Why Poker Machine Maker Aristocrat Leisure Spends $ 5 Billion To Get Into “Real Money Gambling”

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Three times the size of Qantas, five times the size of Harvey Norman, and 10 times the size of AMP, games company Aristocrat Leisure could be the most valuable local company you’ve never heard of.

Now he’s betting the house on a $ 5 billion acquisition that will put it at the center of real money gambling (RMG), a controversial type of digital gambling that is illegal in Australia.

“RMG is very accessible, high speed, and at the moment there is no limit on what you can bet,” says Dr Charlies Livingstone, one of the nation’s foremost gambling experts and associate professor at the School of Public Health and Prevention. Medicine at Monash University.

Charles Livingstone has studied gambling behavior in Australia for decades and is concerned about what RGM might mean for consumers.(Provided: Monash University)

“So you can do it whenever you want.

“It’s on an app, you walk in and you’re in a casino where you can bet on slots (pokies) and casino-style games very quickly, and bet an unlimited amount.

Silent director

Most Australians wouldn’t know about Aristocrat Leisure, even when it sits comfortably in the top 20 of the country’s largest stock exchange companies, with a market cap that values ​​it at nearly $ 30 billion.

Colin Mansfield is a director of the US corporate finance group at Fitch Ratings. Although he’s based in Boston, he keeps a close eye on the Sydney North Shore-based company.

“Yes, they are really substantial,” says the analyst.

“They compete with other big global players like International Gaming Technology, Scientific Games, Konami, Ainsworth – and they also have significant market share in the United States and Australia.”

Close-up on the screen of electronic game machine.
Australians lost $ 25 billion on legal forms of gambling in 2018-19.(ABC News)

Aristocrat is one of the world’s largest manufacturers of electronic game machines, known as EGMs or pokies. But they are intended for physical casinos, clubs and pubs.

Today, the company is making its biggest bet: the $ 5 billion purchase of the Playtech real money gaming goliath.

If successful, technology will give it dominance in the electronic world of phones, tablets and computers.

Great game for Playtech

Playtech is listed on the London Stock Exchange, but the Australian company wants to buy it, with an offer that values ​​the shares 58% higher than what they were trading at before the offer was revealed.

A UK shareholder vote is needed to seal the deal.

There could still be a bidding war, as other parties have expressed interest, but Aristocrat is in the lodge with the support of Playtech’s board of directors.

Figures revealed last month show Aristocrat’s revenue from digital games increased 15% to $ 2.6 billion and accounted for more than half of the company’s after-tax profit of $ 820 million.

Potential market of US $ 100 billion

Real money games are expected to expand massively. Mr Mansfield says that although this is currently only legal in six of the 50 US states, he sees it changing as cash-strapped jurisdictions seek money.

“Now in the United States it’s a market of around $ 4 billion and future growth really depends on more and more states legalizing real money gambling,” he explains. -he.

In a note to clients, Morgans senior analyst Alexander Mees says RGM – in the United States alone – could represent a $ 70 billion ($ 98 billion) business in a few years.

Mr Mees predicts that the proposed deal could increase Aristocrat Leisure’s earnings before interest, taxes and depreciation by 17% in fiscal 2023.

“We expect the strong growth in the industry to be driven by a North American market that grows at a compound annual growth rate of nearly 50% as more US states liberalize and allow iGaming and sports betting. online, “he notes.

“Devastating” risks

Not everyone is happy with the evolution.

An older man is sitting smiling for the camera.
Reverend Tim Costello represents the Alliance for Gambling Reform.(ABC News: Jeremy Story Carter)

Reverend Tim Costello is the lead lawyer for the Alliance for Gambling Reform, an umbrella organization of more than 60 groups that work to prevent damage from betting.

“I can be sitting here – alone, drinking – playing real money games, which just means real money,” he warns.

“Currently illegal here, things like roulette and casino games in my house. It’s devastating.”

With illegal RMG, Australians can play at online casinos to earn “chips” but not real money.

But last month, a Tasmanian woman pleaded guilty to stealing $ 940,000 from her employer to fund her addiction to online gambling that doesn’t earn real money.

The federal government agency, the Australian Institute for Health and Welfare, estimates that Australians lost around $ 25 billion in legal forms of gambling in 2018-19.

It is the biggest loss per capita in the world, which means Australians lose more gambling money – per person – than any other country in the world.

If Aristocrat buys Playtech, Mr. Costello sees inevitable pressure from the company for Australian states and territories to make RGM legal.

“It’s really deeply dangerous,” he said.

A spokesperson for Aristocrat said the acquisition would combine its knowledge and relationships with regulators with Playtech’s RMG technology and its existing consumer base in the United States and Europe.

“The combined group would offer a broad portfolio of end-to-end solutions for gaming customers around the world, as well as seamless player experiences,” the statement said.

Playtech shareholders will vote on the deal on January 12.

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