Scientific Games Corp.
joint venture, Northstar New Jersey Lottery Group, LLC recently
signed a long-term agreement with New Jersey Lottery to provide
marketing, sales and other services. The agreement approximately
spans a 16-year period, which starts from Oct 1 this year and
ends on Jun 30, 2029.
Northstar NJ is a joint venture between Scientific Games (18.0%
equity interest), GTECH Corporation (a subsidiary of Lottomatica
Group S.p.A) and OSI LTT NJ Grantor Trust ("OSI"), an affiliated
entity of OMERS Administration Corporation, the administrator of
the Ontario Municipal Employees Retirement System pension funds
Under the terms of the agreement, Northstar will provide a number
of specialized services to strengthen the Lottery's marketing,
sales, game development as well as advertising functions.
In lieu of the services, Northstar will receive annual incentive
compensation payments. The incentive is based on the extent the
company is able to spur Lottery's net income, above certain
target levels, subject to a maximum of 5.0% of the year's net
However, if Northstar fails to cross the target, the company will
have to pay the shortfall from the set target, subject to a
similar cap (maximum of 2.0%) and $20.0 million as shortfall
payment credit. Moreover, Northstar will pay the state at least
30.0% of annual lottery ticket revenues.
Scientific Games and GTECH will supply Northstar NJ with instant
lottery games, systems and equipment and related services. The
company is expected to have a 30% economic interest and will also
be responsible for 30.0% capital requirements for these supply
Scientific Games continues to win contracts in the domestic
market. Besides New Jersey Lottery, the company recently signed a
five year contract with the South Carolina Education Lottery
("SCEL") to provide instant ticket and cooperative services.
We believe that these contracts will further expand Scientific
Games footprint going forward. These contract wins reflect
Scientific Games strong position. It is likely to benefit from
the ongoing transition in the domestic lottery industry, which
involves increasing involvement of private vendors in state
lottery management, higher prize payouts and introduction of
tiered pricing for national jackpot games.
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
WMS Industries (
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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