Inside Gaming: Greek lottery rules changes cost IGT, Scientific Games millions

At first glance, it appeared the Greece financial crisis had dipped into the country’s lottery network.

Instead, the Greek company that operates the nation’s lottery implemented what one analyst called “a hard-nosed negotiation tactic” to extract more favorable contract terms after Greece’s Hellenic Gaming Commission announced new lottery industry regulations.

But the move hits the bottom lines of Nevada’s two largest slot machine manufacturers, costing Scientific Games Corp. and International Game Technology millions of dollars in revenue and cash flow.

“These were sizable business opportunities for both IGT and Scientific Games,” said Eilers Research principal Todd Eilers.

Ultimately, Eilers expects OPAP — the Greek company that operates the country’s network of slot machine-like video lottery terminals — will reach an understanding with regulators, given the country’s need for tax revenue amid its financial crisis.

Union Gaming Group analyst Christopher Jones blamed the Greek government for changing the rules around the VLT deployment just days before the games were to be launched.

“Given the ongoing uncertainty around the future of Greece, let alone the standing government of Greece, it stands to reason that the near-term outlook for the Greek video lottery terminal market is now in question,” Jones said.

OPAP suspended the deployment of some 16,500 lottery terminals countrywide after Greek lottery regulators lowered jackpot levels, instituted daily loss limits, and reduced the amount of time gamblers can play a machine.

Eilers said the new regulations “were much more restrictive than previously outlined.”

In a statement, OPAP said the new regulations made VLT operations “no longer viable.” The company also needed time to implement new technical requirements.

OPAP, which has a 10-year government contract to operate the VLTs, stopped the deployment.

“The delay doesn’t have anything to do with the current debt crises other than maybe OPAP playing hardball with the regulators hoping that they will cave because they need the new tax revenue,” Eilers said.

The timing was coincidental.

OPAP’s move came a few days before more than 61 percent of Greek citizens on Sunday voted against accepting deep spending cuts, tax hikes and other reforms that European creditors demanded for extending further bailout assistance to the deeply indebted nation.

Greek banks are on the verge of insolvency and analysts believe the country will exit the euro.

So who has time to play the lottery?

The announcement wasn’t good news to the balance sheets of Scientific Games and IGT.

OPAP had already awarded first-phase vendor contracts to the companies and two European manufacturers, Inspired Gaming and Synot.

Eilers estimated the 5,500 video lottery machines awarded to IGT would generate between $20 million to $30 million in annual recurring shared gaming revenue and $16 million to $24 million in recurring cash flow.

As for Scientific Games, Eilers said the company could see between $18 million to $27 million in annual recurring gaming revenue and $16 million to $23 million in cash flow from 5,000 games.

Eilers believes a compromise will be reached. There is just too much money on the table to lose in favor of uncertainty and posturing.

“We still believe the VLT market will move forward and its represents a sizable growth opportunity for vendors,” Eilers said.

The Greek announcement comes as Scientific Games and IGT work to assimilate their new surroundings. The companies were involved in a combined $15.3 billion in mergers and acquisitions that remade Nevada’s slot machine manufacturing sector in the past two years.

Scientific Games, which acquired Bally Technologies and WMS Industries (as well as SHFL entertainment through the Bally deal) moved its corporate headquarters from New York to Las Vegas. IGT merged with Italy-based GTECH Holdings and the company’s new headquarters is in London, although slot machine manufacturing is centered in Nevada.

Greece is an important market for the companies with slot machine sales continuing to slow in the U.S.

In his first quarter slot machine supplier report, Eilers estimated slot machine sales in the U.S. and Canada declined 17.8 percent between January and March. The only increases came from lease-to-sale conversions to the Maryland Lottery and sales for lottery games into Canada and Oregon.

In Greece, Eilers said the 16,500 VLTs were the initial phase. The second phase could provide another 18,500 games.

“The phase one vendors are likely to get a decent share of the phase two allotment, given that patrons will be used to their game themes and styles,” Eilers said.