What future for the Italian gaming market after settlement of VLT fines?

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The Italian Government has passed the previously reported law decree granting to Italian videolottery operators the option to settle the aggregate € 2.5 bn fines issued in 2011 against them through the payment of at least 25% of their value even if the payment shall be performed very soon. But in a market where operators are already bearing considerable investments since the offering of videolotteries is still in a start up phase, what will be the reaction to this unexpected considerable cost by operators and investors?

Operators shall notify their interest to take advantage of the above mentioned option and therefore pay the discounted fine rather than insisting on their Appeal proceedings by the 15th of October 2013 at the latest and perform the payment of the fine by the 15th of November 2013.

This means that operators like B Plus, the largest Italian videolottery operator, shall find € 211 million (from € 845 million of the initial fine) in the next 2 months and half in a period when the company already has to face considerable troubles. Indeed, because of the criminal proceeding involving its ultimate shareholder, the renewal of B plus’ videolottery license had been initially denied, then its term had been temporarily extended for a 6 months period and now it appears that will be subject to a blind trust up to May 2014 with the instruction for the trustee to find a potential buyer in the meantime. However, given the potential amount of the full fine, maybe B Plus is the company that might have more interest to pay the discounted fine. And indeed the need to pay such large amount in a very short timeframe might allow private equity funds available to bear such cost to close the acquisition in a short timeframe at a price that will take into account this payment obligation.

But the potential troubles might not affect only B Plus if it is taken into account that companies like Sisal are expected to pay € 61.25 million, Codere € 28.75 million, SNAI € 52.5 million and Cogetech € 63.75 million. Indeed, the major question is whether such companies have the necessary liquidity to bear these investments and if not whether they will try to find as soon as possible a potential loan from a bank or most probably further investors. The payment of these fines might lead to considerable investments from foreign private equity funds in a very short timeframe after that such investments had been frozen for several years due to the potential costs of these extraordinary fines.

The good news on the above is that the Government has removed any provision referring to the increase of gaming duties on videolottery machines if operators decide not to opt for the payment of the discounted fines. Therefore, it is now open to the operators’ discretion to decide whether or not they want to take the risk of a much higher fine or prefer to close any matter concerning the dispute paying an amount that even if reduced when compared to the issued fines would still represent a massive disbursement especially for companies that need to bear considerable investments in order to grow their business.

Finally, market analyst are questioning themselves on who might benefit from this situation. Apart from companies willing to invest in videolottery operators that might take advantage of their current weakness, the 3 new videolottery operators that are the only ones which have not been sanctioned with the above mentioned fines might fill the gap with the consolidated operators much faster than initially expected due to these contingency events.

We are advising a number of companies on the potential developments of the matter, the risks and the opportunities.