Brightstar’s Profit Squeeze Shows the Cost of a Lottery Licence

Brightstar's current shape is relatively recent. The former International Game Technology PLC sold its Gaming & Digital business to a holding company owned by Apollo-managed funds in July 2025, retaining the lottery activities and adopting the Brightstar identity.

That history matters when reading older IGT material. The lottery company reporting these results is distinct from the gaming business sold in that transaction. The continuing-operations comparison helps keep the current business separate from the disposal's effects.

Italy represents a much longer operating relationship. Brightstar and its predecessors have managed the Lotto business for more than three decades, according to the company. The latest concession extends that relationship through November 2034.

The nine-year term began on 1 December 2025. LottoItalia, the consortium operating the concession, paid an upfront fee totalling €2.23bn in instalments. Its final €1.43bn payment was made on 24 April 2026.

At the 2016 tender, the preceding nine-year concession carried an announced upfront fee of €770m. The new fee was almost three times that nominal sum. The value of retaining an established operation therefore has to be considered against a much larger capital commitment.

Brightstar has a 61.5% economic interest in LottoItalia. Allwyn is also a partner, alongside Arianna 2001 and Novomatic Italia. The financial commitments and consolidated results therefore need to be read with the other participants' interests in mind.

There is a similar distinction in the profit figures. The $45m of group income from continuing operations includes earnings attributable to non-controlling shareholders. The amount attributable to Brightstar itself was $22m.

The accounting is unusual enough to deserve a plain explanation.

Brightstar records upfront licence fees among other non-current assets. It then recognises their amortisation as a reduction of service revenue over the licence's economic life. The entry affects the top line itself.

Total service-revenue amortisation was $99m in the quarter, compared with $53m a year earlier. The company's reconciliation adds that amortisation back in arriving at adjusted EBITDA, alongside other adjustments.

This helps explain why adjusted EBITDA declined only modestly while reported profit fell much more sharply. The measures recognise the concession's cost differently.

Our view is that both perspectives are useful, provided they are kept connected. Adding back a non-cash charge can help describe current operating performance. Assessing the return on the concession also requires the cash committed to obtain it.

The licence fee purchased a period in which the consortium can operate the business. Its economic significance continues throughout that period, even though the payment and the accounting recognition occur at different times.

The final Italian instalment was paid in April, before the July-to-September reporting period. Its effect on the year's cash flow should therefore be distinguished from the third quarter's activity.

For 2026, Brightstar still expects approximately $900m of net cash used in operating activities, including the final Lotto payment. Excluding that payment, it expects approximately $750m of operating cash generation. The company retained those expectations despite lowering its revenue and adjusted EBITDA outlook.

These are operating cash figures, before capital expenditure. They do not measure the cash ultimately available for distributions after investment.

The quarter provides a smaller example of the difference. Brightstar generated $73m of operating cash and spent $81m on capital expenditure, producing negative free cash flow of $8m under its definition.

A profitable operating business can therefore report a cash outflow while funding a long-term contract and its infrastructure. The commercial test is whether subsequent cash generation provides an adequate return on those commitments.

That judgement also requires attention to the consortium structure. Consolidated cash payments describe the group's activity; Brightstar's own economic exposure must be considered alongside the participation and funding of its partners.

The licence's treatment does not explain every pressure in the results.

Brightstar identified weaker US multi-state jackpot performance, the transition of a UK service contract and currency movements among the offsets to growth. Product sales, software services and cost efficiencies provided support. CFO Max Chiara emphasised disciplined execution and efficiencies in the results announcement.

The revised revenue outlook reflects updated same-store sales expectations, the timing of some Italian B2C expansion and foreign exchange. Management attributed the adjusted EBITDA revision primarily to updated currency assumptions.

The distinction matters for judging execution. An established amortisation schedule and a change in expected customer activity have different implications. The former follows a known contractual investment; the latter can alter the future income expected from the business.

Jackpot-related activity also complicates comparisons. Demand can depend on the prizes available in a particular period, making a strong prior-year quarter a demanding benchmark. A long concession provides time to operate through those fluctuations, while leaving the business exposed to the sales and margins actually achieved.

The attraction of a major lottery concession is its duration and the opportunity to build on an established operation. The upfront price commits capital well before all the associated income is earned.

Our assessment would therefore focus on returns across the contract's life: cash generated after the licence fee, necessary capital expenditure, operating costs and financing costs, with profits and funding allocated appropriately between partners.

A reported adjusted margin captures only part of that picture. The timing of investment, resilience of customer demand and ability to control costs determine how valuable the concession ultimately becomes.

Brightstar's lower outlook gives those questions fresh relevance. Its relatively steady adjusted EBITDA indicates operating resilience, while the licence payment demonstrates the scale of capital required to secure part of that business.

The next reports should show whether the retained cash expectations are delivered and whether investment produces the growth management anticipates. For the wider lottery industry, this is a reminder that securing a long contract starts a financial commitment whose success must be demonstrated over years.