In premarket trading, the stock seemed ready for a Monday surge due to news of its renewed Italian lottery contract, but International Game Technology (NYSE: IGT) is trending down in late morning trading as analysts suggest the company might have overpaid for that agreement. 

A group including Allwyn, Arianna 2001, and Novomatic Italia, overseen by IGT, secured what IGT Chairman Marco Sala referred to as “one of the world's most significant lottery contracts,” for nine years at a price of $2.6 billion. That’s a larger amount than Wall Street anticipated and comprises 2025 payments of $558.26 million and $335 million, with the remainder owed next year.

"Based on Lotto’s current €400M annual earnings before interest, taxes, depreciation, and amortization (EBITDA)  run rate, we think this moves the 9 year IRR to the 10-15% range, more than half below our estimate for the prior contract IRR,” observes Truist Securities analyst Barry Jonas. “Still, an expansion into more digital gaming as teased in today’s release (no doubt a focus for tomorrow’s call) could potentially yield higher returns.”

IGT has managed Italy's lottery for over thirty years, and many in the investment community believed that the fear of possibly losing the contract was one reason the stock declined by 20.41% in the last year. 

Italian Lottery Updates Largely Favorable for IGT Stock, yet … 

Even though the $2.6 billion IGT is paying to Agenzia delle Dogane e dei Monopoli (ADM) exceeds analysts' expectations, finalizing this agreement for almost a decade is largely favorable and clears the path for the operator to expand its presence in the Eurozone’s third-largest economy. 

CEO Vince Sadusky stated that IGT intends to enhance its online lottery sales in Italy and may leverage this initiative to expand its footprint in the nation’s consumer-oriented iGaming and sports betting sectors, “as well as other digital gaming ventures.” 

However, analysts are concerned that the unexpectedly high cost of the Italian lottery deal may influence IGT's capacity to return capital to investors following the merger of its global gaming and PlayDigital divisions with Everi and Apollo Global Management. 

“The magnitude of the bid price likely exceeds most expectations and therefore mitigates the upside reaction,” wrote Jefferies analyst David Katz in a note to clients on Monday. “Note that post the completion of the gaming business later in 2025, Management indicated it would use the $4B+ proceeds to reduce debt and return capital, and our assumption is that this bid reduces the prospective capital return opportunity.”

Flutter Will Be Okay 

Flutter Entertainment (NYSE: FLUT) competed with IGT for the Italian lottery contract. In 2022, Flutter acquired Italian lottery behemoth Sisal for $2.2 billion and is currently in the process of purchasing Snaitech, affirming its substantial presence in Italy. 

Although the Italian lottery contract was not secured, the long-term effects on the shares of the FanDuel parent are expected to be minimal. 

“We don’t see any major negative read for FLUT in the loss of Italian Lotto to IGT as our view on FLUT owning Lotto at all costs was mixed. We have always seen traditional Lotto as a lower multiple business (~5.5x historical multiple) somewhat straying from FLUT’s core Digital focus,” adds Jonas.