The gaming industry’s two largest equipment suppliers teamed up to win a lottery contract in Brazil.
International Game Technology and Scientific Games, which both operate large lottery divisions along with casino products, were awarded the license Tuesday to operate Brazil’s Lotex instant lottery. The two companies are expected to split $200 million annually through the contract, which covers the Brazilian instant lottery scratch card business.
CDC Gaming Reports
IGT and Scientific Games still need to sign the final contract and lottery is expected to launch by September 2020.
Analysts had a positive reaction to the news, which is viewed as one of the last major lottery licenses available for IGT and Scientific Games. Two other large contracts, in Italy and Turkey, were recently awarded to other operators. Scientific Games is a partner in both those deals.
“We believe this news will be favorably received by investors as these companies have secured a significant growth opportunity while also providing greater clarity on the free cash flow picture, which we view as an important tenant of each companies’ investment thesis,” Macquarie Securities gaming analyst Chad Beynon said in a research note.
SunTrust Bank gaming analyst Barry Jonas said management from both companies, during last week’s Global Gaming Expo, touted the Brazil deal a “potentially meaningful long-term opportunity”
According to the Reuters news service, the license runs for 15 years and will be fully paid for in seven annual installments. Shareholders will pay 17% of total lottery revenue to the Brazilian government.
Shares of IGT closed at $14.11 on the New York Stock Exchange Tuesday, up 34 cents or 2.47%. Scientific Games shares, traded on the Nasdaq, were up 54 cents or 2.37% to close at $23.28.
In a joint statement, IGT CEO for International Walter Bugno and Scientific Games Chief Executive for Lottery Pat McHugh said the concession “represents an important step towards the privatization of lottery instant games in Brazil.”
The pair said the “business partnership will benefit the people and government of Brazil and brings together the vast experience and market leadership of global leaders in the instant game market to help position Lotex for success.”
Beynon told investors Brazil has the world’s eighth-largest economy with a gross domestic product of over $2 trillion and the fifth-largest global population with 200 million people. He said lottery sales are slightly less than 1% of the country’s gross domestic product, or $13 per adult.
“Current lotteries already generate roughly $4 billion-plus in annual sales, and the population has shown a propensity to gamble, partly reflected by tourism to Las Vegas,” Beynon said. “Given a stagnating economy and a widening budget deficit, we expect Brazilian legislators will be supportive of Lotex’s success.”
IGT, long considered one of the gaming industry’s largest slot machine manufacturers, was acquired by lottery giant GTech Holdings in 2015 through a $6.5 billion merger. The companies kept the IGT name.
Lottery giant Scientific Games entered the casino equipment business through the acquisitions of WMS Industries, Bally Technologies and SHFL Entertainment – which had been bought a year earlier by Bally.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
