Gambling News | 20 Feb 2025

Charity gaming: Is L&W's massive bet on it the beginning of a trend?

 The purchase of Grover Gaming's charitable gaming assets by global gaming behemoth Light & Wonder (L&W) may be only the beginning of a wave of industry takeovers.
 Senior leadership changes at UK Tote Group
 The news broke on Tuesday, February 18th, and stated that L&W would pay $850 million (£675.5 million/£815.4 million) in cash initially, with an additional $200 million available over four years through an earn-out mechanism.  In the second quarter of this year, the purchase is anticipated to close.

 The announcement was well-received by analysts, with one speculating that L&W might spearhead a new wave of acquisitions.

 The late Frank Fantini, creator of Fantini Research and a veteran gaming researcher, has been a lifelong follower of L&W.  According to his analysis, the development of related industries, including charitable gaming, opens up new chances for large companies to acquire well-known brands and enter new markets ahead of the competition.

 While speaking with iGB, Fantini speculated that "traditional, conventional game companies are going to start acquiring" local businesses like Grover.  There would be a slew of purchases in that sector, he predicted, and this one might be the beginning.

 Experts are optimistic about the potential
 With cost savings and growth prospects still ahead, Fantini stated that the 7.7x AEBITDA multiple was beneficial when it came to valuation.

 According to him, it immediately boosts the earnings of gaming tech companies, especially because they likely sell at 10x EBITDA.  They're selling their own stock at a higher valuation.  Then it's a done deal for them in that respect.

 Similarly, responses in other regions were favourable.  The stock was rated "outperform" by the Macquarie team, who captioned their note "Finding their four leaf Grover."

 Analysts have stated that the acquisition of Grover Gaming's Charitable Gaming Assets by LNW will provide a growth driver in the long run by expanding into a new adjacency.  With gaming momentum, double-digit igaming growth, and continuous SciPlay profitability, we are optimistic that we can achieve the $1.4bn 2025 EBITDA objective in the near future, even without this acquisition.  Earnings growth across all three sectors is projected to reach 13% CAGR (ex stock comp) during the next three years, till CY27.

 Big Bird, get out of here!
 Notes titled "Move over Big Bird" were also trending, according to Truist Securities' Barry Jonas.  Like Fantini, Jonas deemed the valuation "attractive" and pointed out the prospects for growth that this presents.

 There are high obstacles to entry in the charitable gaming industry, but with the acquisition of Grover Gaming's assets, LNW will be able to use its content to reach new clients, according to Jonas.

 L&W expects its net debt leverage ratio to remain within the target range of 2.5x-3.5x, but it did mention that incremental loan financing and cash on hand were used to fund the purchase.  Additionally, the $1.4 billion combined AEBITDA target for 2025 has been reaffirmed by the corporation.

 "To help drive the continued success of the business over the next three years" is the stated purpose of Grover founder Garrett Blackwelder's advising role, according to the press release.  According to L&W, the company's sales for 2024 was $135 million, while their AEBITDA was $111 million.

 Grover has decided to transfer ownership of their 10,000+ electronic pull-tab machines that are now leased to L&W.  With headquarters in Raleigh, the business serves customers in North Carolina, Ohio, Virginia, Kentucky, and New Hampshire, among five other states.

 Wilson: Investing in charitable gaming is a significant deal.
 L&W CEO Matt Wilson made it plain on an investor call late Tuesday that the charitable gaming sector is a strong one for his company.  With legislation still stuck in a rut this year, especially when it comes to igaming, these preexisting adjacencies are looking more appealing by the day.

 According to Wilson, "deploying our RND arsenal on the charitable gaming sector" is the clearest approach to increase the value of the Grover assets owned by the company.  "L&W has invested billions of dollars on RND over the past few decades.  Collaborating across numerous companies to build amazing franchises, implement math into games, and innovate in the art world.  We plan to launch that cannon straight into the charity market.

 According to Wilson, the states of Minnesota and Maryland are currently the top two targets for growth.  He went on to say that L&W had considered naturally breaking into the charity industry, but that doing so would have been challenging due to the dispersed nature of their clientele.  In contrast to L&W's 700 clients spanning the entirety of North America, Grover boasts 1,500 clients spread across five states.

 The organic construction could have been an option, but Wilson warned that it could have taken five, six, or seven years to reach the current level of magnitude.  "We can immediately purchase 10,000 units and add our content on top of that."

 Electronic pull tabs and charitable gaming
 Simply said, charitable gaming is a system that allows the majority of profits to go to local charities.  For states with a history of anti-gaming sentiment, this is a more acceptable expansion option.  The kinds of gaming that are available and the rules that regulate them differ substantially from one state to the next.  While only some groups are allowed to run the games, this industry has been developing into a huge potential for profit.

 Except for Hawaii and Utah, all states have some kind of charitable gaming law, according to Harbour Compliance.  There are a number of other jurisdictions that function on a county level and lack state frameworks. These include South Dakota, Vermont, Wyoming, South Dakota, Pennsylvania, Alabama, and Maryland.

 Players of pull tabs, a game similar to the lottery, try to win little jackpots by pulling open perforated tabs on the playing cards.  You can find them on paper and in an electronic form called e-pull tabs.  To provide the illusion of playing in a real casino, the electronic versions transfer the games to a cabinet like a slot machine.  So, they're comparable to other verticals like Class II machines, VLTs, and HHR machines, but they're not the same.

 As of right now, eleven states have legalised e-pull tabs, and roughly forty have legalised paper products.  The American Legion, the Veterans of Foreign Wars (VFW), and other veterans and charity organisations enjoy both editions.

 Moving L&W's well-known gaming titles onto Grover's e-pull tab machine platform is the plan.  Wilson boasted on the investor call that his firm had extensive expertise bringing games to other sectors, such as the ones listed above.

 "It's not going to be a carbon copy, but we've shown in numerous adjacencies that we can pull it off," he claimed.

 The most recent change in strategy for L&W
 A corporation that has undergone a radical transformation over the past decade enters a new chapter with the purchase.  L&W (formerly Scientific Games) was a highly leveraged and diversified corporation in the 2010s.  In its haste to cater to every type of game, it had essentially overextended itself.

 The business then revealed a major restructuring in June 2021.  It refocused solely on games, its core business, and divested itself of its sports betting and lottery sections.  Endeavour paid $800 million to acquire the sports betting segment in September of 2022, while in April of the same year, Brookfield Business Partners paid $5.8 billion to purchase the lottery business.  This was also at the time that the firm refinanced a large portion of its debt.

 Since then, L&W has had unprecedented success.  From the mid-$70s when it was divested to $106 now, its stock price has climbed significantly.  Aside from Aristocrat and IGT, it is widely believed to have established itself as a top-three provider.  Since going through its recent restructuring, the Grover acquisition has been the most significant investment for the organisation.