Brightstar Lottery PLC (BRSL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the International Game Technology Italy Lotto Tender Update Conference Call. [Operator Instructions]. And I would now like to turn the conference over to Jim Hurley, Senior Vice President of Investor Relations. Jim, you may begin.

Thank you, Krista, and thank you all for joining us on this morning's call, which is hosted by Vince Sadusky, our Chief Executive Officer; and Max Chiara, our Chief Financial Officer. After some prepared remarks, Vince and Max will be available for your questions. During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings. During this call, we may discuss certain non-GAAP financial measures. You'll find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our press release, slides and other filings with the SEC, each of which is posted on our Investor Relations website. And now I'll turn the call over to Vince.

Thank you, Jim, and hello to everyone on the call. Well, yesterday, we announced an important update to the Italian Lotto Tender process when the ADM awarded Lotto Italia a new 9-year license, extending our tenure through November of 2034. This is really exciting news. Lotto is one of the world's largest lottery contracts, and Lotto Italia, a consortium led by IGT, is the current operator of the lotto license. IGT and its predecessor companies have successfully managed the business for over 30 years with exceptional returns, both for the Italian government and for IGT shareholders. The EUR 2.23 billion upfront license fee reflects the significant value we believe we can create in the new license term. We plan to meaningfully grow revenue and cash flows from this concession by investing in our existing iLottery business, and developing a new B2C digital iCasino and sports betting platform. Although this license fee is significantly greater than the last one, with the planned incremental profit growth, our projected IRR is in line with that of our overall lottery projected returns. In addition, we believe our digital plan for Italy under the new license has the potential to significantly improve IGT's overall consolidated growth profile. IGT received the maximum technical score in the review process, reflecting IGT's technology leadership. We have a proven track record of growing lotto wages over the last 30 years, including a solid 3% CAGR since 2010. That success is a function of IGT's steady pipeline of game innovation as well as our development and management of a robust retail point-of-sale network. Some of the more noteworthy recent lotto innovations include the 10eLotto special time draws and a fourth lotto drawing in 2023 and Numero ORO for [indiscernible] lotto game in 2024. We've already developed an innovation pipeline for the next 9 years, including a mix of new and add-on games in addition to the continued revitalization of core franchises. We will introduce new player touch points by expanding terminal capabilities, including the ability to connect to a player's personal device. This should help increase the velocity of sales and provide a richer user experience. In addition to the enhanced retail experience, creative digital solutions expand both the player base and existing lottery player engagement. We have developed a digital experience, we believe will complement retail, an approach that has been very effective in other markets. Our Italy iLottery wagers have grown at a 26% CAGR over the last 5 years, yet are significantly lower than other iLottery markets. We believe our coordinated digital and land-based game launches, leveraging the recognition and excitement for new games across channels will continue to drive high growth in this underpenetrated market. As we execute these proven strategies, we have identified other avenues to help drive digital adoption. I mentioned bringing digital solutions to our 35,000 points of sale to enhance the overall player and retail experience. This is especially relevant considering the large existing player base for both lotto and scratch & win. In the last year, Lotto's 9.5 million players represent over 40% of Italy's total gaming population, while scratch & win's 17.1 million players represent about 75% of that population. The number of players that interact with lottery is significant, and we believe we can effectively offer digital gaming experiences to them. We have already begun this digital execution with the recent acquisition of an online concession and launch of the My Lottery's app in Italy. My Lottery is currently the #1 downloaded Italy gaming app in the iTunes Store. Initially launched as a one-stop shop to play lotto and scratch & win, the app was designed with a broader mobile-first player experience in mind. We built it with a scalable back end that makes it easy to integrate new game content and gaming verticals. We believe we have the right combination of strategies to bring our 2030 Italy iLottery penetration in line with where comparable European benchmarks are today, which ranges from mid-teens to 45%. That incremental growth will come with higher profit contribution as we'll be earning an additional 8% gross digital distribution fee on top of the current 6% concession rate we earn on lot of wagers. The My Lotteries app creates an opportunity for us to expand our Italy B2C digital gaming offering to include iCasino, sports betting and bingo. We have already acquired licenses for those adjacencies. Our right to win in digital is based on the scale of IGT's existing 20 million lotto and scratch & win players and our POS network. Today, there is an estimated 25% overlap between digital lottery players and those who are also engaged with iCasino and digital sports betting activity. This presents cross-selling opportunities that should drive increased average spending on iLottery and other games. Given this data and our Italy market experience, we believe there is a significant incremental value creation opportunity here without the need to become a market leader. In summary, we are very excited about operating the Lotto license for the next 9 years. We have a clear path to create value through 3 main objectives: First is the sustained growth of retail sales, where we have a clear track record of success. Second is to build on our strong iLottery momentum and leverage both the retail network and the new My Lottery's app to drive increased digital adoption. And finally, to monetize the scale and scope of our lottery presence and player base to expand our Italy B2C digital business to include iCasino and sports betting. We understand these adjacencies well based on past experience. And now I'll turn the call over to Max.

