordance with IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in the consolidated statement of comprehensive income. Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that asset is removed from equity and recognised in the consolidated statement of comprehensive income. Investments in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post‑acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of the investment. Losses of an associate in excess of the Group’s interest in that associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Investments in joint ventures A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. The Group reports its interests in jointly controlled entities using the equity method of accounting. Under the equity method, investments in joint ventures are carried in the consolidated statement of financial position at cost as adjusted for post‑acquisition changes in the Group’s share of the net assets of the joint venture, less any impairment in the value of the investment. Losses of a joint venture in excess of the Group’s interest in that investment are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture. 113 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

1. Accounting policies (continued) Intangible assets Identifiable intangible assets are recognised when the Group controls the asset, it is probable that future economic benefits attributed to the asset will flow to the Group and the cost of the asset can be reliably measured. Goodwill Goodwill is measured as the excess of the sum of the fair value of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree, if any, over the net amounts of identifiable assets acquired in the subsidiary, associate or jointly controlled entity and liabilities assumed at the acquisition date. For acquisitions where the agreement date is on or after 31 March 2004, goodwill is not amortised and is reviewed for impairment at least annually. Any impairment is recognised immediately in the consolidated statement of comprehensive income and is not subsequently reversed. Goodwill arising on earlier acquisitions was being amortised over its estimated useful life of 20 years. In accordance with the transitional provisions of IFRS 3 Business Combinations, the unamortised balance of goodwill at 31 December 2004 was frozen and reviewed for impairment and will be reviewed for impairment at least annually. Externally acquired intangible assets Intangible assets are recognised on business combinations if they are separate from the acquired entity or give rise to other contractual or legal rights. Identifiable assets are recognised at their fair value at the acquisition date. The identified intangibles are amortised over the useful economic life of the assets. Internally generated intangible assets – research and development expenditure Expenditure incurred on development activities, including the Group’s software development, is capitalised only where the expenditure will lead to new or substantially improved products or processes, the products or processes are technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, labour and an appropriate proportion of overheads. All other development expenditure is expensed as incurred. Subsequent expenditure on capitalised intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the asset to which it relates. All other expenditure, including that incurred in order to maintain the related intangible asset’s current level of performance, is expensed as incurred. Amortisation of intangible assets Amortisation is provided to write-off the cost of all intangible assets, with the exception of goodwill, over the periods the Group expects to benefit from their use, and varies between:

Brand and domain names – 5% to 20% per annum Broadcast libraries – 50% per annum Capitalised development expenditure – 20% to 33% per annum Contractual relationships – over the length of the contract Customer lists and contracts – 5% to 50% per annum Intellectual property and gaming licences – over the length of the licence Software – 20% to 33% per annum 114 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

1. Accounting policies (continued) Impairment of goodwill, other intangibles and property, plant and equipment At the end of each reporting year, the Group reviews the carrying amounts of its goodwill, other intangibles and property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cashflows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Impairments related to goodwill are not reversed. Property, plant and equipment All property, plant and equipment are stated at cost, less accumulated depreciation, with the exception of freehold land and buildings which are stated at cost and are not depreciated due to immateriality. Assets in the course of construction are carried at cost, less any recognised impairment loss. Cost includes directly attributable costs incurred in bringing the assets to working condition for their intended use, including professional fees. Depreciation commences when the assets are ready for their intended use. Depreciation is provided to write-off the cost, less estimated residual values, of all property, plant and equipment with the exception of freehold land and buildings, evenly over their expected useful lives. It is calculated at the following rates: Leasehold improvements – over length of lease Plant, machinery, computer equipment – 33% per annum Fixtures, fittings, tools and equipment, vehicles – 20% per annum Where an item of property, plant or equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. Subsequent expenditure is capitalised where it is incurred to replace a component of an item of plant, property or equipment where that item is accounted for separately including major inspection and overhaul. All other subsequent expenditure is expensed as incurred, unless it increases the future economic benefits to be derived from that item of plant, property and equipment. 115 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

1. Accounting policies (continued) Segment information An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. Each segment’s operating results are regularly reviewed by the Group to make decisions about resources to be allocated to the segment and assess its performance. The method for determining what information to report is based on the way management organises the operating segments within the Group for decision-making purposes and for the assessment of financial performance. The Group reviews financial statements presented by product type which are supplemented by some information about geographic regions for the purposes of making operating decisions and assessing financial performance. Therefore, the Group has determined that it is appropriate to report according to product segment. Revenue Revenue from online gaming, comprising sports betting, casino and games, poker, bingo, and network services (third-party entities that use the Group’s platform and certain services), as well as fees from broadcasting, hosting and subscriptions, is recognised in the accounting periods in which the gaming transactions occur. Revenue is measured at the fair value of the consideration received or receivable and is net of certain promotional bonuses and the value of loyalty points accrued. Net revenue consists of net gaming revenue and revenue generated from foreign exchange commissions on customer deposits and withdrawals and account fees. Poker net revenue represents the commission charged or tournament entry fees where the player has concluded his or her participation in the tournament. Casino, bingo and sports betting net revenue represents net house win adjusted for the fair market value of gains and losses on open betting positions. Revenue generated from foreign exchange commissions on customer deposits and withdrawals and account fees is allocated to each reporting segment. Other revenue consists primarily of revenue from network services, third-party payment services, sale of domain names, financial markets and fees from broadcasting, hosting and subscriptions. Revenue in respect of network service arrangements where the third-party owns the relationship with the customer is the net commission invoiced. Interest income is recognised on an accruals basis. Cost of sales Cost of sales consists primarily of betting and gaming taxes and broadcasting costs. Broadcasting costs are expensed over the applicable life cycle of each programme based upon the ratio of the current year’s revenue to the estimated remaining total revenues. Other operating income Other operating income consists primarily of exchange gains. Other operating expenses Other operating expenses consist primarily of exchange losses and merger and acquisition expenses and are recognised on an accruals basis. 116 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

1. Accounting policies (continued) Foreign currency Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their ‘functional currency’) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of the reporting year. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated statement of comprehensive income, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation, in which case exchange differences are recognised in a separate component of equity. On consolidation, the results of overseas operations are translated into euros at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the end of the reporting year. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the ‘currency reserve’). Exchange differences recognised in the statement of comprehensive income of Group entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the overseas operation concerned are reclassified to the currency reserve on consolidation. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal. The financial statements were translated into euros at the following rates:

31-Dec-11 Average 2011 31-Dec-10 Average 2010 Argentinian pesos (ARG) 0.1794 0.1735 n/a* n/a*

British pound (GBP) 1.1979 1.1460 1.1647 1.1653

Bulgarian Lev (BGN) 0.5114 0.5113 0.5113 0.5111

Chinese yuan (CNY) 0.1226 0.1104 n/a* n/a*

Indian rupees (INR) 0.0145 0.0155 0.0167 0.0164

Israeli shekel (ILS) 0.2020 0.2002 0.2109 0.2011

Mexican pesos (MEX) 0.0553 0.0580 n/a* n/a*

South African Rand (ZAR) 0.0955 0.1002 n/a* n/a*

Swedish Kronor (SEK) 0.1118 0.1108 n/a* n/a* US dollar (USD) 0.7717 0.7126 0.7462 0.7533

* n/a as relates to currencies used by bwin entities that were not part of the Group in 2010.

Taxation Income tax expense represents the sum of the Directors’ best estimate of taxation exposures and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using rates that have been enacted or substantively enacted by the end of the reporting year. 117 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

1. Accounting policies (continued) Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences other than where IAS 12 Income Taxes contains specific exemptions. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting year and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Assets held for sale Non-current assets and disposal groups are classified as held for sale if the carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as being met only when the sale is highly probable, management is committed to a sale plan, the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification. These assets are measured at the lower of carrying value and fair value less associated costs of sale. Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payments. The Group issues equity‑settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period and based, for those share options which contain only non-market vesting conditions, on the Group’s estimate of the shares that will eventually vest. Fair value is measured by use of a suitable option pricing model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. For cash-settled share-based payment transactions, the goods or services received and the liability incurred are measured at the fair value of the liability. Up to the point at which the liability is settled, the fair value of the liability is re-measured at each reporting date and at the date of settlement, with changes being recorded in consolidated statement of comprehensive income. The Group records the expense based on the fair value of the share-based payments on a straight-line basis over the vesting period. For cash payments made by parties related to Principal Shareholders, the charge is recorded when there is a commitment to make the payment. Where equity instruments of the parent company or a subsidiary are transferred, or cash payments based on the Company’s (or a subsidiary’s) share price are made, by shareholder(s) or entities that are effectively controlled by one or more shareholder(s), the transaction is accounted for as a share-based payment, unless the transfer or payment is clearly for a purpose other than payment for goods or services supplied to the Group. Where equity instruments are transferred by one or more shareholder(s), the amount recorded in reserves is included in the share-based payment reserve. Where a cash payment is made, this is recorded as a capital contribution. 118 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

1. Accounting policies (continued) Treasury shares Treasury shares relate to shares gifted to the Employee Trust by the Company and to shares repurchased as part of the share buyback programme. The cost of treasury shares creates an own share reserve. When options issued by the Employee Trust are exercised the own share reserve is reduced and a gain or loss is recognised in reserves based on proceeds less weighted-average cost of shares exercised. Own shares repurchased for the share buyback programme are carried at cost. Provisions and contingent liabilities The Group recognises a provision in the consolidated statement of financial position when it has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. Where the Group has a possible obligation as a result of a past event that may, but probably will not, result in an outflow of economic benefits, no provision is made. Disclosures are made of the contingent liability including, where practicable, an estimate of the financial effect, uncertainties relating to the amount or timing of outflow of resources, and the possibility of any reimbursement. Where time value is material, the amount of the related provision is calculated by discounting the cashflows at a pre-tax rate that reflects market assessments of the time value of money and any risks specific to the liability. Leased assets Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the consolidated statement of comprehensive income. Rentals payable under operating leases are charged directly to the consolidated statement of comprehensive income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Derivative financial instruments The Group uses derivative financial instruments to manage currency cashflows and to hedge foreign exchange risk on non-US dollar denominated financial assets and liabilities. The derivative instruments used by the Group consist mainly of spot and forward foreign exchange contracts. Derivative financial instruments are recognised in the statement of financial position at fair value calculated using either discounted cashflow techniques or by reference to market prices supplied by banks. Changes in the fair value of derivative financial instruments are recognised in the Consolidated statement of comprehensive income. 119 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

1. Accounting policies (continued) Financial assets The Group’s financial assets which are financial instruments are categorised as loans, receivables and available-for-sale financial assets. These include restricted cash and unrestricted bank deposits with maturities of more than three months. Amounts held as security deposits are considered to be restricted cash. There are no financial assets that are classified as ‘held to maturity’. A category for ‘in the money’ derivative financial instruments was not required since there were no derivative financial instruments held as at 31 December 2011 or 31 December 2010. Non-derivative financial assets classified as available-for-sale comprise the Group’s strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in equity. In accordance with IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in the consolidated statement of comprehensive income. Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that asset is removed from equity and recognised in the Consolidated statement of comprehensive income. Short-term investments are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They are initially recognised at fair value, plus transaction costs directly attributable to their acquisition or issue. They are subsequently carried at amortised cost using the effective interest rate method, less any provisions for impairment. Trade and other receivables represent short-term monetary assets which are recognised at fair value less impairment and other related provisions, which are recognised when there is objective evidence (primarily default or significant delay in payment) that the Group will be unable to collect all of the amounts due. The amount of such a provision is the difference between the net carrying amount and the present value of the future expected cashflows associated with the impaired receivable. Cash comprises cash in hand and balances with financial institutions. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash. They include unrestricted short-term bank deposits originally purchased with maturities of three months or less. Financial liabilities The Group’s financial liabilities are all categorised as financial liabilities measured at amortised cost. Financial liabilities include the following items: • Client liabilities, including amounts due to progressive prize pools. • Trade payables and other short-term monetary liabilities which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method, which ensures that interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated statement of financial position. • Loans and borrowings, comprising bank borrowings and overdrafts, which are initially recognised at fair value, net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently valued at amortised cost using the effective interest rate method. Interest expense in this context includes initial transaction costs, as well as any interest or coupon payable while the liability is outstanding. • A category for ‘out of the money’ derivative financial instruments was not required since there were no derivative financial instruments as at 31 December 2011 or 31 December 2010. Share capital Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group’s ordinary shares are classified as equity instruments. Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the Directors. In the case of final dividends, this is when approved by the Shareholders at the Annual General Meeting. 120 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

2. Segment information For management purposes and transacting with customers, the Group’s operations can be segmented into the following reporting segments: • sports betting, • casino & games, • poker, • bingo and • unallocated corporate (including World Poker Tour, InterTrader.com and the payment services business). These segments are the basis upon which the Group currently reports its segment information. Unallocated corporate expenses, assets and liabilities relate to the Group as a whole and are not allocated to individual segments. The measure of reporting segment performance is Clean EBITDA and the basis for arriving at this is the same as the Group accounts. Following the acquisition of bwin a review is currently being undertaken of the need to change the Group’s reporting of results to the Chief Operating Decision Makers (‘CODMs’) which could have a consequential effect on the reporting of segmental information under IFRS 8. Any such changes would be reflected in the future once this exercise has been completed.

