Scientific Games Corporation - Autotote Before 1992

Autotote Before 1992

Autotote Corporation began as Autotote Systems, a firm established in 1979 by Thomas H. Lee, a Boston venture capitalist and specialist in leveraged buyouts who purchased Autotote Limited from ATL Limited of Sydney, Australia. Based in Newark, Delaware, Autotote Systems designed, engineered, manufactured, marketed, and operated computerized pari-mutuel wagering systems in the form of totalizators, or tote boards, which calculate and display odds and potential payouts for racetrack bettors. The company maintained a warehouse and manufacturing facilities as well as its offices in Newark. It also had manufacturing facilities in Hatfield, Pennsylvania, and a sales office in Konstanz, West Germany. Net sales rose from $5.4 million in fiscal 1980 (the period from the firm's inception in May 1979 to June 30, 1980) to $10.2 million in fiscal 1982. Net income increased from $124,000 to $970,000 over this period.

Autotote Systems had revenues of $36.2 million in fiscal 1989 and was supplying wagering equipment to some of the largest racing associations in the United States and more than 50 racetracks abroad when it merged in 1989 with United Tote, Inc. By this means, United Tote, though smaller than Autotote, acquired all of Autotote's outstanding shares for $87.8 million in cash and securities. Together, the two companies commanded almost half of the $92-million-a-year U.S. market for the manufacturing and servicing of totalizators. United Tote's owners thought they would run the business, but Autotote's owners conceived the transaction as a back-door method of taking their company public. Since Lee and his partners held the largest share in the combined company—36 percent—the president of Autotote, James H. Pierce, became president of United Tote.

The deal quickly unraveled when, despite assurance by lawyers from four major firms that there would be no problem with the merger, the U.S. Department of Justice filed suit against United Tote for violation of antitrust law. While the suit was in the courts, it became impossible to integrate the operations of the two firms except to discuss essential financial information. Moreover, one of the lenders who had made a bridge loan to finance the cash portion of the deal refused to refinance it when it ran into legal difficulties, and no other lender would step in to complete the transaction. Largely because of legal costs, increased interest payments, depreciation, and amortization expenses from the acquisition as well as delays in international sales, United Tote posted a loss of $2.7 million in fiscal 1990 (the year ended October 31, 1990) on revenues of $69.2 million.

A federal court decision in 1991 forced the dissolution of United Tote. Autotote Corp., founded in 1992, retained operations accounting for about 59 percent of the consolidated company's revenues, consisting of the principal totalizator unit and a Nevada sports/race-wagering business. A. Lorne Weil, a director and consultant to Autotote Systems since 1982, became chief executive officer of Autotote Corp., which assumed about $50 million of the consolidated company's long-term debt.