Engine Capital Sends Letter to SciPlay Board Regarding Ongoing IP Deal Negotiations with Light & Wonder


NEW YORK–(BUSINESS WIRE)–Engine Capital LP, which owns 7.4% of the Class A common stock of SciPlay Corporation (Nasdaq: SCPL) (“SciPlay” or the “Company”), today announced that it has sent the letter below to the independent members of the Board of Directors of the Company Board of Directors.


June 17, 2022

SciPlay Company

6601 Bermuda Road

Las Vegas, Nevada 89119

For the attention of the Board of Directors

Dear Independent Board Members:

Engine Capital LP (together with its affiliates, “Engine” or “we”) is the second largest Class A shareholder of SciPlay Corporation (“SciPlay” or the “Company”) with a 7.4% interest. We invested in SciPlay due to the attractive category dynamics of social casino games, including strong player stickiness and long-running games, the company’s ability to increase revenue per paying user and payer conversion , its ability to take shares in the higher growth occasional segment and its very attractive valuation .

As you know, Light & Wonder, Inc. (“Light & Wonder”), the parent company of SciPlay, took part of SciPlay public in 2019 and continues to own 81% of SciPlay. At the time of its IPO, SciPlay paid $255 million for a perpetual license agreement that granted the company exclusive access to all content created at Light & Wonder through the third anniversary of the IP license agreement. and non-exclusive access to all intellectual property created or acquired. after the third anniversary (the “New Content”).1 As reported in its last earnings call, SciPlay is currently negotiating an extension of this IP deal with Light & Wonder.

On May 13, 2022, we sent you a private letter expressing our concerns regarding these negotiations. Since then, we have had multiple discussions with management, which have only heightened our initial concern that an extension of this IP is not necessary. We have repeatedly requested to meet privately with the independent directors to share our views on this subject, but were told that such a meeting would be inappropriate, so we were forced to make our concerns public.

In summary, we believe that an extension of this IP agreement is of little value to SciPlay and that potential conflicts of interest could cause SciPlay to provide unnecessary payment to Light & Wonder. Specifically, we are concerned that the management of SciPlay, who are negotiating this deal with Light & Wonder, may be in conflict since its members report to Barry Cottle, the executive chairman of SciPlay, who is also the CEO of Light & Wonder. Given the related nature of this negotiation and these potential conflicts of interest, we are asking the Board to set up a special committee of independent directors to conduct these negotiations and appoint a lead director in order to strengthen the governance of the Company.

Under the existing IP agreement, SciPlay has non-exclusive access to new Light & Wonder content for its existing games only. Therefore, the only basis for SciPlay to pay additional funds to Light & Wonder to extend the IP agreement would be to secure the following rights: 1) to ensure that it is able to use the New Content on a exclusive basis in its existing games, and 2) to be able to use the new content in new games that did not exist at the time the original IP agreement was signed.

Based on our discussions with a number of industry participants, we believe that no payment (and certainly no upfront payment) should be made to Light & Wonder as these rights, and therefore an extension of the agreement IP, have little value to SciPlay for the following reasons:

  1. SciPlay already has access to new content from Light & Wonder on a non-exclusive basis for its existing social casino games. It is not necessary to extend the IP agreement to access this content under the original IP agreement. The only reason to extend the IP deal would be to ensure that this new content is exclusive to SciPlay. As a practical matter, we do not believe it is in Light & Wonder’s interest to license this content to a third party and harm its important strategic investment in SciPlay. We’re also skeptical that an independent third party would pay a lot for this new content because it wouldn’t be exclusive to that independent third party (since SciPlay also has access to it), which makes it even more unlikely that Light & Wonder will license it under Licence. a third party. Therefore, we do not believe that SciPlay is justified in paying for this notional exclusive right and argue that SciPlay should not be obligated to pay more than an independent third party would be willing to spend for new content not exclusive.
  2. The new content is unlikely to be useful for new casual games developed by SciPlay. We note that since its IPO, SciPlay has not launched any new social casino games and is unlikely to do so, as it may just continue to add content to these existing games. Therefore, in accordance with the original IP agreement, SciPlay may continue to use new content for these social casino games. Meanwhile, SciPlay has been focused on building new games in the casual space, where new content (which is focused on the social casino space due to its association with Light & Wonder) is unlikely to hit the mainstream. to be relevant.
  3. New content is unproven and therefore if there is a payment it should not be an upfront payment. By structuring a potential expansion as an upfront payment (as we believe is currently being considered), SciPlay shareholders would assume the risk associated with content development. This type of structuring would be very rare in the industry, where such agreements are usually structured as royalty payments. Management appears to be in favor of an upfront payment as it has no impact on the Company’s EBITDA and EBITDA margin. That shouldn’t be the deciding factor. Instead, the best risk-adjusted decision should be made regardless of whether a payment hits the P&L or not.

We are also concerned about the process by which the Company assessed the value of this intellectual property. We understand that a third-party assessment company receives forecasts from management regarding additional cash flow resulting from access to new content. We seriously wonder how management can accurately assess the incremental free cash flow resulting from accessing unproven content on a purely proprietary basis versus a non-exclusive basis or accessing this new unproven content. casino-themed for a casual game that has yet to be released. Instead of engaging in this theoretical exercise, we believe that Light & Wonder and SciPlay should assess the value of this IP (if any) by going to market and testing what an independent third party would be willing to pay for these rights. SciPlay shouldn’t have to pay more than a third party would pay. We believe that SciPlay and Light & Wonder would find this content to be of minimal value and that no independent third party would be willing to make upfront payment for this unproven content.

To protect the value of minority shareholders’ investment in the company and to ensure that Light & Wonder does not unfairly exercise its outsized influence over SciPlay in these negotiations, we believe that independent members of the board of directors should intervene immediately. In light of what we believe are valid shareholder concerns about the company’s intertwined relationship with Light & Wonder – as evidenced by SciPlay’s low trading multiple – the board should address the potential extension of the IP agreement with Light & Wonder with great caution.

In conclusion, we are deeply troubled by these developments and ask that 1) any negotiations to extend this IP Agreement be conducted by a newly created Special Committee of the Board of Directors and 2) the board appoints an independent lead director. We are once again requesting a meeting with you as soon as possible to discuss the content of this letter. We have thought about this at length and believe we can be of help to independent directors. We reserve all of our rights under Nevada law and otherwise to take any action we deem necessary to protect our interests and the best interests of all SciPlay stockholders from any activity involving the waste of SciPlay’s assets. company and/or unjustified links. party operations.

Sincerely yours,

Arnaud Ajdler

Brad Favreau

Managing partner



About Engine Capital

Engine Capital LP is a value-oriented special situations fund that invests both actively and passively in changing businesses.

1 This only applies to games existing at the time of signing the initial IP agreement.

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