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


Copyright GamingWire. All rights reserved.
Featured Vendors
Rymax Marketing Services, Inc.
TOP ONE TECH LIMITED
Rymax Marketing Services, Inc.
Leader in creating award winning player & employee loyalty programs & events proven to increase ROI
TOP ONE TECH LIMITED
GLOBAL TOUCH SOLUTION PARTNER OF CHOICE,10+ years OEM manufacturing,100+ thousand units application
Patriot Gaming & Electronics, Inc.
Broadband Hospitality
Patriot Gaming & Electronics, Inc.
Patriot Gaming…Parts is what we do. Visit us: www.patriotgaming.com
Broadband Hospitality
Improve these critical guest-facing amenities: In-room TV, Wi-Fi, Mobile App. Priced right. All here
Acres Manufacturing
TribalHub
Acres Manufacturing
Cashless Loyalty & Bonusing in a Single Mobile App
TribalHub
24th Annual TribalNet Conference Sept 18-21, 2023 Town & Country Resort, San Diego, CA
Oklahoma Indian Gaming Association (OIGA) Conference
New Level Radio
Oklahoma Indian Gaming Association (OIGA) Conference
The biggest little show in Indian gaming! Save the date: Aug 14-16, 2023 in Tulsa!
New Level Radio
Your Casino. Your Music. Your Message.
Casino Schedule Ease
Casino City Press
Casino Schedule Ease
Full Featured & customizable for the complex scheduling needs of table games & other casino depts
Casino City Press
A leading publisher and distributor of casino and gaming business data and market research reports.
Slot Machines Unlimited
Betson Imperial Parts & Service
Slot Machines Unlimited
Exporter of IGT, Williams, AVP, Trimline, Aristocrat, Konami, Bally, & parts over 20 yrs experience
Betson Imperial Parts & Service
Your one stop shop for all your gaming and OEM needs!
AmericanChecked
Talisman Group Creators of EZ Baccarat
AmericanChecked
Background checks for the gaming industry with key & non-key packages & fingerprinting solutions
Talisman Group Creators of EZ Baccarat
With over 800 tables in 150+ casinos, EZ Baccarat is the number one brand in baccarat.
Casino Network
Sunkist Graphics, Inc.
Casino Network
20+ years experience selling refurbished slot machines, parts & glass for all major brands
Sunkist Graphics, Inc.
Specializing in the creation of best-of-breed gaming graphics - slot glass, sign faces, and more


Your Guide to 15,264 Gaming Industry Suppliers