Investor urges IGT to rethink online gaming move

Jason Ader, whose investment firm is leading a group seeking representation on the board of IGT, said he believed the company had lost its focus by venturing into online gaming. "IGT needs to get back to basics in developing games for its casino customers in the U.S. and Asia," Jason Ader, an industry veteran who is also on the board of Las Vegas Sands, told Reuters in a telephone interview.

Ader's group, which controls about 3 % of IGT's stock, is looking to nominate three directors to the company's board, including former CEO Charles Mathewson. In a letter to IGT shareholders on Monday, the group criticized the board for losing focus on its core business and said that DoubleDown, one of the biggest providers of games on Facebook, was an "incredibly expensive" acquisition.

IGT bought DoubleDown, which offers free-to-play online games such as poker and blackjack, in January 2012. Shares of Las Vegas, Nevada-based IGT have lost 13 percent of their value since the acquisition.

Asked to comment on the letter, company spokeswoman Mariya Barnes said IGT was preparing a response to be issued this week. The company, which has a market value of about us$ 4 billion, has scheduled its annual shareholder meeting for March 5.

IGT Chief Executive Patti Hart said in November that the company's social gaming unit was growing faster than expected. Interactive gaming contributed about 7 percent of overall revenue in 2012, up from 2 % in 2011. John Miller of Ariel Investments, which controls about 4 percent of IGT, said social gaming acquisitions were a long-term strategy for many gaming companies and could "almost be viewed as an R&D expenditure".DoubleDown gives IGT an opportunity to put some of its content on another distribution medium, which should increase the popularity of that content, Miller, a senior vice-president and portfolio manager at Ariel, told Reuters.

Online gamble
DoubleDown generates revenue from the sale of virtual gaming chips, rather than from customers betting with real money, which is prohibited across most of the United States. But online gambling is now legal in Nevada and Delaware, while a number of other U.S. states are moving toward legalizing it after the Justice Department ruled in 2011 that only online betting on sporting contests was unlawful.

So far, the pace has been slow due partly to legislative delays and opposition, including from some big gaming industry players like Las Vegas Sands Chief Executive Sheldon Adelson, who has said he is morally opposed to online gambling. Ader, who heads Ader Investment Management, said Asia was a potential growth market for IGT. Macau, the world's largest casino market, generated us$ 38 billion in annual gambling revenue in 2012, up from 13.5 percent a year earlier. "There is a big opportunity to pursue growth in Macau and the Philippines in the electronic table games segment," he said.

He said he believed the DoubleDown acquisition put IGT in competition with some slot machine and systems customers, such as Caesars Entertainment, MGM Resorts International and Station Casinos. Ader also said that IGT had compared DoubleDown to social gaming company Zynga. In the letter, he wrote that Zynga's enterprise value had declined by more than 80 percent in the 12 months since IGT acquired DoubleDown.