The two oldest and largest companies supplying the worldwide national, state and provincial lottery markets won a historic auction to privatize Brazil’s Exclusive Instant Lottery (LOTEX) for 15 years.
Normally fierce competitors, IGT and Scientific Games formed a 50-50 consortium to bid on the contract, and won the concession with a $23.5 million bid. The consortium will make seven annual payments of $24.9 million for a total investment of $200 million. The operations, which span retail and online, had been previously operated by Brazilian bank Caixa.
The consortium will begin selling instant games in July next year, Games Magazine Brasil reported. The consortium estimates sales will be $27.15 billion over the course of the 15 years.
The LOTEX concession is larger than any single-state concession in the U.S., and larger than SGMS’ largest international contract, which is Italy, reports Games.
Walter Bugno, IGT CEO international, and Pat McHugh, executive vice president and group chief executive, lottery, for SG issued a joint statement after the concession was awarded.
“The award of the Brazilian LOTEX concession represents an important step towards the privatization of lottery instant games in Brazil, the world’s eighth-largest economy,” the statement said. “We are excited and honored by this opportunity for IGT and Scientific Games to help define the evolution of instant lottery in Brazil through a 50-50 joint venture over the next 15 years.
“This business partnership will benefit the people and government of Brazil and brings together the vast experience and market leadership of global leaders in the instant game market to help position LOTEX for success.”
There news was met with favorable reaction on Wall Street. “We believe this news will be favorably received by investors as these companies have secured a significant growth opportunity while also providing greater clarity on the free cash flow picture, which we view as an important tenant of each company’s investment thesis,” Macquarie Securities gaming analyst Chad Beynon said in a research note.
At the auction, IGT was represented by Roberto Quattrini, director and country manager for Brazil; and Scientific Games by Michael Conforti, president of global strategic accounts.
Scientific Games and IGT have both been supplying lotteries since the 1970s. Scientific Games Corp. was in the lottery business long before it acquired major slot manufacturers WMS and Bally. Founded in 1973, SG introduced the first secure instant lottery ticket in 1974. Today, it supplies lotteries in more than 50 countries worldwide.
IGT parent International Game Technology Plc. was formed when IGT was acquired by GTECH, the other main pioneer among lottery suppliers. Founded in 1980, Rhode Island-based GTECH won numerous U.S. state lottery contracts early on, including lucrative contracts in Illinois, Michigan and New York. In 2006, the company was bought by Italy’s Lottomatica, and remains SG’s top competitor in the worldwide lottery market.
The privatization of Brazil’s LOTEX lottery “represents the break of a 58-year monopoly of the national lottery industry. “It represents openness to competition and a paradigm shift for the country,” said Alexandre Manoel, Brazil’s secretary of evaluation, planning, energy and lottery, according to Games.
LOTEX was included in the PND (National Privatization Program) in January 2016. The state’s first auction was scheduled for June 2018, but no one submitted a bid. Since then, the BNDES, responsible for the sale process, has been publishing new edicts with adjustments to make the sale of LOTEX to the private sector more attractive. Initially, the government had set a minimum bid of R$1 billion (US$ 242 million) in a single installment.