Sports Casino & Unallocated betting games Poker Bingo corporate Consolidated Year ended 31 December 2011 €million €million €million €million €million €million Continuing operations Net revenue 193.9 237.5 184.6 58.5 – 674.5 Other revenue 0.8 0.9 2.9 0.9 11.1 16.6 Total revenue 194.7 238.4 187.5 59.4 11.1 691.1 Clean EBITDA 46.0 83.2 26.1 19.8 (6.8) 168.3 Profit (loss) before tax (158.4) (110.2) (120.8) 3.4 (36.9) (422.9) Discontinued operations Net revenue – – – – – – Other revenue – – 10.1 – – 10.1 Total revenue – – 10.1 – – 10.1 Clean EBITDA – – (13.1) – – (13.1) Loss before tax – – (15.7) – – (15.7) Total operations Net revenue 193.9 237.5 184.6 58.5 – 674.5 Other revenue 0.8 0.9 13.0 0.9 11.1 26.7 Total revenue 194.7 238.4 197.6 59.4 11.1 701.2 Clean EBITDA 46.0 83.2 13.0 19.8 (6.8) 155.2 Profit (loss) before tax (158.4) (110.2) (136.5) 3.4 (36.9) (438.6) 121 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

2. Segment information (continued)

Sports Casino & Unallocated betting games Poker Bingo corporate Consolidated Year ended 31 December 2010 €million €million €million €million €million €million Continuing operations Net revenue 20.7 152.1 124.2 51.4 – 348.4 Other revenue – – 1.1 1.1 6.7 8.9 Total revenue 20.7 152.1 125.3 52.5 6.7 357.3 Clean EBITDA 8.9 53.4 18.7 15.2 (1.9) 94.3 Profit (loss) before tax 3.3 48.3 15.7 0.3 (23.8) 43.8 Discontinued operations Net revenue – – – – – – Other revenue – – – – – – Total revenue – – – – – – Clean EBITDA – – – – (0.2) (0.2) Loss before tax – – – – (1.3) (1.3) Total operations Net revenue 20.7 152.1 124.2 51.4 – 348.4 Other revenue – – 1.1 1.1 6.7 8.9 Total revenue 20.7 152.1 125.3 52.5 6.7 357.3 Clean EBITDA 8.9 53.4 18.7 15.2 (2.1) 94.1 Profit (loss) before tax 3.3 48.3 15.7 0.3 (25.1) 42.5 In the consolidated financial statements for the year ended 31 December 2010 backgammon was classified as part of the poker segment and certain casino games on the sports platform as part of the sports betting segment. Both are now classified as part of the casino & games segment. Also, exchange differences were reported as part of Clean EBITDA whereas now they are not. As a result, the following increases (decreases) have been made to the previously reported results for both continuing and total operations for the year ended 31 December 2010:

Sports Casino & Unallocated betting games Poker Bingo corporate Consolidated €million €million €million €million €million €million Net revenue (0.1) 0.7 (0.6) – – – Total revenue (0.1) 0.7 (0.6) – – – Clean EBITDA (0.1) 0.7 (0.6) – (6.1) (6.1) Profit (loss) before tax (0.1) 0.7 (0.6) – – –

Geographical analysis of total revenue The following table provides an analysis of the Group’s total revenue by geographical segment:

2011 2010 Year ended 31 December €million €million Germany 142.1 48.3

United Kingdom 81.3 79.3 Other 467.7 229.7 Total revenue 691.1 357.3 122 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

3. Other operating expenses

2011 2010 Year ended 31 December €million €million Merger and acquisition expenses 12.0 4.9 Exchange losses 4.5 – 16.5 4.9 Merger and acquisition expenses incurred during the year relate to the completed merger with bwin. 4. (Loss) profit from operating activities

2011 2010 Year ended 31 December €million €million This has been arrived at after charging (crediting): Directors’ emoluments 7.0 7.0 Amortisation of intangibles 126.9 32.8 Depreciation on property, plant and equipment 19.6 6.4 Product development (including staff cost) 11.0 3.3 Loss (profit) on disposal of fixed assets 1.2 (0.1) Exchange loss (gain) 4.5 (6.1) Reorganisation expenses 6.3 0.7 Impairment losses – trade receivables (bad debts) 9.6 2.9 Impairment losses – assets held for sale – 0.1 Impairment losses – goodwill 391.7 – Impairment losses – associates 1.7 – Impairment losses – other intangibles 15.3 – Auditors’ remuneration – audit services 0.5 0.5 Merger and acquisition expenses 12.0 4.9 Of which: Auditors’ remuneration – merger and acquisition expenses 0.2 0.9

5. Staff costs

2011 2010 Year ended 31 December €million €million Aggregate remuneration including Directors comprised: Wages and salaries 89.6 53.3 Share-based payments 12.0 9.2 Employer social insurance contribution 13.0 2.8 Other benefits 8.3 2.0 122.9 67.3 Details of Directors’ emoluments are set out in the Remuneration report.

2011 2010 Year ended 31 December €million €million Average number of employees Directors 11 6 Administration 213 134 Customer service 524 356 Others 1,733 868 2,481 1,364 123 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

6. Finance income and expense

2011 2010 Year ended 31 December €million €million Interest income 6.4 0.9 Finance income 6.4 0.9 Interest expense (1.6) (1.9) Unwinding of discount on current and non-current liabilities (7.5) (1.5) Finance expense (9.1) (3.4) Net finance expense (2.7) (2.5)

7. Tax Analysis of tax charge

2011 2010 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total Year ended 31 December €million €million €million €million €million €million Current tax expense for the period 11.8 0.6 12.4 7.4 – 7.4 Deferred tax (credit) expense for the period (20.0) – (20.0) (3.8) – (3.8) Tax (credit) expense (8.2) 0.6 (7.6) 3.6 – 3.6 The effective tax rate for the year based on the associated tax expense is 2.0% (2010: 8.2%). The total (credit) expense for the period can be reconciled to accounting (loss) profit as follows:

2011 2010 Year ended 31 December €million €million (Loss) profit before tax from Continuing operations (422.9) 43.8 Loss before tax from Discontinued operations (15.7) (1.3) (Loss) profit before tax (438.6) 42.5 Tax rate in Gibraltar of 10% (2010: 0%) (43.9) – Effect of expenses not allowed for tax purposes 2.8 – Effect of deferred tax (20.0) (3.8) Effect of tax in other jurisdictions 12.7 7.4 Effect of impairment not allowed for tax purposes 40.9 – Total income tax (credit) expense for the period (7.5) 3.6 The expenses not allowed for tax purposes are primarily amortisation and impairment of intangible assets. Factors affecting the tax charge for the period The Group’s policy is to manage, control and operate Group companies only in the countries in which they are registered. At the period end there were Group companies registered in 24 countries including Gibraltar. However, the rules and practice governing the taxation of eCommerce activity are evolving in many countries. It is possible that the amount of tax that will eventually become payable may differ from the amount provided in the financial information. Factors that may affect future tax charges As the Group is involved in worldwide operations, future tax charges will be affected by the levels and mix of profitability in different jurisdictions. Future tax charges will be reduced by a deferred tax credit in respect of amortisation of certain acquired intangibles. 124 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

8. Discontinued operations Consolidated statement of comprehensive income

2011 2010 Year ended 31 December €million €million Other revenue 10.1 – Total revenue 10.1 – Gross profit 10.1 – Other operating income (0.5) – Administrative expenses (22.2) (0.2) Distribution expenses (2.5) – Loss from operating activities (15.1) (0.2) Finance expense (0.6) (1.1) Loss before tax (15.7) (1.3) Tax (0.6) – Loss for the period attributable to the equity holders of the parent (16.3) (1.3) Loss per share (€ cents) Basic and diluted 2.2 0.3

Consolidated statement of cashflows

2011 2010 Year ended 31 December €million €million Loss for the period (16.3) (1.3) Adjustments for: Depreciation of property, plant and equipment 0.7 – Amortisation of intangibles 1.3 – Interest expense 0.6 1.1 Increase in reserves due to share-based payments 0.1 – Income tax expense 0.6 – Operating cashflows before movements in working capital and provisions (13.0) (0.2) Increase in trade and other receivables 2.1 – Increase (decrease) in trade and other payables (19.9) (22.4) Net cash outflow from operating activities (30.8) (22.6) Investing activities Net cash acquired on acquisition of subsidiaries and businesses 2.4 – Purchases of intangible assets (1.4) – Purchases of property, plant and equipment (1.8) – Net cash used in investing activities (0.8) – Net decrease in cash and cash equivalents (31.6) (22.6) Exchange differences – 4.5 (31.6) (18.1) 125 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

8. Discontinued operations (continued) Ongame B2B On 30 June 2011 the Board announced its intention to sell the Ongame B2B business it acquired during the period as part of the Merger. On 6 March 2012 the Company announced that it had agreed to sell Ongame, its business-to-business (‘B2B’) online poker network, to Shuffle Master, Inc (‘Shuffle Master’) for a total cash consideration of up to €29.5 million. See note 30 for further details. US US refers to those operations located physically outside of the US but which relate to US customers that were no longer accepted following the enactment of the UIGEA. 9. Earnings per Share (‘EPS’)

2011 2010 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total Year ended 31 December € cents € cents € cents € cents € cents € cents Basic EPS (56.0) (2.2) (58.2) 9.8 (0.3) 9.5 Diluted EPS (56.0) (2.2) (58.2) 9.3 (0.3) 9.0 Basic Clean EPS 17.9 (2.1) 15.8 17.8 (0.1) 17.7 Diluted Clean EPS 17.5 (2.1) 15.4 16.8 (0.1) 16.8

* A diluted EPS calculation may not increase a basic EPS calculation when the basic EPS is a loss.

Basic earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held as treasury shares.

2011 2010 Year ended 31 December Total Total Basic EPS Basic (loss) earnings (€million) (428.9) 38.9 Weighted average number of ordinary shares (million) 737.2 408.5 Basic earnings (loss) per ordinary share (€ cents) (58.2) 9.5 Basic Clean EPS Adjusted earnings (€million) 116.6 72.5 Weighted average number of ordinary shares (million) 737.2 408.5 Adjusted earnings per ordinary share (€ cents) 15.8 17.7

Clean earnings per share In previous periods the performance measure of EPS used internally by management to manage the operations of the business and remove the impact of one-off and certain non-cash items was Clean EPS, which was calculated before the provision for costs associated with the Group’s Non-Prosecution Agreement, reorganisation expenses, merger and acquisition expenses and share-based payments. Following the Merger, management have amended their performance measure to also add back exchange differences and amortisation and impairments on acquisitions, which they believe better reflects the underlying performance of the business and assists in providing a clearer view of the fundamental performance of the Group. 126 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

9. Earnings per Share (‘EPS’) (continued) Clean net earnings excluding amortisation and impairments on acquisitions attributable to equity shareholders is derived as follows:

2011 2010 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total Year ended 31 December €million €million €million €million €million €million Earnings (loss) for the purposes of basic and diluted earnings per share being profit attributable to equity holders of the parent (412.6) (16.3) (428.9) 40.2 (1.3) 38.9 Unwinding of discount associated with the Group’s Non‑Prosecution Agreement – 0.6 0.6 – 1.1 1.1 Reorganisation expenses 6.3 – 6.3 0.7 – 0.7 Merger and acquisition expenses 12.0 0.3 12.3 4.9 – 4.9 Exchange losses (gains) 4.5 (0.4) 4.1 (6.2) – (6.2) Share-based payments 12.0 0.1 12.1 9.2 – 9.2 Amortisation on acquired intangible assets 121.0 – 121.0 27.7 – 27.7 – Tax thereon (15.1) – (15.1) (3.8) – (3.8) Impairments on acquired intangible assets and goodwill 408.7 – 408.7 – – – – Tax thereon (4.5) – (4.5) – – – Clean net earnings 132.3 (15.7) 116.6 72.7 (0.2) 72.5

2011 2010 Number Number Year ended 31 December million million Weighted average number of shares Number of shares in issue as at 1 January 413.1 412.4 Number of shares in issue as at 1 January held by the Employee Trust (4.0) (4.6) Weighted average number of shares issued during the period 331.4 0.4 Weighted average number of shares purchased during the period (4.3) – Effect of vested share options 1.0 0.3 Weighted average number of ordinary shares for the purposes of basic earnings per share 737.2 408.5 Effect of potential dilutive unvested share options and contingently issuable shares 19.3 23.2 Weighted average number of ordinary shares for the purposes of diluted earnings per share 756.5 431.7 In accordance with IAS 33, the weighted average number of shares for diluted earnings per share takes into account all potentially dilutive equity instruments granted which are not included in the number of shares for basic earnings per share above. Although the unvested, potentially dilutive equity instruments are contingently issuable, in accordance with IAS 33, the period end is treated as the end of the performance period. Those option holders who were employees at that date are deemed to have satisfied the performance requirements and their related potentially dilutive equity instruments have been included for the purpose of diluted EPS. 127 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

10. Intangible assets

Acquired Other Goodwill intangibles intangibles Total €million €million €million €million Cost or valuation As at 1 January 2010 211.1 166.7 9.4 387.2 Adjustment to consideration of prior business combinations (3.7) – – (3.7) Additions – – 3.8 3.8 Exchange movements 10.9 8.8 2.8 22.5 As at 31 December 2010 218.3 175.5 16.0 409.8 Acquired through business combinations (see note 26) 473.3 608.7 – 1,082.0 Additions – – 11.0 11.0 Exchange movements 6.3 5.0 0.5 11.8 Disposals – – (5.9) (5.9) Reclassified as assets held for sale – (37.8) (1.2) (39.0) As at 31 December 2011 697.9 751.4 20.4 1,469.7 Amortisation As at 1 January 2010 52.9 97.2 4.2 154.3 Charge for the period – 27.7 5.1 32.8 Exchange movements 3.9 6.1 0.8 10.8 As at 31 December 2010 56.8 131.0 10.1 197.9 Charge for the period – 121.0 5.9 126.9 Exchange movements 1.9 3.9 0.3 6.1 Impairment 391.7 15.3 – 407.0 Disposals – – (5.9) (5.9) Reclassified as assets held for sale – (0.9) – (0.9) As at 31 December 2011 450.4 270.3 10.4 731.1 Carrying amounts As at 31 December 2010 161.5 44.5 5.9 211.9 As at 31 December 2011 247.5 481.1 10.0 738.6 128 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

10. Intangible assets (continued) Acquired intangible assets are those intangible assets purchased as part of an acquisition and primarily include customer lists, brands, software and broadcast libraries. The value of acquired intangibles is based on cashflow projections at the time of acquisition. Customer lists from existing customers take into account the expected impact of player attrition. Other intangibles primarily include development expenditure, long-term gaming and intellectual property licences and purchased domain names. Development expenditure represents software infrastructure assets that have been developed and generated internally. Licences are amortised over the life of the licences and other intangibles are being amortised over their estimated useful economic lives of between three and five years. During 2010, both contingent consideration, and consequently goodwill, were subsequently revised down by €3.7m based on Cashcade’s profit performance in 2010 which was in the middle of the target range for the earnout. The €15.3m impairment of acquired intangibles in 2011 relates to software acquired as part of the Merger that will not be used for its normal economic life. Goodwill Goodwill is allocated to the following cash‑generating units (CGUs):

2011 2010 As at 31 December €million €million PartyPoker 7.0 6.4 Gamebookers 66.7 64.5 EOL/IOG 26.1 26.1 Cashcade 66.6 64.5 bwin 81.1 – At end of year 247.5 161.5

Impairment In accordance with IAS 36, the Group regularly monitors the carrying value of its intangible assets. A detailed review was undertaken at 31 December 2011 to assess whether the carrying value of assets was supported by the net present value of future cashflows derived from those assets. PartyPoker and Cashcade In respect of the PartyPoker and Cashcade CGUs, the Directors have concluded that there are no reasonably possible changes in key assumptions which would cause the carrying value of goodwill and other intangibles to exceed their value in use. EOL/IOG The recoverable amount of EOL/IOG has been determined with reference to the contribution the CGU makes towards the overall casino vertical. The Directors have concluded therefore that there are no reasons which would cause the carrying value of goodwill and other intangibles to exceed their value in use. Gamebookers The recoverable amount of Gamebookers has been determined from value in use calculations based on cashflow projections covering the following ten year period. The Group believes that going beyond five years’ cashflows in the value in use calculations is appropriate given the Group is an established business and is a leader in a growth industry. The projections include the formally approved budget for 2012 and a detailed forecast for 2013. 129 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

10. Intangible assets (continued) Operating margins have been based on past experience and future expectations in light of anticipated economic and market conditions. Discount rates are based on the Group’s weighted average cost of capital, adjusted to reflect management’s assessment of specific risks related to the CGU.

