SCIENTIFIC GAMES CORP (Form: 10-Q, Received: 11/04/2020 16:19:01)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-11693

SCIENTIFIC GAMES CORPORATION

(Exact name of registrant as specified in its charter)


Nevada						81-0422894
(State or other jurisdiction of						(I.R.S. Employer Identification No.)
incorporation or organization)

6601 Bermuda Road, Las Vegas, Nevada 89119

(Address of principal executive offices)

(Zip Code)

(702) 897-7150

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 par value	SGMS	The NASDAQ Stock Market
Preferred Stock Purchase Rights		The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

The registrant has the following number of shares outstanding of each of the registrant’s classes of common stock as of October 29, 2020:

Common Stock: 95,169,777

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL INFORMATION

AND OTHER INFORMATION

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	6

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	6

	Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019	7

	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	8

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	9

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	51

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 3.	Defaults Upon Senior Securities	60

Item 4.	Mine Safety Disclosures	60

Item 5.	Other Information	60

Item 6.	Exhibits	61


Glossary of Terms
The following terms or acronyms used in this Quarterly Report on Form 10-Q are defined below:
Term or Acronym						Definition
2019 10-K						2019 Annual Report on Form 10-K filed with the SEC on February 18, 2020
2021 Notes						6.625% senior subordinated notes due 2021 issued by SGI and redeemed in July 2020
2025 Secured Notes						5.000% senior secured notes due 2025 issued by SGI
2026 Secured Euro Notes						3.375% senior secured notes due 2026 issued by SGI
2026 Unsecured Euro Notes						5.500% senior unsecured notes due 2026 issued by SGI
2022 Unsecured Notes						10.000% senior unsecured notes due 2022 issued by SGI
2025 Unsecured Notes						8.625% senior unsecured notes due 2025 issued by SGI
2026 Unsecured Notes						8.250% senior unsecured notes due 2026 issued by SGI
2028 Unsecured Notes						7.000% senior unsecured notes due 2028 issued by SGI
2029 Unsecured Notes						7.250% senior unsecured notes due 2029 issued by SGI
AEBITDA						Adjusted EBITDA, our performance measure of profit or loss for our business segments
ASC						Accounting Standards Codification
ASU						Accounting Standards Update
COVID-19						Coronavirus disease first identified in 2019 (declared a pandemic by the World Health Organization on March 11, 2020)
D&A						depreciation, amortization and impairments
Exchange Act						Securities Exchange Act of 1934, as amended
FASB						Financial Accounting Standards Board
KPIs						Key Performance Indicators
LBO						licensed betting office
LIBOR						London Interbank Offered Rate
LNS						Lotterie Nazionali S.r.l.
Note						a note in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, unless otherwise indicated
Participation						with respect to our Gaming business, refers to gaming machines provided to customers through service or leasing arrangements in which we earn revenues and are paid based on: (1) a percentage of the amount wagered less payouts; (2) fixed daily-fees; (3) a percentage of the amount wagered; or (4) a combination of (2) and (3), and with respect to our Lottery business, refers to a contract or arrangement in which we earn revenues and are paid based on a percentage of retail sales
R&D						research and development
RMG						real-money gaming
RSU						restricted stock unit
SEC						Securities and Exchange Commission
Secured Notes						refers to the 2025 Secured Notes and 2026 Secured Euro Notes, collectively
Securities Act						Securities Act of 1933, as amended
Senior Notes						the Secured Notes and the Unsecured Notes
SciPlay Revolver						$150 million revolving credit facility agreement entered into by SciPlay Holding Company, LLC, a subsidiary of SciPlay Corporation, that matures in May 2024
SG&A						selling, general and administrative
SGC						Scientific Games Corporation
SGI						Scientific Games International, Inc., a wholly-owned subsidiary of SGC
Shufflers						various models of automatic card shufflers, deck checkers and roulette chip sorters
Unsecured Notes						refers to the 2026 Unsecured Euro Notes, 2026 Unsecured Notes, 2028 Unsecured Notes and 2029 Unsecured Notes, collectively
U.S. GAAP						accounting principles generally accepted in the U.S.

VGT						video gaming terminal
VLT						video lottery terminal

Intellectual Property Rights

FORWARD-LOOKING STATEMENTS

Throughout this Quarterly Report on Form 10-Q, we make “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “target,” “should,” “could,” “potential,” “opportunity,” “goal,” or similar terminology. The forward-looking statements contained in this Quarterly Report on Form 10-Q are generally located in the material set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:

•the impact of the COVID-19 pandemic and any resulting unfavorable social, political, economic and financial conditions, including the temporary and potentially recurring closure of casinos and lottery operations on a jurisdiction-by-jurisdiction basis;

•natural events and health crises that disrupt our operations or those of our customers, suppliers or regulators;

•incurrence of restructuring costs;

•changes in demand for our products and services;

•dependence on suppliers and manufacturers;

•dependence on key employees;

•goodwill impairment charges including changes in estimates or judgments related to our impairment analysis of goodwill or other intangible assets;

•level of our indebtedness, higher interest rates, availability or adequacy of cash flows and liquidity to satisfy indebtedness, other obligations or future cash needs;

•inability to reduce or refinance our indebtedness;

•restrictions and covenants in debt agreements, including those that could result in acceleration of the maturity of our indebtedness;

•stock price volatility;

•competition;

•U.S. and international economic and industry conditions;

•slow growth of new gaming jurisdictions, slow addition of casinos in existing jurisdictions and declines in the replacement cycle of gaming machines;

•ownership changes and consolidation in the gaming industry;

•opposition to legalized gaming or the expansion thereof and potential restrictions on internet wagering;

•inability to adapt to, and offer products that keep pace with, evolving technology, including any failure of our investment of significant resources in our R&D efforts;

•inability to develop successful products and services and capitalize on trends and changes in our industries, including the expansion of internet and other forms of interactive gaming;

•laws and government regulations, both foreign and domestic, including those relating to gaming, data privacy and security, including with respect to the collection, storage, use, transmission and protection of personal information and other consumer data, and environmental laws, and those laws and regulations that affect companies conducting business on the internet, including online gambling;

•the continuing evolution of the scope of data privacy and security regulations, and our belief that the adoption of increasingly restrictive regulations in this area is likely within the U.S. and other jurisdictions;

•significant opposition in some jurisdictions to interactive social gaming, including social casino gaming and how such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social casino gaming specifically, and how this could result in a prohibition on interactive social gaming or social casino gaming altogether, restrict our ability to advertise our games, or substantially increase our costs to comply with these regulations;

•legislative interpretation and enforcement, regulatory perception and regulatory risks with respect to gaming, especially internet wagering, social gaming and sports wagering;

•reliance on technological blocking systems;

•expectations of shift to regulated online gaming or sports wagering;

•expectations of growth in total consumer spending on social casino gaming;

•SciPlay’s dependence on certain key providers;

•inability to win, retain or renew, or unfavorable revisions of, existing contracts, and the inability to enter into new contracts;

•protection of our intellectual property, inability to license third-party intellectual property and the intellectual property rights of others;

•security and integrity of our products and systems, including the impact of any security breaches or cyber-attacks;

•reliance on or failures in information technology and other systems;

•challenges or disruptions relating to the implementation of a new global enterprise resource planning system;

•failure to maintain adequate internal control over financial reporting;

•inability to benefit from, and risks associated with, strategic equity investments and relationships;

•inability to achieve some or all of the anticipated benefits of SciPlay being a standalone public company;

•implementation of complex new accounting standards;

•fluctuations in our results due to seasonality and other factors;

•risks relating to foreign operations, including anti-corruption laws, fluctuations in currency rates, restrictions on the payment of dividends from earnings, restrictions on the import of products and financial instability, including the potential impact to our business resulting from the continuing uncertainty around the U.K.’s withdrawal from the European Union;

•possibility that the 2018 renewal of the LNS concession to operate the Italian instant games lottery is not final (pending appeal against existing court rulings relating to third-party protest against the renewal of the concession);

•the impact of U.K. legislation approving the reduction of fixed-odds betting terminals maximum stakes limit on LBO operators, including the related closure of certain LBO shops;

•changes in tax laws or tax rulings, or the examination of our tax positions;

•difficulty predicting what impact, if any, new tariffs imposed by and other trade actions taken by the U.S. and foreign jurisdictions could have on our business;

•the discontinuation or replacement of LIBOR, which may adversely affect interest rates; and

•litigation and other liabilities relating to our business, including litigation and liabilities relating to our contracts and licenses, our products and systems, our employees (including labor disputes), intellectual property, environmental laws and our strategic relationships.

Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in our filings with the SEC, including under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A in our 2019 10-K. Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no and expressly disclaim any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

You should also note that this Quarterly Report on Form 10-Q may contain references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us and we do not make any representation as to the accuracy of that information. In general, we believe there is less publicly available information concerning the international gaming, lottery, social and digital gaming industries than the same industries in the U.S.

Due to rounding, certain numbers presented herein may not precisely agree or add up on a cumulative basis to the totals previously reported.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share amounts)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenue:
Services	$	417	$	452	$	1,161	$	1,368
Product sales	124		255		376		731
Instant products	157		148		425		438
Total revenue	698		855		1,962		2,537
Operating expenses:
Cost of services(1)	132		133		388		401
Cost of product sales(1)	87		115		247		333
Cost of instant products(1)	70		69		205		211
Selling, general and administrative	164		175		513		535
Research and development	41		47		123		142
Depreciation, amortization and impairments	136		162		414		497
Goodwill impairment	—		—		54		—
Restructuring and other	20		11		58		24
Operating income (loss)	48		143		(40)		394
Other (expense) income:
Interest expense	(131)		(146)		(379)		(447)
Earnings (loss) from equity investments	2		4		(3)		17
Loss on debt financing transactions	(1)		—		(1)		(60)
(Loss) gain on remeasurement of debt	(24)		19		(26)		21
Other (expense) income, net	—		(5)		(4)		2
Total other expense, net	(154)		(128)		(413)		(467)
Net (loss) income before income taxes	(106)		15		(453)		(73)
Income tax (expense) benefit	(5)		3		(11)		(8)
Net (loss) income	(111)		18		(464)		(81)
Less: Net income attributable to noncontrolling interest	6		4		15		6
Net (loss) income attributable to SGC	$	(117)	$	14	$	(479)	$	(87)
Basic and diluted net (loss) income attributable to SGC per share:
Basic	$	(1.23)	$	0.15	$	(5.09)	$	(0.94)
Diluted	$	(1.23)	$	0.15	$	(5.09)	$	(0.94)

Weighted average number of shares used in per share calculations:
Basic shares	95		93		94		93
Diluted shares	95		94		94		93
(1) Excludes D&A.
See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in millions)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net (loss) income	$	(111)	$	18	$	(464)	$	(81)
Other comprehensive loss:
Foreign currency translation gain (loss), net of tax	28		(38)		6		(22)
Pension and post-retirement gain, net of tax	—		—		1		—
Derivative financial instruments unrealized gain (loss), net of tax	4		3		(10)		(13)
Total other comprehensive gain (loss)	32		(35)		(3)		(35)
Total comprehensive loss	(79)		(17)		(467)		(116)
Less: comprehensive income attributable to noncontrolling interest	6		4		15		6
Comprehensive loss attributable to SGC	$	(85)	$	(21)	$	(482)	$	(122)

See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except par value)


	As of
	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,045	$	313
Restricted cash	85		51
Receivables, net of allowance for credit losses $67 and $36, respectively	662		755
Inventories	223		244
Prepaid expenses, deposits and other current assets	256		252
Total current assets	2,271		1,615
Non-current assets:
Restricted cash	11		11
Receivables, net of allowance for credit losses $6 and $—, respectively	24		53
Property and equipment, net	434		500
Operating lease right-of-use assets	96		105
Goodwill	3,234		3,280
Intangible assets, net	1,342		1,516
Software, net	234		258
Equity investments	260		273
Other assets	196		198
Total assets	$	8,102	$	7,809

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt	$	44	$	45
Accounts payable	230		226
Accrued liabilities	573		495
Total current liabilities	847		766
Deferred income taxes	93		91
Operating lease liabilities	79		88
Other long-term liabilities	290		292
Long-term debt, excluding current portion	9,334		8,680
Total liabilities	10,643		9,917
Commitments and contingencies (Note 16)
Stockholders’ deficit:
Common stock, par value $0.001 per share: 199 shares authorized; 112 and 111 shares issued and 95 and 94 shares outstanding, respectively	1		1
Additional paid-in capital	1,246		1,208
Accumulated loss	(3,439)		(2,954)
Treasury stock, at cost, 17 shares	(175)		(175)
Accumulated other comprehensive loss	(295)		(292)
Total SGC stockholders’ deficit	(2,662)		(2,212)
Noncontrolling interest	121		104
Total stockholders’ deficit	(2,541)		(2,108)
Total liabilities and stockholders’ deficit	$	8,102	$	7,809

See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)


	Nine Months Ended
	September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(464)	$	(81)
Adjustments to reconcile net loss to cash provided by operating activities	665		597
Changes in working capital accounts, net of effects of acquisitions	101		(120)
Changes in deferred income taxes and other	10		7


















Net cash provided by operating activities	312		403

Cash flows from investing activities:
Capital expenditures	(142)		(207)
Acquisition of business, net of cash acquired	(13)		—
Distributions of capital from equity investments, net	(1)		17

Proceeds from sale of asset and other	22		—
Net cash used in investing activities	(134)		(190)

Cash flows from financing activities:
Borrowings under SGI revolving credit facility	530		40
Repayments under SGI revolving credit facility	(90)		(365)
Proceeds from issuance of senior notes and term loans	550		1,100
Repayment of notes and term loans (including redemption premium)	(341)		(1,050)
Payments on long-term debt	(31)		(33)
Payments of debt issuance and deferred financing costs	(9)		(15)
Payments on license obligations	(21)		(26)
Sale of future revenue	—		11
Net proceeds from the sale of SciPlay common stock	—		342
Payments of deferred SciPlay common stock offering costs	—		(9)
Net redemptions of common stock under stock-based compensation plans and other	(1)		(6)
Net cash provided by (used in) financing activities	587		(11)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	1		(1)
Increase in cash, cash equivalents and restricted cash	766		201
Cash, cash equivalents and restricted cash, beginning of period	375		220
Cash, cash equivalents and restricted cash, end of period	$	1,141	$	421


Supplemental cash flow information:
Cash paid for interest	$	335	$	391
Income taxes paid	18		28
Distributed earnings from equity investments	22		24
Cash paid for contingent consideration included in operating activities	—		23
Supplemental non-cash transactions:



Non-cash interest expense	$	16	$	19

See accompanying notes to condensed consolidated financial statements.

SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, amounts in USD, table amounts in millions, except per share amounts)

(1) Description of the Business and Summary of Significant Accounting Policies

Description of the Business

We are a leading developer of technology-based products and services and associated content for the worldwide gaming, lottery, social and digital gaming industries. Our portfolio of revenue-generating activities primarily includes supplying gaming machines and game content, casino-management systems and table game products and services to licensed gaming entities; providing instant and draw-based lottery products, lottery systems and lottery content and services to lottery operators; providing social casino gaming solutions to retail consumers; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services. We report our operations in four business segments—Gaming, Lottery, SciPlay and Digital.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The accompanying condensed consolidated financial statements include the accounts of SGC, its wholly owned subsidiaries, and those subsidiaries in which we have a controlling financial interest. Investments in other entities in which we do not have a controlling financial interest but we exert significant influence are accounted for in our consolidated financial statements using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.

