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Sportech to purchase Scientific Games Racing

January 28, 2010

United Kingdom-based bookmaker Sportech plans to purchase the racing and venue management divisions of Scientific Games Corp. for at least $75-million.

Scientific Games Racing is one of the three largest tote services in the U.S., along with United Tote and AmTote International. SGR’s international operations proved attractive to Sportech, which said the purchase will allow it to become one of the leading pari-mutuel providers in the U.S., South America, and Europe.

“This transaction will provide Sportech with a multi-sport, multi-channel gaming business,” said Sportech Chief Executive Officer Ian Penrose. “The combined entity, which will have global reach and will be one of the leading pari-mutuel product and systems providers, will optimize its existing and new technologies to capitalize on worldwide growth opportunities.”

Sportech, which trades on the London Stock Exchange, will pay Scientific Games $32.9-million in cash and an additional $32.1-million in stock shares. $10-million will be paid later to bring the deal to $75-million and it could increase to $83-million based on company performance in the three years following the sale.

The deal is contingent on Sportech shareholder approval, closing of Sportech’s financial arrangements, as well as banking and regulatory approvals typical with such international transactions.

Scientific Games decided to sell its pari-mutuel operations to concentrate on its global lottery and gaming interests. Through the first three quarters of 2009, Scientific Games’ revenues were down 18.7% but the company noted the resiliency of its lottery ticket sales despite the poor economy.

“The transaction announced today is an important strategic step in the evolution of Scientific Games as we strengthen our focus on our core global lottery and gaming businesses,” said Scientific Games President Michael Chambrello.

Through its equity interest in Sportech, Scientific Games plans to work with the U.K. company to improve the performance of its pari-mutuel operations. Lorne Weil, chairman of Scientific Games, and Brooks Pierce, president of Scientific Games Racing, will be appointed to the Sportech board of directors once the deal is complete.

“The transaction with Sportech will enable us to participate in future opportunities for the combined business, which we expect to emerge as a global, leading provider in the pari-mutuel wagering industry,” Chambrello said. “We believe there are significant opportunities for value creation by combining these businesses, and we are looking forward to realizing that potential value creation as a shareholder in Sportech. We are thankful to the employees of our racing division for their unwavering commitment to the success of this business and look forward to partnering on mutually beneficial opportunities going forward.”

Scientific Games Racing boasts two large data centers, one in Sacramento, California, and one in Mount Laurel, New Jersey, where it processes wagers from tracks, simulcast and off-track sites, and advance deposit wagering platforms. The venue management wing of SGR includes the operation of the race book at the Mohegan Sun Casino in Connecticut and the Ho-Chunk Casino in Wisconsin.

Sportech mentioned specific growth opportunities in Connecticut and the Netherlands through expanded telephone and Internet wagering as well as the addition of six off-track betting sites in Connecticut, which currently has 12. Sportech also sees opportunities through the expansion of pari-mutuel wagering in bars and restaurants in California and possibly other states.

For the year ended December 31, 2009, Scientific Games Racing generated revenues of approximately $110 million. Because SGR figures are lumped with Scientific Games’ Diversified Gaming figures, the 2008 revenues for SGR are not available. Sportech said in 2009 SGR’s revenues were in line with the 9.9% decline in U.S. Thoroughbred handle.

SGR has previous business relationships with Sportech. In 2008, Scientific Games Racing developed technology to allow Sportech to integrate its soccer pools.

In 2008, SGR hired a financial advisor to assist in reviewing strategic alternatives for its pari-mutuel operations. In 2007, SGR sold its racing communications business its data communications business to Roberts Communications Network in exchange for a 29.4% interest in that company.