Excess of the Break-even analysis with other key recoverable Key assumptions used in the projections assumptions remaining the same amounts over the carrying value Discount Operating Growth Discount Operating Growth Gamebookers €million rate margin rate rate margin rate As at 31 December 2010 10.0 12.1% 41.2% 3.6% 15.5% 35.9% (1.4%) As at 31 December 2011 20.3 9.5% 23.0% 2.4% 12.2% 17.6% (2.6%) bwin Although the Merger was effectively a merger of equals with all consideration satisfied in shares, IFRS requires the Merger to be accounted for as if PartyGaming had acquired bwin. The accounting for this resulted in the recognition of goodwill at the time of the Merger measured as the difference in value between the consideration and the fair value of the separately identified assets and liabilities of bwin. The consideration was measured using the PartyGaming share price at the time of the Merger and before proposed regulatory changes were announced one week later, which resulted in a substantial reduction in the Company’s share price. Had the merger completed one week later, no such impairment would have been required. The uncertainty created by the proposed regulatory changes in Europe, particularly those in Germany, have resulted in the Directors applying probability weighted forecasts to determine the cashflow projections for this CGU. This has had an adverse effect on the projected value in use of this operation and consequently resulted in an impairment to goodwill of €391.7m. The recoverable amount of bwin has been determined from value in use calculations based on cashflow projections covering the following ten year period. The Group believes that going beyond five years’ cashflows in the value in use calculations is appropriate given the Group is an established business and is a leader in a growth industry. Operating margins have been based on past experience and future expectations in light of anticipated economic and market conditions. Discount rates are based on the Group’s weighted average cost of capital, adjusted to reflect management’s assessment of specific risks related to the CGU. The table below shows the effect of changes in the key assumptions would have on the impairment amount.

Key assumptions used in the projections Discount Operating Growth bwin rate margin rate Key assumptions used in the projections 10.3% 18.1% 2.5% Effect of 1% increase in assumption on impairment €59.4m (€44.7m) (€32.2m) Effect of 1% decrease in assumption on impairment (€74.0m) €44.3m €30.1m 130 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

11. Property, plant and equipment

Fixtures, Plant, fittings, Land and machinery and tools and buildings vehicles equipment Total €million €million €million €million Cost or valuation As at 1 January 2010 4.4 4.4 62.8 71.6 Additions 0.1 0.5 7.4 8.0 Disposals (0.8) (0.2) (2.4) (3.4) Exchange movements 0.3 0.4 3.1 3.8 As at 31 December 2010 4.0 5.1 70.9 80.0 Acquired through business combinations (see note 26) 2.6 1.4 15.3 19.3 Additions 9.6 2.4 18.6 30.6 Disposals (2.9) (0.9) (5.2) (9.0) Exchange movements 0.1 (0.3) 0.7 0.5 Reclassified as assets held for sale – (0.4) (7.8) (8.2) As at 31 December 2011 13.4 7.3 92.5 113.2 Depreciation As at 1 January 2010 3.5 3.5 56.1 63.1 Charge for the year 0.7 0.6 5.1 6.4 Disposals (0.8) (0.1) (2.4) (3.3) Exchange movements 0.1 0.2 4.0 4.3 As at 31 December 2010 3.5 4.2 62.8 70.5 Charge for the year 1.4 1.2 17.0 19.6 Disposals (2.6) (0.6) (4.4) (7.6) Exchange movements 0.1 (0.2) 1.0 0.9 Reclassified as assets held for sale – (0.1) (2.9) (3.0) As at 31 December 2011 2.4 4.5 73.5 80.4 Carrying amounts As at 31 December 2010 0.5 0.9 8.1 9.5 As at 31 December 2011 11.0 2.8 19.0 32.8

12. Commitments for capital expenditure

2011 2010 As at 31 December €million €million Contracted but not provided for 4.9 1.5 131 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

13. Investments

Joint Available-for-sale Associates ventures financial assets Total €million €million €million €million As at 1 January 2010 – – – – Additions – – 1.7 1.7 As at 31 December 2010 – – 1.7 1.7 Acquired through business combinations (see note 26) 9.0 – – 9.0 Additions 1.3 10.0 3.3 14.6 Share of (loss) profit (1.0) 0.5 – (0.5) Impairments (1.7) – – (1.7) As at 31 December 2011 7.6 10.5 5.0 23.1

Investment in associates The following entities meet the definition of an associate and have been equity accounted in the consolidated financial statements:

Proportion of voting rights held at 31 December Name Country of incorporation 2011 2010 Betbull Holding SE Austria 40% – bwin e.k. Germany 50% – Restaurante Coimbra II SL Spain 50% – Aggregated amounts relating to associates are as follows:

2011 2010 €million €million Total assets 32.5 – Total liabilities 4.7 – Revenues 14.7 – Profit 0.3 – There is no unrecognised share of losses arising during the year. The carrying value at the reporting period related to the investment in associate Betbull Holdings SE is reviewed for impairment by comparing it to the share of the market value of Betbull Holdings (based on the closing share price), which is listed on the Austrian Stock Exchange. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment. As a result of the Merger the group held a 45% holding in Sajoo S.A.S, a company incorporated in France. The assets and liabilities of Sajoo S.A.S were acquired by the Group on 30 September 2011 in a transaction that generated goodwill of €1.2m. The operation of Sajoo S.A.S was merged into BES S.A.S at that date. Following the restructuring, the Group’s share of BES S.A.S decreased from 75% to 71%. 132 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

13. Investments (continued) Investment in joint ventures The following entities meet the definition of a joint venture and have been equity accounted in the consolidated financial statements:

Proportion of voting rights held at 31 December Name Country of incorporation 2011 2010 Conspo Sportcontent GmbH Germany 50% – Aggregated amounts relating to joint ventures are as follows:

2011 2010 As at 31 December €million €million Total assets 18.9 – Total liabilities 17.9 – Revenues 21.7 – Profit 0.9 – There is no unrecognised share of losses arising during the year. Available-for-sale investments Available‑for‑sale investments primarily relate to the investment by the Group into an early stage digital entertainment investment fund called NewGame Capital LP (‘NGC’) and a payment processing company called Wave Crest Holdings Limited. The Directors consider that their carrying amount approximates to their fair values, which is based on estimates of the present value of expected future cashflows. 14. Trade and other receivables

Group Company As at As at As at As at 31 December 2011 31 December 2010 31 December 2011 31 December 2010 €million €million €million €million Payment service providers 62.2 23.6 – – Less: chargeback provision (2.9) (1.4) – – Payment service providers – net 59.3 22.2 – – Prepayments 33.0 15.8 0.8 0.3 Other receivables 37.4 10.3 – – Due from Group companies – – 113.4 80.4 129.7 48.3 114.2 80.7 The Directors consider that the carrying amount of trade and other receivables approximates to their fair values, which is based on estimates of amounts recoverable. The recoverable amount is determined by calculating the present value of expected future cashflows. Provisions are expected to be settled within the next year and relate to chargebacks which are recognised at the Directors’ best estimate of the provision based on past experience of such expenses applied to the level of activity. Movements on the provision are as follows:

€million As at 1 January 2010 1.5 Charged to consolidated statement of comprehensive income 2.9 Credited to consolidated statement of comprehensive income (3.0) As at 31 December 2010 1.4 Acquired through business combinations 1.5 Charged to Consolidated statement of comprehensive income 9.6 Credited to Consolidated statement of comprehensive income (9.6) As at 31 December 2011 2.9 133 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

15. Short-term investments

2011 2010 As at 31 December €million €million Restricted cash 38.6 3.1 Other short-term investments 1.1 – 39.7 3.1 Restricted cash represents cash held as guarantees for regulated markets licenses and significant marketing contracts together with client funds held for payment service provider transactions. 16. Cash and cash equivalents

Group Company 2011 2010 2011 2010 As at 31 December €million €million €million €million Cash in hand and current accounts 289.0 193.6 25.5 44.8

17. Trade and other payables

Group Company As at As at As at As at 31 December 2011 31 December 2010 31 December 2011 31 December 2010 €million €million €million €million Amounts due under Non-Prosecution Agreement 22.9 22.2 22.9 22.2 Deferred and contingent consideration 1.6 6.7 – – Other payables 88.2 32.0 2.2 2.2 Due to Group companies – – 34.2 33.0 Current liabilities 112.7 60.9 59.3 57.4 Amounts due under Non-Prosecution Agreement – 21.7 – 21.7 Deferred and contingent consideration 2.1 1.8 – – Later than one year but not later than five years 2.1 23.5 – 21.7 Deferred and contingent consideration 3.1 4.2 – – More than five years 3.1 4.2 – – Non-current liabilities 5.2 27.7 – 21.7 On 6 April 2009, the Group entered into a Non-Prosecution Agreement with the USAO. Under the terms of the agreement the Group agreed to pay US$105m, payable in semi-annual instalments over a period ending on 30 September 2012. Deferred and contingent consideration relates to amounts payable for the acquisitions of Cashcade and WPT. Other payables comprise amounts outstanding for trade purchases and other ongoing costs. The carrying amount of other payables approximates to their fair value which is based on the net present value of expected future cashflows. The amount due under the Non-Prosecution Agreement is recognised at fair value and carried at amortised cost using an effective interest rate of 2%. The amount due for deferred and contingent consideration is recognised at fair value and carried at amortised cost using an effective interest rate of 15%. 134 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

17. Trade and other payables (continued) The non-discounted book values for these amounts are as follows:

Amounts due under Deferred and Non‑Prosecution Agreement contingent consideration As at As at As at As at 31 December 2011 31 December 2010 31 December 2011 31 December 2010 €million €million €million €million Within one year 23.1 22.4 1.8 6.8 Later than one year but not later than five years – 22.4 3.1 2.4 More than five years – – 10.2 8.7 23.1 44.8 15.1 17.9

18. Client liabilities and progressive prize pools

As at As at 31 December 2011 31 December 2010 €million €million Client liabilities 141.4 85.6 Progressive prize pools 14.8 7.5 156.2 93.1 Client liabilities and progressive prize pools represent amounts due to customers including net deposits received, undrawn winnings, progressive jackpots and tournament prize pools and certain promotional bonuses. The carrying amount of client liabilities and progressive prize pools approximates to their fair value which is based on the net present value of expected future cashflows. 19. Provisions

Onerous Litigation contracts Total €million €million €million As at 1 January 2011 – – – Acquired through business combinations – 9.3 9.3 Unwinding of discount 0.1 0.7 0.8 Reclassification due to date of maturity 2.0 6.0 8.0 Credited to consolidated statement of comprehensive income – (7.3) (7.3) Current liabilities as at 31 December 2011 2.1 8.7 10.8 As at 1 January 2011 – – – Acquired through business combinations 71.4 9.4 80.8 Unwinding of discount 4.5 0.4 4.9 Reclassification due to date of maturity (2.0) (6.0) (8.0) Later than one year but not later than five years 73.9 3.8 77.7 Non-current liabilities at 31 December 2011 73.9 3.8 77.7 Litigation refers to provisions made in respect of certain outstanding legal and regulatory disputes and are an estimate of what the Directors believe to be the fair value based on probability-weighted expected values. In the light of the uncertainty associated with legal and regulatory disputes, there can be no guarantee that the assumptions used to estimate the provision will be an accurate prediction of the actual costs that may or may not be incurred. No further details have been provided as the Directors consider that this would be prejudicial to the interests of the Group. Onerous contracts relate to provisions made against the future costs of contracts where subsequent changes in legislation in certain countries have meant that the future economic benefits received by the Group are less than the costs involved with fulfilling the remaining terms and conditions of the contracts and is recognised at the Directors’ best estimate based on their knowledge of the markets of the countries involved. The amounts due for provisions are recognised at fair value based on the above and carried at amortised cost using an effective interest rate of 8.7%. 135 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

19. Provisions (continued) The non-discounted book values for these amounts are as follows:

Litigation Onerous contracts As at As at As at As at 31 December 2011 31 December 2010 31 December 2011 31 December 2010 €million €million €million €million Within one year 2.2 – 9.0 – Later than one year but not later than five years 94.8 – 4.2 – 97.0 – 13.2 –

20. Loans and borrowings

Book value Fair value 2011 2010 2011 2010 As at 31 December €million €million €million €million Secured bank loan 32.9 8.7 33.2 9.9 Current liabilities 32.9 8.7 33.2 9.9 Secured bank loan – 32.0 – 30.1 Later than one year but not later than five years – 32.0 – 30.1 Non-current liabilities – 32.0 – 30.1 Bank borrowings are recognised at fair value and subsequently carried at amortised cost based on their internal rates of return. The discount rate applied was 5.44%. Principal terms and the debt repayment schedule of loans and borrowings before amortisation at both 31 December 2010 and 2011 are as follows:

Amount Nominal rate Year of maturity Security The Royal Bank of Scotland plc £35 million 6 months LIBOR plus 3.25% 2012 Floating charge over the assets of Cashcade Limited and its subsidiary undertakings The maturity analysis of loans and borrowings, including interest and fees, is as follows:

2011 2010 As at 31 December €million €million Within one year 34.2 10.2 Later than one year and not later than five years – 33.1 34.2 43.3

21. Deferred tax

€million As at 1 January 2010 10.9 Exchange differences 0.3 Credited to consolidated statement of comprehensive income (3.8) As at 31 December 2010 7.4 Acquired through business combinations (see note 26) 71.2 Exchange differences 0.6 Credited to consolidated statement of comprehensive income (20.1) As at 31 December 2011 59.1 Deferred tax relates primarily to temporary differences arising from fair value adjustments of acquired intangibles. 136 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