In the opinion of SGC and its management, we have made all adjustments necessary to present fairly our consolidated financial position, results of operations, comprehensive loss and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2019 10-K. Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.

Impact of COVID-19

In March 2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak a pandemic. In response to the COVID-19 pandemic, governments across the world implemented a number of measures to prevent its spread, including but not limited to, the temporary closure of a substantial number of gaming operations establishments and disruptions to lottery operations, travel restrictions, and cancellation of sporting events, which are affecting our business segments in a number of ways. During the latter part of the second quarter and throughout the third quarter of 2020, lifting of restrictions began, including the reopening of the majority of gaming establishments globally. As gaming operations have yet to return to pre-COVID levels, limited international travel, social distancing measures, decreased operating capacities, high unemployment rates and potential changes in consumer behaviors continue to negatively impact our results of operations, cash flows and financial condition through the third quarter of 2020. Additionally, some casinos have yet to reopen and for those that have opened, it is unknown when mitigation measures (such as capacity limitations) will be lifted, all contributing to continued uncertainty through the remainder of the year and potentially into 2021.

Based on our current estimates regarding the magnitude and length of the disruptions to our business, we do not anticipate these disruptions will impact our ability to meet our obligations when due or our ability to maintain compliance with our debt covenants for at least the next 12 months. However, the ultimate magnitude and length of time that the disruptions from COVID-19 will continue remains uncertain. This uncertainty will require us to continually assess the situation, including the impact of changes to government imposed restrictions, changes in customer behaviors, social distancing measures and decreased gaming establishments operating capacity jurisdiction by jurisdiction. Accordingly, our estimates regarding the magnitude and length of time that these disruptions will continue to impact our results of operations, cash flows and financial condition may change in the future and such changes could be material.

On April 9, 2020, we borrowed $480 million under SGI’s revolving credit facility, which was substantially all of our remaining availability thereunder and on July 1, 2020, SGI issued $550 million in aggregate principal amount of 8.625% senior unsecured notes due 2025 in a private offering and subsequently redeemed all $341 million of our outstanding 2021 Notes and paid accrued and unpaid interest thereon plus related premiums, fees and costs on July 17, 2020. As of September 30, 2020, our total available liquidity (excluding our SciPlay business segment) was $838 million, which included $3 million of undrawn availability under SGI’s revolving credit facility. We have implemented a number of measures to reduce operating costs, conserve liquidity and navigate through this unprecedented situation including permanent reductions in workforce and temporary measures such as: reductions in salaries and workforce (salary reduction measures ceased as of July 31, 2020), unpaid employee furloughs, reductions in hours, temporary elimination of 401(k) matching among other compensation and

benefits reductions, and deferral of certain operating and capital expenditures. We continue to actively manage our daily cash flows and continue to evaluate additional measures that will reduce operating costs and conserve cash. Refer to Note 11 for description of issuance of the 2025 Unsecured Notes on July 1, 2020 and the redemption of the 2021 Notes on July 17, 2020.

Our only financial maintenance covenant (excluding SciPlay’s Revolver) is contained in SGI’s credit agreement. Prior to the Credit Agreement Amendment (as defined below) dated May 8, 2020, this covenant was tested at the end of each fiscal quarter and required us to not exceed a maximum consolidated net first lien leverage ratio of 5.00x Consolidated EBITDA (as defined in the credit agreement). Prior to the Credit Agreement Amendment, this ratio stepped down to 4.75x beginning with the fiscal quarter ending December 31, 2020 and to 4.50x beginning with the fiscal quarter ending December 31, 2021. Additionally, the SciPlay Revolver requires that SciPlay maintain a maximum total net leverage ratio not to exceed 2.50x and maintain a minimum fixed charge coverage ratio of no less than 4.00x. We had no amounts drawn on our SciPlay Revolver as of September 30, 2020.

On May 8, 2020, the requisite lenders under SGI’s revolving credit facility agreed to amend the consolidated net first lien leverage ratio covenant in the credit agreement (the “Credit Agreement Amendment”) to (a) implement a financial covenant relief period through the end of the first quarter ending March 31, 2021 (the “Covenant Relief Period”), as a result of which SGI is not required to maintain compliance with the consolidated net first lien leverage ratio covenant during the Covenant Relief Period, (b) reset the consolidated net first lien leverage ratio covenant following the Covenant Relief Period, (c) impose a minimum liquidity requirement (excluding SciPlay) of at least $275 million during the Covenant Relief Period, (d) further restrict our ability to incur indebtedness and liens, make restricted payments and investments and prepay junior indebtedness during the Covenant Relief Period, subject to certain exceptions and further subject, in some instances, to maintaining minimum liquidity (excluding SciPlay) of at least $400 million and (e) establish a LIBOR floor of 0.500% on borrowings under the revolving credit facility during the Covenant Relief Period. The revised consolidated net first lien leverage ratio will be 6.00x Consolidated EBITDA beginning with the fiscal quarter ending June 30, 2021, stepping down as follows: (1) 5.75x beginning with the fourth quarter of 2021, (2) 5.25x beginning with the second quarter of 2022, (3) 4.75x beginning with the fourth quarter of 2022 and (4) 4.50x beginning with the second quarter of 2023 and thereafter. The revised consolidated net first lien leverage ratio is based on Consolidated EBITDA (as defined in the Credit Agreement Amendment) as follows: (1) for the testing period ending June 30, 2021, Consolidated EBITDA for the fiscal quarter ending June 30, 2021 multiplied by 4, (2) for the testing period ending September 30, 2021, Consolidated EBITDA for the fiscal quarters ending June 30, 2021 and September 30, 2021 multiplied by 2, (3) for the testing period ending December 31, 2021, Consolidated EBITDA for the fiscal quarters ending June 30, 2021, September 30, 2021 and December 31, 2021 multiplied by 4/3 and (4) for all subsequent testing periods, Consolidated EBITDA for the previous twelve months including the quarter for the which the test is performed.

On October 8, 2020, the requisite lenders under SGI’s revolving credit facility agreed to further amend the consolidated net first lien leverage ratio covenant in the credit agreement (the “Credit Agreement Extension Amendment”) to extend the Covenant Relief Period for an additional three quarters. The revised consolidated net first lien leverage ratio will be 6.00x Consolidated EBITDA beginning with the fiscal quarter ending March 31, 2022, stepping down as follows: (1) 5.75x beginning with the third quarter of 2022, (2) 5.25x beginning with the first quarter of 2023, (3) 4.75x beginning with the third quarter of 2023 and (4) 4.50x beginning with the first quarter of 2024 and thereafter. The revised consolidated net first lien leverage ratio is based on Consolidated EBITDA (as defined in the Credit Agreement Extension Amendment) as follows: (1) for the testing period ending March 31, 2022, Consolidated EBITDA for the fiscal quarter ending March 31, 2022 multiplied by 4, (2) for the testing period ending June 30, 2022, Consolidated EBITDA for the fiscal quarters ending March 31, 2022 and June 30, 2022 multiplied by 2, (3) for the testing period ending September 30, 2022, Consolidated EBITDA for the fiscal quarters ending March 31, 2022, June 30, 2022 and September 30, 2022 multiplied by 4/3 and (4) for all subsequent testing periods, Consolidated EBITDA for the previous twelve months including the quarter for the which the test is performed.

Additionally, changes to estimates related to the COVID-19 disruptions could result in other impacts, including but not limited to, additional goodwill impairments (see Note 8), indefinite-lived intangibles, long-lived asset and equity method investments impairment charges, inventory write downs and receivables credit allowance charges (see Notes 5 and 6).

Significant Accounting Policies

There have been no changes to our significant accounting policies described within the Notes of our 2019 10-K other than adoption of ASC 326 as described in Note 5.

Computation of Basic and Diluted Net (Loss) Income Per Share

Basic and diluted net (loss) income attributable to SGC per share were the same for the three months ended September 30, 2020 and for the nine months ended September 30, 2020 and 2019, respectively, as all common stock equivalents during those periods would be anti-dilutive. We excluded 1 million and 2 million of stock options from the diluted

weighted-average common shares outstanding for the three and nine months ended September 30, 2020, respectively, and 2 million of stock options from the diluted weighted-average common shares outstanding for the nine months ended September 30, 2019. We excluded 3 million of RSUs from the calculation of diluted weighted-average common shares outstanding for the three and nine months ended September 30, 2020 and 2019.

Basic and diluted net income per share for the three months ended September 30, 2019 were computed by dividing net income attributable to SGC by the weighted average number of shares outstanding, and the weighted average number of shares outstanding were adjusted to give effect to all potentially dilutive securities using the treasury stock method, respectively.

Acquisitions

On June 22, 2020, SciPlay completed the acquisition of all of the issued and outstanding capital stock of privately held mobile and social game company Come2Play, Ltd. (“Come2Play”), which expanded and diversified SciPlay’s existing portfolio of social games. Come2Play offers Backgammon and Solitaire social games targeted towards casual game players on the same platforms in which we currently offer our existing games. The total purchase consideration was $18 million, which includes our estimate of contingent acquisition consideration. Our preliminary allocation of the purchase price resulted in $13 million intangible assets primarily allocated to customer relationship and acquired technology and $6 million in excess purchase price allocated to goodwill.

New Accounting Guidance - Recently Adopted

The FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) in 2016. The new guidance replaces the incurred loss impairment methodology in legacy U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, we are required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. We adopted ASC 326 as of January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost, which resulted in a $6 million cumulative-effect adjustment increase to accumulated loss. See Note 5 for our credit losses policy and the adoption impact of ASC 326 on our consolidated financial statements.

The FASB issued ASU No. 2018-13, Fair Value Measurement, and several subsequent amendments (collectively, Topic 820) in 2018. The standard amends the required quantitative and qualitative disclosure requirements for recurring and nonrecurring fair value measurements. We adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on our financial statement disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes, to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes, enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted. We adopted this standard effective January 1, 2020. The adoption of this guidance did not have a material effect on our consolidated financial statements.

New Accounting Guidance - Not Yet Adopted

The FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) in March 2020. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. This ASU may be applied prospectively through December 31, 2022. We are currently assessing the impact of this standard on our consolidated financial statements.

We do not expect that any additional recently issued accounting guidance will have a significant effect on our consolidated financial statements.

(2) Revenue Recognition

The following table disaggregates revenues by type within each of our business segments:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Gaming
Gaming operations	$	92	$	149	$	227	$	451
Gaming machine sales	71		168		216		452
Gaming systems	43		77		115		218
Table products	25		60		82		182
Total	$	231	$	454	$	640	$	1,303

Lottery
Instant products	$	157	$	150	$	426	$	440
Lottery systems	84		70		236		238
Total	$	241	$	220	$	662	$	678

SciPlay
Mobile	$	132	$	97	$	377	$	293
Web and other	19		19		58		60
Total	$	151	$	116	$	435	$	353

Digital
Sports and platform	$	31	$	29	$	95	$	85
Gaming and other	44		36		130		118
Total	$	75	$	65	$	225	$	203

The amount of rental income revenue that is outside the scope of ASC 606 was $62 million and $148 million for the three and nine months ended September 30, 2020, respectively, and $91 million and $282 million for the three and nine months ended September 30, 2019, respectively.

Contract Liabilities and Other Disclosures

The following table summarizes the activity in our contract liabilities for the reporting period:


	Nine Months Ended September 30,
	2020
Contract liability balance, beginning of period(1)	$	109
Liabilities recognized during the period	52
Amounts recognized in revenue from beginning balance	(61)
Contract liability balance, end of period(1)	$	100
(1) Contract liabilities are included within Accrued liabilities and Other long-term liabilities in our consolidated balance sheets.

The timing of revenue recognition, billings and cash collections results in billed receivables, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on our consolidated balance sheets. Other than contracts with customers with financing arrangements exceeding 12 months, revenue recognition is generally proximal to conversion to cash, except for Lottery instant products sold under percentage of retail sales contracts. Revenue is recognized for such contracts upon delivery to our customers, while conversion to cash is based on the retail sale of the underlying ticket to end consumers. As a result, revenue recognition under ASC 606 does not approximate conversion to cash for such contracts in any periods post-adoption. Total revenue recognized under such contracts for the three and nine months ended September 30, 2020 was $26 million and $66 million, respectively, and $20 million and $69 million for the three and nine months ended September 30, 2019, respectively. The following table summarizes our balances in these accounts for the periods indicated (other than contract liabilities disclosed above):


	Receivables		Contract Assets(1)
Beginning of period balance(2)	$	808	$	121
End of period balance, September 30, 2020	686		128


(1) Contract assets are included primarily within Prepaid expenses, deposits and other current assets in our consolidated balance sheets.
(2) The beginning of period balance excludes the impact of adoption of ASC 326.

As of September 30, 2020, we did not have material unsatisfied performance obligations for contracts expected to be long-term or contracts for which we recognize revenue at an amount other than for which we have the right to invoice for goods or services delivered or performed.

(3) Business Segments

We report our operations in four business segments—Gaming, Lottery, SciPlay and Digital—representing our different products and services. A detailed discussion regarding the products and services from which each reportable business segment derives its revenue is included in Notes 2 and 3 in our 2019 10-K.

In evaluating financial performance, our Chief Operating Decision Maker focuses on AEBITDA as management’s segment measure of profit or loss, which is described in Note 2 in our 2019 10-K. The accounting policies of our business segments are the same as those described within the Notes in our 2019 10-K. The following tables present our segment information:


	Three Months Ended September 30, 2020
	Gaming		Lottery		SciPlay		Digital		Unallocated and Reconciling Items(1)		Total
Total revenue	$	231	$	241	$	151	$	75	$	—	$	698
AEBITDA	77		109		49		25		(25)		$	235
Reconciling items to consolidated net loss before income taxes:
D&A	(85)		(15)		(3)		(23)		(10)		(136)

Restructuring and other	(10)		(3)		—		(1)		(6)		(20)
EBITDA from equity investments									(11)		(11)
Earnings from equity investments									2		2
Interest expense									(131)		(131)
Loss on debt refinancing transactions									(1)		(1)
Loss on remeasurement of debt									(24)		(24)
Other expense, net									(3)		(3)
Stock-based compensation									(17)		(17)
Net loss before income taxes											$	(106)


(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.


	Three Months Ended September 30, 2019
	Gaming		Lottery		SciPlay		Digital		Unallocated and Reconciling Items(1)		Total
Total revenue	$	454	$	220	$	116	$	65	$	—	$	855
AEBITDA	226		99		32		17		(30)		$	344
Reconciling items to consolidated net income before income taxes:
D&A	(110)		(14)		(1)		(18)		(19)		(162)
Restructuring and other	(5)		—		—		(5)		(1)		(11)
EBITDA from equity investments									(15)		(15)
Earnings from equity investments									4		4
Interest expense									(146)		(146)

Gain on remeasurement of debt									19		19
Other expense, net									(9)		(9)
Stock-based compensation									(9)		(9)
Net income before income taxes											$	15

(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net income before income taxes.


