GAMBLING

‘Dragon Train’ Injunction Could Pinch LNW Earnings by $70M

Posted on: September 25, 2024, 08:14h. 

Last updated on: September 25, 2024, 08:14h.

The preliminary injunction requiring Light & Wonder (NASDAQ: LNW) to halt sales and leases of the “Dragon Train” series of slot machines could hit the company’s adjusted earnings before interest, taxes, depreciation, and amortization by approximately $70 million.

Light & Wonder
Light & Wonder signage at a roulette table. A preliminary injunction against the company’s “Dragon Train” slots could hit earnings by $70 million. (Image: X)

Macquarie analyst Chad Beynon said as much in a new report to clients today and that jibes with the company’s projections. In discussing the ruling Tuesday, Light & Wonder reiterated its 2025 EBITDA forecast of $1.4 billion, telling investors “Dragon Train” devices comprised less than 5% of that figure.

Yesterday, shares of L&W plunged after the US District Court for the District of Nevada granted Aristocrat Technologies a preliminary injunction, which requires L&W to pause sales  of “Dragon Train” slots, most of which occur in Australia. That’s Aristocrat’s home country and that country brought the litigation on the basis that the L&W game is remarkably similar to its own “Dragon Link” machines.

Shares of Light & Wonder gained just 1% today, barely making a dent in Tuesday’s tumble, but the company told investors it is seeking clarification pertaining to the injunction and that it will pursue legal avenues to potentially remedy the situation.

Light & Wonder Lacks Near-Term Catalysts

In the wake of Tuesday’s slide, some analysts argued that the valuation case on Light & Wonder shares had been reset after a lengthy run to the upside made the stock expensive. That alone may not be enough to facilitate a near-term rebound.

Despite marginal earnings revisions, LNW’s de-rating likely reflects risks on the outcomes from litigation events, management’s credibility, and possible medium-term impacts to volumes,” observed Beynon.

He reiterated an “outperform” rating on the stock, but added there aren’t many near-term catalysts on the horizon. His price target on L&W is $117, implying upside of 27.7% from today’s close. However, the company is dealing with litigation on other fronts, which could hinder a near-term bounce by the stock.

“Further to litigation with Aristocrat, LNW also faces litigation from Evolution, with allegations relating to copying math files and payout structures for table games,” added Beynon.

‘Dragon Train’ Popular, But Possibly Problematic

The “Dragon Train” slots are popular in Australia and prior to the injunction, the series was viewed as a potential catalyst for L&W to add market share in that country. However, “Dragon Train’s” success obviously caught Aristocrat’s attention and could now cut both ways for L&W.

L&W has a deep product portfolio so it’s not heavily dependent on “Dragon Train” and it’s a good thing, too, because Aristocrat could pursue harsh legal measures.

“’Dragon Train’ is a top-performing game franchise and has been subject to legal proceedings by Aristocrat since March 2024. We estimate there are ~2k gaming ops installs, generating about US $30m+ AEBITDA, and outright sales that generate about US$40m EBITDA. If successful at trial, we think Aristocrat will want ‘Dragon Train’ to be removed, rather than receiving a royalty,” concluded Beynon.


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