Thank you, Vince, and hello to everyone on the call. I'd like to provide a brief overview of the key financial terms of the new lotto and digital distributed gaming licenses. Lotto has a 9-year term that runs through November 2034, and the concession rate is 6%, consistent with the current license. The new B2C digital distribution licenses earn an 8% gross fee on all wagers, which is before any bonuses to players. The EUR 2.23 billion lotto upfront license fee is payable in 3 installments, EUR 500 million payable in the next 30 days, EUR 300 million payable on the commencement of the new term and the remaining EUR 1.43 billion payable no later than April 30, 2026. In addition, there is approximately EUR 150 million in CapEx required to upgrade the lotto infrastructure, which includes the central system and retail terminal network. That investment is expected to be concentrated in 2025 and 2026 and is already contemplated in the previously communicated CapEx outlook. CapEx associated with the new B2C digital distribution model is expected to be about EUR 30 million over the next 9 years. It's worth reminding you that Lotto Italia is a consortium where IGT maintains operational control and consolidates 100% of the business in our financial statements. All Win, our largest partner, is committed to the consortium and all partners will contribute their pro rata share of license fee and CapEx. We're very excited about the opportunity to operate the Italy lotto license through November 2034. We have a 30-year track record of proven success growing the business through continuous innovation and strong execution. We believe we have a clear plan to drive accelerated growth in the new license term through increased iLottery adoption and attracting new players with our expanded B2C digital distribution capabilities. This growth is expected to come with enhanced economics. At the same time, our investment in technology should enhance our efficiency and drive incremental cost savings through the next concession period, which could be further leveraged with the digitalization of our offering. All of this supports a solid IRR that is consistent with the average of our planned returns on large contracts and which we tend to outperform. We expect this to create long-term shareholder value. With that, we'd like to open the call to answer your questions.

[Operator Instructions] Your first question comes from the line of Chad Beynon with Macquarie.

This is Aaron on for Chad. Can you just talk a bit more about how you think about financial returns for this contract? And what are the opportunities to implement technology, pricing, et cetera?

Yes. Sure. I think, Aaron, I'll add a little bit more color from the prepared remarks. So when we think about this contract, right, this is our largest -- really between this and scratch & win, our 2 most important contracts, we recognize there was a significant increase in the fee paid. But as we saw from the published results from what we bid and our competitors bid, this is what it took to secure the license. We worked on the technical part of what I described earlier, the significantly enhanced state-of-the-art point-of-sales system that we'll be implementing and executing both from a hardware and software perspective as well as the work that we did around significantly improving our iLottery penetration in a country where by all data that we've analyzed should be significantly greater, again, more in line with other European nations. And then we also spent a considerable amount of time working on our iGaming plan as well. And we've got a lot of iGaming expertise. This will be a new product offering for IGT, but a lot of iGaming expertise having run Lotto Italia for many, many years in Italy as well as, of course, our sister company where we operated PlayDigital for many, many years to understand the B2C space, both the platform and the game development process very, very well. So with all that, that all went into our modeling. Of course, we don't share IRR. But as I mentioned on the call, our plan is to -- we estimate an IRR that's in line with the other estimates that we developed for our bids. So although significantly greater upfront fee, we plan on significantly greater cash flow. In fact, another way to look at it is we expect over the duration, the 9-year duration of the license, we expect to generate a similar amount of cash net of minorities that we did over the past 9 years, justifying the higher concession fee.