	Nine Months Ended September 30, 2020
	Gaming		Lottery		SciPlay		Digital		Unallocated and Reconciling Items(1)		Total
Total revenue	$	640	$	662	$	435	$	225	$	—	$	1,962
AEBITDA	142		284		144		68		(82)		$	556
Reconciling items to consolidated net loss before income taxes:
D&A	(260)		(47)		(7)		(67)		(33)		(414)
Goodwill impairment	(54)		—		—		—		—		(54)
Restructuring and other	(29)		(11)		(2)		(3)		(13)		(58)
EBITDA from equity investments									(25)		(25)
Loss from equity investments									(3)		(3)
Interest expense									(379)		(379)
Loss on debt refinancing transactions									(1)		(1)
Loss on remeasurement of debt									(26)		(26)
Other expense, net									(8)		(8)
Stock-based compensation									(41)		(41)
Net loss before income taxes											$	(453)


(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.


	Nine Months Ended September 30, 2019
	Gaming		Lottery		SciPlay		Digital		Unallocated and Reconciling Items(1)		Total
Total revenue	$	1,303	$	678	$	353	$	203	$	—	$	2,537
AEBITDA	656		306		90		42		(87)		$	1,007
Reconciling items to consolidated net loss before income taxes:
D&A	(336)		(53)		(5)		(56)		(47)		(497)
Restructuring and other	(9)		(1)		(2)		(9)		(3)		(24)
EBITDA from equity investments									(50)		(50)
Earnings from equity investments									17		17
Interest expense									(447)		(447)
Loss on debt financing transactions									(60)		(60)
Gain on remeasurement of debt									21		21
Other expense, net									(7)		(7)
Stock-based compensation									(33)		(33)
Net loss before income taxes											$	(73)

(1) Includes amounts not allocated to the business segments (including corporate costs) and items to reconcile the total business segments AEBITDA to our consolidated net loss before income taxes.

(4) Restructuring and other

Restructuring and other includes charges or expenses attributable to: (i) employee severance; (ii) management restructuring and related costs; (iii) restructuring and integration; (iv) cost savings initiatives; (v) major litigation; and (vi) acquisition costs and other unusual items. The following table summarizes pre-tax restructuring and other costs for the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Employee severance and related(1)	$	9	$	3	$	39	$	8
Contingent consideration adjustment	—		—		—		2
Restructuring, integration and other	11		8		19		14
Total	$	20	$	11	$	58	$	24

(1) The three and nine months ended September 30, 2020 includes $7 million and $31 million, respectively, in severance and other benefits granted to employees as a result of COVID-19 related austerity measures.

(5) Receivables, Allowance for Credit Losses and Credit Quality of Receivables

Receivables

Receivables are recorded at the invoiced amount less allowance for credit losses and imputed interest, if any. For a portion of our receivables, we have provided extended payment terms with installment payment terms greater than 12 months and in certain international jurisdictions up to 36 months. We have a total of $140 million in gross receivables with extended payment terms as of September 30, 2020. Interest income, if any, is recognized ratably over the life of the receivable, and any related fees or costs to establish the receivables are charged to selling, general and administrative expense as incurred, as they are immaterial. Actual or imputed interest, if any, is determined based on current market rates at the time the receivables with extended payment terms originated and is recorded ratably over the payment period, which approximates the effective interest method. We generally impute interest income on all receivables with payment terms greater than one year that do not contain a stated interest rate. Our general policy is to recognize interest on receivables until a receivable is deemed non-performing, which we define as payments being overdue by 180 days beyond the agreed-upon terms. When a receivable is deemed to be non-performing, the item is placed on non-accrual status and interest income is recognized on a cash basis. Accrued interest, non-performing receivables and interest income were immaterial for all periods presented. Effective January 1, 2020, we changed our receivables presentation and combined accounts receivable and notes receivable into a single line item on our

balance sheets due to their similar characteristics and have reclassified the prior period balances to conform to the current year presentation.

The following table summarizes the components of current and long-term receivables, net:


	As of
	September 30, 2020		December 31, 2019
Current:
Receivables	$	729	$	791
Allowance for credit losses	(67)		(36)
Current receivables, net	662		755
Long-term:
Receivables	30		53
Allowance for credit losses	(6)		—
Long-term receivables, net	24		53
Total receivables, net	$	686	$	808

Allowance for Credit Losses

As described in Note 1, results for reporting periods effective January 1, 2020 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. We recorded a net increase to accumulated loss of $6 million for the cumulative effect of adopting ASC 326, which was primarily related to incremental allowance for credit losses associated with our current receivables and contract assets that were not required under previously applicable U.S. GAAP.

The receivables allowance for credit losses is our best estimate of the amount of expected credit losses in our existing receivables over the contractual term. We evaluate our exposure to credit loss on both a collective and individual basis. We evaluate such receivables on a geographic basis and take into account any relevant available information, which begins with historical credit loss experience and consideration of current and expected conditions and market trends (such as general economic conditions, other microeconomic and macroeconomic considerations, etc.) and reasonable and supportable forecasts that could impact the collectability of such receivables over the contractual term individually or in the aggregate. Changes in circumstances relating to these factors may result in the need to increase or decrease our allowance for credit losses in the future.

We manage our receivable portfolios using both geography and delinquency as key credit quality indicators. The following summarizes geographical delinquencies of total receivables, net:


	As of
	September 30, 2020		Balances over 90 days past due		December 31, 2019		Balances over 90 days past due
Receivables:
U.S. and Canada	$	494	$	99	$	534	$	65
International	265		61		310		55
Total receivables	759		160		844		120

Receivables allowance:
U.S. and Canada	(37)		(25)		(13)		(8)
International	(36)		(26)		(23)		(23)
Total receivables allowance	(73)		(51)		(36)		(31)
Receivables, net	$	686	$	109	$	808	$	89

Account balances are charged against the allowances after all internal and external collection efforts have been exhausted and the potential for recovery is considered remote.

The activity in our allowance for receivable credit losses for each of the three and nine months ended September 30, 2020 and 2019 is as follows:


	2020						2019
	Total		U.S. and Canada		International		Total
Beginning allowance for credit losses(1)	$	(42)	$	(14)	$	(28)	$	(40)
Provision	(28)		(15)		(13)		(1)
Charge-offs and recoveries	—		—		—		3
Allowance for credit losses as of March 31	(70)		(29)		(41)		(38)
Provision	(12)		(9)		(3)		(1)
Charge-offs and recoveries	—		—		—		3
Allowance for credit losses as of June 30	(82)		(38)		(44)		(36)
Provision	(1)		(1)		—		(1)
Charge-offs and recoveries	10		2		8		—
Allowance for credit losses as of September 30	$	(73)	$	(37)	$	(36)	$	(37)

(1) Reflects $6 million related to implementation of ASC 326 for the 2020 beginning balance.

At September 30, 2020, 16% of our total receivables, net, were past due by over 90 days compared to 11% at December 31, 2019.

Credit Quality of Receivables

In our Gaming machine sales business, we file UCC-1 financing statements domestically in order to retain a security interest in the gaming machines that underlie a significant portion of our domestic receivables until the receivable balance is fully paid. However, the value of the gaming machines, if repossessed, may be less than the balance of the outstanding receivable. For international customers, depending on the country and our historic collection experience with the customer, we may obtain pledge agreements, bills of exchange, guarantees, post-dated checks or other forms of security agreements designed to enhance our ability to collect the receivables, although a majority of our international receivables do not have these features. In our Gaming operations business, because we own the Participation gaming machines that are leased or otherwise provided to the customer, in a bankruptcy the customer has to generally either accept or reject the lease or other agreement and, if rejected, our gaming machines are returned to us. Our receivables related to revenue earned on Participation gaming machines and all other revenue sources are typically unsecured claims.

Due to the significance of our gaming machines to the ongoing operations of our casino customers, we may be designated as a key vendor in any bankruptcy filing by a casino customer, which can enhance our position above other creditors in the bankruptcy. Due to our successful collection experience and our continuing relationship with casino customers and their businesses, it is infrequent that we repossess gaming machines from a customer in partial settlement of outstanding receivable balances. In those unusual instances where repossession occurs to mitigate our exposure on the related receivable, the repossessed gaming machines are subsequently resold in the used gaming machine market; however, we may not fully recover the receivable from this re-sale.

We have certain concentrations of outstanding receivables in international locations that impact our assessment of the credit quality of our receivables. We monitor the macroeconomic and political environment in each of these locations in our assessment of the credit quality of our receivables. The international customers with significant concentrations (generally deemed to be exceeding 10%) of our receivables with terms longer than one year are in the Latin America region (“LATAM”) and are primarily comprised of Mexico, Peru and Argentina. The following table summarizes our LATAM receivables:


	As of
	September 30, 2020		Current or Not Yet Due		Balances Over 90 days Past Due
Receivables	$	116	$	60	$	55
Allowance for credit losses	(41)		(11)		(30)
Receivables, net	$	75	$	49	$	25

We increased our allowance for credit losses by $1 million and $41 million for the three and nine month periods ended September 30, 2020. These increases were primarily related to Gaming customers in LATAM (which transact with both

domestic and international subsidiaries) as those customers were particularly affected by COVID-19 closures of gaming operations establishments with COVID-related closures lasting longer than in other geographic regions and they generally remain closed today. As noted above, we have concentrations of receivables in LATAM, where customers generally take longer to pay us than those from other geographies and late payments have continued to persist into the third quarter of 2020 in which we collected substantially less compared to historical quarterly collections primarily due to COVID related business interruptions. In addition, customers in this region expect and have often been granted extended payment terms as described above. Our customers in LATAM have been and are expected to continue to be negatively affected by the COVID-19-related closures of gaming operations establishments and the resulting impact on both their specific financial situations and the general macroeconomic environments (including currency exchange rate impacts) in which they operate. Our policy is to continuously review receivables and as information concerning credit quality arises, we reassess our expectations of future losses. If such losses exceed our existing allowance for credit losses we record an incremental reserve at that time. Our current allowance for credit losses represents our current expectation of credit losses; however future expectations could change as the ultimate impact of the COVID-19 disruption remains uncertain, particularly as to the financial stability of our customers during and after the COVID-19 disruption period.

The fair value of receivables is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of September 30, 2020 and December 31, 2019, the fair value of receivables, net, approximated the carrying value due to contractual terms of receivables generally being under 24 months.

(6) Inventories

Inventories consisted of the following:


	As of
	September 30, 2020		December 31, 2019
Parts and work-in-process	$	119	$	153
Finished goods	104		91
Total inventories	$	223	$	244

Parts and work-in-process include parts for gaming machines, lottery terminals and instant lottery ticket materials, as well as labor and overhead costs for work-in-process associated with the manufacturing of instant lottery games and lottery terminals. Our finished goods inventory primarily consists of gaming machines for sale, instant products primarily for our Participation arrangements and our licensed branded merchandise.

During the three and nine months ended September 30, 2020, we recorded $15 million and $45 million, respectively, in inventory valuation charges (recorded in Cost of product sales) related to inventory in our Gaming business segment. Our Gaming leadership team continues to improve and expand upon the strategic plan initiated in the first half of the year. This strategic plan includes revising product roadmaps and an assessment of how many and which platforms we will support, when we end service on legacy platforms and when we stop selling on such platforms in conjunction with new product launches. This plan, combined with the rapid demand reduction that took place at the beginning of the year through the remainder of the year, our increased focus on our go to market approach in LATAM (both largely as a result of the COVID-19 disruptions), and our view on certain markets and customers, requires us to reassess our inventory valuation, including whether we had excess or obsolete inventory based on this new strategic plan, a reduction in demand for legacy platforms, and plans for disposition of the related inventory. In addition, the continued closures in the LATAM region make it difficult to execute our previous strategy of shipping legacy platforms into that market. The combination of these factors led to the $15 million and $45 million inventory valuation charges recognized in the three and nine months ended September 30, 2020, respectively. Our policy is to continue to review and assess these and other factors, especially during the COVID-19 disruption periods, and if such factors or our outlook changes, we would record adjustments to the valuation of inventory.

(7) Property and Equipment, net

Property and equipment, net consisted of the following:


	As of
	September 30, 2020		December 31, 2019
Land	$	15	$	15
Buildings and leasehold improvements	130		129
Gaming and lottery machinery and equipment	1,017		1,028
Furniture and fixtures	30		31
Construction in progress	38		30
Other property and equipment	271		263
Less: accumulated depreciation	(1,067)		(996)
Total property and equipment, net	$	434	$	500

Depreciation expense is excluded from Cost of services, Cost of product sales, Cost of instant products and Other operating expenses and is separately presented within D&A.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019(1)
Depreciation expense	$	42	$	51	$	132	$	173
(1) Includes assets held for sale impairment charges of $9 million.

During the first quarter of 2020, we sold certain properties in Chicago that were held for sale as of December 31, 2019 and received total net proceeds of $22 million.

(8) Intangible Assets, net and Goodwill

Intangible Assets, net

The following tables present certain information regarding our intangible assets as of September 30, 2020 and December 31, 2019.


	As of
	September 30, 2020				December 31, 2019
	Gross Carrying Value		Accumulated Amortization		Net Balance		Gross Carrying Value		Accumulated Amortization		Net Balance
Amortizable intangible assets:
Customer relationships	$	1,090	$	(448)	$	642	$	1,086	$	(383)	$	703
Intellectual property	939		(620)		319		931		(563)		368
Licenses	556		(386)		170		548		(329)		219
Brand names	125		(81)		44		123		(72)		51
Trade names	116		(39)		77		116		(31)		85
Patents and other	24		(15)		9		24		(15)		9
	2,850		(1,589)		1,261		2,828		(1,393)		1,435
Non-amortizable intangible assets:
Trade names	83		(2)		81		83		(2)		81
Total intangible assets	$	2,933	$	(1,591)	$	1,342	$	2,911	$	(1,395)	$	1,516

The following reflects intangible amortization expense included within D&A:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Amortization expense	$	64	$	78	$	192	$	230

Q1 2020 Legacy U.K. Gaming Impairment Charge

We test goodwill for impairment annually as of October 1 of each fiscal year or more frequently if events arise or circumstances change that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value.

A substantial portion of our legacy U.K. Gaming reporting unit revenue comes from Ladbrokes Coral Group (acquired by GVC Holdings PLC in March 2018), which operates LBOs in the U.K. On April 1, 2019, the maximum stakes limit on fixed-odds betting terminals was reduced from £100 to £2. As a result of this change, LBO operators began to rationalize their retail operations, which among other measures has included closure of certain LBO shops. Consequently, as of October 1, 2019, we concluded that an elevated risk of goodwill impairment existed for our legacy U.K. Gaming reporting unit as adverse changes in projections for future operating results or other key assumptions, such as projected revenue, profit margin, capital expenditures or cash flows associated with investments included in that reporting unit could lead to future goodwill impairments.

During the first quarter of 2020, the COVID-19 disruptions resulted in the widespread closures of LBO shops across the U.K., which, along with global economic uncertainty, contributed to further deterioration in business conditions from our 2019 annual goodwill test date. This had an adverse effect on our legacy U.K. Gaming reporting unit, which necessitated performing a quantitative goodwill impairment test during the first quarter of 2020.

