Scientific Games to Sell Lottery Arm to Brookfield for $6.05B

Scientific Games Corporation, one of the world’s leading providers of gambling products, announced that it entered into a definitive agreement to sell its Lottery business to Brookfield Business Partners LP. The announcement came on Wednesday, October 27th, disclosing that the Lottery arm will be sold for a total consideration of $6.05 billion.

Brookfield will pay $5.825 billion of the price tag in cash, then clear the remaining $225 million upon hitting specific EBITDA targets next year and in 2023. All said and done, this transaction is projected to be closed by Q2 2020, subject to the usual regulatory approvals and applicable closing conditions.

Brookfield Business Partners LLC is a flagship subsidiary of Toronto-based Brookfield Asset Management Inc, a renowned finance conglomerate managing over $625 billion worth of assets under its portfolio. By the same token, the Brookfield Business Partners arm is an industrials and business services company that owns and operates top-tier businesses that thrive from low production costs and/or barriers to entry.

After Scientific Games announced the sale of its lottery business, David Nowak, the Managing Partner at Brookfield Business Partners, voiced his enthusiasm in the arrangement, saying:

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“The Scientific Games Lottery team has built a leading business, which has innovated its industry, at the convergence of games, technology, and services, across retail and digital channels for its global customers. With our capabilities and global reach, we look forward to supporting management in the continued growth of the business.”

A Global and Innovative Leader in the Lottery Business

Scientific Games Lottery (SG Lottery), the lottery arm of Scientific Games Corp, is a prominent global lottery partner with well-established multi-year contracts with about 130 lottery entities (government and non-government) across more than 50 countries. The lottery giant offers a leading-edge suite of turn-key products and solutions cutting across the entire ecosystem of the world of lottery games.

Some of the most innovative creations of SG Lottery include terminal-generated and instant lottery games, lottery systems, sports betting, retail technology, and products in the rapidly growing iLottery market. Currently, the SG Lottery powers roughly 69% of the products and services behind retail and instant product sales worldwide.

Patrick McHugh, the Chief Executive of Scientific Games Lottery, welcomed his division’s acquisition in a statement saying:

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“We are thrilled with this outcome and what it means for the future of Scientific Games Lottery and our customers. I am confident that, with Brookfield’s support, we will have the flexibility and agility to expand our deep product portfolio to meet our customers’ evolving needs and maximize lottery beneficiary proceeds across the globe, enabling us to capture the significant opportunities we see ahead.”

After the transaction is completed, the headquarters of SG Lottery will continue to be at the metro-Atlanta offices, and global operations are expected to remain as they are. Meanwhile, SG Lottery has also penned a Transitional Services Agreement with the larger Scientific Games Corporation to supply its bought-out subsidiary with some specific facilities at a cost for an initial transition period.

Some of the facilities in question include certain human resources, legal, regulatory compliance, information tech, and finance provisions, and the agreed interim term is 12 months.

A Bold Divestment Plan for a More Robust Balance Sheet

Upon the announcement, Barry Cottle, the President and Chief Executive Officer of Scientific Games, shared a few sentiments in a statement about the company’s divestment strategy as follows:

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“This transaction is transformative in accelerating the delivery of our stated strategy to optimize our portfolio, aggressively de-lever our balance sheet, and position us to invest in future growth. We conducted a thorough review of paths to divest the Lottery business, and we are confident that this transaction maximizes value and certainty while minimizing complexity and execution risk and positions both Scientific Games and SG Lottery for continued success along their unique growth trajectories.”

Earlier this year, the company disclosed its plans to divest some of its assets to rework its debt-heavy portfolio that had taken blows from the 2020 Covid-19 pandemic. The first significant offload came late last month when Scientific Games Corporation sold its OpenBet sports betting subsidiary to Endeavor Group Holdings for a cool $1.2 billion.

With a follow-up divestment of this magnitude ($6 billion-plus SG Lottery sale), the company is now better positioned to pursue its future goals with a stronger balance sheet. After the announcement of the SG Lottery offload, Cottle added that:

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“The significant near-term proceeds from this transaction, as well as our previously announced sale of Sports Betting, will transform our balance sheet and provide the financial flexibility to invest organically and inorganically to accelerate our strategies. This marks a major milestone and puts us on a clear path to achieve our vision to become the leading cross-platform global game company and unlock our full value for shareholders.”