 | |
- close
- close
|
|
Topic
Top news source/blog that we're missing
Why do you recommend this news source?
|
||
WIKI ANALYSIS
Based in New York City, Scientific Games Corporation (SGMS) is a global information technology (IT) systems and services company that provides instant ticket and online lottery products, systems and services to lottery authorities worldwide. Scientific Games is also the leading provider of computerized systems and services to the pari-mutuel wagering industry, an operator of off-track betting (OTB) facilities, and a leading manufacturer of paper-based prepaid phone cards. In the first quarter of 2006, the company realigned its operations into three operating segments: 1) Printed Products 2) Lottery Systems 3) Diversified Gaming. The Printed Products group includes instant lottery tickets and related services, and the prepaid phone card business. The Lottery Systems group consists of the online lottery business. The company offers online, instant and video lottery products and online and instant ticket validation systems. The Diversified Gaming group includes the company's racing system business (pari-mutuel operations), off-track and sports betting facilities, and other non-lottery gaming initiatives. The company also provides ancillary services to the industry, such as race simulcasting and telecommunications services and telephone & internet account wagering.
Scientific Games continues to benefit from its strong and growing presence in the worldwide instant ticket and online lottery markets. Within the instant ticket lottery market, the company started instant ticket lottery contracts for lottery authorities in Georgia, Tennessee, and Texas over the past two years. The company also signed a four-year contract with the California State Lottery, three-year contracts in New York and Illinois, and two-year contracts in Colorado and Vermont. Additionally, the company was awarded contract extensions from lottery authorities in Indiana, Kentucky, Washington, and West Virginia during the second half of 2005. In addition to strong and growing relationships with state lottery authorities, the company benefits from its licensed instant ticket brands, such as Texas Hold'em from the World Poker Tour, Pac-Man, Yahoo!, and American Idol. The company also signed a licensing deal with Major League Baseball in 2006. Internationally, the company gains from its instant ticket lottery contract in Italy and the acquisition of Printpool Honsel GmbH, a leading supplier of instant tickets in 25 countries and the primary supplier of instant tickets to Germany's 16 state lotteries with annual retail sales of $500 million. The company signed its first two contracts in Germany for instant ticket cooperative services during the second half of 2005. In 2007, the company's projects include the launch of Multijuegos lottery with Televisa in Mexico, upgrading Golden Casket's existing lottery systems and terminals in Europe, a three-year contract with Connecticut Lottery Corporation to provide instant-ticket printing services, and a contract to operate all of the pari-mutuel wagering systems for Great Canadian Gaming Corporation. Also during the first half of 2007, the company launched two new instant ticket games in Pennsylvania and Kentucky. Additionally, the company was awarded a contract by MSL, the largest Ukrainian Lottery, to supply instant tickets and cooperative services, beginning April 2008. Scientific Games was also selected as the primary vendor to supply instant tickets and related services for the Iowa Lottery. In July 2007, Scientific Games was awarded a two-year contract as the primary vendor to supply instant tickets and related services to the Idaho Lottery.
The company is making in-roads into international markets that have traditionally been dominated by GTECH Holdings Corporation. This includes the launch of an online lottery system for Loteria Electronica de Puerto Rico worth up to $67 million over seven years. In addition, Scientific Games was awarded contracts to replace GTECH systems and terminals in the Philippines (Pacific Online Lottery), Iceland (Islensk Getspa), and Spain (Loto Catalunya). The company was awarded a potential $40 million, ten-year online lottery services contract by the Shanghai Welfare Lottery Issuing Center (SWLIC).
Scientific Games continues to grow through international development activities, specifically in Germany and China. Although the company's activities in Germany have stalled due to uncertainties over the German lottery monopoly decision, the company is increasing the number of licensed games in Germany. For example, the company can run 20 active Deal or No Deal games versus five active Deal or No Deal games at the end of the third quarter of 2006. Instant ticketing is also expected to be launched in the second quarter of 2007 with 6,000 retailers. Management expects gross margin expansion in the range of 2.5% to 3.0% in 2007 from German operations. In China, the company is aggressively pursuing instant ticket opportunities. The instant ticket market has been lackluster in China, but new emphasis is being given at both the federal and provincial levels. Scientific Games has aligned with the best-in-class Chinese partners in provincial areas and management expects to benefit from increased demand from the emerging trade class. In the first half of 2007, the company signed an agreement with Inspur to launch instant tickets in the Shandong Province, which has third highest GDP per capita among the Chinese Provinces. Also, the company's acquisition of a 50% stake of China-based Guard Libang provides infrastructure for instant ticket management, validation and sales systems to Scientific Games in 17 provinces. The acquisition has expanded the company's presence in China, since Guard Libang is an exclusive provider of ticket validation services to 29 provinces of China Welfare Lottery.