We performed this quantitative impairment test by comparing the fair value of our legacy U.K. Gaming reporting unit to its carrying value, including goodwill. As described in further detail below, the fair value of our legacy U.K. Gaming reporting unit was determined using a combination of both an income approach, based on the present value of discounted cash flows, and a market approach. Due to market volatility and limited market data points specific to the nature of our legacy U.K. Gaming reporting unit operations, we placed greater weight on the income approach than on the market approach. As a result of this analysis, during the first quarter of 2020 we recognized a partial impairment charge totaling $54 million, which is the amount by which the carrying value exceeded the estimated fair value. This impairment charge resulted in no tax benefit.

We used projections of revenues, profit margin, operating costs, capital expenditures and cash flows that primarily considered general economic and market conditions and estimated future results including the estimated impact of the COVID-19 disruptions. We used a range of different scenarios and derived estimated fair value based on an equal weighting of these scenarios to reflect the economic uncertainty resulting from the COVID-19 disruptions and the timing and magnitude of the economic recovery following the COVID-19 disruptions coupled with the impact of the regulatory change. The following ranges of the key estimates and assumptions were used in the discounted cash flow analysis:

•Revenue growth for FY 2021 between negative 9% and negative 20%, an average revenue growth for FY 2022 to FY 2027 between positive 3% and positive 5%, and terminal revenue growth rate of positive 2.0%;

•An average profit margin ranging from 13% to 23%;

•Assumptions regarding future capital expenditures reflective of maintaining our current customer contracts; and

•An overall discount rate ranging from 8.5% to 10.0%.

In our market comparable analysis, we considered revenue and EBITDA multiples ranging from 2.1x to 2.7x and 5.7x to 7.5x, respectively, and ultimately selected multiples at the low end of the range.

The legacy U.K. Gaming reporting unit is included in our Gaming business segment.

The table below reconciles the change in the carrying value of goodwill by business segment for the period from

December 31, 2019 to September 30, 2020.


	Gaming(1)		Lottery		SciPlay		Digital		Totals
Balance as of December 31, 2019	$	2,449	$	349	$	115	$	367	$	3,280
Impairment	(54)		—		—		—		(54)
Acquired goodwill	—		—		6		—		6
Foreign currency adjustments	3		1		—		(2)		2
Balance as of September 30, 2020	$	2,398	$	350	$	121	$	365	$	3,234

(1) Accumulated goodwill impairment charges for the Gaming segment as of September 30, 2020 were $989 million.

(9) Software, net

Software, net consisted of the following:


	As of
	September 30, 2020		December 31, 2019
Software	$	1,176	$	1,173
Accumulated amortization	(942)		(915)
Software, net	$	234	$	258

The following reflects amortization of software included within D&A:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Amortization expense	$	30	$	33	$	90	$	94

(10) Equity Investments

Equity investments totaled $260 million and $273 million as of September 30, 2020 and December 31, 2019, respectively. We received distributions and dividends totaling $22 million and $43 million during the nine months ended September 30, 2020 and 2019, respectively, primarily related to our LNS equity investment.

(11) Long-Term and Other Debt

Issuance of 2025 Unsecured Notes and Redemption of 2021 Notes

On July 1, 2020, we completed the issuance of $550 million in aggregate principal amount of 8.625% senior unsecured notes due 2025 in a private offering, for which we received the total net proceeds of $543 million. We used a portion of the net proceeds to redeem all $341 million of our outstanding 2021 Notes and paid accrued and unpaid interest thereon plus related premiums, fees and costs, which redemption was completed on July 17, 2020, and are using the remaining net proceeds to fund working capital and general corporate purposes.

The 2025 Unsecured Notes were issued pursuant to an indenture dated as of July 1, 2020 (the “2025 Unsecured Notes Indenture”). We may redeem some or all of the 2025 Unsecured Notes at any time prior to July 1, 2022 at a redemption price equal to 100% of the principal amount of the 2025 Unsecured Notes plus accrued and unpaid interest, if any, to the date of the redemption plus a “make whole” premium. We may redeem some or all of the 2025 Unsecured Notes at any time on or after July 1, 2022 at the prices specified in the 2025 Unsecured Notes Indenture.

The 2025 Unsecured Notes are senior obligations of SGI, rank equally to all SGI’s existing and future senior debt and rank senior to all of SGI’s existing and future debt that is expressly subordinated to the 2025 Unsecured Notes. The 2025 Unsecured Notes are guaranteed on a senior unsecured basis by SGC and all of its wholly owned domestic restricted subsidiaries (other than SGI, the unrestricted business entities comprising our SciPlay business segment and certain immaterial subsidiaries), subject to customary exceptions.

Outstanding Debt and Finance Leases

The following table reflects our outstanding debt (in order of Priority and Maturity):


	As of
	September 30, 2020								December 31, 2019
	Final Maturity	Rate(s)	Face value		Unamortized debt discount/premium and deferred financing costs, net		Book value		Book value
Senior Secured Credit Facilities:
SGI Revolver	2024	variable	$	635	$	—	$	635	$	195
SGI Term Loan B-5	2024	variable	4,070		(51)		4,019		4,042
SciPlay Revolver	2024	variable	—		—		—		—
SGI Senior Notes:
2025 Secured Notes(1)	2025	5.000%	1,250		(14)		1,236		1,235
2026 Secured Euro Notes(2)	2026	3.375%	381		(4)		377		359
2025 Unsecured Notes	2025	8.625%	550		(8)		542		—
2026 Unsecured Euro Notes(2)	2026	5.500%	293		(3)		290		276
2026 Unsecured Notes	2026	8.250%	1,100		(13)		1,087		1,085
2028 Unsecured Notes	2028	7.000%	700		(9)		691		690
2029 Unsecured Notes	2029	7.250%	500		(7)		493		493
SGI Subordinated Notes:
2021 Notes	2021	6.625%	—		—		—		339
Finance lease obligations as of September 30, 2020 payable monthly through 2023 and other(3)	2023	4.652%	8		—		8		11
Total long-term debt outstanding			$	9,487	$	(109)	$	9,378	$	8,725
Less: current portion of long-term debt							(44)		(45)
Long-term debt, excluding current portion							$	9,334	$	8,680
Fair value of debt(4)			$	9,292

(1) In connection with the February 2018 Refinancing (see Note 15 in our 2019 Form 10-K), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460 million of the fixed-rate, U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. These cross-currency swaps have been designated as a hedge of our net investment in certain subsidiaries.
(2) We designated a portion of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the change in foreign currency exchange rates of the Euro relative to the U.S. Dollar (see Note 12 for additional information). The total change in the face value of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes due to changes in foreign currency exchange rates since the issuance was a reduction of $39 million, of which a $24 million and $26 million loss were recognized on remeasurement of debt in the Consolidated Statements of Operations for the three and nine months ended September 30, 2020, respectively.
(3) Includes $7 million related to certain revenue transactions presented as debt in accordance with ASC 470.
(4) Fair value of our fixed rate and variable interest rate debt is classified within Level 2 in the fair value hierarchy and has been calculated based on the quoted market prices of our securities.

Debt Maturities

Maturities for our outstanding debt were as follows as of September 30, 2020:


Due	Total Principal Due		Series of Debt	Principal Due per Series of Debt
Remainder of 2020	$	10	Term Loan B-5	$	10

2021	42		Term Loan B-5	42

2022	42		Term Loan B-5	42
2023	42		Term Loan B-5	42
2024	4,569		Term Loan B-5	3,934
			Drawn Revolving Credit Facility	635
2025 and beyond	4,774		2025 Secured Notes	1,250
			2025 Unsecured Notes	550
			2026 Secured Euro Notes	381
			2026 Unsecured Euro Notes	293
			2026 Unsecured Notes	1,100
			2028 Unsecured Notes	700
			2029 Unsecured Notes	500

We were in compliance with the financial covenants under all debt agreements as of September 30, 2020 (see Note 1 for more detailed disclosure, including the amendment to SGI’s revolving credit facility).

For additional information regarding the terms of our credit facilities, Secured Notes and Unsecured Notes, see Note 15 in our 2019 10-K.

Loss on Debt Financing Transactions

The following are components of the loss on debt financing transactions resulting from debt extinguishment and modification accounting for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Repayment and cancellation of principal balance at premium	$	—	$	—	$	—	$	50
Unamortized debt (premium) discount and deferred financing costs, net	1		—		1		10

Total loss on debt financing transactions	$	1	$	—	$	1	$	60

(12) Fair Value Measurements

The fair value of our financial assets and liabilities is determined by reference to market data and other valuation techniques as appropriate. We believe the fair value of our financial instruments, which are principally cash and cash equivalents, restricted cash, receivables, other current assets, accounts payable and accrued liabilities, approximates their recorded values. Our assets and liabilities measured at fair value on a recurring basis are described below.

Derivative Financial Instruments

As of September 30, 2020, we held the following derivative instruments that were accounted for pursuant to ASC 815:

Interest Rate Swap Contracts

We currently use interest rate swap contracts as described below to mitigate gains or losses associated with the change in expected cash flows due to fluctuations in interest rates on our variable rate debt.

In February 2018, we entered into interest rate swap contracts to hedge a portion of our interest expense associated with our variable rate debt to effectively fix the interest rate that we pay. These interest rate swap contracts are designated as cash flow hedges under ASC 815. We pay interest at a weighted-average fixed rate of 2.4418% and receive interest at a variable rate equal to one-month LIBOR. The total notional amount of interest rate swaps outstanding was $800 million as of September 30, 2020. These hedges mature in February 2022.

These hedges are highly effective in offsetting changes in our future expected cash flows due to the fluctuation in the one-month LIBOR rate associated with our variable rate debt. We qualitatively monitor the effectiveness of these hedges on a

quarterly basis. As a result of the effective matching of the critical terms on our variable rate interest expense being hedged to the hedging instruments being used, we expect these hedges to remain highly effective.

All gains and losses from these hedges are recorded in Other comprehensive loss until the future underlying payment transactions occur. Any realized gains or losses resulting from the hedges are recognized (together with the hedged transaction) as Interest expense. We estimate the fair value of our interest rate swap contracts by discounting the future cash flows of both the fixed rate and variable rate interest payments based on market yield curves. The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy as established by ASC 820.

The following table shows the Gain (loss) and Interest expense recognized on our interest rate swap contracts:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Gain (loss) recorded in accumulated other comprehensive loss, net of tax	$	4	$	3	$	(10)	$	(13)
Interest expense recorded related to interest rate swap contracts	4		—		10		—

We do not expect to reclassify material amounts from Accumulated other comprehensive loss to interest expense in the next twelve months.

The following table shows the effect of interest rate swap contracts designated as cash flow hedges on the consolidated statements of operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	Interest expense				Interest expense
Total interest expense which reflects the effects of cash flow hedges	$	(131)	$	(146)	$	(379)	$	(447)
Hedged item	(5)		(5)		(15)		(15)
Derivative designated as hedging instrument	1		5		5		15

Cross-Currency Interest Rate Swaps

In connection with the February 2018 Refinancing described in Note 15 of our 2019 10-K, we entered into certain cross-currency interest rate swap agreements to achieve more beneficial interest rates by effectively converting $460 million of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. We have designated these cross-currency interest rate swap agreements as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.

We use the spot method to measure the effectiveness of our net investment hedge. Under this method, for each reporting period, the change in the fair value of the $460 million cross-currency interest rate swaps is reported in Foreign currency translation (loss) gain in Accumulated other comprehensive loss. The cross-currency basis spread (along with other components of the cross-currency swap’s fair value excluded from the spot method effectiveness assessment) are amortized and recorded to Interest expense. We evaluate the effectiveness of our net investment hedge at the beginning of each quarter.

The following table shows the fair value of our hedges:

As of

Balance Sheet Line Item

September 30, 2020

December 31, 2019

Interest rate swaps (1)(3)

Other liabilities

Cross-currency interest rate swaps (2)(3)

Other assets

(1) A gain of $4 million and loss of $10 million for the three and nine months ended September 30, 2020, respectively, are reflected in Derivative financial instrument unrealized gain (loss) in Other comprehensive loss.

(2) Losses of $20 million and $2 million for the three and nine months ended September 30, 2020, respectively, are reflected in Foreign currency translation gain (loss) in Other comprehensive loss.

(3) The inputs used to measure the fair value of our interest rate swap contracts are categorized as Level 2 in the fair value hierarchy.

Net Investment Non-derivative Hedge — 2026 Secured Euro Notes

For the third quarter of 2020, we designated $123 million of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our results caused by the changes in foreign currency exchange rates of the Euro relative to the U.S. Dollar.

We use the spot method to measure the effectiveness of our net investment non-derivative hedge. Under this method, for each reporting period, the change in the hedged portion of the carrying value of the 2026 Secured Euro Notes due to remeasurement is reported in Foreign currency translation gain (loss) in Other comprehensive income, and the remaining remeasurement change is recognized in (Loss) gain on remeasurement of debt in our consolidated statements of operations. We evaluate the effectiveness of our net investment non-derivative hedge at the beginning of each quarter, and the inputs used to measure the fair value of this non-derivative hedge are categorized as Level 2 in the fair value hierarchy.

Contingent Consideration Liabilities

In connection with our acquisitions, we have recorded certain contingent consideration liabilities, of which the values are primarily based on reaching certain earnings-based metrics. The related liabilities were recorded at fair value on the acquisition date as part of the consideration transferred and are remeasured each reporting period. The inputs used to measure the fair value of our liabilities are categorized as Level 3 in the fair value hierarchy.

Contingent consideration liabilities as of September 30, 2020 are $11 million, of which $1 million is included in Accrued liabilities with the remainder included in Other long-term liabilities. Contingent consideration liabilities as of December 31, 2019 were $14 million, of which $7 million was included in Accrued liabilities with the remaining balance included in Other long-term liabilities.

