Coincidental to the opening of Global Gaming Expo in Las Vegas, Deutsche Bank analyst Carlo Santarelli met with leadership of Light & Wonder. The purpose of his visit was to assess the state of the company following an injunction barring its Dragon Train slot machines.
Santarelli summarized his findings in an October 7 investor note. He concluded that Light & Wonder’s third quarter would still be “solid” and management appeared to be confident it could ride out the impact of the lawsuit.
The analyst expected Light & Wonder to fill out the $70 million hole created by Judge Gloria Navarro’s decision by delving deeper into its game portfolio. The same, he said, held true for Light & Wonder’s igaming and social-gaming segments, which also rely on Dragon Train.
Judge Navarro’s decision requires all Dragon Train machines to be removed by October 23. (Some were still seen in operation in Las Vegas during G2E week.) In a widely seen video, CEO Matt Wilson said the company was going to pursue “Dragon Train 2.0.”
According to Santarelli, this would involve adjustments to the game’s mathematics, while leaving most of its secondary features in place. “We expect LNW to rely heavily on the Huff N’ Puff Money Mansion franchise, as well as other top performers, in an effort to backfill removals of fixed daily fee Dragon Train titles,” he added.
On non-Dragon Train fronts, Santarelli predicted Light & Wonder will “optimize” costs without major expense reductions. He also said that Wilson and his colleagues aren’t ruling out any mergers or acquisitions, but that this isn’t a “meaningful” part of their strategy. Any purchases, Santarelli opined, would be of an incremental add-on nature.
“Management reaffirmed that it believes it is in the early innings of its growth strategy, post several years of investments around non traditional slot adjacencies,” read Santarelli’s note. He observed that a major slot buy in Macau is possible, thanks to evolving technological standards in the Chinese enclave. Historical horse racing machines, he added, are gaining traction in other overseas markets.
Turning to igaming, Santarelli wrote that Light & Wonder’s growth in the area will be pegged to larger growth in the industry itself. He thought Ohio the best prospect for near-term igaming legalization in the United States. But he cautioned that reaction by terrestrial casino operators bears watching.
