SG Lottery Valued Upwards of $13 Billion

Scientific Games is considering an Australian IPO for its SG Lottery business. Financial experts predict the IP could be worth $13 billion.

It is no secret that Scientific Games is eyeing up an Australian initial public offering (IPO) for its SG Lottery business. The potential valuation is surprising, however, with talk of $13 billion in the press.

Las Vegas-based Scientific Games hired Sydney-based Jarden Australia to look into the figures. The company is best known for its pokies and online pokies, but it has a thriving lotteries business, too.

SG Lottery is hugely profitable. It has more than 130 million customers across more than 50 countries. However, Europe and North America make up 97 per cent of the SG Lottery 2020 revenue. Scientific Games’ latest financial report shows SG Lottery enjoyed US$918 million revenue in 2020, up from US$911 million ($1.246 billion) in 2019. The company saw a revenue increase despite the ongoing COVID-19 pandemic.

SG Lottery Pitches To Potential Suitors

Scientific Games has strong links to Australia, which is why it is considering an Australian IPO. Jamie Odell is the company’s executive chairman having joined the board in 2020. Odell enjoyed a massively successful spell as CEO of Aristocrat Leisure.

In addition, Caledonia Investments, a Sydney-based hedge fund, fronted a consortium that invested $1.29 billion in Scientific Games. The substantial investment means Caledonia Investments owns 9.8 per cent of Scientific Games.

Furthermore, Toni Korsanos, a board member of Crown Resorts and Treasury Wine Estates, is Scientific Games’ executive vice-chairman.

Scientific Games claims SG Lottery revenue will deliver a 13.6 per cent compound annual growth rate through 2022. Expanding throughout the United States is one reason for the optimistic outlook.

“Significant growth underpinned by even fast growth in the US market, with 19 additional states expected to legalise iLottery by 2025, which is expected to increase the US iLottery market from US$3 billion ($4.1 billion) of retail sales today to US$12 billion ($16.42 billion) of retail sales by 2025.”

The SG Lottery provides the backend support for the hugely popular Powerball and Mega Millions in the United States. It boasted a US$430 million ($588.30) EBITDA in the 12 months ending June 30, 2020.

Some analysts believe SG Lottery could fetch up to ten times that figure in an IPO, possibly up to US$5.16 billion ($7.06 billion). However, others value SG Lottery higher. Morgan Stanley’s figures are between $11.1 billion and $15.2 billion. Comparatively, Goldman Sachs say $9.3 billion to $12.9 billion.

Biggest Australian IPO For Seven Years

The SG Lottery IPO will be the biggest Australian IPO for seven years if it generates US$5 billion. The US$4.9 billion ($5.679 billion) IPO of Medibank Private in 2014 as Australia privatised its health insurer, is the largest Australian IPO in recent memory.

Scientific Games is keen to divest its SG Lottery and other non-core sports betting businesses to pay down some of its astronomical US$8.2 billion ($11.21 billion) of debt.

There is, however, every chance the IPO never happens and Scientific Games goes down the route of a straight sale. The lotteries division has a number of interested parties. Private Equity firms TPG Capital and Carlyle Group are potential suitors. As is Apollo Global Management.

The latter is most likely to lodge a bid. Apollo was prepared to pay $4 billion for Tabcorp’s Wagering & Media business and Gaming Services division. Tabcorp rebuffed the offer, leaving Apollo high and dry.

Apollo is keen to expand its gambling portfolio. It owns International Game Technology (IGT) and Great Canadian Gaming Corp. In addition, Apollo recently bought the Venetian and Sands Convention Center in Las Vegas.

The American private equity firm missed out on acquiring William Hill’s international businesses when Caesars Entertainment put them up for sale. 888 Holdings pipped Apollo to the post with a £2.2 billion ($4.09 billion) offer. Apollo will not want to miss out on another major coup.