(13) Stockholders’ Deficit

Changes in Stockholders’ Deficit

The following tables present certain information regarding our stockholders’ deficit as of September 30, 2020 and September 30, 2019:


	Nine Months Ended September 30, 2020
	Common Stock		Additional Paid in Capital		Accumulated Loss		Treasury Stock		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
January 1, 2020	$	1	$	1,208	$	(2,954)	$	(175)	$	(292)	$	104	$	(2,108)
Net payment in connection with settlement of stock options and RSUs	—		(1)		—		—		—		—		(1)
Stock-based compensation	—		9		—		—		—		—		9
Net loss	—		—		(159)		—		—		4		(155)
Other comprehensive loss	—		—		—		—		(97)		—		(97)
Impact of ASC 326 Adoption	—		—		(6)		—		—		—		(6)
March 31, 2020	$	1	$	1,216	$	(3,119)	$	(175)	$	(389)	$	108	$	(2,358)
Net proceeds in connection with settlement of stock options and RSUs	—		1		—		—		—		—		1
Stock-based compensation	—		13		—		—		—		1		14
Net loss	—		—		(203)		—		—		5		(198)
Other comprehensive income	—		—		—		—		62		—		62
June 30, 2020	$	1	$	1,230	$	(3,322)	$	(175)	$	(327)	$	114	$	(2,479)

Stock-based compensation	—		16		—		—		—		1		17
Net loss	—		—		(117)		—		—		6		(111)
Other comprehensive income	—		—		—		—		32		—		32
September 30, 2020	$	1	$	1,246	$	(3,439)	$	(175)	$	(295)	$	121	$	(2,541)


	Nine Months Ended September 30, 2019
	Common Stock		Additional Paid in Capital		Accumulated Loss		Treasury Stock		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
January 1, 2019	$	1	$	835	$	(2,824)	$	(175)	$	(300)	$	—	$	(2,463)
Net proceeds of common stock in connection with stock options and RSUs	—		2		—		—		—		—		2
Stock-based compensation	—		11		—		—		—		—		11
Net loss	—		—		(24)		—		—		—		(24)
Other comprehensive income	—		—		—		—		51		—		51
March 31, 2019	$	1	$	848	$	(2,848)	$	(175)	$	(249)	$	—	$	(2,423)
Net proceeds of common stock in connection with stock options and RSUs and other	—		2		—		—		—		—		2
Sale of SciPlay common stock and related transactions	—		328		—		—		—		91		419
Stock-based compensation	—		9		—		—		—		1		10
Net loss	—		—		(77)		—		—		2		(75)
Other comprehensive loss	—		—		—		—		(51)		—		(51)
June 30, 2019	$	1	$	1,187	$	(2,925)	$	(175)	$	(300)	$	94	$	(2,118)
Net proceeds of common stock in connection with stock options and RSUs and other	—		1		—		—		—		—		1
Stock-based compensation	—		9		—		—		—		—		9
Net income	—		—		14		—		—		4		18
Other comprehensive loss	—		—		—		—		(35)		—		(35)
September 30, 2019	$	1	$	1,197	$	(2,911)	$	(175)	$	(335)	$	98	$	(2,125)

Stock Based Compensation

The following reflects total stock-based compensation expense recognized under all programs:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Related to SGC stock options	$	1	$	1	$	3	$	4
Related to SGC RSUs	6		6		23		23
Related to SciPlay RSUs	10		2		15		6
Total	$	17	$	9	$	41	$	33

(14) Income Taxes

We consider new evidence (both positive and negative) at each reporting date that could affect our view of the future realization of deferred tax assets. Based upon the evaluation of all available evidence, and considering the projected U.S. pre-tax losses for 2020, we maintain a valuation allowance for certain of our U.S. operations as of September 30, 2020. We also maintain other valuation allowances for certain non-U.S. jurisdictions with cumulative losses.

Our effective income tax rate for both the three and nine months ended September 30, 2020 was (5)%, and (2)% and (20)% and (11)% for the three and nine months ended September 30, 2019, respectively, and were determined using an estimated annual effective tax rate after considering any discrete items for such periods. Due to the aforementioned valuation allowance against certain of our U.S. net deferred tax assets, the effective tax rates for the three and nine months ended September 30, 2020 and 2019 generally do not include the benefits of the U.S. tax losses; however, we recorded an overall tax benefit in continuing operations for the three months ended September 30, 2019 primarily as a result of other comprehensive

income gains in certain of our U.S. operations. The change in effective tax rates relates primarily to the overall mix of income (loss) in our jurisdictions without valuation allowances and the increase in unbenefited U.S. pre-tax losses. Additionally, the effective tax rate for the three and nine months ended September 30, 2020 included an unfavorable adjustment for the legacy U.K. Gaming reporting unit goodwill impairment of $54 million recorded in the first quarter of 2020, which is not deductible for tax purposes. The tax structure of our SciPlay business was altered as a result of SciPlay’s initial public offering, which was completed on May 7, 2019. For the three and nine months ended September 30, 2020, we recorded a tax provision for our 18% noncontrolling interest in SciPlay.

As discussed in Note 1, the COVID-19 disruptions significantly impacted certain segments of our business during the first half of 2020. We considered the COVID-19 disruptions in our ability to realize deferred tax assets in the future and determined that such conditions did not change our overall valuation allowance positions. The U.S. signed into law on March 27, 2020 the CARES Act, which includes various income tax provisions to help stabilize U.S. businesses, including a provision to ease the limitation on deductible interest expense in 2019 and 2020, which will reduce our interest limitation for these years, preserving U.S. net operating losses. We continue to monitor and evaluate the tax implications resulting from the CARES Act and any new legislation passed in response to COVID-19 in the federal, state, and foreign jurisdictions where we have an income tax presence.

Certain of our US federal, state, and foreign tax attributes may be subject to annual limitations under Internal Revenue Code Section 382 (“Section 382”) (or comparable provisions of state or foreign law) in the event that certain changes in ownership were to occur. Tax attributes that exceed the Section 382 limitation in any year continue to be allowed as carry forwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. Given the Company’s significant US tax attributes, we continuously monitor potential ownership changes under Section 382 and are currently assessing whether we experienced a Section 382 ownership change as a result of recent shareholder transactions. In the event that we determine that ownership changes create a Section 382 limitation, we do not believe that the limitation would cause tax attributes to expire unutilized based on current law.

(15) Leases

Our total operating lease expenses for the three and nine months ended September 30, 2020 were $8 million and $24 million, respectively, and were $9 million and $28 million for the three and nine months ended September 30, 2019, respectively. The total amount of variable and short term lease payments were immaterial for all periods presented.

Supplemental balance sheet and cash flow information related to operating leases is as follows:


	As of
	September 30, 2020			December 31, 2019
Operating lease right-of-use assets(1)	$	96		$	105
Accrued liabilities	25			26
Operating lease liabilities	79			88
Total operating lease liabilities	$	104		$	114
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases for the nine month period ended September 30, 2020 and 2019, respectively	$	23		$	25
Weighted average remaining lease term, units in years	5			5
Weighted average discount rate	5		%	5		%
(1) Operating lease right-of-use assets obtained in exchange for lease obligations were immaterial.

Lease liability maturities:


	Remainder of 2020		2021		2022		2023		2024		Thereafter		Less Imputed Interest		Total
Operating leases	$	8	$	28	$	23	$	19	$	16	$	24	$	(14)	$	104

As of September 30, 2020, we did not have material additional operating leases that have not yet commenced.

(16) Litigation

We are involved in various routine and other specific legal proceedings, including the following which are described in Note 21 within our 2019 10-K: the Colombia litigation, SNAI litigation and Washington State Matter. There have been no material changes to these matters since the 2019 10-K was filed with the SEC, except as described below.

We record an accrual for legal contingencies when it is both probable that a liability has been incurred and the amount or range of the loss can be reasonably estimated (although, as discussed below, there may be an exposure to loss in excess of the accrued liability). We evaluate our accruals for legal contingencies at least quarterly and, as appropriate, establish new accruals or adjust existing accruals to reflect (1) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments, (2) the advice and analyses of counsel and (3) the assumptions and judgment of management. Legal costs associated with our legal proceedings are expensed as incurred. We had accrued liabilities of $3 million for all of our legal matters that were contingencies as of September 30, 2020 and December 31, 2019.

Substantially all of our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss involves a series of complex judgments about future events. Consequently, the ultimate outcomes of our legal contingencies could result in losses in excess of amounts we have accrued. We may be unable to estimate a range of possible losses for some matters pending against us or our subsidiaries, even when the amount of damages claimed against us or our subsidiaries is stated because, among other things: (1) the claimed amount may be exaggerated or unsupported; (2) the claim may be based on a novel legal theory or involve a large number of parties; (3) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (4) there may be uncertainty as to the outcome of pending appeals or motions; (5) the matter may not have progressed sufficiently through discovery or there may be significant factual or legal issues to be resolved or developed; and/or (6) there may be uncertainty as to the enforceability of legal judgments and outcomes in certain jurisdictions. Other matters have progressed sufficiently that we are able to estimate a range of possible loss. For those legal contingencies disclosed in Note 21 in our 2019 10-K and this Note 16 as well as those related to the previously disclosed settlement agreement entered into in February 2015 with SNAI S.p.a., as to which a loss is reasonably possible, whether in excess of a related accrued liability or where there is no accrued liability, and for which we are able to estimate a range of possible loss, the current estimated range is up to approximately $14 million in excess of the accrued liabilities (if any) related to those legal contingencies. This aggregate range represents management’s estimate of additional possible loss in excess of the accrued liabilities (if any) with respect to these matters based on currently available information, including any damages claimed by the plaintiffs, and is subject to significant judgment and a variety of assumptions and inherent uncertainties. For example, at the time of making an estimate, management may have only preliminary, incomplete, or inaccurate information about the facts underlying a claim; its assumptions about the future rulings of the court or other tribunal on significant issues, or the behavior and incentives of adverse parties, regulators, indemnitors or co-defendants, may prove to be wrong; and the outcomes it is attempting to predict are often not amenable to the use of statistical or other quantitative analytical tools. In addition, from time to time an outcome may occur that management had not accounted for in its estimate because it had considered that outcome to be remote. Furthermore, as noted above, the aggregate range does not include any matters for which we are not able to estimate a range of possible loss. Accordingly, the estimated aggregate range of possible loss does not represent our maximum loss exposure. Any such losses could have a material adverse impact on our results of operations, cash flows or financial condition. The legal proceedings underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.

Raqqa Matter

On May 4, 2018, plaintiffs Raqqa, Inc. Pittsburg Liquors, Inc., Omdev, Inc., Om Riya, Inc., E and B Liquors, Inc., Michael Cairo, and Jason Van Lente filed a putative class action complaint against Northstar Lottery Group LLC (“Northstar”), IGT Global Solutions Corporation, and SGI, in the United States District Court for the Southern District of Illinois. In their complaint, plaintiffs seek to represent two putative classes of persons: (1) all persons who were or are parties to a contract to sell at retail Illinois Lottery instant game tickets at any time between July 1, 2011 and when Northstar ceased acting as the private manager of the Illinois Lottery; and (2) all natural persons who purchased certain Illinois Lottery instant game tickets between July 1, 2011 and when Northstar ceased acting as the private manager of the Illinois Lottery. The complaint alleges that Northstar discontinued certain Illinois instant-ticket lottery games before all grand prizes were awarded; that Northstar overstated the odds of winning grand prize tickets; and that these alleged actions caused economic harm to lottery players, and to lottery retailers who receive commissions on winning tickets. The complaint asserts claims for alleged tortious interference with contract, alleged tortious interference with prospective economic advantage, alleged violation of Illinois’ Consumer Fraud and Deceptive Business Practices Act, alleged unjust enrichment and alleged civil conspiracy. The complaint seeks unspecified money damages and the award of plaintiffs’ attorneys’ fees and costs. On June 18, 2018, the defendants filed a motion to dismiss the plaintiffs’ complaint with prejudice. On September 15, 2020, pursuant to a settlement that was not material to SGI, the plaintiffs and defendants jointly filed a stipulation to dismiss the lawsuit in its entirety with prejudice, with each party to bear its own attorneys’ fees, costs, and expenses. The district court dismissed the lawsuit in its entirety on October 16, 2020.

TCS John Huxley Matter

On March 15, 2019, TCS John Huxley America, Inc., TCS John Huxley Europe Ltd., TCS John Huxley Asia Ltd., and Taiwan Fulgent Enterprise Co., Ltd. brought a civil action in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc. and SG Gaming. In the complaint, the plaintiffs assert federal antitrust claims arising from the defendants’ procurement of particular U.S. and South African patents. The plaintiffs allege that the defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers sold to regulated casinos in the United States. On April 10, 2019, the defendants filed a motion to dismiss the plaintiffs’ complaint with prejudice. On April 25, 2019, the district court denied the defendants’ motion to dismiss without prejudice pursuant to the court’s local rules, after the plaintiffs advised that they intended to file an amended complaint. The plaintiffs filed their amended complaint on May 3, 2019, and on May 22, 2019, the defendants filed a motion to dismiss the plaintiffs’ amended complaint with prejudice. On March 20, 2020, the district court denied the defendants’ motion to dismiss the plaintiffs’ amended complaint, and defendants filed an answer to Plaintiffs’ amended complaint on June 19, 2020. On June 3, 2020, the trial court granted the defendants’ request to bifurcate proceedings in the case, with discovery to occur first into the statute of limitations and release defenses asserted by the defendants in their motion to dismiss, before proceeding into broader discovery. The trial court set a September 18, 2020, deadline for the parties to complete discovery relating to the statute of limitations and release defenses. On October 28, 2020, the court issued an order extending until January 15, 2021, the deadline for the parties to complete discovery relating to the statute of limitations defense. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.

Tonkawa Tribe Matter

On September 3, 2020, the Tonkawa Tribe of Indians of Oklahoma d/b/a Tonkawa Enterprises filed a putative class action complaint in the United States District Court for the District of Nevada against SGC, Bally Technologies, Inc. and SG Gaming, f/k/a Bally Gaming, Inc. On October 5, 2020, the plaintiff filed a first amended complaint to add Cow Creek Band of Umpqua Tribe of Indians and the Umpqua Indian Development Corp., d/b/a Seven Feathers Casino as a plaintiff. On October 12, 2020, the plaintiffs filed a motion for leave to file a second amended complaint. In the complaint, the plaintiffs assert federal antitrust claims arising from the defendants’ procurement of particular U.S. patents. The plaintiffs allege that the defendants used those patents to create an allegedly illegal monopoly in the market for card shufflers sold or leased to regulated casinos in the United States. The plaintiffs seek to represent a putative class of all regulated United States casinos directly leasing or purchasing card shufflers from the defendants on or after September 3, 2016. The complaint seeks unspecified money damages, the award of plaintiff’s costs of suit, including reasonable attorneys’ fees and expert fees, and the award of pre-judgment and post-judgment interest. The parties have submitted a stipulation to the court setting a deadline for defendants to answer or otherwise plead to the second amended complaint on or before November 27, 2020. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.

On September 15, 2020, Alfred T. Giuliano, as liquidation trustee for RIH Acquisition NJ, LLC d/b/a The Atlantic Club Casino Hotel, and Rancho’s Club Casino, Inc., d/b/a Magnolia House Casino, the plaintiffs in the Giuliano and Rancho’s Club Casino Matters described below, filed motions to intervene in the Tonkawa Tribe matter and transfer the matter to the United States District Court for the Northern District of Illinois. The Tonkawa Tribe plaintiffs filed responses to the motions to intervene on October 20, 2020.

Giuliano Matter

On September 4, 2020, Alfred T. Giuliano, as liquidation trustee for RIH Acquisition NJ, LLC d/b/a The Atlantic Club Casino Hotel filed a putative class action complaint in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc. and SG Gaming, f/k/a Bally Gaming, Inc. In the complaint, the plaintiffs assert federal antitrust claims arising from the defendants’ procurement of particular U.S. patents. The plaintiffs allege that the defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers sold or leased in the United States. The plaintiffs seek to represent a putative class of all persons and entities that directly purchased or leased automatic card shufflers within the United States from the Defendants, or any predecessor, subsidiary, or affiliate thereof, at any time between April 1, 2009, and the present. The complaint seeks unspecified money damages, which the complaint asks the court to treble, the award of plaintiff’s costs of suit, including attorneys’ fees, and the award of pre-judgment and post-judgment interest. Defendants’ deadline to answer or otherwise plead to plaintiff’s complaint is November 9, 2020. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.

