Scientific Games targeting accelerated spin-off of sports betting and lottery businesses
Supplier says strategic review plans are “well advanced” with decision on future of divisions expected imminently
Scientific Games executives have revealed they are “very well advanced” regarding the planned separation of the sports betting and lottery businesses from the main group as part of a strategic review of the company.
Speaking at a conference call discussing the review, chief financial officer Mike Eklund acknowledged Scientific Games was targeting a sale of the businesses to fund a pivot into a more content-led business.
“At this point, we’re looking at all avenues to maximise the value on the sale,” Eklund said.
“Ultimately, the market is going to determine the timing, value and final structure of the deal, but what I would say though, is we’re very well advanced in the process.
“I’ve had a chance to fully review the opportunity as well as the internal leadership team and the board of directors and were all extremely excited about it.
“We’re deep into the process, its well underway and [it] has been an incredibly thoughtful process. We think we can move pretty quickly and maximise value while we’re going through this and get it to a good quality outcome in very short order” Eklund added.
Details of the proposed break-up of the Scientific Games business were first revealed yesterday, with the firm outlining possible options for the sports betting and lottery arms, including a sale, an IPO or a reverse merger with a special purpose acquisition company (SPAC).
Addressing this, Eklund revealed discussions on the strategic review have been underway for several months, with Scientific Games targeting a strengthened balance sheet and a wider capacity for inorganic growth through M&A.
The structure of the businesses going forward, as well as their final valuations, he admitted would be disclosed imminently.
Addressing the likely consequences of the divestitures, Scientific Games CEO and president Barry Cottle stated his belief that the review would benefit the wider group.
“We actually expect that the separation of sports betting and igaming will actually enhance the market position for each of these in the marketplace,” Cottle explained.
“These are actually increasingly specialised verticals, and the decisions and success of sports betting and igaming are really made on their own merits.
“While we have common customers, just like we have common customers with land-based, contracts are predominantly built in a way that the commercial economics are tied to the actual business itself.
“We’re well along this process, as well and we’re extremely confident that the result of this transaction is going to put both of these in a position to be more successful because of the focus and capitalisation that they’ll get,” he added.
Analysts Regulus Partners referenced the impact of the repeal of PASPA and the Covid-19 pandemic as forcing a change in course for Scientific Games’ previous multi-product, multi-acquisition business model.
Speculating on the potential next course for the individual businesses, Regulus analyst Paul Leyland stated his belief that a sale of the lottery-based business was likely due to being a “drag” on the firm’s wider investment plans.
The divestiture of the sports betting business, Leyland admitted was a “more interesting” scenario, due to the trend in the industry of bringing sports betting tech in-house, and failings internally.
“The division does too much of the wrong things to be valuable to market leaders while not enough of the right things efficiently to be valuable to market entrants, in our view,” Leyland explained.
“The break-up of Scientific Games therefore rather aptly demonstrates the dangers of coming up with synergies on paper or as strategic concepts from a rather detached ‘head office’.
“If a combination of assets does not provide a stronger customer proposition or a more efficient operating model, then it creates little more than a conglomerate: simply hoping that it will because in theory they should does not make the magic happen.
“When synergies fail greater focus is the only credible answer: Scientific Games’ new strategy makes perfect sense to us, but it is also a lesson in why M&A without a strong operational underpin usually goes wrong,” Leyland added.