Is A Lottery IPO A Good Idea?

As the Spanish government looks to cut down on its debt, the country is going to privatize the national lottery, Sociedad Estatal de Loterias y Apuestas del Estado SA, writes the Wall Street Journal. The offering would be Spain's largest IPO ever, and one of the biggest on the continent in the past ten years. The financial advisers to the IPO are expected to announced soon, but Spanish banks are clamoring the role of coordinator banks for the IPO, as this role will pay higher fees. The role of the financial and legal adviser could be announced as soon as tomorrow, Aurelio Martinez, chairman of Loterias y Apuestas del Estado, said in an interview with the Journal. The government is hoping to raise between €6.5 billion and €7.5 billion by selling 30% of Loterias in the offering, as debt repayment becomes a major concern on the continent. "We've received a lot of interest, from sovereign wealth funds and from others," Mr. Martinez said. So is a Spanish lottery a good idea? In a word, yes. The company is essentially a casino, as it takes money in every week for a lottery drawing, and investors will be clamoring for a company that takes in huge amounts of cash, has no debt, and is prepared to pay large dividends. Once Loterias is public, it would be the second largest gaming company in the world by market cap, behind Las Vegas Sands LVS. The market cap would be between €23 billion and €25 billion. The company was widely profitable last year, and should continue to be stable. The company had just €10 billion in revenue last year, and its EBITDA was around €3 billion. Investors would be wise to consider getting involved in this IPO, as it will likely continue to be a cash generator for some time. In a time of uncertainty, strong cash flows, rising dividends, and a business model that has been around for hundreds of years, you could do a lot worse. As the saying goes, you have to be in it, to win it.