Brightstar Lottery Locks In California Contract, But Core Risks Persist

What happened

Brightstar Lottery PLC has signed a six-year instant ticket printing and services contract with the California Lottery, a longtime partner, following a competitive procurement. This secures a key revenue stream in a major U.S. market, where Brightstar already serves 36 of 48 state lotteries, reinforcing its contractual moat. However, the company remains burdened by high leverage, with Net Debt/EBITDA at 4.3x and interest coverage of 2.8x, limiting financial flexibility amid volatile free cash flow. Critical uncertainties loom, including the pending renewal of the Italian Gioco del Lotto license, which accounts for ~18% of revenue and could be lost or restructured unfavorably. While this contract win is a positive operational step, it does not materially alter the elevated balance-sheet and regulatory risks that underpin the current 'WAIT' recommendation.

Implication

This contract win reinforces Brightstar's entrenched position in the U.S. lottery market, slightly de-risking a core earnings stream and supporting the long-duration contract moat thesis. However, it does not reduce the company's elevated leverage, with Net Debt/EBITDA at 4.3x, which constrains capital allocation and heightens refinancing risk ahead of 2026-2030 maturities. The Italian Gioco del Lotto license outcome remains a critical overhang, as loss or punitive terms could severely impair profitability, and free cash flow volatility post-divestiture complicates deleveraging efforts. Investors should view this as an incremental positive that does not justify a shift from the cautious 'WAIT' stance, given the unchanged high-risk profile. Ultimately, the investment case hinges on broader progress in reducing debt and securing Italian licenses, not isolated contract renewals.

Thesis delta

The new California contract addresses one of the key monitoring items by securing a major U.S. partnership, reducing near-term contract risk in a core market. However, it does not materially impact the balance sheet concerns, with leverage still elevated at 4.3x Net Debt/EBITDA, or the critical Italian license situation that could drive earnings volatility. Therefore, the core thesis of waiting for clearer signs of deleveraging and Italian license resolution remains unchanged.