Despite sports betting gaining acceptance in multiple nations, SGMS (Scientific Games) divest its lottery and sports betting businesses. Michael Eklund (Scientific Games’ CFO) recently announced that the company had moved forward to shut the businesses.
Considering how heavily the company has invested in the sector, the news seems extremely odd. SGMS previously acquired the NYX Gaming Group, SportCast, and Don Best Sports Corporation for 625 million dollars.
While the community is shocked at the news, Ryan Sigdahl (Craig-Hallum Capital Group’s research analyst) deems it a smart business move. As per Ryan, Scientific Games is looking at the decision objectively and selling the business in high demand. In addition, selling off its sports betting business is the most efficient way to simplify the business, maximize value for shareholders, and deleverage.
Despite selling its sports betting business, it does not look like SGMS is prioritizing casino gaming over other sectors. While casino gaming is showing immense potential, the development still appears to be opportunistic above everything. Selling the lottery business also makes sense since it will boost the deleveraging procedures. However, the lottery business has even less synergy than social, online, and gaming businesses.
Ryan suggested that SGMS can earn over 750 million dollars for the lottery business. In comparison, the sports betting venture will generate over 1 billion dollars in revenue. Kambi, the closest competition to SGMS in sports betting, is valued at 1.4 billion dollars. Thus, expecting to generate a notch below the amount is natural for SGMS. However, the company can earn even more if there is a bidding war. By Ryan’s evaluation, SGMS can score up to 1.5 billion dollars for its sports betting assets.
By selling off the businesses, Scientific Games can quickly eliminate its debt load. The company is 9x net levered on a trailing basis, amounting to 9.2 billion dollars in long-term debts. Given the current improvements and divestitures, SGMS can go below the 4x leverage mark.
The company can try multiple ways to unload the businesses. The initial thought should be to spin off the ventures and make them public through a SPAC or IPO merger. Theoretically, making a sports betting business public will put its value around the evaluated amount. Currently, the market is very receptive and is trying out new ways around investments.
Another way out for SGMS is to sell the business to a strategic buyer. Companies like FanDuel will happily acquire SGMS to enhance its proceedings. DraftKings, FanDuel’s prime competitor, is already doing it with SBTech. So, it’s time FanDuel considers doing the same to stay in the competition.
After selling the two businesses, SGMS can streamline the gaming procedures. The retail casino sector is huge, and SGMS will always remain an esteemed supplier for the market. The company even witnessed a hike in its share prices, going over 80 dollars per share.