22. Operating lease commitments The total future minimum lease payments due under non-cancellable operating lease payments are analysed below:

2011 2010 As at 31 December €million €million Within one year 8.8 2.4 Later than one year but not later than five years 15.3 6.1 More than five years 6.6 5.2 30.7 13.7 All operating lease commitments relate to land and buildings. Rental costs under operating leases are charged to the income statement in equal annual amounts over the period of the leases. 23. Contingent liabilities From time to time the Group is subject to legal claims and actions against it. The Group takes legal advice as to the likelihood of success of such claims and actions. As part of the Board’s ongoing regulatory compliance process, the Board continues to monitor legal and regulatory developments and their potential impact on the business and takes appropriate advice in respect of these developments. Litigation As a consequence of the as yet non-harmonised regulatory environment for online gaming in Europe, a number of civil and administrative proceedings are pending against the Group and/or its board members in several countries (including but not limited to Germany, Portugal, Slovenia and Spain) aimed at preventing bwin.party from offering its services in these countries. Further, there are criminal investigations pending against certain board members of the Group for the alleged violation of local gaming laws (such as in France and Austria). In 2010, a former bwin subsidiary has been assessed by Austrian tax authorities to have value-added tax arrears of €6.4m for the years 2002 to 2004. The Company has appealed the assessments. Applying the same assessments to periods subsequent to 2004, although some circumstances have changed, the value of the worst case scenario amounts to €170.4m. In 2006, the Portuguese monopoly operator Santa Casa de Misericórdia da Lisboa and the Portuguese Casino Association, in addition to a request for a cease and desist order, filed a suit for damages in the amount of approximately €27m for the alleged loss of profits due to bwin.party’s Portuguese online gaming offer. In September 2011, the Court of First Instance, amongst others, (i) declared the (already terminated) sponsorship agreement between the former bwin and the Portuguese Soccer League (LPFP) as well as bwin’s gaming offer and advertising measures as illegal in Portugal, and (ii) prohibited the offer of mutual bets and lottery games on bwin.com and future advertising activities for bwin. bwin.party filed an appeal against the Court’s decision. The Court did not yet decide on Santa Casa’s request for damages but reserved this for the further proceedings. In 2010, the Justice and Public Safety Cabinet of the Commonwealth of Kentucky filed a civil suit against the Company and other defendants in Franklin Circuit Court, a state court in Kentucky in the US. The suit seeks a claim for damages of US$47m along with interest and costs in relation to the Company’s activities from 5 August 2005 until the Company’s termination of US-facing activities on 13 October 2006. In 2011, Ante5 filed a complaint and a request for arbitration with Judicial Arbitration and Mediation Service Inc. against the Company for the alleged breach of its obligations under the Asset Purchase Agreement for the purchase of the World Poker Tour. Under the Asset Purchase Agreement Ante5 is entitled to a 5% share of WPT’s revenues since the acquisition in 2009. Ante5 claims that the Company has not invested sufficient effort to market the WPT assets and has thus suffered loss in its revenue share. Ante5 seeks recovery of the revenue that it believes it would have received were the Company to have acted diligently in the promotion of the WPT assets. Ante 5 believes the sums due to it to be US$240m. The Directors believe these suits to be without merit and intend to defend these matters vigorously and accordingly no provision has been made in the accounts other than that set out in note 19. In respect of the above matters relating to former bwin companies, IFRS 3 requires that a probability-weighted estimate is used for fair-valuing acquired contingent liabilities and a provision made accordingly, even though had the same contingent liability arisen in a former PartyGaming company no provision would be made under IAS 37. Details of amounts provided for litigation and regulatory disputes can be found in note 19. No further details have been provided as the Directors consider that this would be prejudicial to the interests of the Group. 137 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

24. Share capital Ordinary shares

Issued and fully paid Number € million As at 1 January 2010 77,563 412.4 Employee share options exercised during the period 124 0.7 As at 31 December 2010 77,687 413.1 Issued as consideration for the Merger (see note 26) 75,070 439.2 Employee share options exercised during the period 114 0.6 Redeemed as part of share buyback scheme (2,757) (15.7) As at 31 December 2011 150,114 837.2 The Company has changed its functional currency from US dollars to euros with effect from 1 January 2011. Prior to that date shares issued were converted into US dollars at the exchange rate prevailing on the date of issue. These amounts have subsequently been converted into euros using the exchange rate at 1 January 2011 of 1 euro = US dollar 1.3416. The issued and fully paid share capital of the Group amounts to €150,114.19 and is split into 837,198,870 ordinary shares. The share capital in UK sterling is £125,579.83 and translates at an average exchange rate of 1.1954 euros to £1 sterling. Authorised share capital and significant terms and conditions On 28 January 2011 the Company’s authorised share capital was increased from £105,000 divided into 700 million ordinary shares with a par value of 0.015 pence each to £225,000 divided into 1,500 million ordinary shares of 0.015 pence each. All issued shares are fully paid. The holders of ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of the Company. The Trustee of the Employee Trust has waived all voting and dividend rights in respect of shares held by the Employee Trust. Treasury shares

Own shares reserve Number €million million As at 1 January 2010 (2.8) 4.6 Purchase of own shares for the Employee Trust – – Employee share options exercised during the period – (0.6) As at 31 December 2010 (2.8) 4.0 Purchase of own shares for the Employee Trust (4.3) 3.0 Employee share options exercised during the period – (3.1) As at 31 December 2011 (7.1) 3.9 As at 31 December 2011 3,929,502 (2010: 4,000,045) ordinary shares were held as treasury shares by the Employee Trust. During 2011 the Company donated £3.5 million to the Employee Trust, which the Employee Trust then used to purchase 3,010,977 ordinary shares in the market. 25. Related parties (i) Group Transactions between Group companies have been eliminated on consolidation and are not disclosed in this note. Principal Shareholders During the period the Principal Shareholders, and corporate entities controlled by the Principal Shareholders, did not receive any remuneration in the form of salary, bonuses or consulting fees (2010: €nil). A former Principal Shareholder and certain other Principal Shareholders have also given certain indemnities to the Group. 138 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

25. Related parties (continued) Directors and key management Key management are those individuals who the Directors believe have significant authority and responsibility for planning, directing and controlling the activities of the Group. The aggregate short-term and long-term benefits, as well as share-based payments of the Directors and key management of the Group are set out below:

2011 2010 Year ended 31 December €million €million Short-term benefits 12.1 7.6 Share-based payments 5.4 6.5 17.5 14.1 Certain Directors and certain key management were granted share options under service contracts which were granted under a Group share option plan. At 31 December 2011 an aggregate balance of €3.9m (2010: €3m) was due to Directors and key management. The Group purchased certain telecommunication services and equipment of €2.1m (2010: €2.1m) from a company on an arm’s length basis for whom a Board member is a director, with amounts owed at 31 December 2011 of less than €0.3m (2010: €nil). The Group purchased certain payment services of €8.6m (2010: €nil) from a company on an arm’s length basis for whom a Board member is a director, with amounts owed at 31 December 2011 of less than €0.1m (2010: €nil). The Group purchased certain consultancy services of €0.6m (2010: €nil) from a partnership on an arm’s length basis for whom a Board member was a partner during the period, with amounts owed at 31 December 2011 of less than €0.1m (2010: €nil). The Group purchased certain consultancy services of €0.2m (2010: €nil) from a company on an arm’s length basis for whom a Board member was a director during the period with amounts owed at 31 December 2011 of €0.1m (2010: €nil). Two Directors each have a loan with the Group of €3.0m (2010: €nil) with an interest rate on an arm’s length basis. The Group holds certain guarantees against these loans and believes the amounts to be fully recoverable. In 2011 furnished property was leased to a member of key management at an annual lease rental of €45,000 which the Directors believe is the fair value rental of the property. There were no amounts owed at 31 December 2011 (2010: €nil). Associates and joint ventures The Group purchased on an arm’s length basis certain advertising services of €2.3m (2010: €nil) from a company that has a non-controlling interest in a Group subsidiary and from whom the assets and liabilities of an associate company were purchased during the year. The Group purchased on an arm’s length basis certain customer services of €3.7m (2010: €nil) from an associate, with amounts owed at 31 December 2011 of €0.9m (2010: €nil). The Group provided on an arm’s length basis certain rights to broadcast licensed media of €0.8m (2010: €nil) to a joint venture partner, with amounts owed at 31 December 2011 of €0.8m (2010: €nil). (ii) Company Where the cash obligations of PartyGaming Plc (the ‘Company’) for operating expenditure are discharged by its operating subsidiaries, amounts paid by the subsidiaries are accounted for through an adjustment to the related intercompany balances. During the year, €20.1m of costs (2010: €6.0m) were incurred by subsidiaries on behalf of the Company. The Company also has an agreement with iGlobalMedia Marketing (UK) Limited, a wholly- owned subsidiary, for the provision of investor relations and public relations services to it at a cost of €1.4m (2010: €1.2m). In 2011 the Company received dividends from subsidiaries of €100.0m (2010: €nil), and declared a dividend to shareholders of €15.0m (2010: €nil). At year end, the Company did not have any other borrowing facilities. The Directors and certain key management of the Company were remunerated through cash payments made by other entities within the Group of €6.2m (2010: €3.0m) and share options issued by the Company with a share-based payment expense of €2.0m (2010: €3.5m). Additionally, the Company has granted options over its shares to employees of certain subsidiaries. The share-based payment expense for the year in respect of these share options of €10.0m (2010: €5.6m) has been added to the Company’s cost of investment in those subsidiaries. Disclosures relating to share-based payments are included in note 29. Details of amounts owed to and from subsidiaries are included in notes 14 and 17. 139 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

26. Acquisitions during the period On 31 March 2011, the Group acquired 100% of the voting equity instruments of bwin Interactive Entertainment AG, an exclusively non-US facing business whose principal activities are the provision of online gaming, providing online sporting content such as live video streams, live scores, statistics and SMS services to its customers and a payment service provider. The main drivers for the Merger were the potential synergies that could be achieved. There was no cash consideration as the acquisition was made on the basis of issuing 12.23 PartyGaming Plc shares for each bwin share together with an equivalent multiple of PartyGaming options for unexercised bwin options at that date. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

€million Non-current assets Intangible assets other than goodwill 608.7 Property, plant and equipment 19.3 Investments 9.0 637.0 Current assets Inventories 0.5 Trade and other receivables 72.7 Short-term investments 30.6 Cash and cash equivalents 157.9 261.7 Current liabilities Trade and other payables (85.1) Income taxes payable (12.3) Client liabilities and progressive prize pools (83.5) Provisions (9.3) (190.2) Non-current liabilities Provisions (80.9) Deferred tax (71.2) (152.1) Net assets acquired 556.4 Less: non-controlling interests 1.6 558.0 Goodwill 472.1 Consideration 1,030.1 Issue of 439,209,325 ordinary shares at £1.934 968.0 Issue of 34,772,933 share options 62.1 Consideration 1,030.1 140 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

26. Acquisitions during the period (continued) The fair value adjustments included in the above relate primarily to the attribution of fair values to brands, customer lists and software acquired as part of the acquisition, and the effect of deferred tax thereon. These intangible assets are being amortised over their estimated useful economic lives of up to 20 years. The amount included in provisions represents the Directors’ current best estimate of amounts payable based on probability‑weighted expected values after the effects of discounting as required under IFRS 3. The main factors leading to the recognition of goodwill (none of which is deductible for tax purposes) are the growth and revenue synergies created by combining business activities, cost savings of the merged operations and expertise of the workforce. Merger and acquisition costs in the period in respect of this can be found in note 4. Had the Merger taken place at the beginning of the period, total revenue would have been €830.1m (of which €14.1m relates to discontinued operations) and loss after tax would have been €422.3m (of which €21.1m relates to discontinued operations). 27. Investments in subsidiaries

€million As at 1 January 2010 1,203.5 Options issued to employees of subsidiary undertakings 5.6 Impairment (220.5) As at 31 December 2010 988.6 Acquisitions in the year 1,030.1 Options issued to employees of subsidiary undertakings 10.0 Impairment (391.7) As at 31 December 2011 1,637.0 Investments in subsidiaries carried by the Company are carried at cost less any impairment in value. The impairments that were recognised for the years ending 31 December 2010 and 2011 of €220.5m and €391.7m respectively are measured as the difference between the market capitalisation of the Company and the carrying value of the Company’s investments in subsidiaries as at the respective year ends. During the year ended 31 December 2011 the Company issued share options with a fair value of €10.0m (2009: €5.6m) in respect of employees of subsidiary undertakings. 141 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

27. Investments in subsidiaries (continued) The Company is the holding company of the Group. The following table shows details of the Company’s principal subsidiary undertakings. Each of these companies is wholly-owned by a member of the Group, the issued share capital of each is fully paid and each are included in the consolidated accounts of the Group:

Name of subsidiary undertaking Country of incorporation Principal business bwin.party Management (Gibraltar) Limited Gibraltar Management and IT services Cashcade Limited United Kingdom Marketing services ElectraGames Limited Gibraltar IT services ElectraWorks (Alderney) Limited Channel Islands IT services ElectraWorks Limited Gibraltar Online gaming EZE International Limited Gibraltar Transaction services GB Services EooD Bulgaria IT and customer support services iGlobalMedia Entertainment Limited Gibraltar Online gaming bwin.party Marketing (Gibraltar) Limited Gibraltar Marketing services bwin.party Marketing (Israel) Limited Israel Marketing support services bwin.party Marketing (UK) Limited United Kingdom Marketing support services IVY Comptech Private Limited India IT and customer support services PartyGaming IA Limited Bermuda Intangible asset management Paytech International Limited Gibraltar Transaction services PB (Italia) S.r.l Italy Online gaming PGB Limited Gibraltar Customer services PKR Services Limited Gibraltar Transaction services WPT Enterprises Inc US Land-based poker events ElectraWorks (France) Ltd Malta Online gaming Kaiane Services SAS France IT services bwin.party services (Austria) GmbH Austria IT, customer support and marketing support services bwin Italia S.r.l. Italy Online gaming BES SAS France Online gaming bwin Games AB Sweden IT and customer support services Ongame Services AB Sweden IT and customer support services Ongame Network Limited Gibraltar IT services CQR Payment Solutions GmbH Austria Transaction support services CQR UK Payment Solutions Limited United Kingdom Transaction services Vincento Payment Solutions Limited United Kingdom Transaction services bwin.party services (Gibraltar) Ltd Gibraltar Management and IT services Winners Apuestas S.A. Spain Land based betting Websports Entertainment Marketing Services GmbH Austria Marketing support services bwin Argentina SA Argentina Online gaming 142 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

