NYX, SciGames and the genius of Matt Davey

Another day, another deal for NYX but this is the biggie. SciGames has acquired a loss-making company but it is unlikely to regret it.This time NYX was prey to the larger entity rather than visa versa. It has been a remarkable few years for Matt Davey and friends since they saw the trail blazed by David Baazov's Amaya and decided to follow in those footsteps. This deal surprised a few people though. And it really got the pulses racing because of what it represents. The deal reveals an expectation on behalf of one of the industry’s biggest players that a legal sports betting market in the US is inevitable. Scientific Games did not buy NYX for its lottery or bingo product. It will benefit from its casino platform and games, but the real reason why SciGames bought NYX is because of OpenBet. Despite several years of predictions about its imminent demise, OpenBet remains the world’s leading sportsbook supplier. NYX acquired OpenBet in April last year for £270m. It might seem like uncommon haste to be rushing into a deal with SciGames just 16 months later but that is the way NYX rolls. This was the company that bought loss-making poker network Ongame from Amaya for an undisclosed amount (ie. not very much) in November 2014. When it discovered that it couldn’t turn it into a profit making poker network, it sold it in April 2016 for another probably very similar undisclosed amount (ie. nothing at all). Davey learned a lot from Baazov's Amaya. Indeed, NYX rose on the back of all Baazov’s unwanted assets, such as Cryptologic and Chartwell. But Davey is a smart cookie. He would have learned from Baazov’s mistakes too. While Davey chose this moment to sell out, Baazov might have tried a reverse takeover. There were no rumours advertising this deal in advance either. Hell, Davey even out-Baazoved Baazov on the Ongame deal. The NYX CEO was not content just to acquire Ongame for not very much. He got Baazov to pay him $10m to take it off his hands! (Editor’s note: Well, Amaya invested $10m in NYX as part of the deal.) It seems that even when he’s buying and selling loss-making businesses for not very much, Matt Davey can make a few million bucks on the deal. If that sounds like sarcasm, excuse me. I genuinely have nothing but admiration for such prowess. The SciGames deal will be seen as Davey’s piece de resistance. NYX is being acquired by SG for $775m (approximately US$631m) - almost double what NYX paid for OpenBet (the GBP equivalent of around US$365m). That is quite a lot of money for a company that has yet to make a profit. NYX’s net loss in 2016 was CAD$57.9m (US$47.9m), up from CAD$8.4m in 2015. In the three years before that it lost CAD$7.1m, CAD$1.9m, CAD$2.2m, and CAD$1.1m back in 2011. That was the year that NYX Interactive (as it was known then) acquired Australia’s NextGen Gaming and its CEO Matt Davey. It was the beginning of Davey’s big adventure. NYX has always been a long-term project and such grand ambitions take some juggling of investors and some clever management of debt. These moves will have fuelled the rumours that NYX was struggling to service the debt it raised to acquire OpenBet. Cannier financial minds than mine will be able to work out how likely this is. All the data that is needed to figure it out lies in the OpenBet acquisition press release and the 2016 financial results, but life is really too short. The SciGames acquisition means we have moved beyond all that now, and I’m sure Davey and his financial whizzkids had it all in hand anyway.This is a canny move by SciGames. Recent history shows that it does not make bad acquisitions. In acquiring Bally, Shufflemaster and WMS, it has created an almighty supplier. If sports betting is the next frontier then the $775m acquisition price will look as small as the $80m pittance that Caesars acquired Playtika for before selling the company for $4.4 billion. Interestingly, IGT did not make quite as big a markup on DoubleDown Interactive, which it acquired for $500m, an astonishing figure at the time, and sold it for $825m five years later. It is also a very early move from SciGames, given the unpredictability of Supreme Court outcomes and the snail’s pace of US legislation, which suggests that NYX might well have been flaunting its wares but no doubt arch-rival IGT was also sniffing around. SG now owns the best sportsbook product that money can buy. It will be interesting to see if IGT now splashes the cash on, say, SBTech. The deal also gives SciGames an operable iGaming platform. For all its recent acquisitions, SciGames had failed to acquire a decent platform until now. Yes, we are aware that Bally had something that it was hawking to customers and Shuffle was building one… but NYX has a platform that has been used by respectable online gaming operators for years. One fly in the ointment might be how SciGames assimilates OpenBet and NYX into the larger organisation. When GTECH (now IGT) bought Finsoft way back in 2007, it was a possible rival to OpenBet, but Finsoft all but disappeared in the larger organisation. That is unlikely to be case this time round. OpenBet's development work had already accelerated under the ownership of NYX, and is expected to be ramped up even further under SG. The fateful word “synergies” was also pleasingly omitted from the SG/NYX announcement, which should allow the focus to remain firmly on the product. One presumes there will be some overlap of management functions, even if NYX largely forms a standalone fourth pillar to add to SG’s existing lottery, casino and social businesses. However, SG has been pretty good at acquisitions and integrations in recent history and there is no reason why this will not be the case with NYX. And as for Davey? It's hard to see him running the digital gaming and sports division of SciGames for long. In a few years, he’ll either disappear into the sunset with the cash from his shares or he’ll be chief executive of Scientific Games. The smart money’s on the latter.sah@gamingintelligence.com