Got you. Appreciate the color there. And then on the scratch & win concession, can you just talk a bit about how you guys are thinking about that concession? And do you expect the bid or renewal to be in 2028 or earlier?

Yes. So the current license runs through the end of 2028. We're not sure when that will come out. But clearly, when we look at our long-term projections, cash flow utilization and needs that we've modeled out many different scenarios under scratch & win. But of course, our view was one at a time. So very important to win lotto. A lot of work went into this. We've secured the Lotto contract and on to scratch & win. But as you know, scratch & win is a distinct tender process. So it will be something distinct and different from the process we just went through with Lotto. We currently have a different joint venture there with different partners from Lotto. And it's clearly an important contract for us. And as we settle along with lotto, we believe that our customer, the Italian government has been very pleased with our performance, our game development, our sales growth and our technology and delivering scratch & win. So we think similar to lotto, that gives us, I think, a really good head start and a great advantage. But that process will run a distinct process, and we will be competitive for that as well.

Your next question comes from the line of Jeff Stantial with Stifel.

Maybe just starting out on the planned expansion into online sports betting, casino and bingo. Can you just talk a little bit on your technology strategy? Should we expect you own and build it out? Are you planning to partner here? Just any additional color there? And kind of as a corollary, when you talk about achieving IRR consistent with existing large contracts, I guess, how much is baked into that return expectation in terms of contribution from cross-sell into sports and online casino? And if there is a material amount, can you just talk about sort of the strategy, the actual levers to drive that cross-sell?

Yes, sure thing. I'll get started. I'll let Max address some of the financial part of your question. So when we take a look at the market, at the Italian market, it has developed significantly over the last 5 or 6 years in particular. And we've seen the -- well, first, we've seen terrific growth just in digital consumption. We've gone from, I think, a couple of billion dollars to $5 billion or $6 billion in total spend. So clearly, the Italian population, very similar to the rest of the world, enjoys digital gaming and enjoys the activity. The actual penetration of players, when you look at the composition of players, the overlap with lottery players is pretty significant. And up to this point, under our operation of the Lotto is focused 100% on providing lottery games and primarily, our focus was on the retail side. So really, as of late, we spent a lot of time and effort on improving iLottery, recognizing the significant underpenetration. And as I mentioned earlier, the consolidation of play, there was individual apps really for scratch & win, for lotto, but we developed a platform that we think is really, really a great kind of state-of-the-art user experience with the My Lotteries app. And that has been launched a couple of months ago back at the beginning of the year. And as I mentioned, that's been doing really well in terms of downloads and utilization, which has helped to support -- I think we mentioned on the first quarter call, we were up 20-something percent in overall iLottery ticket sales. So we think that we're on to something there. We have really good expertise in iLottery. We've been investing in iLottery significantly for the better part of a decade. We've learned and have had terrific success in game development and in platform execution in Europe and in the United States. So we feel very confident now with the renewal of the license and knowing we're going to have this for the better part of a decade that the incremental investments in Italy to be able to drive that consumption is warranted and is really important to help to drive growth. In addition to that, Italy is a place where there is no advertising that's permitted. And so the extensive point-of-sales network that IGT has developed and the relationship it has with its vendors, we think, is a really important opportunity to improve overall awareness and the experience. So as I touched upon, the actual terminal experience is going to be state-of-the-art. By definition, it'll be best-in-class, the latest technology deployed. And I think the Italian government, the evaluating body recognized that by giving us a perfect score. And so we're very excited to roll this out and have that interoperability for a long time and new potential lottery players. And then we've also seen out of that $5 billion or $6 billion in spend, that incredible growth from a couple of billion dollars a few years ago. That is largely more than 50% of that or roughly 50% of that has inured to the B2C providers that offer multiple gaming opportunities, lottery, iCasino, bingo, sports betting. So as you'd expect, I mean, a more robust experience creates a stickier experience for players where they don't need to travel between apps that it's just super convenient. So job one for us is to continue to expand the iLottery play. We believe we can do that through really good execution and the significant hardware and software investment we're making in our 35,000 point-of-sale outlets and then provide superior experience that just simply gives players the choice if they like to engage in iGaming. And again, we've got a good amount of expertise from being involved in iGaming. We right now have a leading position in iGaming in North America. So we know that business very, very well. As far as the investment goes, it's a combination, a combination of internal expenditures. We've done an incredible analysis. Our team has done incredible analysis around where it makes sense to partner and where it makes sense to build. So our goal is to offer a very robust amazing best-in-class player experience in Italy, building off of lottery, building off of our physical touch points. And we will certainly offer up a lot of different content, certainly not exclusively our own and in choosing where and when to use outside vendors, as you can imagine, everything from auditing to age verification to CMS. There's a lot of opportunity for us to pick and choose off of our scorecard, whether or not to develop internally or use third parties. The same thing is how the development of My Lottery's app. It's a combination of internal development and using external third parties who are best-in-class in order -- the #1 goal is to offer up the best experience in Italy and do it, of course, most efficiently.