Rancho’s Club Casino Matter

On September 8, 2020, Rancho’s Club Casino, Inc., d/b/a Magnolia House Casino filed a putative class action complaint in the United States District Court for the Northern District of Illinois against SGC, Bally Technologies, Inc. and SG Gaming, f/k/a Bally Gaming, Inc. In the complaint, the plaintiff asserts federal antitrust claims arising from the defendants’ procurement of particular U.S. patents. The plaintiff alleges that the defendants used those patents to create an allegedly illegal monopoly in the market for automatic card shufflers sold or leased in the United States. The plaintiff seeks to represent a putative class of all persons and entities that directly purchased or leased automatic card shufflers within the United States from the defendants, or any predecessor, subsidiary, or affiliate thereof, at any time between April 1, 2009, and the present. The complaint seeks unspecified money damages, which the complaint asks the court to treble, the award of plaintiff’s costs of suit, including attorneys’ fees, and the award of pre-judgment and post-judgment interest. Defendants’ deadline to answer or otherwise plead to plaintiff’s complaint is November 9, 2020. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.

On October 16, 2020, the defendants and the plaintiffs in the Giuliano and Rancho’s Club Casino matters filed a stipulation with the court to consolidate the Giuliano and Rancho’s Club Casino matters.

SciPlay IPO Matter (New York)

On or about October 14, 2019, the Police Retirement System of St. Louis filed a putative class action complaint in New York state court against SciPlay, certain of its executives and directors, and SciPlay’s underwriters with respect to its initial public offering (the “PRS Action”). The complaint was amended on November 18, 2019. The plaintiff seeks to represent a class of all persons or entities who acquired Class A common stock of SciPlay pursuant and/or traceable to the Registration Statement filed and issued in connection with SciPlay’s initial public offering, which commenced on or about May 3, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages of at least $146 million, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action.

On or about December 9, 2019, Hongwei Li filed a putative class action complaint in New York state court asserting substantively similar causes of action under the Securities Act of 1933 and substantially similar factual allegations as those alleged in the PRS Action (the “Li Action”). On December 18, 2019, the New York state court entered a stipulated order consolidating the PRS Action and the Li Action into a single lawsuit. On December 23, 2019, the defendants moved to dismiss the consolidated action. On August 28, 2020, the court issued an oral ruling granting in part and denying in part the defendants’ motion to dismiss. We are currently unable to determine the likelihood of an outcome or estimate a range of reasonably possible loss, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.

Sylebra Matter

On October 23, 2019, Sylebra Capital Partners Master Fund, Limited and P Sylebra, Limited (together, “Sylebra”) filed a complaint in Delaware Chancery Court against SGC, SG Gaming, Inc., and certain of SGC’s current and former executives and directors. The complaint asserts claims for alleged breaches of fiduciary duty and alleged aiding and abetting of such alleged breaches of fiduciary duty; for alleged unjust enrichment; for alleged anticipatory breach of Sylebra’s alleged rights under SGC’s prior Restated Certificate of Incorporation (“prior Charter”) and for alleged breach of that prior Charter; for alleged violations of certain Delaware statutes; and for alleged tortious interference with contract. The complaint seeks injunctive relief, declaratory relief, money damages, and the award of the plaintiffs’ costs and expenses incurred in the action. On December 20, 2019, the defendants filed a motion to dismiss Sylebra’s complaint. In response, on January 27, 2020, Sylebra filed an amended complaint, and on February 28, 2020, the defendants filed a motion to dismiss Sylebra’s amended complaint. On June 30, 2020, the trial court heard oral argument on defendants’ motion to dismiss Sylebra’s amended complaint, and granted the motion on October 9, 2020.

SciPlay IPO Matter (Nevada)

On or about November 4, 2019, plaintiff John Good filed a putative class action complaint in Nevada state court against SciPlay, certain of its executives and directors, SGC, and SciPlay’s underwriters with respect to SciPlay’s initial public offering. The plaintiff seeks to represent a class of all persons who purchased Class A common stock of SciPlay in or traceable to SciPlay’s initial public offering that it completed on or about May 7, 2019. The complaint asserts claims for alleged violations of Sections 11 and 15 of the Securities Act, 15 U.S.C. § 77, and seeks certification of the putative class; compensatory damages, and the award of the plaintiff’s and the class’s reasonable costs and expenses incurred in the action. On February 27, 2020, the trial court entered a stipulated order that, among other things, stayed the lawsuit pending entry of an order resolving the motion to dismiss that is pending in the SciPlay initial public offering matter in New York state court. On September 29, 2020, the trial court entered a stipulated order that extended the stay pending a ruling on class certification in the SciPlay IPO Matter in New York state court. We are currently unable to determine the likelihood of an outcome or estimate a

range of reasonably possible losses, if any. We believe that the claims in the lawsuit are without merit, and intend to vigorously defend against them.

For additional information regarding our pending litigation matters, see Note 21 in our 2019 10-K.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to enhance the reader’s understanding of our operations and current business environment and should be read in conjunction with the description of our business included under Part I, Item 1 “Condensed Consolidated Financial Statements” and Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and under Part I, Item 1 “Business,” Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2019 10-K.

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the disclosures and information contained and referenced under “Forward-Looking Statements” and “Risk Factors” included in this Quarterly Report on Form 10-Q and “Risk Factors” included in our 2019 10-K. As used in this MD&A, the terms “we,” “us,” “our” and the “Company” mean SGC together with its consolidated subsidiaries.

BUSINESS OVERVIEW

We are a leading developer of technology-based products and services and associated content for the worldwide gaming, lottery, social and digital gaming industries. Our portfolio of revenue-generating activities primarily includes supplying gaming machines and game content, casino-management systems and table game products and services to licensed gaming entities; providing instant and draw-based lottery products, lottery systems and lottery content and services to lottery operators; providing social casino solutions to retail consumers; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services.

Recent Events

Caledonia Transaction and Governance Enhancements

On September 14, 2020, the Company announced that a number of long-term institutional investors, including highly credentialed gaming industry investor Caledonia Investments, reached an agreement to acquire a 34.9% stake in SGC from MacAndrews & Forbes Incorporated (“MacAndrews & Forbes”) at a price of $28.00 per share. This transaction was completed on October 27, 2020, with no investor owning more than 9.9% of the Company’s shares as a result.

In connection with the transaction, the Company implemented a series of governance changes and enhancements, including refreshment of our board of directors. The existing stockholders’ agreement with MacAndrews & Forbes is terminated in connection with the transaction and all rights held by MacAndrews & Forbes, other than registration rights, are no longer in effect. As a result, MacAndrews and Forbes no longer holds any rights to appoint directors to our board.

The reconstituted board now consists of all existing directors, other than the MacAndrews & Forbes representatives, as well as four new directors. Former Aristocrat Chief Executive Officer Jamie Odell, along with former Aristocrat Chief Financial Officer Toni Korsanos, were elected to the board as Executive Chair and Executive Vice Chair, respectively, and are joined on the board by the former Chief Executive Officer of Barclays Bank Plc. and President of Barclays International, Tim Throsby, and Chairman of REA Group Limited, HT&E Limited, and Rugby Australia Limited and Deputy Chairman of Magellan Financial Group, Hamish McLennan, as new independent directors effective October 1, 2020 and October 29, 2020, respectively. The reconstituted board plans to focus on accelerating de-leveraging through a renewed focus on working capital management and will continue to review all strategic options to improve and maximize stockholder value. Ronald Perelman, current Executive Chairman of the Scientific Games Board and MacAndrews & Forbes Chairman and CEO, as well as Barry Schwartz and Frances Townsend, the two other MacAndrews & Forbes representatives, resigned from the Board effective September 16, 2020.

Impact of COVID-19

In March 2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak a pandemic. In response to the COVID-19 pandemic, governments across the world implemented a number of measures to prevent its spread, including but not limited to, the temporary closure of a substantial number of gaming operations establishments and disruptions to lottery operations, travel restrictions, and cancellation of sporting events, which are affecting our business segments in a number of ways. During the latter part of the second quarter and throughout the third quarter of 2020, lifting of restrictions began, including the reopening of the majority of gaming establishments globally and resumption of sporting events. As gaming operations have yet to return to pre-COVID -levels, limited international travel, social distancing measures, decreased operating capacities, high unemployment rates and potential changes in consumer behaviors continue to negatively impact our results of operations, cash flows and financial condition through the third quarter of 2020. Additionally, some casinos have yet to reopen

and for those that have opened, it is unknown when mitigation measures (such as capacity limitations) will be lifted, all contributing to continued uncertainty through the remainder of the year and potentially into 2021.

Impact on Business Operations and Financial Results

Our Gaming business segment is especially impacted due to the widespread temporary closures and restricted re-opening of a substantial number of gaming operations establishments coupled with global economic uncertainty. The COVID-19 pandemic remains a rapidly evolving situation. Although businesses began reopening during the latter part of the second quarter of 2020, our Participation gaming business revenue and cash flows continued to be significantly negatively affected, as they are largely driven by players’ disposable incomes and level of gaming activity. Social distancing requirements that were implemented in many jurisdictions have and are expected to continue to have a negative impact on the amount of customer traffic within gaming establishments. The COVID-19 disruptions continue to cause prolonged periods of closures and modified operating schedules and may result in changes in customer behaviors, including a reduction in consumer discretionary spending as a result of the uncertainty caused by the pandemic and unemployment levels. Additionally, our gaming machine and table product sales largely depend on our customers’ liquidity and operating results, which has negatively impacted the replacement cycle and demand for gaming machines, table products and opportunities from new or expanded markets. Further, we have granted customer concessions for a portion of the time for which such customers’ operations were impacted by closures or quarantines. Also, based on historical gaming customers’ orders and our manufacturing capacity, a substantial portion of gaming machine sales are fulfilled in the third month of each quarter. Since March when the COVID-19 disruptions became widespread, gaming machine sales revenues have been and continue to be particularly negatively impacted. We believe this negative trend could reduce the capital expenditures of casino operators and continue to lengthen the replacement cycles of their existing gaming machines.

Unfavorable economic conditions caused by COVID-19 have caused and could continue to impact the timing of cash receipts from our Gaming customers. In addition, unfavorable economic conditions have caused, and could continue to cause, some of our Gaming customers to temporarily close gaming venues or ultimately declare bankruptcy, which would adversely affect our business. In recent years, our Gaming business has granted extended payment term financing for gaming machine purchases primarily in the LATAM region, and we expect to continue to provide a higher level of extended payment term financing in this business until demand from our customers for such financings abates or our business model changes. These financing arrangements may increase our collection risk, and if customers are not able to pay us, whether as a result of financial difficulties, bankruptcy or otherwise, we may incur provisions for bad debt related to our inability to collect certain receivables. In addition, both extended payment term financing and operating leases result in a delay in our receipt of cash, which reduces our cash balance, liquidity and financial flexibility to respond to changing economic events. Unfavorable economic conditions may also result in volatility in the credit and equity markets. The difficulty or inability of our customers to generate or obtain adequate levels of capital to finance their ongoing operations may reduce their ability to purchase our products and services. Refer to Note 5 for international locations with significant concentrations of our receivables with terms longer than one year.

We increased our allowance for credit losses by $1 million and $41 million for the three and nine month periods ended September 30, 2020. The increase was primarily related to Gaming customers in LATAM as those customers were particularly affected by COVID-19 closures of gaming operations establishments along with other macroeconomic considerations. In addition, customers in this region expect and have often been granted extended payment terms. As described above, our customers in LATAM have been and are expected to continue to be affected by the COVID-19-related closures of gaming operations establishments and the resulting impact on both their specific financial situations and the general macroeconomic environments in which they operate.

During the three and nine months ended September 30, 2020, we recorded $15 million and $45 million, respectively, in inventory valuation charges (recorded in Cost of product sales) related to inventory in our Gaming business segment. Our Gaming leadership team continues to improve and expand upon the strategic plan initiated in the first half of the year. This strategic plan includes revising product roadmaps and an assessment of how many and which platforms we will support, when we end service on legacy platforms and when we stop selling on such platforms in conjunction with new product launches. This plan, combined with the rapid demand reduction that took place at the beginning of the year through the remainder of the year, our increased focus on our go to market approach in LATAM (both largely as a result of the COVID-19 disruptions) and our view on certain markets and customers, requires us to reassess our inventory valuation, including whether we had excess or obsolete inventory based on this new strategic plan, a reduction in demand for legacy platforms, and plans for disposition of the related inventory. In addition, the continued closures in the LATAM region make it difficult to execute our previous strategy of shipping legacy platforms into that market. The combination of these factors led to the $15 million inventory valuation charge recognized during the second quarter of 2020 and $45 million inventory valuation charge recognized through the third quarter of 2020. Our policy is to continue to review and assess these and other factors, especially during the COVID-19 disruptions, and if such factors or our outlook changes, we record adjustments to the valuation of inventory.

Our Lottery business segment has experienced relative growth and recovery in the third quarter as the shelter in place orders and lockdowns have been eased back resulting in increased foot traffic and more spending by end players, coupled with international retail establishments that have now substantially re-opened. Lottery sales were down meaningfully initially as a result of the pandemic, but have since largely recovered in the U.S. and international markets.

The temporary closure of gaming operations, disruptions to lottery operations, travel restrictions, cancellation of sporting events, lower disposable incomes of consumers and the adverse impact on our casino and gaming customers’ liquidity and financial results caused by the COVID-19 pandemic, had and continue to have an adverse effect on our results of operations, cash flows and financial condition during the first three quarters of 2020 and into the fourth quarter of 2020 and potentially beyond.

Although the majority of gaming and lottery operations have re-opened, with encouraging initial results, we are unable to determine the ultimate magnitude and the length of time that the pandemic disruptions will continue to impact our results of operations, cash flows and financial condition, which will depend, among other factors, on the currently unknowable duration of the COVID-19 pandemic, the impact of governmental regulations and actions that might continue to be imposed in response to the pandemic, change in customer behaviors, social distancing measures, decreased gaming establishments operating capacity, high unemployment rates, and the pace of overall recovery of gaming and lottery operations globally. We implemented a number of measures to reduce operating costs and conserve liquidity including permanent reductions in workforce and temporary measures such as: reductions in salaries and workforce (salary reduction measures ceased as of July 31, 2020), unpaid employee furloughs, reductions in hours, temporary elimination of 401(k) matching among other compensation and benefits reductions and deferral of certain operating and capital expenditures. These measures, combined with the above, have resulted in substantial cost savings in 2020. Additionally, reduced capital expenditures and the above measures are expected to result in an overall lower future cost structure.

Impact on Liquidity

On May 8, 2020, SGC and the requisite lenders under SGI’s revolving credit facility entered into the Credit Agreement Amendment that, among other things, implements a financial covenant relief period through the end of the “Covenant Relief Period”, as a result of which SGI is not required to maintain compliance with the consolidated net first lien leverage ratio covenant during the Covenant Relief Period, imposes a minimum liquidity requirement (excluding SciPlay) of at least $275 million during the Covenant Relief Period, and further restricts our ability to incur indebtedness and liens, make restricted payments and investments and prepay junior indebtedness during the Covenant Relief Period, subject to certain exceptions and further subject, in some instances, to maintaining minimum liquidity (excluding SciPlay) of at least $400 million. The Covenant Relief Period was extended for an additional three quarters on October 8, 2020 when SGC and the requisite lenders under SGI’s revolving credit facility entered into the Credit Agreement Extension Amendment. See Note 1 for additional details regarding the Credit Agreement Amendment and Credit Agreement Extension Amendment.