28. Financial instruments and risk management In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing these risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing these risks or the methods used to measure them from previous periods, unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: • investments; • short-term investments; • trade and other receivables; • cash and cash equivalents; • loans and borrowings; • trade and other payables; • client liabilities and progressive prize pools; and • foreign exchange contracts Foreign exchange contracts are regularly used in the normal course of business but none were outstanding as at 31 December 2011 or at the prior year end. The Group operates a sports betting business and always has open bets. As at 31 December 2011 and at the prior year end the fair market value of open bets was not material. Other financial derivative instruments are permitted to be used by the Group, but none were used in the period ended 31 December 2011 or in the prior year. Management controls and procedures The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating the required processes that ensure the effective implementation of the objectives and policies to the Group’s treasury department under the auspices of the Group Treasury Committee (see below). As such, the Group’s funding, liquidity and exposure to interest rate and foreign exchange rate risks are managed by the Group’s treasury department. The treasury department is mandated to execute conventional forward foreign exchange contracts and swaps in order to manage these underlying risks. No other derivatives may be executed without written authority from the Board at which point an explanation of the accounting implications would also be given. Treasury operations are conducted within a framework of policies and guidelines reviewed and approved by the Board on an annual basis which are recommended and subsequently monitored by the Group Treasury Committee. The Group Treasury Committee is chaired by the Group Finance Director. These polices include benchmark exposures and hedge cover levels for key areas of treasury risk. The Group risk management policies would also be reviewed by the Board following, for example, significant changes to the Group’s business. Exposures are monitored and reported to management on a monthly basis, together with required actions when tolerance limits are exceeded. The internal control procedures and risk management processes of the treasury department are also reviewed periodically by the internal audit function. The last internal control review was undertaken during 2011 and the procedures and processes were deemed satisfactory. The overall objective of the Board is to set policies that seek to reduce risk as far as possible, without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: 143 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

28. Financial instruments and risk management (continued) Liquidity risk Liquidity risk arises from the Group’s management of its working capital as well as the finance charges and principal repayments on its debt instruments. In essence, it is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s treasury department ensures that the Group’s cash and cash equivalents, and amounts due from payment service providers (‘PSPs’) exceed its combined client liabilities at all times. This excess is defined as the Client Liability Cover. Client liabilities principally represent customer deposits and progressive prize pools. The Group Treasury Committee is advised of cash balances, investments, foreign currency exposures, interest income, interest expense, amounts due from PSPs, Client Liability Cover and counterparty exposures on a monthly basis, or more frequently if required. The Group imposes a maximum debt limit of €300m that may mature in any one year to ensure that there is no significant concentration of refinancing risk. Management monitors liquidity to ensure that sufficient liquid resources are available to the Group. The Group’s principal financial assets are cash, bank deposits and trade and other receivables. During 2009 the Group entered into £35m term loan as a means of managing liquidity risk. £33.2m was outstanding on the term loan at the end of December 2011 and it is fully repayable in December 2012. Capital risk In common with many internet companies that have few physical assets, the Group has no policy as to the level of equity capital and reserves other than to address statutory requirements. The primary capital risk to the Group is the level of debt relative to the Group’s net income. Accordingly, the Group’s policy is that gross debt should not exceed €500m and that the leverage ratio of gross debt/clean EBITDA should be less than 1.5x. An analysis of gross debt is as follows:

2011 2010 As at 31 December €million €million Gross debt (€million) 33.2 40.0 Clean EBITDA (€million) 155.2 94.0 Headroom (€million) 232.8 141.0 Ratio 0.1 0.3 Details of the Group’s dividend policy is disclosed in the Chairman’s statement and also on pages 154 to 156 of this Annual report. Credit risk Operational: The Group’s operational credit risk is primarily attributable to receivables from PSPs and from customers who dispute their deposits made after playing on the Group’s websites. Prior to accepting new PSPs and wherever practicable, credit checks are performed using a reputable external source. Senior management monitors PSP balances on a weekly basis and promptly takes corrective action if pre-agreed limits are exceeded. For PSPs that do not have a formal credit rating, an internal rating system is used, based on such factors as industry knowledge, their statement of financial position, profitability, customer diversification, geographic diversification, long-term stability, management credibility, potential regulatory risk and historic payment track record. These internal ratings are monitored and reviewed on a quarterly basis. An internal rating of one is assessed as very strong whilst a rating of five is assessed as weak.

2011 2010 As at 31 December €million €million 1 (Very Strong) 42.5 3.7 2 (Strong) 12.3 11.8 3 (Good) 4.7 8.1 4 (Satisfactory) 2.7 0.0 PSPs amounts due 62.2 23.6 Management consider the maximum credit exposure on amounts due from PSPs to be the carrying amount. 144 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

28. Financial instruments and risk management (continued) As at 31 December 2011 and 31 December 2010, there were no overdue amounts due from PSPs which had not been impaired, nor were there any partially impaired amounts. There is an inherent concentration of risk with PSPs, which are not investment grade banks, in that the majority derive most of their income from the online gaming sector. To this end, where practicable and economic, the Group seeks to substitute non-investment grade PSPs with investment grade, or, at least, better quality PSPs. The table below sets out the movement in the impairment of amounts due from PSPs.

2011 2010 As at 31 December €million €million Impairments 0.0 0.1 Total impairment expense 0.0 0.1 Note 14 details the movement and level of provisions for PSPs. Cash investments: As a result of the deteriorating European financial situation, in October 2011 the Group decided to only invest cash with banks on an overnight basis with a small number of very strong German and British financial institutions. The Group also invests cash in instant access pooled money market funds with a minimum long-term credit rating of AAA on the principal, as defined by Moody’s rating agency. The Group can also purchase commercial paper provided the issuer is not a financial institution and has a one year credit default swap, as quoted by Bloomberg, of no more than 1%. Investments are allowed only in highly liquid securities. The Group maintains monthly operational balances with strong local banks in Israel, Bulgaria, Austria, USA and India to meet local salaries, expenses and legal requirements. In Austria, cash balances are also maintained to process and receive customer and affiliate payments. In Italy and France the Group maintains domestic segregated player funds accounts as required by the respective regulatory authorities. Cash is also held as security in Austria, Italy and UK primarily to support bank guarantees and as reserves for credit and debit card chargebacks. Other than this, non-central cash balances are kept to a minimum.

Cash and cash equivalents Short-term investments 2011 2010 2011 2010 As at 31 December €million €million €million €million AAA money market funds 84.7 144.3 0.0 0.0 Cash with banks 165.6 49.3 39.7 3.1 Commercial paper 38.7 0.0 0.0 0.0 289.0 193.6 39.7 3.1 The treasury department may only make the following cash investments, without prior written authority by the Board: • overnight cash deposits; • pooled money market funds; • certificates of deposit; and • commercial paper The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. Market risk Market risk arises from the Group’s use of interest-bearing, tradable and foreign currency financial instruments. It is the risk that the fair value of future cashflows on its long-term debt finance and cash investments through the use of a financial instrument will fluctuate because of changes in interest rates, foreign exchange rates or other market factors. Interest rate risk The Group’s current net cash position is maintained primarily on a floating basis. In the event of a strategic change in the debt position of the Group, the interest rate management policy would be reviewed. 145 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

28. Financial instruments and risk management (continued) Currency risk Transaction and currency liability exposures: The Group’s policy is that all material transaction and currency liability exposures are economically and fully hedged using foreign exchange contracts and/or by holding cash in the relevant currency. Additionally, the Group has discretion to hedge some or all of its forecast sterling operational costs in Gibraltar and the UK for up to 12 months. No other forecast cashflows are hedged. The Group may also economically hedge material committed exposures such as capital expenditure unless the period between commitment and payment is short (less than one month). Currency exposures are monitored by the Group Treasury Committee on a monthly basis. A €5m currency tolerance limit between euros and any other currency is permitted in order to avoid executing low value and uneconomic foreign exchange contracts. Net investment exposures: The Group has the flexibility to hold debt in currencies other than euros in order to hedge non-euro investments up to 50% of the net investment value. In managing the mix of ongoing debt exposure the Group takes into account prevailing interest rates in particular currencies and the potential impact on Group earnings ratios. Sensitivity analysis to currency and interest rate risk The Group has adopted a sensitivity analysis that measures the change to the fair value of the Group’s financial instruments and any resultant impact on the Group’s earnings of either: • an instantaneous increase or decrease of 1% in market interest rates (including the annualised interest income impact of variable rate interest‑bearing financial instruments), or • a 10% strengthening or weakening in the reporting currency against all other currencies from the rates applicable at 31 December The Group is exposed to interest rate movements since it holds significant amounts of cash at floating rates as well as cash equivalents to meet client liability obligations that are non-interest‑bearing. The Group is exposed to currency movements in the euro, arising out of changes in the fair value of financial instruments which are held in non-euro currencies. This analysis is for illustrative purposes only, as in practice, market rates rarely change in isolation. The amounts generated from the sensitivity analysis are estimates of the possible impact of market risk, assuming that specified changes occur. Actual results in the future may differ materially from these results due to other developments in financial markets that may cause fluctuations in interest and exchange rates to vary from the hypothetical amounts disclosed in the following table, which therefore should not be considered as a projection of likely future events and losses. Prior to the current year both the reporting currency of the Group and functional currency of the majority of subsidiaries was US dollars and currency risk was managed on that basis. The sensitivity analysis below reflects that management.

(Decrease) increase in fair value of financial instruments Impact on earnings gain (loss) 2011 2010 2011 2010 As at 31 December €million €million €million €million 1% decrease in interest rates 0.0 0.0 (0.6) 0.5 1% increase in interest rates 0.0 0.0 2.9 1.4 10% weakening in the reporting currency 1.3 (0.8) (0.2) 3.1 10% strengthening in the reporting currency (1.2) 0.8 0.7 (3.1)

Insurance The Group purchases insurance for commercial or, where required, for legal or contractual reasons. The Group also retains certain insurable risk where external insurance is not considered an economic means of mitigating these risks. 146 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

28. Financial instruments and risk management (continued) Total financial assets and liabilities and effective interest rate and re-pricing analysis In respect of income-earning financial assets and interest-bearing financial liabilities, the following tables indicate their effective interest rates at the end of the reporting years and the periods in which they re-price, as well as setting out the Group’s accounting classification of each class of financial assets and liabilities and their fair values at 31 December 2011 and 31 December 2010.

Of which interest‑bearing

Carrying value Fair value Total Effective 6 months or less 6–12 months 1–5 years As at 31 December 2011 €million €million €million interest rate €million €million €million Investments 23.1 23.1 – – – – – Assets held for sale 23.6 23.6 – – – – – Trade and other receivables 99.7 99.7 6.0 1.38% 6.0 – – Short-term investments 39.7 39.7 25.4 0.75% 25.4 – – Cash and cash equivalents 289.0 289.0 254.1 0.71% 254.1 – – Financial assets 475.1 475.1 285.5 0.72% 285.5 – – Trade and other payables 126.4 117.9 – – – – – Client liabilities and progressive prize pools 156.2 156.2 – – – – – Loans and borrowings 32.9 33.2 33.2 4.34% 4.5 28.7 – Financial liabilities at amortised cost 315.5 307.3 33.2 4.34% 4.5 28.7 –

Of which interest‑bearing

Carrying value Fair value Total Effective 6 months or less 6–12 months 1–5 years As at 31 December 2010 €million €million €million interest rate €million €million €million Investments 1.7 1.7 – – – – – Assets held for sale 2.2 2.2 – – – – – Trade and other receivables 32.5 32.5 – – – – – Short-term investments 3.1 3.1 3.1 0.40% – 3.1 – Cash and cash equivalents 193.6 193.6 182.3 0.62% 182.3 – – Financial assets 233.1 233.1 185.4 0.62% 182.3 3.1 – Trade and other payables (94.7) (88.6) – – – – – Client liabilities and progressive prize pools (93.1) (93.1) – – – – – Loans and borrowings (40.7) (40.0) (40.0) 5.44% (5.0) (4.9) (30.1) Financial liabilities at amortised cost (228.5) (221.7) (40.0) 5.44% (5.0) (4.9) (30.1) The fair values of borrowings and other financial instruments are estimated at 31 December each year by discounting the future contractual cashflows to the net present values using appropriate yield curves. 29. Share-based payments

2011 2010 Year ended 31 December €million €million Total Shareholder Return based 4.2 2.4 Clean EBITDA / Clean EBITDA growth based 0.6 1.0 Other 7.2 5.8 Total charge 12.0 9.2 The Group has adopted and granted awards as a reward and retention incentive for employees of the Group, including the Executive Directors. The Group has used the Black-Scholes option pricing model to value these options unless the Monte Carlo option pricing model is deemed more appropriate. An appropriate discount has been applied to reflect the fact that dividends are not paid on options that have not vested or have vested and have not been exercised. 147 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

29. Share-based payments (continued) Total shareholder return based

Number Number PSP Plan million million Year end 31 December 2011 2010 Outstanding at beginning of year 3.4 2.3 Shares over which options granted during the year – 1.3 Shares in respect of options lapsed during the year (1.6) (0.2) Exercised during the year (0.4) – Outstanding at end of year 1.4 3.4 Exercisable at the end of year 1.3 0.4 Shares over which options granted during the period (number) – 1,300,000 Percentage of total issued share capital n/a 0.31% Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days) 3 176

PSP Plan These options were to vest subject to the achievement of a total shareholder return (‘TSR’) performance target over the three-year period commencing on 1 January or 1 July of each year from 2007 compared to the median TSR of a comparator group. The threshold for vesting at which 25% will vest, would have been TSR equalling the median of the comparator group, rising on a straight-line basis to 100% vesting if the Company’s TSR exceeded the median by 10% per annum calculated over the three-year period. It is estimated that outperformance of the median by 10% per annum over that period is performance in excess of the upper quartile. As part of the Merger, the Remuneration Committee measured the TSR performance condition up to the date of the EGM and determined the number of shares capable of vesting. Vesting will still occur on the original vesting dates subject to continued employment. No new awards are to be granted under this plan. Value creation plan(‘VCP’) Participants are granted VCP points, being a right to receive shares (in the form of a nil‑cost option or a conditional share award) with a value equal to their allocated percentage of the VCP pool. The size of the VCP pool will be linked to the value created for Shareholders, taking into account the increase in share price, dividends paid and share buy‑backs, over three one year performance periods, in excess of a hurdle amount (10% annual growth). The VCP pool will be calculated as being equal to 4% of the increase in the Company’s share price during the relevant year. After each year end the VCP pool will be converted into awards over a specific number of shares using the market value of a share at the relevant measurement date and in accordance with the participant’s allocated share of the VCP pool. The awards will be structured as nil-cost share options, with half of the shares under each option vesting at the end of the third performance period and the remaining half vesting one year later. As nil‑cost options, they will remain exercisable for ten years from the date of grant. As at 31 December 2011 the liability associated with the VCP was €nil (2010: €nil). Clean EBITDA / Clean EBITDA growth based

