) recently signed a new contract with Szerencsejatek Zrt, the
Hungarian State Lottery, after winning a competitive procurement
process. Szerencsejatek Zrt is the only lottery provider in
Hungary, operating more than 4,800 terminals. The company
generated sales of approximately $900.0 million in 2012.
Under the terms of the contract ending 2020, Scientific Games
will implement and manage its AEGIS NGS video central
communication system for Szerencsejatek and install and manage
additional Wave terminals.
We believe that the new contract will expand Scientific Games'
footprint in the Central and Eastern European lottery market.
This will help Scientific Games to somewhat offset weak
performance in the domestic market as well as in United Kingdom,
Italy and China.
International expansions provide significant growth opportunities
for Scientific Games. Most recently, Scientific Games won
contracts in Dominica and Panama. Currently, Scientific Games has
lottery systems operating in Argentina, Canada, China, Israel,
Australia, France, Hungary, Iceland, Latvia, Mexico, Norway, the
Philippines, Spain and Switzerland.
Scientific Games continues to seek to expand its server-based
gaming machine business outside the U.K., with current
deployments in the Caribbean, Czech Republic, Mexico and Puerto
Rico. As of Dec 31, 2012, Scientific Games had an installed base
of approximately 5,100 gaming machines outside U.K.
Scientific Games already generates more than 50% of revenues from
international operations and we see further opportunities in
untapped markets of India, Russia and Greece going forward.
Moreover, the domestic lottery industry is undergoing a
transition, which involves increasing involvement of private
vendors in state lottery management, higher prize payouts and
introduction of tiered pricing for national jackpot games to add
impetus to the sagging lottery industry in the U.S.
We believe that Scientific Games is well positioned to benefit
from this transition going forward. Apart from price increases,
Scientific Games sees an opportunity for providing central
monitoring and control systems for video gaming networks in the
future, which will be an attractive growth avenue.
However, increasing investment for product development is
expected to hurt profitability in the near term. Additionally, a
significant increase in regulatory, professional fees and other
expenses related to the
) acquisition will hurt margins in the near term.
Further, stiff competition from the likes of
International Game Technology
Bally Technologies Inc.
) is expected to hurt profitability, going forward.
Currently, Scientific Games carries a Zacks Rank #4 (Sell).
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