Light & Wonder Completes Divestment of Non-Casino Operations

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On the morning of September 30, Light & Wonder, Inc. (L&W) announced the completion of the sale of its sports betting business, OpenBet. The buyer is US-based sports and entertainment content company Endeavor Group Holdings.

Under the reported terms of the deal, Endeavor paid L&W $750 million in cash, plus approximately $50 million worth of Endeavor stock. Endeavor trades on the New York Stock Exchange as $EDR.

Prior to spring 2022, L&W was known as Scientific Games and had its fingers in a lot of areas of the gambling business. It created games and products for online and land-based casinos, provided a platform for sports betting sites, and had a lottery division.

However, in a strategic plan announced in June 2021, L&W committed to selling its sports and lottery wings. The objective was to streamline the company’s operations by focusing solely on the casino space. At the time of the announcement, then-CEO Barry Cottle explained that he was seeking to:

…optimize our portfolio and strengthen our balance sheet by significantly de-levering, while also targeting investments in our largest growth opportunities… [to] accelerate our path to become a content-led growth company focused on leading in both land-based and digital markets… positioned to build great games that define the future of gaming.

The most significant move of the phase came in October 2021. Scientific Games announced the sale of the company’s global lottery services and technology business to Brookfield Business Partners LP, a subsidiary of private equity giant Brookfield Asset Management, for $5.8 billion.

It’s worth noting that the Lottery business has kept the “Scientific Games” name as a Brookfield Business Partners portfolio company. That name, however, is no longer affiliated with the company now known as Light & Wonder.

An Important Milestone for Light & Wonder

The sale of OpenBet represents the final step of the divestiture phase of the strategic plan. In announcing the completion of the transaction, the L&W stated that the deal “positions OpenBet to build on their exceptional track record of innovation as part of Endeavor.”

In addition, and more importantly for L&W, the deal “strengthens the balance sheet and positions the Company to unlock tremendous value as the leading cross-platform global games company.”

Excessive debt and being spread too thin had been chronic problems for Scientific Games before the new plan and fresh identity.

In the words of interim L&W CEO Matt Wilson:

With the completion of the divestiture and our now streamlined organization, Light & Wonder is well positioned to execute on our growth strategy with a singular focus on building great games fully cross-platform.

(Wilson was promoted from Executive Vice President and Group Chief Executive of Gaming following Cottle’s resignation in August 2022)

Starting in the final months of Cottle’s tenure and continuing under the guidance of Wilson, L&W has also embarked on an acquisition phase to beef up its casino offerings.

Still Waiting on US Live Casino Debut

In November 2021, the company acquired, for an undisclosed sum, premium live casino solutions provider Authentic Gaming. The acquisition positions L&W to establish itself in the popular US live dealer gaming space currently dominated by Evolution.

These games use real human dealers, streamed from a studio rather than digital random number generators. They provide online players with an immersive experience similar to being in a real casino but from the comfort of their own homes.

Though it hasn’t yet done so, L&W has said it will soon begin opening live dealer studios in the United States. It will be the third competitor in the space, alongside Evolution and Playtech. (A fourth brand, Ezugi, is now a subsidiary of Evolution).

At the time of the deal, L&W stated that live dealer games represented 30% of the total iGaming market. By all accounts, live dealer games are a significant driver in the future of online casino gaming.

More recently, in May 2022, L&W acquired Playzido, a “dynamic content creation platform provider and game supplier.”

Playzido, originally developed by Paddy Power in 2018, offers a proprietary Remote Gaming Server (RGS) platform that is regarded as one of the iGaming industry’s best for rapid custom game development. According to L&W, its acquisition will:

…accelerate the pace at which L&W can partner with game studios and operators across the globe to co-create new and exclusive content for players… [and] will accelerate the L&W partnership strategy that has already been instrumental in the creation of content for studios like Lightning Box.

Capturing Lightning in a Box

That company, Lightning Box, is another recent acquisition, though one which predates both Authentic and Playzido.

One year since becoming an L&W subsidiary, it’s powerful proof of the company’s synergistic potential. Based on results reported in September, it has seen its revenue grow 57% in the year since its acquisition.

Credited as a major driver of that growth is Lightning Box’s inclusion in the OpenGaming platform. Through this platform, L&W offers games from a variety of studios, big and small, to its partners in the US and Europe.

US online casinos using OpenGaming include market leader BetMGM, Golden Nugget and FanDuel. Its list of international partners is long and includes the likes of Sky Bet and LeoVegas.

Lightning Box’s catalog is a worthy addition to OpenGaming. Lightning Shenlong now ranks among the top ten products across all of OpenGaming’s categories. At the same time, Lightning Gorilla is already a top-20 slot in the US even before its upcoming debut at Pennsylvania online casinos.

What’s To Come?

Commenting on the OpenBet sale, CEO Wilson provided a rosy outlook for the company. Perhaps most importantly, it has reduced the company’s leverage:

With the completion of this sale, we have delivered on our key priority to transform our balance sheet, with a clear path to achieving our Targeted Net Debt Leverage Ratio of 2.5x-3.5x.

He also expects it to lead to further growth and sustainable financial health:

With our mix of recurring and digital revenues, double-digit growth profile, $1.4 billion of 2025 Targeted Consolidated Adjusted EBITDA and strong cash flow, we have created an opportunity to generate significant excess capital. Our enhanced financial flexibility accelerates our ability to return substantial capital to shareholders through our share repurchase program, while also pursuing our key growth initiatives, enabling us to unlock tremendous shareholder value going forward.

Shareholders seem to share in the optimism if we account for the headwinds the industry as a whole is facing. While L&W stock ($LNW on the NASDAQ) is down almost 30% in 2022, it has outperformed the rest of the gambling sector year-to-date. Most importantly, it has risen nearly 20% since the announcement of the OpenBet sale, despite the troubles facing the broader market.

L&W has not elaborated on its plans for further expansion. However, analysts believe it will seek to return some capital to shareholders via stock buybacks while hunting for more independent game studios and other smaller companies to acquire.

About the Author

Emile Avanessian

Emile is a one-time banker turned freelance writer. He previously worked in equity research and as a member of the Financial Sponsors Group with Goldman Sachs, where he worked on numerous casino- and gaming-related projects. His written work has focused largely on sports (NBA basketball and European soccer) and sports betting. Emile currently also writes for Squawka and Urban Pitch. His work has also been published in The Los Angeles Times, The Blizzard, Yahoo Sports, SI.com, and ESPN.

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