Electronic gambling devices provided by Light & Wonder subsidiary Grover Gaming to nonprofits in Kentucky were disabled on November 21, due to allegations of cheating. The closure reflects badly upon Grover, according to one analyst’s report published November 25.
The Kentucky Horse Racing & Gaming Commission ordered the electronic pull-tab machines disabled, because they were vulnerable to “fishing.” Jefferies Equity Research analyst Kai Erman observed, “These individuals appear to be unrelated to Light & Wonder, with machines shut down due to failure to provide electronic pull-tab devices ‘equipped with adequate security equipment and software,’” according to regulators.
Erman reported that the cheating involved multiple devices and ran into the thousands of dollars. All Light & Wonder and Grover machines are disabled until the Racing Commission provides written authorization that they be placed back in operation.
“The fishing process involves inserting and pulling currency back out of a gaming machine using plastic lines, tricking the machine into thinking more money has been deposited,” Erman explained.
Four steps must be satisfied before the machines can be re-enabled, including Light & Wonder providing a written account of each malfeasance. The host venues must also provide “adequate surveillance.”
“Charity economics already remain challenged (and are typically reliant on charitable gaming for profitability) and we are skeptical on the ability for this to be implemented,” Erman said of requirements that nonprofits have their chairman on-site whenever the disputed machines are in operation.
Grover’s share of Kentucky charitable-gambling operations is “meaningful,” said Erman, approaching fully half the market. The subsidiary also represents eight percent of Light & Wonder’s revenue and its Bluegrass State installed base may be as high as 30 percent of all Grover machines, according to Erman.
Without knowing how long the Grover machines will be sidelined, the analyst continued, it becomes difficult to quantify the shutdown’s impact on Light & Wonder revenues. He estimated that it would be just a few percent.
Due to Grover’s preponderant market share, Erman foresaw a speedy resolution to the dispute. He expected little risk, therefore, to Light & Wonder’s 2026 projections, although year-end 2025 cash flow might be negatively impacted to a minor degree.
Jefferies would, Erman wrote, “make no changes to our forecast given lack of clarity on timeline for ban and full impact at this stage. Any transitory impact with clear resolution would not be a deterrent from our investment thesis,” which is for 20 percent earnings-per-share return, even allowing for ongoing-litigation risks.
If the fallout from the Kentucky affair is limited and results in no material changes, Erman concluded, “We remain positive on the opportunity for Grover to participate in new state openings and take existing state market share over the medium term.” He kept a Buy rating on Light & Wonder shares, which are traded on the Australian stock exchange.