Scientific Games to jettison sports betting and lottery businesses Rege Behe, CDC Gaming Reports · June 29, 2021 at 12:17 pm Scientific Games announced Tuesday it is divesting its sports betting and lottery businesses. The divestment is the result of a strategic review begun in September 2020. “We have concluded that our lottery and sports betting businesses will be better positioned for the future as independent businesses with their own capital structures and investment strategies,” Scientific Games Executive Chair Jamie Odell said Tuesday during a conference call. “We therefore intend to divest those businesses.” Scientific Games will retain its gaming, igaming and SciPlay businesses. O’Dell said going forward, the company will focus on three strategic pillars to unlock value: Optimizing Scientific Games’ portfolio to focus on driving key areas of differentiation. Investing in largest growth opportunities, organically and inorganically, to become a sustainable growth company. Significantly de-levering, transforming the balance sheet to enhance financial flexibility and capacity for future investments. “We strongly believe this will deliver significant shareholder value and sustainable growth,” Odell said. Odell added that the net proceeds from the divestitures will be used to “de-lever the balance sheet and to invest in high-growth opportunities to accelerate our strategies.” Scientific Games CEO and President Barry Cottle said divestment of the businesses was a difficult decision, but necessary for the company to achieve its long-term goals. “It enables us to really deliver on the vision to become the leading cross-platform global gaming company. said Scientific Games CEO and President Barry Cottle, “Collectively, gaming, igaming and SciPlay will be singularly focused on building and deploying great games and franchises across all platforms.” Scientific Games Executive Vice President and Chief Financial Officer Michael Eklund said there’s no timeline for the divestment of the businesses. “At this point the market is going to determine the timing, the value, the final structure of the deal,” Eklund said. “We are very well advanced in the process. It’s been a thoughtful, detailed planning process we’ve gone through with all the teams. … We think we can move pretty quickly and maximize value while we’re going through this.” J.P. Morgan analyst Joseph Greff wrote the divestment should accelerate debt pay-down and bring leverage into a level more comparable to Scientific Games’ competitors. “Simplistically assuming just disposition of the lottery business (without making assumptions about sports betting, which is embedded in the digital segment),” Greff wrote, “incorporating our in-print 2022 EBITDA estimates, our 8.0x multiple for the segment, and 100% of gross proceeds going to debt pay-down, we estimate net leverage just below 4.0x in 2022, down from 9.6x at 1Q21-end and 6.4x and year-end 2019.” Deutsche Bank analyst Carlos Santarelli wrote that if the divestment is successful, Scientific Games will be left with gaming (slot equipment), iGaming, and SciPlay. “These business lines, in aggregate, generated roughly $1.0 billion of 2019 adjusted EBITDA,” Santarelli wrote. “(Scientific Games) again noted that it believes its digital gaming businesses will be comparable in scope to its land-based gaming business in three years.” Rege Behe is lead contributor to CDC Gaming Reports. He can be reached at email@example.com. Please follow @RegeBehe_exPTR on Twitter.