Number Number Executive FMV Plan million million Year end 31 December 2011 2010 Outstanding at beginning of year 1.8 1.4 Shares over which options granted during the year – 0.5 Shares in respect of options lapsed during the year (1.8) (0.1) Exercised during the year – – Outstanding at end of year – 1.8 Exercisable at the end of year – 0.9 Shares over which options granted during the period (number) – 450,000 Percentage of total issued share capital n/a 0.11% Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days) – 2,971 148 bwin.party Financials Annual report & accounts 2011 Notes to the consolidated financial statements

29. Share-based payments (continued) Executive FMV Plan These options vested subject to the growth in the Company’s Clean Earnings per share equalling or exceeding 15% per annum in the three-year period from 1 January of each year from 2007. The performance period for these options was shortened to the date of the Merger but the performance conditions were not satisfied as at that date and so all unexercised awards lapsed. No new awards are to be granted under this plan. Bonus Banking Plan (‘BBP’) The BBP plan covers a three-year period with annual performance targets set at the beginning of each year. Depending on the extent to which the performance targets have been met in any year, an amount may be credited (or debited) to the participant’s bonus account on the measurement date. 50% will be credited in the form of shares (through a nil-cost option) and 50% in cash. Shortly after each measurement date an amount equal to half of the balance of the bonus account will be paid in cash to the participant. After the initial three years half the nil-cost option vests, with the balance vesting in year four, together with the balance of any cash. If the performance in any year does not satisfy the performance target then a participant’s bonus account is debited 50% of its current value. As at 31 December 2011 the liability associated with the share-based element of the BBP was €1.7m (2010: €nil). Bonus and Share Plan (‘BSP’) This plan has the same conditions as the BBP, except where the performance conditions are not met in a particular year then there is no deduction made to a participant’s bonus account. As at 31 December 2011 the liability associated with the share-based element of the BSP was €2.6m (2010: €nil). Other

bwin.party Rollover Plan GSP Plan FMV Plan Nil-cost Plan Number Number Number Number Year end 31 December 2011 million million million million

Outstanding at beginning of year – – 22.6 4.8 Shares over which options granted during the year 34.7 1.8 – – Shares in respect of options lapsed during the year (1.3) – (3.4) (0.5) Exercised during the year (0.3) (0.1) (0.3) (1.6) Outstanding at end of year 33.1 1.7 18.9 2.7 Exercisable at the end of year 1.3 0.1 12.7 1.3 Shares over which options granted during the period (number) 34,722,933 1,835,009 – – Percentage of total issued share capital 4.17% 0.22% n/a n/a Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days) 2,023 3,563 2,480 2,637

bwin.party Rollover Plan GSP Plan FMV Plan Nil-Cost Plan Number Number Number Number Year end 31 December 2010 million million million million Outstanding at beginning of year – – 19.2 4.3 Shares over which options granted during the year – – 6.1 1.0 Shares in respect of options lapsed during the year – – (1.9) – Exercised during the year – – (0.8) (0.5) Outstanding at end of year – – 22.6 4.8 Exercisable at the end of year – – 8.9 1.9 Shares over which options granted during the period (number) – – 6,110,000 1,042,600 Percentage of total issued share capital – – 1.48% 0.25% Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days) – – 2,860 2,779 149 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

29. Share-based payments (continued) bwin.party Rollover Plan These options were granted as a result of the Merger to replace the existing bwin options at the time using the same exchange ratio as for Shares. They are subject to the original vesting conditions and have no performance conditions. No new awards are to be granted under this plan. Global Share Plan (‘GSP’) Awards of free Shares worth up to a maximum of £25,000 (or equivalent) may be made to each eligible employee each year. The award may be subject to performance conditions. There is flexibility to grant different types of free share award including nil-cost options, conditional awards of Shares and restricted shares where the employee is the owner of the Shares from the date of award. At 31 December 2011, all Shares under this scheme are nil-cost options with no performance conditions. Additionally, where employees buy Shares up to a maximum of £1,500 each, they may be awarded additional free shares on a matching basis, up to a maximum of two matching Shares for each purchased share. Purchased Shares must be held for a minimum of three years for the matching Shares to vest. Directors are not eligible to receive any awards under this plan. FMV Plan Options granted under this plan during the period generally vest in instalments over a three year period. There are no performance conditions attached to options issued by the Group under the terms of the FMV Plan. Directors are not eligible to receive any awards under this plan. No new awards are to be granted under this plan. Nil-cost Plan These options are not generally subject to performance conditions as this is regarded as detracting from their attraction and retention capabilities and instead usually vest on a phased basis over a four- to five-year period. The main exception to this general policy is the award made to key employees in the bingo segment, which will only vest subject to the satisfaction of a stretching EBITDA target for that business unit for 2012. No new awards are to be granted under this plan. Outstanding share options issued that are not nil-cost have been granted at exercise prices between 10.0p and 489.0p (2010: between 155.0p and 457.5p). The weighted average share price (at the date of exercise) of options exercised during the year was 151.5p (2010: 288.0p). 30. Events after the reporting period On 6 March 2012 the Company announced that it had agreed to sell Ongame, its business-to-business (‘B2B’) online poker network, to Shuffle Master, Inc (‘Shuffle Master’) for a total cash consideration of up to €29.5m. The agreement is consistent with the Group’s stated strategy and follows its announced intention to sell Ongame on 30 June 2011. Contingent consideration will become payable by Shuffle Master in the event that online poker becomes regulated in the United States within five years of completion. The amount payable in these circumstances will depend upon the timing of the commencement of legalised online gaming in the US. The transaction is subject to the normal terms and conditions for a transaction of this type as well as certain regulatory approvals and is expected to complete during the summer of 2012 with a back-stop date of December 2012. The management of Ongame will transfer with the business and the net sale proceeds will be used for general corporate purposes. Since the year end the Company had purchased for cancellation a further 15,501,381 Shares at a total cost, including commission of £25,096,824.56. 31. Dividend The Board is recommending a final dividend of 1.56p per share which together with the interim dividend of 1.56 pence per share makes a total dividend of 3.12p per share for the year ended 31 December 2011 (2010: nil). The final dividend, if approved at the Annual General Meeting will be payable to Shareholders on the register of shareholder interests on 11 May 2012 (the ‘Record Date’). It is expected that dividends will be paid on 12 June 2012. Shareholders wishing to receive dividends in euros rather than pound sterling will need to file a currency election and return it to the Group’s registrars on or before 25 May 2012. A separate announcement regarding the dividend payment has been issued today. 32. Proposed capital reduction In order to ensure sufficient financial flexibility in future the Company intends to restructure its balance sheet by carrying out a reduction of share capital through the cancellation of the share premium account and then allocating the same amount to a distributable reserve in the Company’s accounts. The Company intends to do this at an Extraordinary General Meeting of Shareholders to be held immediately after the forthcoming Annual General Meeting of Shareholders. A further announcement will made in due course. 150 bwin.party Financials Annual report & accounts 2011 Company statement of financial position

2011 2010 Year ended 31 December Notes €million €million Non-current assets Investment in subsidiaries 27 1,637.0 988.6 1,637.0 988.6 Current assets Trade and other receivables 14 114.2 80.7 Cash and cash equivalents 16 25.5 44.8 139.7 125.5 Total assets 1,776.7 1,114.1 Current liabilities Trade and other payables 17 (59.3) (57.4) (59.3) (57.4) Non-current liabilities Trade and other payables 17 – (21.7) – (21.7) Total liabilities (59.3) (79.1) Total net assets 1,717.4 1,035.0 Equity Share capital 24 0.2 0.1 Share premium account 1,018.4 49.5 Own shares 24 (7.1) (2.8) Retained earnings 705.9 155.8 Capital reserve – 829.9 Currency reserve – 2.5 Equity attributable to equity holders of the parent 1,717.4 1,035.0 151 bwin.party Overview 02 Financials Annual report & accounts 2011 Strategy 20 Company statement Review of 2011 32 of changes in equity Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Total Acquisition of comprehensive Other As at subsidiaries Other issue Dividends Purchase expense for Transfer share-based As at 1 January and businesses of shares paid of shares the period of reserves payments 31 December Year ended 31 December 2011 €million €million €million €million €million €million €million €million €million Share capital 0.1 0.1 – – – – – – 0.2 Share premium account 49.5 967.9 1.0 – – – – – 1,018.4 Own shares (2.8) – – – (4.3) – – – (7.1) Retained earnings 155.8 62.1 – (15.0) (23.2) (318.3) 832.4 12.1 705.9 Capital reserve 829.9 – – – – – (829.9) – – Currency reserve 2.5 – – – – – (2.5) – – Total equity 1,035.0 1,030.1 1.0 (15.0) (27.5) (318.3) – 12.1 1,717.4

Total comprehensive Acquisition of income Other As at subsidiaries and Other issue Dividends Purchase (expense) for Transfer of share-based As at 1 January businesses of shares paid of shares the period reserves payments 31 December Year ended 31 December 2010 €million €million €million €million €million €million €million €million €million Share capital 0.1 – – – – – – – 0.1 Share premium account 47.7 – 1.8 – – – – – 49.5 Own shares (2.8) – – – – – – – (2.8) Retained earnings 162.7 – – – – (16.1) – 9.2 155.8 Capital reserve 1,050.4 – – – – (220.5) – – 829.9 Currency reserve – – – – – 2.5 – – 2.5 Total equity 1,258.1 – 1.8 – – (234.1) – 9.2 1,035.0 152 bwin.party Financials Annual report & accounts 2011 Company statement of cashflows

2011 2010 Year ended 31 December €million €million Loss for the year (318.3) (16.1) Adjustments for: Impairment of investments 391.7 – Increase in reserves due to share-based payments 2.1 3.6 Dividend income (100.0) – Net interest expense (income) 0.6 (1.1) Operating cashflows before movements in working capital and provisions (23.9) (13.6) Decrease in trade and other receivables 66.5 90.9 Decrease in trade and other payables (20.4) (32.8) Net cash inflow from operating activities 22.2 44.5 Financing activities Issue of ordinary shares 1.0 1.8 Purchase of own shares (27.5) – Dividends paid (15.0) – Net cash generated by financing activities (41.5) 1.8 Net increase in cash and cash equivalents (19.3) 46.3 Exchange differences – (1.5) Cash and cash equivalents at beginning of period 44.8 – Cash and cash equivalents at end of period 25.5 44.8 153 bwin.party Overview 02 Share information Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

The Company has only one class of share in issue, ordinary shares of 0.015p each.

No. of No. of Shares in As at Shares in issue voting rights free float 31 December 2011 837,198,870 833,269,368 650,188,152 28 March 2012 821,882,694 819,357,605 635,602,525 The Company’s shares have been admitted to trading on the London Stock Exchange since 30 June 2005. TDL: BPTY ISIN Number: GI000A0MV757 SEDOL Number: B53TNH6 Share price (all prices mid-market per share at the close of business)

Price at IPO (June 2005) 1160.00p 2011 opening price (4 January 2011) 206.60p Price on completion of the merger with bwin (31 March 2011) 200.00p High during the period to 31 December 2011 216.40p Low during the period to 31 December 2011 98.50p 31 December 2011 164.00p Decrease over the year 24.2% FTSE 250 Index decrease over the period 12.6% Share price information is available on the Company’s website, www.bwinparty.com and the London Stock Exchange website, www.londonstockexchange.co.uk. In the UK, information can also be found in the Financial Times and The Times share price listings. Directors’ share interests and major shareholders The interests of the Directors in the Company’s share capital is set out in the Directors’ remuneration report on page 96. A table of those parties with a material interest in 3% or more of the Company’s share capital or, in the case of other interests in 10% or more of the share capital, as notified to the Company in accordance with the Gibraltar Disclosure of Interests in Shares Act 1998, the Articles and Deed Poll, is set out in the ‘Governance’ section on page 98. Market capitalisation The market capitalisation of bwin.party as at 31 December 2011 was £1.37bn. The Company is currently ranked within the FTSE 250 Index of companies. 154 bwin.party Share information Annual report & accounts 2011

Depositary interests bwin.party has entered into depositary interest arrangements to enable investors to settle and pay for interests in the Company’s shares through the CREST system. CREST is a paperless settlement system allowing securities to be transferred from one person’s CREST account to another without the need to use share certificates or written instruments of transfer. Securities issued by non-UK companies, such as bwin.party, cannot be held or transferred in the CREST system. Under arrangements put in place by the Company, a depositary holds the shares and has issued dematerialised depositary interests representing the underlying shares which are held on trust for the holders of the depositary interests. Capita IRG Trustees Limited (the ‘Depositary’), is part of the same group of companies as bwin.party’s registrars, Capita Registrars (Jersey) Limited (the ‘Registrar’), and has issued the dematerialised depositary interests. The depositary interests are independent securities constituted under English law which may be held and transferred through the CREST system. The depositary interests have been created pursuant to and issued on the terms of a deed poll executed by the Depositary in favour of the holders of the depositary interests from time to time (the ‘Deed Poll’). As at 31 December 2011, 719,068,913 Shares were held by the Depositary in respect of a total 719,068,913 depositary interests. There were 1,001 depositary interest holders on the depositary interest register as at that date. Each depositary interest is treated as one share. The Depositary will pass on to holders of depositary interests any stock or cash benefits received by it as the holder of shares on trust. Depositary interest holders will also be able to receive notices of shareholder meetings and other documents issued by bwin.party to shareholders. The Depositary must pass on to depositary interest holders and, so far as they are reasonably able, exercise on behalf of depositary interest holders all rights and entitlements received, or to which they are entitled in respect of the underlying shares which are capable of being passed on or exercised. Rights and entitlements to cash distributions, to information, to make choices and elections and to call for, attend and vote at meetings shall, subject to the Deed Poll, be passed on in the form in which they are received together with amendments and additional documentation necessary to effect such passing-on, or, as the case may be, exercised in accordance with the Deed Poll. The depositary interests have the same ISIN and SEDOL numbers as the underlying shares and do not have a separate listing on the Official List. Registrar UK Transfer Agents Depositary Capita Registrars (Jersey) Limited Capita Registrars Capita IRG Trustees Limited 12 Castle Street The Registry The Registry St. Helier 34 Beckenham Road 34 Beckenham Road Jersey JE2 3RT Beckenham Beckenham Channel Islands Kent BR3 4TU Kent BR3 4TU United Kingdom United Kingdom Email: [email protected] Website: www.capitaregistrars.com Email: [email protected] Telephone: +44 (0)1534 847000 Email: [email protected] Telephone: 0871 664 0300* (from UK) Fax: +44 (0)1534 847001 Telephone: 0871 664 0300* (from UK) + 44 (0)208 639 3399 (from overseas) + 44 (0)208 639 3399 (from overseas) Fax: + 44 (0)208 639 2342 Fax: + 44 (0)208 639 2342 * Calls cost 10p per minute plus network extras

