In premarket trading, the stock seemed ready for a Monday surge following news of its renewed Italian lottery contract, yet International Game Technology (NYSE: IGT) is trending downward in late morning trading as analysts suggest the company may have overpaid for the agreement.
A consortium of Allwyn, Arianna 2001, and Novomatic Italia, spearheaded by IGT, secured what IGT Chairman Marco Sala called “one of the world’s most significant lottery contracts,” securing it for nine years for $2.6 billion. That price is higher than Wall Street anticipated and consists of 2025 payments of $558.26 million and $335 million, with the remainder payable next year.
"Based on Lotto’s current €400M annual earnings before interest, taxes, depreciation, and amortization (EBITDA) run rate, we think this moves the 9 year IRR to the 10-15% range, more than half below our estimate for the prior contract IRR,” observes Truist Securities analyst Barry Jonas. “Still, an expansion into more digital gaming as teased in today’s release (no doubt a focus for tomorrow’s call) could potentially yield higher returns.”
IGT has maintained the rights to manage Italy's lottery for over thirty years, and many in the investment community felt that the possibility of losing the contract contributed to the stock's 20.41% decline during the last year.
Italian Lottery Updates Mostly Favorable for IGT Stock, yet …
The $2.6 billion payment IGT is making to Agenzia delle Dogane e dei Monopoli (ADM) exceeds analysts' expectations, yet concluding the agreement and securing it for almost ten years is largely beneficial, allowing the operator to expand its presence in the Eurozone's third-largest economy.
CEO Vince Sadusky mentioned that IGT aims to enhance its online lottery sales in Italy while possibly leveraging that initiative to expand its presence in the nation’s consumer-oriented iGaming and sports betting sectors, “along with other digital gaming ventures.”
Yet, analysts are concerned that the higher-than-anticipated cost of the Italian lottery deal may impact IGT’s capacity to return capital to investors following the company’s merger of its global gaming and PlayDigital divisions with Everi and Apollo Global Management.
“The magnitude of the bid price likely exceeds most expectations and therefore mitigates the upside reaction,” wrote Jefferies analyst David Katz in a note to clients on Monday. “Note that post the completion of the gaming business later in 2025, Management indicated it would use the $4B+ proceeds to reduce debt and return capital, and our assumption is that this bid reduces the prospective capital return opportunity.”
Flutter Will Be Alright
Flutter Entertainment (NYSE: FLUT) competed with IGT for the Italian lottery agreement. In 2022, Flutter acquired Italian lottery giant Sisal for $2.2 billion and is currently in the process of purchasing Snaitech, demonstrating its substantial presence in Italy.
Although the FanDuel parent lost the Italian lottery contract, the long-term effects on its shares are probably minimal.
“We don’t see any major negative read for FLUT in the loss of Italian Lotto to IGT as our view on FLUT owning Lotto at all costs was mixed. We have always seen traditional Lotto as a lower multiple business (~5.5x historical multiple) somewhat straying from FLUT’s core Digital focus,” adds Jonas.