So to add on that, in terms of the main plan characteristics and going through the pillars of our plan effectively. So we have shown you that retail sales have grown to the tune of 3% over the last 14 years. Obviously, we don't plan the same percentage of growth going forward, but we believe that through the significant innovation that we have demonstrated over the years, we are able to grow that business consistently going forward and expand on top of that, really the penetration of the digital iLottery space with the full execution around our My Lotteries app. More robust B2C platform that will help us drive iLottery adoption in the country, which is at low single digits right now, and we think we are going to be able to bring that in line with comparable benchmarks in other European countries over the next few years. And just as a reminder, building on the current iLottery momentum where wager has been growing at a clip of 25% plus over the last 5 years. Then the third pillar, obviously, is this digital expansion potential on distributed gaming opportunity, leveraging the point of sales, the 35,000 point of sales, the EUR 20 million combined lotto and scratch & win players and taking into account the fact that there is a 25% overlap in players between iCasino, sports betting and lotteries. So we believe the cross-sell opportunity is tangible and expect that to contribute to the improved economics. And then last but not least, obviously, we have to remind ourselves that the digital business is going to come with an incremental distribution fee of 8% on top of the B2B 6% concession rate. Obviously, we will have to reserve some of that for bonuses to players. After the initial ramp-up, we expect that bonus to kind of land in the range of 2% to 4% during the duration of the contract. And then finally, also thanks to the effort that we have launched back last year with the Optima 3.0, we believe that we can expand that program into the lottery operations in Italy and also drive additional efficiency also as a result of incremental investment in technology, adoption of automation and AI to drive additional savings. We estimate a run rate of about EUR 10 million to EUR 20 million annually that we could drive additionally to what we have been able to achieve so far over the next few years, obviously, with a period of inception beforehand. So with all of that in mind, we think that we can achieve those compelling IRR that Vince mentioned. And we're confident that we have a good plan in front of us.

That's great. Before turning to my follow-up, I do just want to expand on something you just said there, Max. In terms of the bonuses to players, 2% to 4%, I wasn't clear what that was referring to 2% to 4% of what? And then I guess, if you need to net out the bonuses, how should we think about, I guess, like the net take rate below the 8% gross take rate?

Yes. Max was just mentioning the incremental 8% that's available for this business, but that is the gross distribution fee for digital, and it will certainly be netted down for all of you that follow the sports betting companies and the iCasino companies, there's the cost of player acquisition, there is marketing, there's vendor participation, et cetera. But again, the point is it's an incremental revenue stream to begin with to fund the business.

Okay. Great. That's -- thanks for clarifying. And then for my follow-up, just turning over to capital allocation now that the size and the amount of the license fee is understood and locked in. Can you just help us think about or add any color on the potential scale of return of capital coming with the gaming and digital proceeds? Just anything incremental you can offer there would be great.