On April 9, 2020, we borrowed $480 million under SGI’s revolving credit facility. As of September 30, 2020, our total available liquidity (excluding our SciPlay business segment) was $838 million. We continue to actively manage our daily cash flows and continue to evaluate additional measures that will reduce operating costs and conserve cash. We believe that, based on our current projections, we will have sufficient liquidity for a period of at least one year.

Segments

We report our operations in four business segments - Gaming, Lottery, SciPlay and Digital - representing our different products and services. See “- Business Segments Results” below and Note 3 for additional business segment information.

Foreign Exchange

Our results are impacted by changes in foreign currency exchange rates used in the translation of foreign functional currencies into USD and the remeasurement of foreign currency transactions or balances. The impact of foreign currency exchange rate fluctuations represents the difference between current rates and prior-period rates applied to current activity. Our exposure to foreign currency volatility on revenue is as follows:


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2020				2019				2020				2019
($ in millions)	Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue		Revenue		% Consolidated Revenue
Foreign Currency:
British Pound Sterling	$	85	12	%	$	82	10	%	$	230	12	%	$	245	10	%
Euro	59		8	%	58		7	%	169		9	%	175		7	%

We also have foreign currency exposure related to certain of our equity investments, cross-currency interest rate swaps, and Euro-denominated debt. See “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q and Part I, Item 1A in our 2019 10-K, “Consolidated Results — Other Factors Affecting 2019 and 2018 Net Loss Comparability— Foreign exchange” under Item 7 in our 2019 10-K and Item 3 “Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q.

CONSOLIDATED RESULTS


	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
($ in millions)	2020		2019		2020 vs. 2019				2020		2019		2020 vs. 2019
Total revenue	$	698	$	855	$	(157)	(18)	%	$	1,962	$	2,537	$	(575)	(23)	%
Total operating expenses	650		712		(62)		(9)	%	2,002		2,143		(141)		(7)	%
Operating (loss) income	48		143		(95)		(66)	%	(40)		394		(434)		(110)	%
Net (loss) income before income taxes	(106)		15		(121)		807	%	(453)		(73)		(380)		(521)	%
Net (loss) income	(111)		18		(129)		717	%	(464)		(81)		(383)		(473)	%
Net (loss) income attributable to SGC	$	(117)	$	14	$	(131)	936	%	$	(479)	$	(87)	$	(392)	(451)	%

Revenue


Consolidated Revenue by Business Segment
(in millions)

Three Months Ended September 30, 2020 and 2019						Nine Months Ended September 30, 2020 and 2019

As described in the “Recent Events – Impact of COVID-19” section above, our total revenue for both the three and nine months ended September 30, 2020, specifically revenues for the Gaming business segment, were adversely impacted by COVID-19 disruptions. Gaming revenue for the nine months ended September 30, 2020 also reflects lower system revenues due to completion of certain Canadian systems launches that we benefited from in the prior year comparable period. Lottery revenue decrease for the nine months ended September 30, 2020, is primarily due to COVID-19 disruptions impacting instant ticket sales and to a lesser extent lower domestic equipment sales, while revenue increase for the three months comparable period was driven by higher domestic instant tickets revenue coupled with higher international equipment sales.

Operating Expenses


	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
($ in millions)	2020		2019		2020 vs. 2019				2020		2019		2020 vs. 2019
Operating expenses:
Cost of services	$	132	$	133	$	(1)	(1)	%	$	388	$	401	$	(13)	(3)	%
Cost of product sales	87		115		(28)		(24)	%	247		333		(86)		(26)	%
Cost of instant products	70		69		1		1	%	205		211		(6)		(3)	%
SG&A	164		175		(11)		(6)	%	513		535		(22)		(4)	%
R&D	41		47		(6)		(13)	%	123		142		(19)		(13)	%
D&A	136		162		(26)		(16)	%	414		497		(83)		(17)	%
Goodwill impairment	—		—		—		— %		54		—		54		100%
Restructuring and other	20		11		9		82	%	58		24		34		142	%

Total operating expenses	$	650	$	712	$	(62)	(9)	%	$	2,002	$	2,143	$	(141)	(7)	%

Cost of Revenue

Cost of revenue for the three and nine months ended September 30, 2020 decreased primarily as a result of lower Gaming cost of revenue correlated with a decrease in revenue due to the COVID-19 disruptions described above. Additionally, the three and nine months ended September 30, 2020 Cost of product sales includes approximately $15 million and $45 million, respectively, in Gaming segment inventory valuation charges, due to a decrease in demand for certain platforms as we believe that our customers will continue to extend replacement cycles to preserve their liquidity following their return to full operations combined with a reassessment of our Gaming product strategy, which commenced during the second quarter of 2020 by the new Gaming business segment leadership and which is expected to continue throughout the remainder of the year (see Note 6).

SG&A and R&D

SG&A and R&D decreased for both comparable periods primarily due to company-wide austerity measures in response to the COVID-19 disruptions described above, which resulted in lower SG&A compensation and benefit expenses of $15 million and $51 million and lower R&D compensation and benefit expense of $4 million and $9 million for the three and nine month comparable periods, respectively. The decrease in SG&A for the nine month comparable period was partially offset by an increase of $39 million in the Gaming business segment allowance for credit losses, that reflect forecasted credit deterioration due to the COVID-19 disruptions generally and credit weakness in our Latin America receivables portfolio specifically (see Note 5).

D&A

The decrease in D&A for the three and nine months ended September 30, 2020 was primarily due to certain Gaming intangible assets and software becoming fully amortized during 2019.

Goodwill Impairment

Goodwill impairment was related to our legacy U.K. Gaming reporting unit, which was recorded during the first quarter of 2020 (see Note 8).

Restructuring and Other

The increase in restructuring and other for the three and nine months ended September 30, 2020 is primarily due to severance and related charges associated with COVID-19 disruptions (see Note 4).

Other Factors Affecting Net (Loss) Income Gain Attributable to SGC


	Three Months Ended September 30,				Nine Months Ended September 30,				Factors Affecting Net (Loss) Income Gain Attributable to SGC
(in millions)	2020		2019		2020		2019		2020 vs. 2019
Interest expense	$	(131)	$	(146)	$	(379)	$	(447)	The decreases in interest expense for the three and nine months ended September 30, 2020 reflect the favorable impact of 2019 refinancing activities resulting in lower interest costs.
Loss on debt financing transactions	(1)		—		(1)		(60)		Loss on debt financing transactions consummated during the second quarter of 2019 includes a $50 million charge associated with premiums paid to redeem $1,000 million of the 2022 Unsecured Notes (see Note 11).
(Loss) gain on remeasurement of debt	(24)		19		(26)		21		(Losses) and gains are attributable to remeasurement of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes and reflect changes in the Euro vs. the U.S. Dollar foreign exchange rates between the comparable periods.
Income tax (expense) benefit	(5)		3		(11)		(8)		The increase is primarily due to the overall mix of worldwide income (loss) and a change in intraperiod tax rules as a result of adopting ASU 2019-12 in the first quarter of 2020.

See “Business Segments Results” below for a more detailed explanation of the significant changes in our components of revenue within the individual segment results of operations.

BUSINESS SEGMENTS RESULTS (for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019)

GAMING

Our Gaming business segment designs, develops, manufactures, markets and distributes a comprehensive portfolio of gaming products and services. We provide our Gaming portfolio of products and services to commercial casinos, Native American casinos, wide-area gaming operators such as licensed betting offices, arcade and bingo operators in the U.K. and continental Europe, and government agencies and their affiliated operators.

We generate Gaming revenue from both services and product sales. Our services revenue includes revenue earned from Participation gaming machines, other leased gaming machines (including VLTs and electronic table games), supplied table products and services (including Shufflers), casino management technology solutions and systems, and other services revenues. Our product sales revenue includes the sale of new and used gaming machines, electronic table games, VLTs and VGTs, casino-management technology solutions and systems, table products, proprietary table game licensing, conversion kits (including game, hardware or operating system conversions) and spare parts.

For additional information, refer to the Gaming primary business activities summary included within “Business Segment Results” under Item 7 of our 2019 10-K.

Current Year Update

See the “Recent Events – Impact of COVID-19” section above for a description of the COVID-19 impact on our Gaming business segment, which continued to have an adverse effect on our results of operations and cash flows throughout the third quarter of 2020 and is expected to continue through the fourth quarter of 2020 and potentially beyond as mitigation measures continue to be implemented and enforced. In addition to the adverse effect of COVID-19, we anticipate challenges in our gaming operations as corporate consolidations continue and decline in our gaming systems products and services due to certain large Canadian contracts that were completed in 2019.

Results of Operations and Key Performance Indicators


Three Months Ended September 30, 2020 and 2019						Nine Months Ended September 30, 2020 and 2019


1 - The nine months ended September 30, 2019 includes $10 million in intellectual property royalties paid by the SciPlay business segment, which are no longer being paid as of May 7, 2019 in connection with the IP License Agreement described in Note 1 of our 2019 10-K.

Revenue


	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
($ in millions)	2020		2019		2020 vs. 2019				2020		2019		2020 vs. 2019
Revenue:
Gaming operations	$	92	$	149	$	(57)	(38)	%	$	227	$	451	$	(224)	(50)	%
Gaming machine sales	71		168		(97)		(58)	%	216		452		(236)		(52)	%
Gaming systems	43		77		(34)		(44)	%	115		218		(103)		(47)	%
Table products	25		60		(35)		(58)	%	82		182		(100)		(55)	%
Total revenue	$	231	$	454	$	(223)	(49)	%	$	640	$	1,303	$	(663)	(51)	%

F/X impact on revenue	$	1	$	(3)	$	4	(133)	%	$	(1)	$	(11)	$	10	(91)	%

Gaming KPIs:
U.S. and Canada units:
Installed base at period end	30,208		31,509		(1,301)		(4)	%	30,208		31,509		(1,301)		(4)	%
Average daily revenue per unit	$	26.90	$	38.85	$	(11.95)	(31)	%	$	21.18	$	38.75	$	(17.57)	(45)	%

International units(1):
Installed base at period end	33,493		33,663		(170)		(1)	%	32,830		33,663		(833)		(2)	%
Average daily revenue per unit	$	5.65	$	9.62	$	(3.97)	(41)	%	$	4.05	$	10.77	$	(6.72)	(62)	%

Gaming machine unit sales:
U.S. and Canada new unit shipments	3,114		5,530		(2,416)		(44)	%	7,435		15,002		(7,567)		(50)	%
International new unit shipments	1,887		2,731		(844)		(31)	%	6,807		7,544		(737)		(10)	%
Total new unit shipments	5,001		8,261		(3,260)		(39)	%	14,242		22,546		(8,304)		(37)	%
Average sales price per new unit	$	12,881	$	17,500	$	(4,619)	(26)	%	$	14,436	$	17,369	$	(2,933)	(17)	%
(1) Excludes the impact of game content licensing revenue.

All of our Gaming revenue was negatively impacted by the COVID-19 disruptions that resulted in temporary closures and/or reduced operating capacity of a substantial number of gaming operations establishments in various jurisdictions globally, as described in the “Recent Events – Impact of COVID-19” section above. As gaming establishments began to reopen in June and openings have continued through the third quarter of 2020, demand has steadily increased and is expected to continue throughout the remainder of the year. The continuation of social distancing requirements that were implemented and still being enforced in many jurisdictions (including reduced floor occupation to 50%, table play customer limitations and reduction of slot

machines available for play) have had and are expected to continue to have a negative impact on our Gaming revenue until casino operators are able to return to normal operations. The mitigation measures are expected to continue for an indeterminate amount of time and we expect to continue to see the impacts on our gaming segment through the remainder of the year and potentially into 2021.

Gaming Operations

Gaming operations revenue decreased for both comparable periods primarily due to the COVID-19 disruptions described above causing a 1,301-unit decrease in the U.S. and Canada ending installed base and a 170-unit decrease in the International ending installed base coupled with decreases in both domestic and International average daily revenues per unit.

Gaming Machine Sales

Gaming machine sales revenue decreased for both comparable periods primarily due to the impact of COVID-19 as described above driving lower unit shipments primarily in replacement unit sales for both comparable periods, coupled with decreases in the average sales price per unit reflecting a less favorable mix of gaming machine sales. The following table summarizes Gaming machine sales changes:


	Three Months Ended September 30,		Variance			Nine Months Ended September 30,		Variance
	2020	2019	2020 vs. 2019			2020	2019	2020 vs. 2019
U.S. and Canada unit shipments:
Replacement units	1,523	4,152	(2,629)	(63)	%	3,907	10,789	(6,882)	(64)	%
Casino opening and expansion units	1,591	1,378	213	15	%	3,528	4,213	(685)	(16)	%
Total unit shipments	3,114	5,530	(2,416)	(44)	%	7,435	15,002	(7,567)	(50)	%

International unit shipments:
Replacement units	1,887	2,631	(744)	(28)	%	6,246	7,388	(1,142)	(15)	%
Casino opening and expansion units	—	100	(100)	(100)	%	561	156	405	260	%
Total unit shipments	1,887	2,731	(844)	(31)	%	6,807	7,544	(737)	(10)	%

Operating Expenses and AEBITDA

The decrease in operating expenses and decrease in AEBITDA and AEBITDA as a percentage of revenue (“AEBITDA margin”) for both comparable periods are primarily attributable to the COVID-19 disruptions described in the “Recent Events – Impact of COVID-19” section.

The decrease in operating expenses for comparable periods is primarily due to lower cost of revenue correlated with the decrease in revenue partially offset by: (1) a $15 million and $45 million increase of inventory valuation charges to cost of products, respectively (as described above), and (2) $5 million and $20 million increase in restructuring and other charges, respectively. Additionally, the nine months ended September 30, 2020 period includes a $54 million goodwill impairment charge that was recognized in the first quarter of 2020 and a total charge of $39 million to allowance for credit losses recognized in the first and second quarters of 2020 which reflect actual and forecasted credit deterioration primarily due to the COVID-19 disruptions generally and the worsening of the expected credit position in our Latin America receivables portfolio specifically (see Notes 5 and 6).

AEBITDA margin for the three and nine month comparable periods decreased by 17 and 28 percentage points, respectively, to 33% and 22%, respectively.

LOTTERY

Our Lottery business segment is primarily comprised of our instant products business and our systems-based services and product sales business. Our instant products business generates revenue from the manufacture and sale of instant products, as well as the provision of value-added services such as game design, sales and marketing support, specialty games and promotions, inventory management, warehousing, fulfillment services, as well as full instant product category management. In addition, we provide licensed games, promotional entertainment and internet-based marketing services to the lottery industry. These revenues are presented as instant products revenue.

Our systems-based services and product sales business provides customized computer software, software support, equipment and data communication services, and keno to lotteries. In the U.S., we typically provide the necessary point-of-sale terminals and equipment, software and maintenance services on a Participation basis under long-term contracts that typically have an initial term of at least five years. Internationally, we typically sell our point-of-sale terminals and/or computer software to lottery authorities and may provide ongoing fee-based systems maintenance and software support services. Refer to the Lottery primary business activities summary included within “Business Segment Results” under Item 7 of our 2019 10-K.

