19. shaRe option schemes continued
19.1 Weighted average exercise price of options
the number and weighted average exercise prices of share options is as follows:
exercise number of exercise number of
price options price options
2014 2014 2013 2013
outstanding at the beginning of the year 191p 3,801,667 171p 3,698,180
granted during the year 1p 3,450,000 233.5p 500,000
exercised during the year 184p (369,720) 84p (296,513)
Bought out in the year 213p (75,000) 10p (100,000)
outstanding at the end of the year 94p 6,806,947 191p 3,801,667
exercisable at the end of the year 3,356,947 3,135,000
the options outstanding at 31 December 2014 have a weighted average contractual life of 5.9 years (2013: 4.7 years).
19.2 Valuation of options
the fair value of services received in return for share options granted were measured by reference to the fair value of share
options granted. With the exception of the options granted in 2014 the estimate of the fair value of the services received is
measured on a Binomial valuation model. the contractual life of the option (10 years) is used as an input into this model.
expectations of early exercise are incorporated into the Binomial model. the option exercise price for all individuals was the
average market price on grant date, with the exception of the options granted to third parties as part of the sportingbet
acquisition. these were priced at the amount the group offered as consideration for the purchase.
the 2014 options were valued using a monte carlo model due to the performance conditions associated with the options.
Fair value of share options and assumptions:
share price exercise expected Fair value at
at date of grant* price expected exercise dividend Risk free measurement
Date of grant (in £) (in £) volatility multiple yield rate** date
21 may 10 1.85 2.13 60% 2 17% 2.75% 0.39
21 may 10 1.85 0.01 60% 2 17% 2.75% 0.05
21 may 10 1.85 1.50 60% 2 17% 2.75% 0.59
28 Jan 12 1.67 1.5479 58% 2 20% 2.19% 0.33
16 Jan 13 2.335 2.335 60% 2 12.15% 0.572% 0.58
01 Feb 13 2.635 2.335 60% 2 12.15% 0.572% 0.76
28 Feb 13 2.375 2.335 60% 2 12.15% 0.572% 0.61
02 Jun 14 4.49 0.01 24% n/a 10.00% 1.425% 0.41
* This is the bid price, not the mid-market price, at market close, as sourced from Bloomberg.
** The measurement of the risk-free rate was based on rate of UK sovereign debt prevalent at each grant date over the expected term of
the expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the
share options), adjusted for any expected changes to future volatility due to publicly available information. there are no
market conditions associated with the share option grants with the exception of those issued in 2014 as noted above.
20. financial instRuments and RisK manaGement
the group's principal financial instruments as at 31 December 2014 comprise cash and cash equivalents. the main purpose
of these financial instruments is to finance the group's operations. the group has other financial instruments which mainly
comprise receivables and payables, which arise directly from its operations. cash and cash equivalents and trade and other
receivables have been classified as loans and receivables and trade and other payables, and deferred consideration as
financial liabilities measured at amortised cost. During the year, the group did not use derivative financial instruments to
hedge its exposure to foreign exchange or interest rate risks arising from operational, financing and investment activities.
the group does not hold or issue derivative financial instruments for trading purposes.
ANNUAL REPORT 2014 54
notes to the consolidated financial statements continued
for the year ended 31 december 2014