The two companies are expected to split US$200 million annually through the contract, which covers the Brazilian instant lottery scratch card business. 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 recent Global Gaming Expo in Las Vegas, touted the Brazil deal a “potentially meaningful long-term opportunity.”
In a joint statement, IGT CEO, 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 executives also said that 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 US$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 US$13 per adult.
“Current lotteries already generate US$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,” he concluded.
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.
Source: GMB / CD Gaming Reports
