Business News

Loser: It was not supposed to be like this. IGT probably had the right strategy but the implementation of it was botched.

In a recent meeting with analysts IGT chief executive Patti Hart, investor relations VP Matthew Moyer and CFO John Vandemore hardly mentioned the company’s interactive business. There was good news on all fronts and Deutsche Bank subsequently upgraded its rating from a “hold” to a “buy”. There was no need to spoil the party with foolish talk about visions of the future or to dwell on past failures. They didn’t want to talk about it for this piece either.

IGT has gone back to basics. For the last few years Hart has been trying to implement her vision of what IGT should be. Now she is just focusing on what it is.

The theory goes something like this: a company the size of IGT cannot survive on US casinos replacing their gaming machines forever. So the company looks for new markets; overseas in places like Macau and Latin America, but also online. It makes perfect sense.

“Patti had a great vision and really wanted to change things in the industry,” former CTO Chris Satchell told us in January.

The vision was to link land-based systems and online systems. For example, if you’re an operator running a land-based casino and an online casino running through Entraction, then IGT can share the data so you have a single view of the customer and really understand the customer’s value. You can then work on the loyalty across any end point, whether it’s mobile, online or in the casino.

It’s not really an original vision. Aristocrat, Bally, Lottomatica and countless others are working on the same theory. The problem is that it is a really difficult technical job to pull off.

Hart went on a spending spree to make her vision a reality. Key to the strategy was the €78m acquisition of Swedish online poker supplier Entraction. The acquisition was a disaster. We described them as an odd couple at the time and so it proved to be the case. IGT pulled Entraction out of grey market after grey market until it realised it no longer had a business and pulled the plug completely.

During this period it also acquired DoubleDown Interactive for $500m (if it reaches its earn out targets, which it looks set to achieve). CTO Satchell certainly wasn’t sure at the time where social fitted into the big picture.

“There are opportunities that exist, but when you talk about ‘real wager’ we default back to IGT, which is the real wager parent company,” DoubleDown CEO Greg Enell recently revealed, “but we certainly have dialogues and conversations going on about what we want to do in that space.”

The impression left by this and other interviews is that DoubleDown is basically left to its own devices. It is a cash cow that is benefiting hugely from IGT’s slots, which are up to five or six times more popular than its own.

The grand vision of linking online, land, social and mobile systems has basically been shelved for the time being. This has resulted in a series of departures of senior executives, who either screwed up with implementing the grand vision, were made scapegoats for the company’s failure to make it happen or were left with a redundant job title because it did not happen.

DoubleDown is making oodles of cash. Revenues were $87m in 2012. There are numerous casino owners who have no idea about the internet and will happily slap a copy of DoubleDown on their website. They don’t have to worry about fancy notions like sharing liquidity or seeing one view of the player. They reckon they’re entering the 21st century.

Deutsche Bank reckons DoubleDown will grow 78 per cent during 2013. However, it is predicting a 12 per cent drop in interactive revenues to $50m.

Some will argue that it does not matter. The grand vision was fuelled partly by the dream of federal online gaming legislation in the US. That is not happening anytime soon, so the grand vision can wait.

However, it is telling that neither Aristocrat, Bally, Lottomatica, SHFL or WMS have given up on the grand vision. It’s difficult to make it happen, but it can be done.

IGT Interactive has been left with a great content business. Its slots are making DoubleDown better and online operators and their players love them. However, it could have been so much more.

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