SGMS Wins Oklahoma Contract

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Scientific Games Corporation (SGMS) has signed a contract with Oklahoma Lottery. The contract is scheduled to take effect from Aug 9, 2013. Though the current contract is for one year only, provisions are there to extend the contract further to a maximum of nine years.

Scientific Games is associated with Oklahoma Lottery since its launch in 2005 and the present contract would strengthen its partnership. As per the Lottery Gaming Services, Scientific Games would provide Oklahoma Lottery with terminals and statewide communications, warehousing, instant ticket printing, distribution, technical and sales staff and lottery services.

Apart from the current contract with Oklahoma Lottery, Scientific Games has recently won contracts from Loteria Electronica Internacional Dominicana S.A. and Loteria Nacional de Beneficencia of Panama. These contracts are expected to incrementally benefit the company, going forward.

The domestic lottery industry is undergoing a transition, which involves increasing involvement of private vendors in state lottery management, higher prize payouts and introduction of tiered pricing for national jackpot games to add impetus to the sagging lottery industry in the U.S. We believe that Scientific Games is well positioned to benefit from these transitions, going forward.

We believe that the company’s diversified product offerings, international development activities, recurring revenue business model, strong growth of the Internet-based business and WMS Industries (WMS) acquisition will drive the stock over the long term.

However, increasing investments for product development is expected to hurt profitability in the near term. Additionally, a significant increase in regulatory, professional fees and other expenses related to the WMS acquisition will hurt margins in the near term.

Further, stiff competition from the likes of International Game Technology (IGT) and Bally Technologies Inc. (BYI) is expected to hurt profitability, going forward.

Currently, Scientific Games carries a Zacks Rank #4 (Sell).

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