Scientific Games adds NYX Gaming to its Portfolio

Scientific Games, a foremost manufacturer of slots and other video gaming machines, has purchased one of its major competitors, NYX Gaming, for a reported sum of $632-million. Not only is this in line with current global trends towards convergence in all industries, it also gives Scientific Games a powerful and much-needed foothold in the online gambling market.

NYX made its name with its OpenBet gaming platform and network, a comprehensive, white label solution for online casinos and sportsbooks. Similarly to other online gambling platform providers, it offers casino operators end-to-end technology, from the gaming interface that players use, to a "back office" that contains all tools required to run a successful online gambling operation. It supplies its products to some of the big names in European gambling, such as Bet365 and William Hill, which are among the largest sports betting operations in the world.

The OpenBet network has proven particularly successful in this arena of sports betting, processing almost 70,000 bets each minute, on a vast multitude of sporting events across the globe. Its flexibility is a key attraction, as it can be rolled out for any sport, can offer live betting during games, and can be modified to cover non-sporting betting, such as lotteries.

Paying a premium for a slice of the online pie

The details of the deal reveal just how much faith Scientific Games is placing in this aggressive play to grab a slice on of the online gambling market. The company is a mammoth in the physical gambling industry, dominating the real-world casino market with its slots machines, its video gaming consoles, and its various technological products for table games. It has eyed the online space for a while, as this represents a natural expansion for the company. In choosing NYX, which is listed on the Toronto Venture Stock Exchange, Scientific Gaming is signalling serious intent.

So serious, in fact, that it has paid a 110% premium on NYX's stock value. In terms of the deal, Scientific Games will hoover up all NYX's outstanding shares, currently trading at around CAD$2.40 each. This appetite for acquisition shows just how keen Scientific Games is to get into the online market, particularly sports betting.

The company is hugely optimistic about this play. Kevin Sheehan, CEO of Scientific Games, has already put this very plainly, saying that the deal is directly aimed at establishing a strong presence in the online gambling and sports betting markets.

It's a classic case of "buying up to catch up" and would seem to make good sense for Scientific Gaming. The company will immediately integrate NYX solutions into its own digital technologies and products, creating brand new services that it will roll out to its clients.

However, investors appear less convinced, at least initially. In response to the acquisition announcement, the company's shares immediately dropped by a full percent, but recovered to ultimately close out 0.35% down on the day, indicating a return to stability and a resurgence of confidence in the deal.

Competitor collaboration

Acquisitions appear to be only one element of a two-pronged Scientific Games growth strategy. The former is obviously aimed at simultaneously eliminating competitors while gaining access to their most powerful market attractions. However, the company has also embarked on a proactive program of collaboration with other competitors. And Scientific Gaming is serious about this: they've not only begun to share platforms and products, they're even sharing patents, and embarking on joint licensing agreements with the likes of IGT. In terms of this particular agreement, for example, Scientific Games and IGT will share patented game features with each other.

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It's all about millennials

To divine deeper reasons behind these industry moves, one has to look at gambler characteristics, and the emergence of a new type of younger gambler who is very different to the traditional type.

The key difference is that younger players do not appear to be as interested in games of pure chance as the previous generation. They prefer games that have at least some element of skill. As a result, younger players are less attracted to standard slots games, which are the mainstay of any casino's income, given that they have the most favourable casino edge. Understandably, this has become a big concern among real-world slots operators, who are now looking to the Internet to connect with these younger players, using technology to combine skill with traditional gambling.

This is being mirrored in the real world as well, with both Atlantic City and Las Vegas casinos installing video gaming machines that are more skill-based than the traditional ones. Of course, there is far more flexibility for this in the virtual space, as there are less physical restrictions, and the games run purely on software, without requiring a physical interface. In other words, these aren't gaming machines that need to be built – they are controlled purely programmatically, which means that it's a lot easier to create interesting, skill-based components for these games.

One thing is for sure: in the midst of all this convergence, consolidation and innovation, the online gambler can only benefit.