Dividends Following the announcement on 30 June 2011 in respect of the Company’s distribution policy and the disclosure in the Company’s half‑year results, the Board declared an interim dividend for the year ended 31 December 2011 for an amount of €15m which was distributed to shareholders on 7 October 2011. The Company intends paying a final dividend of €15m, subject to shareholder approval at the AGM on 7 June 2012. The final dividend of 1.56p per share will be paid to Shareholders and depositary interest holders on 12 June 2012. The record date for the final dividend is 11 May 2012 and the Shares start trading ex-dividend on 9 May 2012. In order to assist shareholders and depositary interest holders, the cash dividend may be paid either in Pounds Sterling or Euros and should you wish to receive the dividend, and all future dividends, in Euros you can elect to do so by following the instructions below. Dividends paid in Euros will be paid at the Euro to Pounds Sterling exchange rate prevailing shortly prior to payment, subject to receipt of a currency election card or electronic notification via CREST. If you make no election you will continue to receive your dividend in Pounds Sterling. 155 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

(i) Procedure for depositary interest holders If you hold your Shares in depositary interest form in CREST and will continue to do so at 5.00 p.m. on the dividend record date and whether or not you have validly elected to receive your dividends in CREST, you may elect to receive your dividend in Euros by means of the CREST procedures to effect such an election referred to below. If you are a CREST Personal Member, or other CREST Sponsored Member, you should consult your CREST sponsor, who will be able to take the appropriate action on your behalf. The CREST procedures require the use of the Dividend Election Input Message in accordance with the CREST manual. The message includes the following fields which, for a valid election to be made, must be correctly input as indicated below by close of business on the Euro election deadline: (i) Dividend Election Reference – you must indicate here a reference for the dividend election which is unique to your CREST participant I.D.; (ii) Account I.D. – If you have more than one member account, you must indicate the member account I.D. to which the election relates: the relevant account must be enabled (a) at the time your Dividend Election Input Message is entered into CREST, and (b) on the relevant dividend payment date: (iii) ISIN – This is GI000A0MV757 (iv) Evergreen – This field must be entered with its flag set to ‘yes’. This requests the Company to apply your election to the current dividend and to all future dividends in respect of your entire depositary interest holding in CREST at each relevant record date until (a) you delete your Dividend Election Input Message and that deletion is accepted in accordance with the CREST procedures on behalf of the Company, (b) you transfer your depositary interest holding in CREST, or (c) the facility is withdrawn by the Directors; (v) Corporate Action Number – This is not to be input; (vi) Distribution type – You must enter ‘currency’ here; (vii) Currency code – This is GBP; (viii) Number of shares – This field should be left blank. If this field is completed, the message will be rejected; (ix) Contact details – this field is optional, although you are asked to include details of whom to contact in the event of a query relating to your election. A valid election made by means of Dividend Election Input Message will, to the extent it relates to shares held in depositary interests at the relevant record date, supersede all previous written elections made in respect of holdings in the same member account. You may only revoke an election which has been made by Dividend Election Input Message by utilising the CREST procedures for deletions described in the CREST manual. The deletion will be valid in relation to the then current dividend only if the deletion is accepted, in accordance with the CREST procedures, by or on behalf of the Company prior to close of business on the Euro election deadline (25 May 2012 for the final dividend payable on 12 June 2012). With respect to subsequent dividend payments, the valid revocation must be received by the record date for the relevant dividend payment. It is recommended that you input any deletion message 48 hours in advance of this deadline (25 May 2012) to give the Company or its agent sufficient time to accept the deletion. There is no facility to amend an election which has been made by Dividend Election Input Message. If you wish to change your election details, you must first delete the existing election as described above and then input a Dividend Election Input Message with the required new details. Any attempts to send a new Dividend Election Input Message, where an existing Dividend Election Message is present and has not been deleted, will be rejected. Dividend payments will be paid electronically into CREST accounts where possible. Otherwise where not paid electronically into CREST they will be paid by cheque, if dividend payments are being paid in Pounds Sterling the enclosed bank mandate form will need to be completed. If you have any problems making an election through CREST then file a bwin.party currency election card and send it back to Capita Registrars, to be received no later than 25 May 2012. These documents are also posted on bwin.party’s corporate website, www.bwinparty.com. 156 bwin.party Share information Annual report & accounts 2011

(ii) Procedure for registered shareholders Shareholders wishing to make a Euro election should complete and submit a currency election card to the Registrar no later than 25 May 2012. (iii) General notes Shareholders or depositary interest holders who submit their currency elections after the deadline (25 May 2012) for submission will receive their dividends in Pounds Sterling. Incorrectly completed currency election cards will be rejected. Elections may not be split in respect of one share or depositary interest holding and elections are enduring for future dividends unless a subsequent election is submitted to the Registrar or Depositary. Depositary interest holders who hold their depositary interests through CREST will receive their dividend payments through CREST irrespective of whether they elect to have the dividend paid in Euros. Shareholders receiving the dividend in Pounds Sterling are advised to complete a BACS instruction so that their dividend can be paid electronically directly into their bank account. For the final dividend payable on 12 June 2012 a BACS instruction form should be submitted to the Registrar no later than 15 May 2012. If a BACS instruction is not validly submitted then dividends will be paid by cheque. (iv) Final Dividend calendar Final Dividend Ex-dividend date 9 May 2012 Record date 11 May 2012 Euro election deadline 25 May 2012 £/€ foreign exchange 29 May 2012 Payable 12 June 2012

Annual General Meeting Date and time: Thursday, 7 June 2012 at 12.30 p.m. (Central European Time). Venue: The Caleta Hotel, Catalan Bay, Gibraltar. The Notice of AGM is contained within the Annual report, setting out the resolutions to be considered at the meeting. Corporate calendar 31 December 2011 Year-end 29 March 2012 Announcement of 2011 annual results 3 May 2012 Annual report posted/available on the www.bwin.party.com website 4 June 2012 Deadline for submitting AGM forms of direction or submitting voting instructions via CREST (Depositary interest holders only) 5 June 2012 Deadline for submitting AGM proxy forms (shareholders only) 7 June 2012 Annual General Meeting 30 June 2012 Half year-end 31 December 2012 Year-end 157 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

Receiving Company documents electronically All shareholder documents can be found on the Company’s website, www.bwinparty.com, together with previous announcements to the London Stock Exchange, share price information and general information about bwin.party and its business. bwin.party’s articles of association allow the Company to provide all shareholder and depositary interest holder documents via its website, except where shareholders and depositary interest holders have requested to receive a hard copy of such documents. This allows bwin.party to limit the environmental impact of our business and to manage our costs more effectively. If you are currently receiving hard copies of bwin.party’s documents through the post and would like to be kinder to the environment and help reduce bwin.party’s costs, you are encouraged to register to receive Company documents via the Company’s website. You can do this by going to the registrar’s website, www.capitaregistrars.com and registering for electronic communications. You will be notified that Company documents are on the corporate website by written notification which will be mailed to you unless when registering to receive documents electronically you request to be notified by email rather than post. Company announcements Copies of announcements made by the Company are available on the Company’s website, www.bwinparty.com. Taxation The following statements are intended to apply only as a general guide to current tax law for an individual shareholder who holds shares as an investment and who is the beneficial owner of the shares. Shareholders should consult their own tax advisers in connection with their potential liability to pay tax in the country of their nationality or the country where they live on disposal, gift or bequest of their shares or on the receipt of dividends. (i) Taxation of capital gains There is no capital gains tax in Gibraltar on a disposal of shares, but shareholders may be liable to pay tax in the country of their nationality or the country where they live. (ii) Stamp duty No stamp duty is chargeable in Gibraltar on the transfer of shares and there is no stamp duty reserve tax in Gibraltar. Provided that bwin.party’s shares are not registered in any register kept in the UK by or on behalf of the Company, an agreement to transfer the shares would not be expected to be subject to UK stamp duty or stamp duty reserve tax. The bwin.party share register is not kept in the UK and it is not intended that any such register will be kept in the UK. A transfer on sale of bwin.party shares would not be expected to be subject to UK stamp duty or stamp duty reserve tax provided that the instrument of transfer is not executed in the UK and does not relate to any property situated or to any matter or thing to be done in the UK. No UK stamp duty or stamp duty reserve tax is expected to be payable on an agreement to transfer bwin.party depositary interests within CREST provided that relevant conditions are met including in particular that (a) no register of shares is kept in the UK by or on behalf of the Company; and (b) the central management and control of the Company is not exercised in the UK. It is intended that these conditions will be met. It is not expected that an instrument subject to UK stamp duty or stamp duty reserve tax would be created in respect of such a transfer. 158 bwin.party Notice of 2012 Annual report & accounts 2011 Annual General Meeting

Notice is hereby given that the 2012 Annual General Meeting of bwin.party digital entertainment plc (the ‘Company’) will be held at The Caleta Hotel, Catalan Bay, Gibraltar on Thursday, 7 June 2012 at 12.30 p.m., to consider the following business (with the exception of Resolutions 20 and 21 which are special resolutions, all resolutions are proposed as ordinary resolutions, and all resolutions will be decided on a poll). 1. To receive the Company’s Annual report and accounts together with the Reports of the Directors and Auditor for the year ended 31 December 2011. 2. To approve the Directors’ Remuneration Report for the year ended 31 December 2011. 3. To re-appoint BDO LLP and BDO Limited as auditors of the Company with BDO Limited acting as auditor for the purposes of section 10 of the Gibraltar Companies (Accounts) Act 1999. 4. To authorise the Directors to set the auditors’ remuneration. 5. To declare a final dividend of 1.56 pence per ordinary share payable on 12 June 2012 to those shareholders on the register of members on 11 May 2012. 6. To re-appoint Per Afrell as a Director of the Company. 7. To re-appoint Joachim Baca as a Director of the Company. 8. To re-appoint Manfred Bodner as a Director of the Company. 9. To re-appoint Tim Bristow as a Director of the Company. 10. To re-appoint Simon Duffy as a Director of the Company. 11. To re-appoint Helmut Kern as a Director of the Company. 12. To re-appoint Lewis Moonie as a Director of the Company. 13. To re-appoint Rod Perry as a Director of the Company. 14. To re-appoint Georg Riedl as a Director of the Company. 15. To re-appoint Jim Ryan as a Director of the Company. 16. To re-appoint Norbert Teufelberger as a Director of the Company. 17. To re-appoint Martin Weigold as a Director of the Company. 18. To re-appoint Geoff Baldwin as a Director of the Company. 19. That in place of any existing authority; (i) the Board of Directors be and it is hereby generally and unconditionally authorised for the purposes of section 66 of the Companies Act 1930 (as amended) to exercise all the powers of the Company to allot Relevant Securities (as defined in article 6 of the Company’s Articles of Association (the ‘Articles’)) up to an aggregate nominal amount of £41,094 and further, (ii) the Board of Directors be and it is hereby generally and unconditionally authorised for the purposes of section 66 of the Companies Act 1930 (as amended) to exercise all powers of the Company to allot Relevant Securities comprising Equity Securities ( as defined by article 20 of the Articles) up to a nominal amount of £82,188 (including within such limit any Relevant Securities allotted under sub-paragraph (i) above) in connection with an offer by way of a rights issue: (A) to ordinary shareholders in proportion (as nearly as practicable) to their existing holdings; and (B) to people who are holders of other Equity Securities if this is required by the rights of those securities or, if the Board of Directors considers it necessary, as permitted by the rights of those securities, and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter, provided that these authorities shall expire at the end of the Company’s Annual General Meeting in the year 2013 or, if earlier, at close of business on 7 September 2013, save that the Company may before such expiry make an offer or enter into an agreement which would or might require Relevant Securities to be allotted after such expiry and the Board of Directors may allot Relevant Securities in pursuance of such an offer or agreement as if the authorities conferred hereby had not expired. 159 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

20. That subject to the passing of the previous resolution and in place of the existing authority, the Board of Directors be and it is hereby empowered pursuant to Articles 22 to 25 of the Articles to allot Equity Securities (as defined by article 20 of the Articles) for cash pursuant to the authority conferred by the previous resolution as though Articles 14 to 21 of the Articles did not apply to any such allotment provided that this power shall be limited: (i) To the allotment of Equity Securities in connection with an offer of Equity Securities (but in the case of the authority granted under Resolution 19(ii) by way of a rights issue only): (A) to ordinary shareholders in proportion (as nearly as practicable ) to their existing holdings; and (B) to people who are holders of other Equity Securities if this is required by the rights of those securities or, if the Board of Directors considers it necessary, as permitted by the rights of those securities, and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and (ii) In the case of the authority granted under Resolution 19(i), to the allotment (otherwise than under sub-paragraph (i) above) of Equity Securities up to an aggregate nominal value of £6,164, and shall expire at the end of the Company’s Annual General Meeting in 2013 or, if earlier, at close of business on 7 September 2013, save that the Company may before such an expiry make an offer or enter into an agreement which would or might require Equity Securities to be allotted after such expiry and the Board of Directors may allot Equity Securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired. 21. That the Company be generally and unconditionally authorised to make market purchases within the meaning of section 79 of the Gibraltar Companies Act 1930 (as amended) of ordinary shares of £0.00015 each of the Company (‘Shares’) provided that: (i) The maximum number of Shares hereby authorised to be acquired is 82,188,269; (ii) The minimum price that may be paid for any Share is £0.00015, being the nominal value of a Share; (iii) The maximum price that may be paid for any Share is an amount equal to 105% of the average of the middle market quotations for a share as derived from the Official List for the five business days immediately preceding the day on which the Share is contracted to be purchased; and (iv) The authority hereby conferred shall expire on the date of the Annual General Meeting of the Company in the year 2013 or, if earlier, at close of business on 7 September 2013; but a contract for purchase may be made before such expiry, that will or may be completed wholly or partly thereafter, and a purchase of shares may be made in pursuance of any such contract. By order of the Board of Directors Robert Hoskin Company Secretary bwin.party digital entertainment plc 711 Europort Gibraltar 20 April 2012 160 bwin.party Notice of 2012 Annual report & accounts 2011 Annual General Meeting General Notes

Notes: 1. General The Notice of AGM is an important document. If there is anything you do not understand then you should consult with the appropriate professional adviser. If you have any questions regarding how to attend and/or vote at the AGM then please contact Capita Registrars. Capita provides registrar, UK transfer agent services and depositary services to the Company. Capita’s contact information appears below: Registrar UK Transfer Agent Depositary Capita Registrars (Jersey) Limited Capita Registrars Capita IRG Trustees Limited 12 Castle Street The Registry The Registry St. Helier 34 Beckenham Road 34 Beckenham Road Jersey JE2 3RT Beckenham Beckenham Channel Islands Kent BR3 4TU Kent BR3 4TU United Kingdom Email: [email protected] Website: www.capitaregistrars.com Email: [email protected] Telephone: +44 (0)1534 847000 Email: [email protected] Telephone: 0871 664 0300* (from UK) Fax: +44 (0)1534 847001 Telephone: 0871 664 0300* (from UK) +44 (0)208 639 3399 (from outside UK) +44 (0)208 639 3399 (from outside UK) Fax: +44 (0)208 639 2342 Fax: +44 (0)208 639 2342 *Calls cost 10p per minute plus network extras.