Current Year Update

See “Recent Events – Impact of COVID-19” section above for a description of the COVID-19 impact on our Lottery business segment, which had an adverse effect on our nine month period results of operations and cash flows, but began to recover as our three month period results reflect increased revenues in both our Instant ticket and Lottery system sales. In addition to the adverse effect of COVID-19, we believe we will continue to face intense price-based competition in our Lottery business in the remainder of 2020 and potentially beyond. In the near term, we also expect to see an increase in the number of jurisdictions that seek to privatize or outsource lottery operations and to face strong competition from both traditional and new competitors with respect to these opportunities. We anticipate that lottery requests for proposals, specifically those for private management agreements and certain of our international customers, could increasingly include terms that expose us to increased risk, such as requiring the guarantee of specific income thresholds or significant upfront payments.

Results of Operations and Key Performance Indicators


Three Months Ended September 30, 2020 and 2019						Nine Months Ended September 30, 2020 and 2019

Revenue


	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
($ in millions)	2020		2019		2020 vs. 2019				2020		2019		2020 vs. 2019
Revenue:
Instant products	$	157	$	150	$	7	5	%	$	426	$	440	$	(14)	(3)	%
Lottery systems	84		70		14		20	%	236		238		(2)		(1)	%
Total revenue	$	241	$	220	$	21	10	%	$	662	$	678	$	(16)	(2)	%

F/X impact on revenue	$	1	$	(2)	$	3	(150)	%	$	(2)	$	(8)	$	6	(75)	%

The increase in total revenue for the three month comparable period is driven by higher domestic instant ticket revenue coupled with higher international equipment sales. The decrease in total revenue for the nine month comparable period is primarily due to the negative impact from COVID-19 disruptions on the first half of the year, which resulted in lower instant tickets revenue coupled with higher 2019 domestic lottery systems equipment sales.

Operating Expenses and AEBITDA

The increase in operating expenses and AEBITDA for the three month comparable period is correlated with increased revenues (as described above) coupled with the lower operating expenses as a result of austerity measures implemented to reduce the costs. As a result of the above, AEBITDA margin for the three month comparable period was flat.

The decreases in operating expenses and AEBITDA for the nine month period are correlated with the decrease of lottery ticket retail sales, and the impact of COVID-19 disruptions on our joint ventures. AEBITDA margin decrease for the nine month comparable period was 2 percentage points. Lower joint venture EBITDA contributed 3 percentage points of the decline while lower operating expense, including austerity measures, increased AEBITDA margin by 1 percentage point.

SCIPLAY

We generate substantially all of our revenue from the sale of virtual coins, chips and bingo cards, which players can use to play our games. Players who install our games receive free virtual coins, chips and bingo cards upon the initial launch of the game and additional free virtual coins, chips and bingo cards at specific time intervals. Players may exhaust the virtual coins, chips and bingo cards that they receive for free and may choose to purchase additional virtual coins, chips and bingo cards in order to extend their time of game play. Once obtained, virtual coins, chips and bingo cards (either free or purchased) cannot be redeemed for cash nor exchanged for anything other than game play within our apps. We distribute our games through various global social web and mobile platforms such as Facebook, Apple, Google and Amazon, with some of our games available on Microsoft and other web and mobile platforms. The games are primarily our WMS®, Bally®, Barcrest®, and SHFL® branded games. We offer both third-party branded games and original content.

Our apps include Jackpot Party® Casino, Gold Fish® Casino, Quick Hit® Slots, Hot Shot Casino®, Bingo ShowdownTM, 88 Fortunes®, MONOPOLY Slots, and recently added Backgammon and Solitaire social games as a part of the Come2Play acquisition on various platforms referenced above.

Current Year Update

While the COVID-19 disruptions did not negatively affect SciPlay’s results for both comparable periods (see the “Recent Events – Impact of COVID-19” section above), sustained consumer unease, lower discretionary spending and shelter-in-place orders may impact SciPlay’s results of operations throughout the remainder of 2020 and potentially beyond. SciPlay experienced an increase in nearly all key performance indicators and revenue beginning in March 2020 and continuing through the third quarter of 2020, which we believe is partially due to the stay at home measures and increased player free time. While the increased player engagement SciPlay experienced during the first half of the year has begun to recede, we are still seeing some increased player engagement as compared to the three and nine month periods ended September 30, 2019 and we are not able to predict and quantify the ultimate impact of further COVID-19 developments on our results of operations in future periods.

During the first half of 2020, we deployed significant updates across a number of our portfolio games, and we

continued testing in certain international markets. We expect to deploy further updates to games in future quarters and to

continue testing in international markets.

On June 22, 2020, SciPlay completed the acquisition of the privately held mobile and social game company Come2Play (see Note 1), which expanded and diversified SciPlay’s existing portfolio of social games. As a result of this acquisition we now offer Backgammon and Solitaire social games targeted towards casual game players on some of the same platforms in which we currently offer our existing games.

Results of Operations and Key Performance Indicators


Three Months Ended September 30, 2020 and 2019						Nine Months Ended September 30, 2020 and 2019


1 - The nine months ended September 30, 2019 include charges of $10 million, for intellectual property royalties paid to the Gaming business segment, which are no longer being paid as of May 7, 2019 in connection with the IP License Agreement described in Note 1 of our 2019 10-K.

Revenue


	Three Months Ended September 30,						Variance				Nine Months Ended September 30,						Variance
($ in millions)	2020			2019			2020 vs. 2019				2020			2019			2020 vs. 2019
Revenue:
Mobile	$	132		$	97		$	35	36	%	$	377		$	293		$	84	29	%
Web and other	19			19			—		—	%	58			60			(2)		(3)	%
Total revenue	$	151		$	116		$	35	30	%	$	435		$	353		$	82	23	%



SciPlay KPIs:

Mobile Penetration(1)	87		%	84		%	3pp		nm		87		%	83		%	4pp		nm
Average MAU(2)	7.3			7.8			(0.5)		(6)	%	7.6			8.1			(0.5)		(6)	%
Average DAU(3)	2.6			2.7			(0.1)		(4)	%	2.7			2.7			—		—	%
ARPDAU(4)	$	0.63		$	0.47		$	0.16	34	%	$	0.59		$	0.48		$	0.11	23	%
nm = not meaningful. pp = percentage points. (1) Mobile penetration is defined as the percentage of business to consumer SciPlay revenue generated from mobile platforms. (2) MAU = Monthly Active Users is a count of visitors to our sites during a month. An individual who plays multiple games or from multiple devices may, in certain circumstances, be counted more than once. However, we use third-party data to limit the occurrence of multiple counting. (3) DAU = Daily Active Users is a count of visitors to our sites during a day. An individual who plays multiple games or from multiple devices may, in certain circumstances, be counted more than once. However, we use third-party data to limit the occurrence of multiple counting. (4) ARPDAU = Average revenue per DAU is calculated by dividing revenue for a period by the DAU for the period by the number of days for the period.

Mobile platform revenue increased for both comparable periods due to increased player engagement as a result of the stay at home measures across North America and other countries and ongoing popularity of Jackpot Party Casino, Gold Fish Casino, Quick Hits Slots, and MONOPOLY Slots. Web platform revenues increased for the three months ended September 30, 2020 primarily due to the stay at home measures across North America and other countries. For the nine months ended September 30, 2020, web platform revenues decreased due to the continued trend of players migrating from web to mobile platforms to play our games.

ARPDAU, average monthly revenue per payer, and payer conversion rates increased for both comparable periods due to stay at home measures across North America and other countries, introduction of new content and features, and ongoing popularity of our games.

Operating Expenses and AEBITDA

The increase in operating expenses for both comparable periods is primarily due to higher cost of revenue correlated with revenue growth, partially offset by lower IP charges paid to the Gaming business segment, which are reflected in increases in AEBITDA and AEBITDA margin. AEBITDA margin for the three and nine month comparable periods increased by 5 and 7, percentage points to 33% and 33%, respectively.

DIGITAL

Our Digital segment provides a comprehensive suite of digital gaming, iLottery and sports betting solutions and services, including digital RMG and sports wagering solutions, distribution platforms, content, products and services. A portion of our Digital revenue consists of professional services related to highly customized software design, development, licensing, maintenance and support services, which are derived from a comprehensive suite of technology solutions. These technology solutions allow our customers to operate sports books, which can offer sport (or non-sport) events and betting markets across both fixed-odds and pari-mutuel betting styles. We also provide the Open Platform System which offers a wide range of reporting and administrative functions and tools providing operators full control over all areas of digital gaming operations. Additionally, we derive revenue from our content aggregation platforms, including Open Gaming System (OGS), remote gaming servers, and various other platforms, which can deliver a wide spectrum of internally developed and branded casino-style games and popular third-party provider casino-style games to gaming operators. Generally, we host the play of our game content on our centrally-located servers that are integrated with the online casino operators’ websites.

Current Year Update

•The negative impacts of COVID-19 on Sports and platform revenue were fully offset by increases in Gaming and other that benefited from increased free time and stay at home measures resulting in higher digital gaming revenue.

•We continue to expand our customer base and capitalize on both iGaming and sports opportunities in the U.S. by leveraging our industry leading platforms, content and solutions.

Results of Operations and Key Performance Indicators


Three Months Ended September 30, 2020 and 2019						Nine Months Ended September 30, 2020 and 2019

Revenue


	Three Months Ended September 30,				Variance				Nine Months Ended September 30,				Variance
($ in millions)	2020		2019		2020 vs. 2019				2020		2019		2020 vs. 2019
Revenue:
Sports and platform	$	31	$	29	$	2	7	%	$	95	$	85	$	10	12	%
Gaming and other	44		36		8		22	%	130		118		12		10	%
Total revenue	$	75	$	65	$	10	15	%	$	225	$	203	$	22	11	%

F/X impact on revenue	$	1	$	(2)	$	3	(150)	%	$	(1)	$	(10)	$	9	(90)	%

Gaming KPI:

Wagers processed through OGS (in billions)	$	12.4	$	9.0	$	3.4	38	%	$	36.4	$	27.2	$	9.2	34	%

The overall increase in Sports and platform revenue and Digital AEBITDA for the nine months ended September 30, 2020 was primarily due to a cancellation fee associated with certain legacy agreements that were modified in the first quarter of

2020, higher third quarter license revenue from key customer renewals, growth in Gaming and other revenue, and to a lesser extent lower compensation costs as Digital continues to execute on scaling its business. The overall increase in Sports and platform revenue and Digital AEBITDA for the three months ended September 30, 2020 also benefited from the impact of approximately $6 million in license revenue associated with license renewals of certain existing customers. AEBITDA margin for the three and nine months ended September 30, 2020 increased by 7 and 9 percentage points to 33% and 30%, respectively.

RECENTLY ISSUED ACCOUNTING GUIDANCE

We do not expect that any recently issued accounting guidance will have a significant effect on our consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

For a description of our policies regarding our critical accounting estimates, see “Critical Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2019 10-K.

Goodwill Impairment Assessment Update

As disclosed in our 2019 10-K, goodwill is tested for impairment at the reporting unit level annually on October 1 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of a reporting unit or a sustained decrease in stock price.

As described in the “Recent Events – Impact of COVID-19” section above, the COVID-19 pandemic has had and continues to have an adverse effect on our results of operations, cash flows and financial condition and has resulted in significant volatility in global markets, including our stock price. While we do not believe these trends are long lasting nor that the magnitude of the decrease in the fair value of our debt or the volatility of our stock price consistent with market conditions is necessarily indicative of the fair values of our reporting units decreasing below their carrying values, we are unable to determine the ultimate magnitude and the length of time that these disruptions will continue to impact our future results of operations, cash flows and financial condition.

We assessed our estimated fair values of the reporting units as of October 1, 2019 (as of March 31, 2020 for our legacy U.K. Gaming reporting unit) compared to the total enterprise value using the average stock price and the fair value of our debt as of September 30, 2020, and concluded that such analysis does not indicate that estimated fair values for any of our reporting units more likely than not decreased below those reporting units’ carrying values. Accordingly, we determined the COVID-19 disruptions do not trigger any impairments at September 30, 2020 for any reporting units; however, this could change in the future depending on prevailing conditions and changes in our current estimates of the timing and magnitude of the economic recovery following the COVID-19 disruptions.

As described in Note 8, we determined that our legacy U.K. Gaming reporting unit’s goodwill was impaired during the first quarter of 2020. During the first quarter of 2020, we determined that the COVID-19 disruptions impacting our Gaming segment reporting units necessitated a supplemental analysis of the underlying goodwill carrying amounts to determine whether a full quantitative assessment was warranted. We concluded the impact of the COVID-19 disruptions on our reporting units, other than our legacy U.K. Gaming reporting unit, did not reach a level that triggered a quantitative test as there was significant cushion calculated as of our latest full quantitative valuation in the 2019 annual impairment test and the supplemental sensitivity analysis described below corroborated that there continued to be sufficient cushion as of March 31, 2020. Our third quarter 2020 analysis concluded that it is not more likely than not that an impairment exists in the reporting units in our Gaming segment.

The supplemental analysis of the likelihood of impairment in the Gaming segment reporting units performed in the first quarter of 2020 leveraged the full quantitative valuations prepared in the fourth quarter of 2019 as the base, and included a sensitivity analysis eliminating all cash flows from 2020 and reduced 2021 cash flows by 50%, with operations returning to a normal level in 2022. This sensitivity analysis indicated a fair value cushion exceeding 20% in each of our Gaming segment reporting units other than our legacy U.K. Gaming reporting unit. As a part of our third quarter 2020 goodwill analysis, we determined that it is not more likely than not that an impairment exists in the reporting units in our Gaming segment. We also believe there to be an elevated risk of goodwill impairment for the Gaming segment reporting units if the adverse impact of the COVID-19 disruptions or overall recovery for these reporting units sustains over an extended period of time.

The following table summarizes goodwill balances and cushions based on the latest annual goodwill test for all of our Gaming segment reporting units other than our legacy U.K. Gaming reporting unit:


Reporting Unit:	September 30, 2020 Goodwill Balance (in millions)		FY 2019 Goodwill Testing Percentage Cushion
SG Gaming	$	1,086	51	%
Casino Management Systems	557		49	%
Table Products	636		102	%

As disclosed in Note 8, based on the results of our first quarter 2020 interim goodwill impairment test for our legacy U.K. Gaming reporting unit, we recorded a partial goodwill impairment charge of $54 million. We estimated the fair value of the legacy U.K. Gaming reporting unit using both an income approach that analyzed a range of projected discounted cash flows and a market approach that considered comparable public companies.

Performing a discounted cash flow analysis requires the use of significant judgments, including: (1) estimation of future cash flows dependent on internal forecasts, (2) estimation of the long-term rate of growth for our business, (3) the relative risk of achieving those cash flows, and (4) determination of our weighted average cost of capital, all of which are subject to overall uncertainty about the magnitude and duration of the COVID-19 disruptions. When using the market approach, we make judgments about the comparability of publicly traded companies engaged in similar businesses or public transaction information for similar businesses. We base our judgments on factors such as size, growth rates, profitability, risk, and return on investment. We also make judgments when adjusting market multiples of revenue, and earnings for these companies to reflect their relative similarity to our business. Refer to Note 8 for key estimates and assumptions used in the first quarter 2020 discounted cash flow analysis for our legacy U.K. Gaming reporting unit.

The remaining Goodwill balance for our legacy U.K. Gaming reporting unit as of September 30, 2020 was $119 million. Any future adverse changes in projections for future operating results or other key assumptions, such as projected revenue, profit margin, capital expenditures or cash flows associated with investments included in our estimation of fair value for our legacy U.K. