Scott Longley reports on the potential fallout from the surprise Scientific Games acquisition of NYX Gaming, and its Openbet subsidiary.
It may seem surprising that in a climate of sometime feverish M&A speculation, the potential of a buyout deal for NYX Gaming launched by one of the behemoths of the global gambling provision could have been kept under wraps.
Evidentially, such was clearly the case with the all-cash offer from Scientific Games which values the online gaming and sportsbook supplier at a very toppish $631m (£465m). It represents a 112 percent premium to the share price on the day before the announcement and a multiple of enterprise value to EBITDA of 11.2 times.
The president of Scientific Games, Kevin Sheehan, wasn’t overstating the case when he said this creates a “global gaming and lottery powerhouse” and it certainly more than augments SciGames’ existing online business SG Interactive.
As well as adding in a huge library of online games, it also significantly brings with it the OpenBet sportsbook backend business that NYX itself acquired in April 2016 for £270m.
Simon French, analyst at Cenkos, pointed out on the day after the announcement that the deal “throws up a number of interesting questions for the online gambling industry.”
“This provides strong valuation support for other listed online gambling companies,” he said in a note to clients.
“To see a major US headquartered business acquiring a UK sportsbook suggests UK online companies with proprietary sports-betting technology are firmly on the radar of their US land-based peers as they grapple with the potential regulatory reform of US sports betting.”
SciGames said it hoped to leverage the sportsbook business in “future regulated US and global markets” and hoped to build on NYX’s “standalone strategic momentum”.
It is a significant move, according to Richard Carter, chief executive at rival sportsbook provider SBTech, who points out that the deal is a sign of how important sports betting could be for the US market.
“As a company it is a situation SBTech is constantly monitoring and taking part in,” he added. “However, it is also important not to pre-empt or assume anything with regard to the upcoming Supreme Court hearing and assess the situation once there is more solid information to go on.”
Ahead of such mid-term ambitions, the job if integrating the businesses while maintaining the existing significant relationships will be no easy task.
Pointing to a litany of previous acquisition failures in the online space on the part of large-scale US suppliers (admittedly mainly involving the then-independent IGT and Gtech), Paul Leyland, analyst and partner at the gambling consultancy Regulus Partners, said the portents are far from positive.
“The historical track record of large, principally-US, businesses understanding, integrating and growing digital real-money gambling capabilities by acquisition is beyond poor.”
In this respect, it should be noted that current NYX Gaming chief executive Matt Davey is staying with the business as head of the newly-created digital gaming and sports division at SciGames, working alongside the recently appointed managing director of B2B interactive, Leigh Nissim.
Knowing the patchy track record, the potential is there for the natives to become restless. William Hill, for instance, was so worried about the fate of the then standalone OpenBet that it part-funded the NYX buyout with £80m in cash and a further £10 chunk of NYX equity.
A spokesperson for William Hill confirmed the contractual obligations dating from that deal remain in place and that it would “obviously remain a key customer” and already worked with SciGames in other areas including with its own self-service betting terminals (SSBTs) and with its gaming content.
Yet, this is far from the “strategic” language of the original OpenBet buyout and from being first among equals for NYX Gaming, William Hill now necessarily slips down the pecking order.
As French noted, “it raises questions” over William Hill’s sportsbook strategy but such is also the case for the other big names on the OpenBet platform including Paddy Power Betfair and Sky Bet (which French noted has already opted to use the SBTech platform for its German launch).
Said French: “It is possible some Openbet customers may not want to be part of a larger, land-based focused group and find themselves even further down the development stack and seek to move their custom elsewhere.”
Among the potential beneficiaries of any post-deal fallout are the aforementioned SB Tech and its other rival sportsbook providers such as Amelco, Kambi and even Playtech which was itself a strongly rumoured suitor for OpenBet and which has seen its own sports-betting operations stutter in recent months.
What was obvious with the NYX/OpenBet deal – and is clear from Playtech’s own history of adding to its organic growth via numerous acquisitions – is that scale is now all in the online gambling space.
As Leyland said, the logic of the deal from SciGames’ point of view is “compelling” and NYX represented “one of the few readily digestible targets available.” “Given this strategic backdrop, the risk of Scientific Games not increasing capabilities in the digital space is therefore now probably greater than the risk of badly executing a material online deal.”
Said French: “It’s hard to escape the sense that the Americans are coming.”