Yes. I would say the lotto tender decision was issued faster than we anticipated. So we're not prepared today to talk about capital allocation, but we certainly will very, very soon, especially as we believe we're getting much closer towards the closing of Voyager. But I think as Max has talked about in the past, right, we think about it from the perspective of you start off with over $4 billion in sale proceeds, minus our costs, minus our committed debt pay down. And so with all that, you've got a considerable amount of capital. This upfront fee is greater than I think a lot of folks had penciled out. So you take that into consideration. Certainly, some of that incremental fee will be financed with Voyager proceeds, but still a significant amount of capital that is available for us to think about what to do. And again, we remain committed to returning a portion to shareholders. And we will announce the details of that plan very soon. But I'll hand over to Max to take you through some more points.

Yes. And I'd just like to add that as a matter of fact, in preparation for Voyager closing, we have recently expanded the authorization for share repurchases through the AGM shareholder approval from 10% to 15% of the outstanding share capital. So that obviously is a tangible evidence of our ability to consider that action.

Your next question comes from the line of Barry Jonas with Truist Securities.

Congrats on the win. Can you talk a bit more about the Italian iLottery TAM opportunity? And should we think of this as incremental players or budgets or maybe more of a channel shift where you get that additional distributor fee?

Yes. I think our experience in other markets shows that it's both. We've seen a combination of players that find the convenience of iLottery really attractive. Of course, in today's digital world, that's kind of expected. It's not permitted in a lot of jurisdictions, but it certainly is in Italy, which is great, and it also has brought in incremental players as well. So we think this very low penetration really has an opportunity to expand the pie. So not only shift players over who have traditionally been playing lotto through retail, but also bring in folks that just don't have the habit of going to a retail outlet on a frequent basis. And then having the offering enhanced, I think, through multiple ways to be entertained beyond lottery is something that we believe is very attractive, and we've seen that work out really well in other jurisdictions. So I mean the way we look at it is we've got this great relationship with our players. And we've been able to consistently grow the retail base, which is really remarkable and a real credit to our team's ability to innovate and also our point-of-sales network as well as certainly the type of individual that resides in Italy that enjoys these games, lottery battery in particular. And when you think about the fact that our point-of-sales network has been out there for a long time, right, without much in the way of technological advancement. Now that we've secured this new license and part of the requirement, of course, and part of the win was our technology solution, we're really excited. We know that the rollout of our new point-of-sale hardware and software will be a very modern, state-of-the-art, we think, very engaging experience for our users. As we mentioned the connection of mobile as well is something that's been proven in other parts of the world to be incremental to lottery sales and then have a complete offering, something that's very, very efficient and engaging and entertaining for players to give them that opportunity, we think, is really going to assist us in being able to increase our overall share of spend for folks that engage in gaming. And as I mentioned, specific to Italy, the online retail combo, every market is different. But in Italy, the data proves out that, that online retail combo has garnered more than half of the increase in digital online GGY over the last 4 or 5 years. And we don't think there's a better online retail combination than our very extensive distribution network and the technology we're looking forward to deploying.

Got it. That's really helpful. And then just for a follow-up. You talked about value creation on the digital game and casino side, even without the need to become a market leader. This is a B2C business, you haven't really been in for, I think, 5 years. What are some reasonable market share targets we should think about? And then I guess just to clarify, is digital gaming going to be through the JV or just IGT solo?

So with regard to the actual numbers, yes, I mean, I think it's competitively sensitive. So we really don't want to provide those at this juncture. I think we'll provide some more details in a future kind of deeper dive with investors. But over the 9 years, we, I think, have assumed good growth in iLottery. We feel like that should be achievable. That should ultimately get to be in line with where many other European countries are today. So we do think that there is a very real opportunity there, and our growth projections are very reasonable. Around iGaming and sports betting, it's significantly less. Our assumption around the penetration is significantly less because for us, this is incremental, right? This is an incremental opportunity on top of the retail and digital lottery play. So I would just -- I guess my only comment there would be, as I mentioned in my prepared remarks, we're not expecting to be at the top of the leaderboard even at the end of this concession at the end of a 9- or 10-year period.

Okay. And then just for the digital casino, is that through the JV? Or is that 100% owned by IGT?

Look, we have a very strong partnership. The consortium has worked extensively together in the past, and we expect that to definitely be a pillar of the future development. But again, the sheer detail of this plan, it's a bit early to detail them out at this point.

