Analyst has "grave concerns" about IGT purchase

18 January 2012

LAS VEGAS, Nevada -- A gaming analyst said Tuesday he has "grave concerns" about International Game Technology's $500 million acquisition of an online social gaming company, taking a contrarian position from other Wall Street research firms.

In a report to his clients, Union Gaming Group principal Bill Lerner said IGT could hurt its core slot machine business and may be spending too much to acquire Double Down Interactive, which is the developer of Facebook's Double Down Casino.

Many analysts believe the deal could help IGT launch an online gaming website for U.S. consumers. However, Lerner also said three major casino operators are "irritated" that IGT has chosen to compete with companies that buy IGT slot machines and are also exploring entering the Internet gaming market if the activity is legalized.

He didn't name the casino companies, but said "they represent about 13 percent of North American gaming devices."

Lerner added that the opinions might provide some insight into how other casino operators view the deal.

"They suggest that they will react negatively especially if IGT pushes around content that they cannot have access to," Lerner wrote in the research note. "They also are concerned about how IGT will treat poker once they launch it and when it is legalized."

Lerner advised investors to sell their shares of IGT, which is traded on the New York Stock Exchange, in favor of other gaming equipment manufacturers, including Bally Technologies and Shuffle Master.

"We believe upwards of $500 million for a singular-platform dependent start-up could easy turn into a problematic, dilutive transaction in relatively short-order," Lerner said.

IGT officials, however, said the deal to acquire Double Down, which has 4.7 million active users, was done to put the Nevada-based slot machine maker's products in front of the booming social media market.

"IGT has no plans to operate an online casino in Nevada and compete with our customers," said Staci Alonso, IGT's vice president of marketing.

IGT announced last week it was buying Double Down for $250 million in cash, $85 million in retention payments over the next two years and as much as $165 million in cash payable over the next three years, subject to certain financial targets.

The company believes its game titles can help increase traffic on the Facebook website. At the same time Facebook players will become familiar with IGT's slot machines and will look for the games when they visit a casino.

An IGT official said the company won't compete with casinos as a result of the Double Down acquisition.

Lerner, however, suggested IGT is paying 28 times cash flow for Double Down, which he believes is too high even without incentive payments.

"This collectively strikes us as extremely generous for a start-up that is approximately two years old, with virtually no barriers to entry," Lerner said. "To be fair, Double Down is growing rapidly."

Janney Montgomery Scott gaming analyst Brian McGill had a different opinion. He told investors Tuesday the deal was a surprise, but could be a catalyst for the company's game titles.

"The one major positive would be if online poker is legalized, it now has a partner in Facebook and it could benefit from this relationship," McGill said. "In the meantime, it is expected that virtual gambling will continue to grow and IGT will benefit from now putting its titles on the site that can be available for virtual gaming."

IGT is already operating online casinos in Europe. Last year, the company spent $115 million on Entraction Holding, a Swedish technology company that operates online poker networks and supplies online gaming products.

Even if IGT wants to operate its own online poker website, it would face a major barrier to entry. Nevada's recently adopted Internet poker regulations only allow companies with land-based casinos to open an online gaming website.

Gaming Control Board Chairman Mark Lipparelli said discussions surrounding potential federal online gaming regulations also contain language calling for operators to have a bricks and mortar casino presence.

Related Links
IGT - International Game Technology Gaming Vendor Information
Union Gaming Group Gaming Vendor Information
Nevada Gambling


Copyright GamingWire. All rights reserved.
Featured Vendors
Slot Machines Unlimited
TribalHub
Slot Machines Unlimited
Exporter of IGT, Williams, AVP, Trimline, Aristocrat, Konami, Bally, & parts over 20 yrs experience
TribalHub
23rd Annual TribalNet Conference Sept 12-15, 2022 Grand Sierra Resort & Casino in Reno, NV
Sunkist Graphics, Inc.
TOP ONE TECH LIMITED
Sunkist Graphics, Inc.
Specializing in the creation of best-of-breed gaming graphics - slot glass, sign faces, and more
TOP ONE TECH LIMITED
GLOBAL TOUCH SOLUTION PARTNER OF CHOICE,10+ years OEM manufacturing,100+ thousand units application
Rymax Marketing Services, Inc.
Betson Imperial Parts & Service
Rymax Marketing Services, Inc.
Leader in creating award winning player & employee loyalty programs & events proven to increase ROI
Betson Imperial Parts & Service
Your one stop shop for all your gaming and OEM needs!
Talisman Group Creators of EZ Baccarat
TDN Money Systems
Talisman Group Creators of EZ Baccarat
With over 800 tables in 150+ casinos, EZ Baccarat is the number one brand in baccarat.
TDN Money Systems
Cage, cash/chip handling experts representing CountR, ARCA, AccuCASH, Fujitsu & NCR
Casino Network
Imagine This
Casino Network
20+ years experience selling refurbished slot machines, parts & glass for all major brands
Imagine This
Imagine This #1 Source for Player Gifts. Over $50 million in stock ready to ship! Let us serve you!
Oklahoma Indian Gaming Association (OIGA) Conference
Casino City Press
Oklahoma Indian Gaming Association (OIGA) Conference
The biggest little show in Indian gaming! Save the date: Aug 9-11, 2022 in Tulsa!
Casino City Press
A leading publisher and distributor of casino and gaming business data and market research reports.
Kallop
Plastic Card ID
Kallop
Reward every play like a VIP with exclusive luxury brands at affordable prices.
Plastic Card ID
The World’s Lowest Prices on Printed Plastic Cards and Card Printers!
Casino Schedule Ease
AmericanChecked
Casino Schedule Ease
Get a 90-Day Free Trial of 100% contactless, customizable table game & full casino scheduling
AmericanChecked
Background checks for the gaming industry with key & non-key packages & fingerprinting solutions


Your Guide to 15,511 Gaming Industry Suppliers