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Why Scientific Games shares fell 15.6% on Thursday


What happened

Game industry supplier actions Scientific games (NASDAQ: SGMS) fell as much as 15.6% in trading on Thursday after announcing the sale of part of its business. Shares ended the day down 8%.

So what

Brookfield Business Partners agreed to purchase Scientific Games’ lottery business for $ 6.05 billion, including $ 5.825 billion in cash and up to $ 225 million in earn-outs based on targets for earnings before interest, taxes , depreciation and amortization (EBITDA) in 2022 and 2023. The transaction is expected to close in the second quarter of 2022.

Image source: Getty Images.

This is another unwinding of Scientific Games’ business following the September announcement of the sale of sports betting company OpenBet for $ 1.2 billion to Effort Group.

Scientific Games has spent years gaining a leading position in the gambling and lottery market, but has incurred approximately $ 9 billion in debt to do so. Now he is unwinding part of the business in order to pay off the debt and hopefully get back to profitability.

SGMS Revenue Graph (TTM)

SGMS Revenue (TTM) data by YCharts

Investors may fear today that after these sales, there is not enough left to justify the valuation of the company.

Now what

Today’s movement needs to be put in perspective. Over the past year, Scientific Games shares have risen 158%, even after today’s decline. Thus, investors had become more optimistic about the company even before these sales took place. Management wants to be a “global, cross-platform gaming company,” and that likely means more digital offerings as online gaming grows. It’s a risky strategy, but an improved balance sheet and lean business could allow Scientific Games to once again become a growth company in gambling.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


Margarita W. Wilson

The author Margarita W. Wilson