Your next question comes from the line of David Katz with Jefferies.

Congrats on your win. I wanted to just follow up on 2 earlier points. One is that the scratch & win contract is out in the future. And I know it's way too early to speak in any specificity. But should we take this current circumstance and think about that contract in a much larger way when it does come up just to start to prepare our expectations a bit? Or is there just no correlation between this progress and what might happen with that?

Yes, it's a good question. I would say there really is no correlation. And the reason is, as you know, the lottery industry is relatively small. There's only a handful of players that really have the capability to run lotteries, provide systems and provide printing in mass, where there's billions of tickets that need to be printed for significant jurisdictions like Italy and warehousing and distribution to be able to get out to all these point of sales. So it's a quite a complex process. And so I would say when you think about lotto, there were only ourselves and one other competitor that could have even, I think, satisfied all the criteria necessary to compete for that contract. On the scratch & win side, I would say it's a very similar scenario as well. And it really depends upon, I think, who has the capability being a limited pool of players, whether or not our partnership remains or doesn't remain. Again, it's early days. We've been very happy with our partnership. And I know the Italian customers have been very satisfied with our ability to print and deliver tickets. Again, we always feel like we've got superiority in the Italy market in terms of our ability to deliver great performance, understand the player and deliver great gains. I think that's been evidenced by the growth in scratch & win, certainly over the last several years. So we're uncertain at this point, but we do believe each one of these circumstances is unique. I think in the ability to deliver on the Scratch & Win contract, it could potentially be even more challenging because you have to have the incremental expertise being able to warehouse, distribute and print, of which there's not a lot of folks that could do it at this volume that have had proven success. So we'll see how that plays out, but I wouldn't necessarily correlate the higher license fee that was required to win lotto to what we anticipate for scratch & win down the road.

And if I can, Max, just circle back on one thing. I think you may have said, if I heard correctly, incremental CapEx of $150 million, and then there was another $30 million or so. My recollection is last time around, the CapEx number was larger. Can you either correct me or just explain sort of what the difference is this time?

Yes. No, the CapEx was in the ballpark, the same ballpark as this time. It's probably a bit higher, slightly higher this time around with the $150 million. I used the word incremental to specify that the CapEx was on top of the upfront fee, but that's the CapEx number, $150 million. And that is primarily going to be spent in the first 2 years.

Your next question comes from the line of Domenico Ghilotti with Equita.

Starting from a clarification on the last point. So when you say the CapEx, $150 million incremental, but should we assume that this is already included in the guidance that you provided, so in the $450 million per year over this year and next year. Just starting from this. Then I have some question on the lottery business. First, why in your view has been so low the penetration so far? So you have been running the concession for many years and the starting point is very, very low. So why is this changing over the next 9 years? And in your projection for the lotto trend, can we understand what is the retail assumption in terms of wage growth? And last, on the expansion into the online vertical, so iGaming and sports betting. So I understand that you are planning for getting an online concession? And are you also interested on getting at some point a retail concession or there is no compete on that preventing you to reenter the B2C retail business?

Yes, sure. So I'll take the business question and hand over to Max for the financial question. So we already have our online license. And as you know, there's a process going -- currently taking place in Italy for the renewal and the refresh of that with different technical requirements and parameters, but already being accepted into the program. We feel very confident in our renewal capabilities for online. In terms of entering into the retail side, opening up retail outlets, we are not going to get into that business. On the iLottery side, yes, it's a great question as to why it has been so low for so long. And we think the -- one of the reasons has been the development of the point-of-sales retail distribution network. It is very robust. You can buy a lottery ticket in almost any city block of a heavily populated area. I think that, coupled with the fact that the digital experience, quite honestly, was not great. You could buy a lottery ticket online and see the results, but it certainly hasn't been state-of-the-art. And so I think a lot of folks just had the habit of going to the retail outlet. There wasn't significant differentiation or a great experience on the iLottery front. And this is our plan now that we've already begun to execute through the My Lottery app has, I think, begun to change that. The ability to offer different games to be able to offer very interesting interactive games. When we take a look at some of the markets where we've developed games and our expertise and learnings that have taken place over the last 5-plus years or so, we realize there's an opportunity to deliver digital games that have a different experience. There are different price points. And we think that, that can be a good reason for people to want to get online and set up an account. And then we've also -- we feel like we've not done a great job in bringing over younger players into both lotto and scratch & win. And we've seen there's a lot of younger digital players that have enjoyed the experience in other jurisdictions. So again, with now the confidence that we have from establishing this long-term contract with Italy, we're very excited to spend the capital and invest in this experience to bring kind of a best-in-class opportunity to players in Italy. And again, our plan is not predicated on getting to the 45% penetration level that we've seen in some European countries. I think it's very, very modest and yet can significantly enhance our returns, especially with the incremental play that a lottery players enjoy by having other entertainment options available to them located in one place.

