January 29, 2013

IGT Should Go 'Back To Basics'


There's a bit of dissent in the ranks at International Game Technology (IGT), a company that focuses on gaming systems—gaming here as in “gambling” rather than “video games”—as  its recent purchase of a social gaming unit is causing a bit of a schism between the company and one of its major investors.

Jason Ader, head of an investment firm trying to get in on IGT's board of directors, recently came out with the belief that IGT was straying from the things that made IGT great, recommending that the company “get back to basics” and stick to developing casino games for the United States and Asian markets, especially for the steadily growing Asian markets. This was following the 2012 purchase of DoubleDown, which was formerly one of the biggest providers of games on Facebook, in which IGT shelled out fully $500 million to get hands on it and its various poker, blackjack and similar online services.

Since the purchase, shares of IGT have fallen 13 percent, so there may be something to this. What's more, Jason Ader is on the board of directors for the Las Vegas Sands corporation, so it's safe to say he has a good idea what he's talking about when it comes to gaming in that sense. Ader's investment group is looking to nominate three members of the board, including IGT's former chief executive Charles Mathewson.

IGT, meanwhile, was preparing a response as far as Ader's assertions go, though word from IGT chief executive Patti Hart said that the social gaming unit was actually growing much faster than expected, with interactive gaming contributing seven percent of overall revenue, more than triple the amount from just 2011, when it brought in merely two percent. Indeed, Ariel Investment LLC's John Miller suggested that the social gaming purchase could safely be considered approximately “...an R&D expenditure,” a stance that makes some sense given that DoubleDown is mainly online.

This has proven somewhat risky as an investment; online gambling is still illegal across a large portion of the United States, though it's recently broken ground in Nevada and Delaware, and other states are looking to follow suit following the Justice Department's decision that online betting was really only unlawful when it came to sporting contests as opposed to games of chance. But still, there are major players and legislative issues out to throw a wrench in those particular works.

It's easy to see where Ader's coming from on this. Why invest in a market that's mostly illegal in the largest market on Earth? There are better markets to work with, and IGT can stand investment in other properties. It's done well in the past with their themed games, and coming out with new slot machines like the official Judge Judy slot machine can't hurt. But Miller has a point as well; the resistance on the legal side in the United States is falling in some quarters; why not be ready to have a horse in the race should the whole thing come down? IGT can be first on the ground, and there's always plenty of reason to go for first-mover advantage.

While the ultimate success of IGT's strategy won't be known for some time and depends on the outcome of several diffuse factors, there's certainly something to be said for its corporate vigilance. It's looking for the next big thing, and while there's some dissent in the ranks as to just what that is, that it's trying bodes well for IGT and its shareholders alike.




Edited by Brooke Neuman



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