Acquisitions enable Scientific Games to expand its ability to offer computerized systems and services to the gaming industry globally. The company acquired the online lottery assets of the Swedish firm EssNet AB for 460 MSEK ($60 million). EssNet specializes in online lottery systems and terminals to run numbers games, sports betting, instant tickets, and mobile games. EssNet's lottery customers include seven states in Germany, the national lotteries of Hungary and Norway, Golden Casket and Tattersall's Lottery in Australia, and other national lotteries. The acquisition has enabled the company to capture incremental international lottery revenue and further expand the company's geographical presence. Scientific Games has expanded into the U.K. market by acquiring British gaming equipment supplier, Global Draw Limited for $183 million. Subsequently, Global Draw has entered into a four-year contract with Coral to supply gaming machines to 1,450 Coral betting shops in the U.K. Global Draw's new dual screen terminals will replace Coral's installed base of 5,100 fixed odds betting terminals (FOBTs) by September 2007 in an effort to mitigate an upcoming change in UK legislation. In late 2006, Scientific Games acquired Games Media Ltd. and related companies in the U.K., which specializes in developing and selling Amusement With Prizes (AWP) machines and Skill With Prizes (SWP) to operators who lease them to the U.K. public house market, which is comprised of 60,000 pubs with 120,000 AWPs and 30,000 SWPs. The Games Media acquisition has strengthened the company's presence in the U.K. pub retail sector and will broaden the company's access to other platforms, including social lotteries and monitor-based events. In May 2007, the company acquired Oberthur Gaming Technologies (OGT) for $100 million. The transaction is expected to enhance the company's footprints in Canada and Australia. Management expects the acquisition to be earnings neutral in 2007 and accretive in 2008. In the third quarter of 2007, the company completed the installation of 9,500 dual screen Global Draw server-based machines in the UK in order both to upgrade the installed base in the light of the new gaming regulations, and to increase the machine density from three to four per shop.
In the online lottery market, the company is benefiting from its November 2003 acquisition of OES. The acquisition quadrupled the company's recurring revenue from online lottery contracts and expanded the company's presence in the Asia-Pacific region. Over the past two years, the company has secured extensions for a number of its OES and online lottery contracts and recently commenced an online lottery contract with Colorado. The company was awarded an online lottery contract to supply a new range of lottery management services and equipment to the Maryland Lottery. The contract is valued at approximately $81 million over its initial term. Scientific Games has signed several new contracts domestically, during the second quarter of 2007, including an Ohio instant ticket contract, a three-year Rhode Island contract, an Idaho contract with a two-year base and six-year extension option, and a three-year contract in Connecticut. The company was granted extensions of one year in Oklahoma and two year extensions in South Dakota and Massachusetts.
Domestically the company has also been introducing more gaming and lottery products. During 2006, the company introduced Magic Mark (a new technology marking system for games like bingo and crosswords) in California, Missouri, and West Virginia while extending instant ticket contracts in Texas, Louisiana, Iowa, Minnesota, FDJ (Francaise Des Jeux), and the National Lottery of France. In February 2007, the company entered into a $42 million five-year contract with the Connecticut Lottery Corporation, through which Scientific Games will provide a new range of lottery equipment and management services to the Connecticut Lottery beginning May 2008.
In October 2006, management initiated an employee cost reduction plan in an effort to contain costs. Over 450 positions (primarily in management, professional, and support services) were eliminated in 2006, resulting in a charge of $13.5 million, but generating annualized savings of $24.0 million. In addition, depreciation and amortization expense will be reduced by the $10.2 million asset impairment charge in the Diversified Gaming Group and the impact of asset write-downs in the racing business. As a result of the lower depreciation and amortization expense, annual earnings will benefit by $0.15 per share or approximately $0.04 per share per quarter.
In February 2007, Ron Perelman acquired 4 million shares at an average price between $30.27 and $31.14 per share, bringing his stake in the company to 27.4%. Subsequent purchases have brought his ownership to 27.9%. Management believes Ron Perelman increased the stake because of the company's international growth prospects however, Ron Perelman is a billionaire investor who has made his fortune by reaping profits from buying companies and reselling them later.
Management enhances shareholder value through a share repurchase program. On November 2, 2006, the Board of Directors authorized $200 million for share repurchases. Management plans to fund the repurchase program from cash flow from operations and borrowings.
References
| ||||||
|
|
