Has Matt Wilson restored the magic at Light & Wonder?

Light & Wonder’s quarterly results keep validating the decision to divest its sports betting and lottery arms.

Revenue for the third quarter of 2023 showed growth of 12.8% to $731m, aided by record returns from igaming and social casino games. It’s the fifth consecutive quarter of year-on-year, double-digit growth for the supplier.

But in chief executive Matt Wilson’s eyes, companies can only be world-class at a limited number of things. “We said we can’t be the best lottery company and the best sports platform and the best social casino company and so on – you just can’t do all those things. So we chose to be a content company keeping three very complementary businesses.

Light & Wonder: The first of many?

“It’s very competitive out there and those throwback ’80s-style conglomerates where lots of different businesses doing different things are rolled up together only fit in a portfolio because the same owner owns them,” Wilson adds. “That model doesn’t work.”

Light & Wonder is looking like a trendsetter in that regard. IGT is running a process to divest its Global Gaming and PlayDigital arms, to focus on its lottery business. Recent reports suggest Playtech may shift its focus to B2C – a bid for 888 failed earlier in the year – and divest B2B operations. 

If Light & Wonder scored a competitive advantage by stripping back, others are cottoning on. 

In the case of IGT, Wilson sees similarities and wholly endorses a simplified strategy. “We unlocked a huge amount of value,” he says. And if competitors are watching Light & Wonder closely, they may follow its other strategic moves. 

Heading Down Under

The supplier went on to secure a secondary listing on the Australian Stock Exchange, opening up access to new capital. Such was the interest 15% of Light & Wonder’s market cap now trades on the ASX – well ahead of management expectations. 

“We thought there was some interest down there for the Light & Wonder story, but as soon as we listed, we activated a huge amount of investors,” Wilson says. 

He has form in this regard, having gone through the process during his tenure at Aristocrat. It’s home turf for him, so he’s well known in the Australian investment community, but points out it’s a vastly untapped public market for gaming.

“There’s a superannuation programme in Australia where every employer has to put money into the markets for their employees.” That means there’s billions of dollars looking for a home every quarter. A quick skim down the ASX register shows a lot of mining and banking companies. Light & Wonder, on the other hand, offers a technology investment with a global addressable market. 

“I think we were pushing against an open door,” he adds.

Could another company emulate that strategy? As a company with Australian management, business in the country and a track record in the market, Wilson believes Light & Wonder had an ace up its sleeve. “But I could see other gaming businesses looking at that market as a potential investment opportunity,” he adds. “I wouldn’t be surprised if someone emulated the same strategy.”

Light & Wonder’s opportunities in the Far East

The ASX secondary listing provides a firmer foothold for the Asian region. Macau remains the main event, but the Asian opportunity is expanding into Japan, Thailand and Vietnam for land-based and, with Philippines igaming thriving, there’s a huge opportunity spanning multiple markets. 

Having lived there between 2007 and 2012, Macau is close to Wilson’s heart. He recently went back, for the first time in a decade and sees a can-do attitude that matches somewhere like Las Vegas. “When I was living there they even said they’d build a bridge from Hong Kong to Macau, which was an hour’s ferry ride, 30 miles away. And they build a bridge. 

“You underestimate China at your peril; they do things on such a big sale I think Macau’s getting back on its feet.”

However he believes the biggest story in Asia is the Philippines. “The chairman of Pagcor wants to double gross gaming revenues in a short window of time. That’s ambitious; you have to do things differently to unlock that. 

“That comes with a lot more integrated resorts. I think they’re purchasing a lot of equipment for their own sites. He’s gone on the record saying he’ll buy 3,000 gaming machines starting in January 2024.”

Wilson admits he didn’t understand the scale of the Philippines opportunity before he visited. Now? He believes it’s aiming to create a gaming hub rivalling Macau.

Building from a strong base in Asia

Light & Wonder owns around 50% of the Asian machine market, Wilson says. It has another ace up its sleeve for the region. Wilson credits its dominant position to the game developer behind 88 Fortunes, Qin You who “really mastered the art of building games for the Asian population. We love her,” says Wilson. 

You understands intrinsically what works appeals to the Chinese audience, as a native, creating authentic titles that position the supplier to profit from opportunities in the region, Wilson says. 

But Light & Wonder is an omnichannel business today, with thriving online and social arms. Considering Pagcor is preparing to launch its own online casino, is there hope for a meaningful online push?

That would require more legal certainty around the streaming model – where a physical device broadcasts through a web browser – as Light & Wonder takes compliance and its regulatory condition very seriously. “We’d only ever launch that market if the regulations were really clear and we could do it in a way that wouldn’t jeopardise anything.”

But as digital-first suppliers step up plans for world domination, Light & Wonder is coming up against rivals without the same compliance obligations. Without the obligations and revenue coming from land-based operations, igaming suppliers can – and have – taken a more relaxed view to what constitutes grey or black markets. 

Suppliers’ white, grey and black conundrum

At a time when the traditional land-based giants are digitising their portfolios, can they really compete against rivals that can pursue growth wherever and however they see it?

“I think we are disadvantaged, if I’m honest,” Wilson says bluntly.

“We’re competing with companies taking bets in black markets where they’re not paying taxes, margins are better so they’re better capitalised to make investments,” he explains. “Regulators need to take a long hard look about who’s operating in their ecosystem and whether they are comfortable with that.”

The general response from regulators is that their remit only covers a small patch of territory. Light & Wonder wants to change that. It’s outlined its position and Wilson believes it’s having an impact. “I think you’re starting to see some traction with new states looking at legislation that says to operate here you can’t be in black markets – the regulators can’t be seen to be supporting black market activity.”

Is 2024 the year US igaming breaks through?

If Matt Wilson has succeeded in shepherding Light & Wonder into its new, simplified era, as well as unlocking new capital and, potentially, new markets, US igaming remains a work in progress. 

Mature markets in Europe and the UK, he explains, are now digital-first territories, where players’ first exposure to gambling happens through a computer or a smartphone. Online is the players’ path to market.

In the US, the players’ path to the online market takes them through the casino floor. As the only show in town for the past 40 years, players are “already a bit conditioned to like certain types of games”. Wilson points out Light & Wonder specialises in these titles and franchises, although he’s confident there’s room for digital-first titles to win out over time.

“There’s still lots of space for lots of different types of games, but these kind of tentpole franchises players have been playing for many years win out,” he says. “Blazing Sevens is a brand in our portfolio. It’s been around for 40 years. We are reviving that from the land-based business to move into our digital ecosystem.”

Moving players into the omnichannel ecosystem

While the casino floor is what the US player knows and loves, that doesn’t mean there’s no interest in other channels. Light & Wonder’s research shows land-based players tend to dabble in social casino or igaming, where permitted. 

“When you look at the younger demographic, that younger cohort of players, they’re almost demanding it. You have to be digitally enabled, otherwise you’re going to miss out on the opportunity.”

Even if it’s one that hasn’t quite emerged just yet. Wilson admits it’s “not moving at the pace we’d like, but you have to believe in the next five to 10 years, there’ll be a huge step forward in the digitalisation of gaming markets all over the world – because it’s happening in black markets.

“It’s already happening. Let’s regulate it, for tax that drives benefits for states, drive some responsible gaming initiatives around it. 

“You can do it in a healthy way, in a protected way. I think as governments become more comfortable with that, you’ll see further and further regulation.”

Now that Light & Wonder is thriving across all three verticals, should the US and Asian opportunities open up in 2024, it’s hard to argue Wilson has brought the sparkle back to the business.