Okay. And just a follow-up on this. So just to stay on the business and then -- so on the iLottery distribution, is it correct that you do not have an exclusivity differently from the retail distribution or not? So can other players distribute the iLottery?

Yes, yes. They can create a link in their experience to allow players to play iLottery.

And going back to your first question on CapEx, the answer is yes. It was included in our original expectations for '25 and '26.

And the retail trend, if you want to share the broad indication, retail versus online contribution?

Yes, I mentioned before that we have a 14-year history running the retail at 3% growth. We don't expect to project that growth to stay in place for the next 9 years. But definitely, there will be some growth in retail as demonstrated by our innovation capabilities.

We have time for one more question, and that question comes from Joe Stauff with Susquehanna.

Congrats on the win. I guess maybe a different attempt to ask some of the questions that we've heard on the call is that on the additional digital business that you're investing and trying to maximize the economics associated with that. If we zoom out and we think about like your projected IRR relative to your bid, is there a sizing of the digital business versus the retail business that you can give us in terms of how big it has to be? In your projections, do you expect it to be 20%, 25% of, say, the retail business for it to hit kind of your projected IRR on this bid? And then the second question is just relative timing associated with the digital business that you plan to have, you do have My Lottery up and running. But when you think essentially, it has all of its products on there to be consumed and purchased by customers, when is the approximate timing of when it'd be up and running at full, say, horsepower.

Yes. So we have our gaming license. And as you mentioned, we've built the app. And so the team has a plan, and we're currently speaking with potential partners, working through game development. We will be ready to go very shortly to the market. Again, commercially sensitive, I just want to give you a date, but there's been a lot of work that's been done on this really over the last year or so. So this is not something where we're waiting for some period out in the future to even begin offering this up to players.

And so in terms of the penetration, we're not going to give you a specific number. But what Vince mentioned before is we don't expect to be extremely aggressive on that assumption and don't expect to be at the upper end of the range of other European countries. So we quoted a percentage of 11% to 45%. So I definitely don't want to assume that we are at the upper end.

And is there an average penetration rate that your comment referenced in terms of other European countries and the penetration rate associated with that? Is it approximately 25%? What is that number in terms of the benchmark as we try to figure out essentially the timing and the economic return of the project?

Well look, we have experience in other markets and the penetration can stay low for a few years and then it can ramp up pretty quickly depending on the successful launches and the experience, the successful experience that we've been mentioning during this call. And again, 9-year term is a decent timing where you can really put at work your best offering and really lift that up over the next few years to enjoy for several years the benefit of the higher penetration.

Got you. And Vince, like your comments on the launch, it's commercially sensitive, I understand that. It seems as though it will be up and running this year, though, based on your response. Is that just to clarify, a fair assumption?

Yes, yes, that's a fair assumption.

This concludes our question-and-answer session. And I will now turn the conference back over to Vince Sadusky for closing remarks.

Great. Thank you all for joining us today. We're very excited about the lotto news and the significant value we think we can create during this new license term. As you know, we've got a proven track record of growing the lotto business over the last 30 years, and we really believe in our digital plan for Italy. We believe it has the potential to improve our overall consolidated growth profile for the company. And I really want to thank the IGT team who supported our lotto bid and our decades-long success in Italy. They're the reason we're entrusted with the world's biggest fixed odds number game. Here's to another fantastic 9 years and a bright future for Lotto. Have a great day.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.