If you have recently sold all of your bwin.party shares and/or depositary interests then please send this document and the enclosed forms to the person who sold the shares/depositary interests for you. They can then send them to the new owner of the shares/depositary Interests. References to times in the AGM notice are to the time in Gibraltar (Central European Time), which is one hour ahead of British Summer Time (‘BST’). The business of the meeting is set out in the Notice of AGM and a summary of and rationale for each resolution is set out on pages 100 to 101. Biographies of the Directors recommended for re-appointment are set out on pages 68 and 69. 2. Right of attendance 2.1 Shareholders To have the right to come and vote at the AGM, you must be a shareholder of bwin.party digital entertainment plc, holding shares entered on the Company’s register of members by 6.00 p.m. (5.00 p.m. BST) on 5 June 2012. 2.2 Depositary interest holders To have the right to come and vote at the AGM, you must be entered on bwin.party digital entertainment plc’s register of depositary interests by 6.00 p.m. (5.00 p.m. BST) on 5 June 2012 and bring to the AGM a letter of corporate representation validly executed on behalf of the Depositary (the letter of corporate representation can be obtained from the Depositary). 3. Voting 3.1 Shareholders Shareholders may attend the AGM in person and vote on a show of hands or on a poll. A shareholder entitled to attend and vote at the AGM may also appoint a proxy to attend and, on a poll, vote in his/her place. A proxy need not be a shareholder. A proxy may demand or join in demanding a poll and has the right to speak at the meeting. A proxy form may be submitted in hard copy form by post or courier or electronically via the www.bwinparty-registrar.com website. Hard copy proxy forms must be completed by or on behalf of the Shareholder. If the Shareholder is a corporation then the proxy form must be executed by a duly authorised person or under its common seal or in a manner authorised by its constitution. A proxy form is enclosed with this Notice of AGM. To be valid, completed proxy forms must be returned to Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU to be received no later than 12.30 p.m. (11.30 a.m. BST) on 5 June 2012. Shareholders wishing to submit proxy forms electronically should visit the www.bwinparty-registrar.com website and select the Annual General Meeting tab on the left hand side of the page. To be valid, electronic proxy instructions must be received by the Registrar no later than 12.30 p.m. (11.30 a.m. BST) on 5 June 2012. A corporation which is a shareholder may, by resolution of its directors (or other relevant governing body), authorise a person or persons to act as its representative or representatives at the AGM. The representative or representatives should produce to the registrar and/or bwin.party’s Company Secretary a certified copy of the resolution of authorisation when attending the AGM. 161 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

3.2 Depositary interest holders Depositary interest holders may attend in person and vote on a show of hands or on a poll if the Depositary has appointed them a corporate representative (see section 2.2 above). Depositary interest holders not wishing to attend the AGM but wishing to vote in respect of the resolutions to be considered at the AGM can do so by instructing the Depositary. This may be done in one of two ways: (i) Depositary interest holders who are CREST members may give such an instruction utilising the CREST electronic voting service in accordance with the procedures described in the CREST Manual. CREST personal depositary interest holders or other CREST sponsored members, and those CREST members who have appointed a voting service provider, should refer to their CREST sponsor or voting service provider, who will be able to take the appropriate action on their behalf. In order for an instruction made by CREST to be valid, the appropriate CREST message (‘a CREST proxy instruction’) must be properly authenticated in accordance with CRESTCo’s requirements and must contain information required for such instructions, as described in the CREST Manual. The message, in order to be valid, must be transmitted so as to be received by the Depositary’s agent, ID RA10 by 12.30 p.m. (11.30 a.m. BST) on 4 June 2012. The time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST applications host) from which the Depositary’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. The Depositary may treat as invalid a CREST voting instruction in the circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities Regulations 2001. CREST members and, where applicable, their CREST sponsors or voting service providers, should note that CRESTCo does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST proxy instructions. It is the responsibility of the CREST member concerned to take (or to procure that his or her CREST sponsor or voting service provider takes) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. Please refer to the CREST Manual for further guidance. (ii) Depositary interest holders who cannot give voting instructions via CREST should complete the enclosed form of direction and submit it to the depositary. If the depositary interest holder is a corporation then the form of direction must be executed by a duly authorised person or under its common seal or in a manner authorised by its constitution. To be valid, forms of direction must be received by the Depositary no later than 12.30 p.m. (11.30 a.m. BST) on 4 June 2012. (iii) Depositary interest holders who cannot give voting instructions via CREST can also submit a form of direction electronically by visiting www.bwinparty-registrar.com website and selecting the Annual General Meeting tab on the left hand side of the page. To be valid, the electronic form of direction must be received by the Depositary no later than 12.30 p.m. (11.30 a.m. BST) on 4 June 2011. 4. bwin.party employees bwin.party employees who have exercised their bwin.party share awards and have retained all/some of the resultant bwin.party Shares and hold these Shares through the bwin.party nominee account service, Capita IRG Trustees (Nominees) Limited and wish to attend the AGM, should request Capita IRG Trustees (Nominees) Limited to appoint them as a corporate representative. This is done by completing the nominee account instruction form enclosed with this AGM notice. Irrespective of whether an eligible employee wishes to attend the AGM or not, they are recommended to complete the nominee account instruction form and send it to Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU, United Kingdom, to be received no later than 12.30 p.m. (11.30 a.m. BST) on 4 June 2012. 5. Documents for inspection Copies of the following documents are available for inspection during normal business hours at the Company’s registered office at 711 Europort, Gibraltar. These documents will also be available for inspection at the The Caleta Hotel, Catalan Bay, Gibraltar on the day of the meeting from 12.00 noon until the conclusion of the AGM: • Memorandum and Articles of Association; • Executive Directors’ Service Agreements; • Non-Executive Directors’ Letters of Appointment; • The Company’s signed Annual report for the year ended 31 December 2011; • Register of Members; and • Register of Depositary Interest Holders. 162 bwin.party Glossary and definitions Annual report & accounts 2011

‘AAMS’ L’Amministrazione autonoma dei monopoli di Stato, the Italian gaming regulator ‘Active player days’ aggregate number of days in the given period in which active players have contributed to rake and/or placed a wager. This can be calculated by multiplying average active players by the number of days in the period ‘active player’ in relation to the Group’s products, a player who has contributed to rake and/or placed a wager ‘Annual report’ the Company’s financial statements and accompanying reports for the year ended 31 December 2011 ‘ARJEL’ L’Autorité de régulation des jeux en ligne, the French gaming regulator ‘average active players’ the daily average number of players who contributed to rake and/or placed a wager in the given period. or ‘Daily average players’ This can be calculated by dividing active player days in the given period, by the number of days in that period ‘B2B’ business-to-business ‘B2C’ business-to-consumer ‘betoto’ www.betoto.com, one of the Group’s sports betting websites ‘Board’ or ‘Directors’ the Executive Directors and the Non-Executive Directors of the Company ‘bwin’ bwin Interactive Entertainment AG, its subsidiaries and its associated companies and/or bwin.com, one of the Group’s principal sports betting websites, as the context requires ‘bwin.party’ bwin.party digital entertainment plc, the name of the Group formed by the Merger of PartyGaming Plc and bwin Interactive Entertainment AG ‘Cashcade’ Cashcade Limited and its subsidiaries ‘Clean EBITDA’ and ‘Clean EPS’ EBITDA/EPS before the provision for costs associated with the Group’s Non-Prosecution Agreement, amortisation and impairment of acquired intangibles, reorganisation expenses, merger and acquisition expenses, exchange differences, and before non-cash charges relating to share-based payments ‘Company’ or ‘PartyGaming’ PartyGaming Plc prior to completion of the Merger and bwin.party digital entertainment plc (‘bwin.party’) after the Merger or ‘bwin.party’ ‘Depositary’ Capita IRG Trustees Limited ‘Discontinued operations’ Ongame’s B2B business as well as operations located physically outside of the US but which relate to customers in the US and were terminated following the enactment of the UIGEA on 13 October 2006 ‘EBITDA’ earnings before interest, tax, depreciation and amortisation ‘Employee Trust’ the PartyGaming Plc Shares Trust, a discretionary share ownership trust established by the Company in which the potential beneficiaries include all of the current and former employees and self-employed consultants of the Group ‘Executive Directors’ the Executive Directors of the Company listed in the ‘Board of Directors’ section of the Annual report ‘Foxy Bingo’ www.foxybingo.com, one of Europe’s largest active bingo sites that was acquired as part of the purchase of Cashcade ‘FTSE4Good Index Series’ a benchmark of tradeable indices for responsible investors. The index is derived from the globally recognised FTSE Global Equity Index Series ‘Gamebookers’ www.gamebookers.com, one of the Group’s sports betting websites ‘Gioco Digitale’ www.giocodigitale.it, one of the Group’s principal bingo websites ‘gross win margin’ gross win as a percentage of the amount wagered ‘gross win’ customer stakes less customer winnings ‘Group’ or ‘bwin.party Group’ the Company and its consolidated subsidiaries and subsidiary undertakings ‘IAS’ International Accounting Standards ‘IASB’ International Accounting Standards Board ‘IFRS’ International Financial Reporting Standards ‘InterTrader’ Our financial markets service, formerly known as PartyMarkets.com ‘KPIs’ Key Performance Indicators such as active player days and yield per active player day 163 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103

‘Merger’ the merger of bwin Interactive Entertainment AG and PartyGaming Plc that was completed on 31 March 2011, accounted for under IFRS 3 as an acquisition of bwin ‘new player sign-ups’ new players who register on the Group’s real money sites ‘Non-Executive Directors’ the Non-Executive Directors of the Company listed in the ‘Board of Directors’ section of the Annual report ‘NPA’ the Non-Prosecution Agreement entered into by the Group and the US Attorney’s Office for the Southern District of New York (the ‘USAO’) on 6 April 2009. Under the terms of the agreement, the USAO will not prosecute the Group for providing internet gambling services to customers in the US prior to the enactment of the UIGEA ‘PartyBets’ www.partybets.com, one of the Group’s sports betting websites ‘PartyCasino’ www.partycasino.com, the Group’s principal casino website ‘PartyGammon’ www.partygammon.com, the Group’s backgammon website ‘PartyPoker’ www.partypoker.com, the Group’s principal poker website

‘player’ or ‘unique active player’ Customers who placed a wager in the period ‘rake’ the money charged by PartyGaming for each qualifying poker hand played on its websites in accordance with the prevailing and applicable rake structure ‘Registrar’ Capita Registrars (Jersey) Limited, the registrars of the Company ‘Regulatory Process Agreement’ The Regulatory Process Agreement dated 29 July 2010, as amended, the primary purpose of which is to facilitate the exploitation of certain new business opportunities for bwin.party ‘sports betting’ placing bets on sporting events ‘UIGEA’ the Unlawful Internet Gambling Enforcement Act that was enacted in the US on 13 October 2006 ‘USAO’ United States Attorney’s Office for the Southern District of New York ‘wager’ a bet on a game or sporting event ‘WPT’ the business and substantially all of the assets of The World Poker Tour acquired by the Group on 9 November 2009 ‘yield per active player day’ net revenue in the period divided by the number of active player days in that period Design and production by Radley Yeldar www.ry.com Photography by Michael Harvey Printed by Boss Print Inside 02 Overview 66 Board of Directors 03 Pro forma financial highlights 70 Governance this report 04 Our product verticals 75 Audit Committee report 06 Our business environment 77 Ethics Committee report 08 Chairman’s statement 78 Integration Committee report 10 Co-CEO’s review 79 Nominations Committee report 18 Our business model 80 Directors’ Remuneration report 20 Strategy 97 Other governance and statutory disclosures 22 Regulated and to-be- 100 Annual General Meeting regulated markets 102 Statement of Directors’ 24 Invest in our core assets responsibilities 26 Strategic alliances 28 New areas of digital entertainment 103 Financial statements 30 Act responsibly 104 Auditors’ report 32 Review of 2011 105 Consolidated statement of comprehensive income 47 Markets and risks 106 Consolidated statement 48 Sports betting of financial position 50 Casino & games 107 Consolidated statement 52 Poker of changes in equity 54 Bingo 108 Consolidated statement 55 Key risks of cashflows 110 Notes to the consolidated 58 Responsibility and relationships financial statements 59 Corporate responsibility 150 Company statement 61 Customers and responsible gaming of financial position 63 Employees 151 Company statement 64 Suppliers of changes in equity 64 Shareholders and other providers 152 Company statement of capital of cashflows 65 Environment and community 153 Share information 158 Notice of Annual General Meeting 162 Glossary and definitions

See our online report at www.bwinparty.com Annual report & accounts 2011

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