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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Inside Gaming: IGT name among valued assets being acquired by GTECH

9 March 2015

LAS VEGAS -- GTECH Holdings is paying $6.4 billion to acquire IGT - International Game Technology, but the Italy-based lottery giant is taking on more than just “Wheel of Fortune” and the company’s other slot machine titles and products.

GTECH wants the name IGT.

At last week’s Nevada gaming regulatory hearing, GTECH Chairman Lorenzo Pellicioli revealed the merged company will be known as IGT when the buyout closes in April. The holding company that combines GTECH and IGT will operate under the name International Game Technology PLC.

The name GTECH will slowly disappear. Analysts believe it’s a smart move.

“Within the equipment world, outside of Italy, IGT has a well-known reputation that overshadows GTECH’s and, more importantly, can help grow market share going forward,” Macquarie Securities gaming analyst Chad Beynon said.

Union Gaming Group analyst Chris Jones said GTECH has limited recognition globally.

“It makes a lot of sense,” Jones said. “The most important gaming markets, such as North America, Australia and even Asia, are more aware of the IGT name than the GTECH brand.”

Within the casino operating community, however, IGT will mean nothing unless the products change.

During Caesars Entertainment Corporation’s quarterly conference call Monday, Chairman Gary Loveman summed up the feelings of casino operators: Current slot machine offerings are out of date with today’s consumer.

“I remain very concerned that the product is antiquated as a category,” Loveman said.

Caesars Interactive Entertainment, the company’s online gaming division, does a better job than traditional slot machine manufacturers, Loveman said.

“They innovate remarkably fast and improve their product and how it is enjoyed by their customers constantly,” Loveman said. “I think there is tremendous opportunity there.”

Gaming Control Board Chairman A.G. Burnett agrees. Nevada lawmakers are considering Senate Bill 9, which allows manufacturers to incorporate video game technology into slot machines. The idea is to create more games of skill, rather than just games of chance.

Burnett told KNPR’s “State of Nevada” that casinos need to find ways to get new customers in front of slot machines.

“Hopefully they’ll be attractive to the younger demographic, which is now visiting in record numbers,” Burnett said. “To do that, old-style gaming is going to have to make way for some new ideas.”

So the gauntlet has been thrown down to the new IGT.

GTECH — and soon to be IGT CEO — Marco Sala told regulators last week the company understands that task.

The GTECH-IGT merger allows game titles to be used across multiple platforms — traditional slot machines, social gaming, Internet gaming and lotteries. Similar products on different platforms reduces research and development costs. The merger is expected to save $280 million in corporate costs.

IGT has been responsible for many of the products and concepts now considered common on slot machine floors such as video poker, ticket in-ticket out technology, progressive jackpots, and Megabucks.

IGT introduced the “Wheel of Fortune” slot machine in 1996. The game is still one of the industry’s best games.

In 2012, IGT CEO Patti Hart was criticized by the investment community after she engineered the $500 million buyout of DoubleDown Casino, a social gaming giant considered the leading free-to-play site on Facebook and other platforms.

Most of those critics soon ate their words. DoubleDown and IGT’s social gaming business is profitable and a meaningful contributor to earnings. DoubleDown includes many popular IGT game titles, including “Wheel of Fortune.”

Combined, GTECH and IGT would have produced more than $6.1 billion in revenue and almost $2.1 billion in cash flow over a 12-month period that ended last September. GTECH, however, dominates the combined companies’ financial pages, primarily through the Italian lottery business. Postmerger, 39 percent of the overall revenue will come from Italy.

“The remaining pie, we believe can grow though IGT’s relationships and reputation, which in many ways is important enough to maintain the legacy IGT brand name,” Beynon said.

IGT was founded in 1975 by slot machine pioneer Si Redd. By 1989, the company estimated it produced one-half of the world’s 300,000 slot machines. In the late 1990s and early 2000s, IGT bought several rival slot machine and gaming technology companies, helping to strengthen its position as the global slot machine leader.

Then the recession hit.

IGT’s stock price is more than 60 percent below its 2005 average closing figure. The company’s revenue declined 27 percent in just two years while it over-spent on technology and innovations at time when casino operators were holding back on spending for new games and products.

Competition caught up. Last year, analysts declared Bally Technologies the leading gaming equipment provider.

Those rough periods seem to be forgotten.

“Despite what one’s view is of IGT products today, the legacy of IGT is undisputed,” Jones said.
Inside Gaming: IGT name among valued assets being acquired by GTECH is republished from Online.CasinoCity.com.