Scientific Games Corp. (
SGMS
)
recently signed a new contract with the Illinois Gaming Board (IGB)
for setting up a central communications system (
CCS
) in the State of Illinois. Under the terms of the contract,
Scientific Games will design, implement and manage its AEGIS-video
central communication system for IGB. The system will connect IGB
to every installed video gaming terminal in the state and help it
better manage as well as analyze all the betting activity in the
state.
Illinois legalized video gaming way back in 2009 in order to
generate billions of dollars required for construction and road
work. The state had estimated annual earnings of $300.0 million
beginning from 2010 through this route. However, the competitive
procurement process turned out to be a debacle, when one of the
participants, Greece-based Interlot S.A. challenged IGB's decision
of awarding the contract to Scientific Games in August 2010.
IGB finally determined that there was a misunderstanding between
the agency and the bidders about the evaluation of the proposals
and eventually cancelled the process. The state agency called fresh
tenders and after much delay awarded the contract to Scientific
Games. This time around, Interlot opted out of the final bidding
and Scientific Games won the contract by beating its Northstar
Lottery Group joint venture partner GTECH Corp, a subsidiary of
Lottomatica S.p.A.
IGB expects the video terminals to go live by the end of this
year. The six-year agreement with IGB is valued at approximately
$69.0 million, based on a fee of 0.725% of the estimated net
terminal income from up to 60,000 video terminals expected to be
installed in the state going forward. The contract can also be
extended for another four years through mutual consent.
Scientific Games' video gaming group currently manages
approximately 9,000 locations with over 94,000 gaming machines
globally. As most of the U.S. states face an increasing revenue
crunch owing to the sluggish macro environment, they are looking
for new avenues to bolster their funds. Scientific Games has been
actively pursuing opportunities in jurisdictions that are seeking
to expand into licensed video gaming or replace their existing
video gaming systems.
In 2011, Scientific Games won contracts in Louisiana, Illinois,
Colorado, Missouri, Georgia and New York, which are expected to
drive its top-line growth going forward. We also believe that these
contract wins will strengthen Scientific Games' position as
compared to its nearest rival
International Game Technology (
IGT
)
.
We maintain our Neutral recommendation over the long term (6-12
months). Currently, Scientific Games has a Zacks #3 Rank, which
implies a short-term Hold rating.
INTL GAME TECH (
IGT
): Free Stock Analysis Report
SCIENTIFIC GAME (
SGMS
): Free Stock Analysis Report
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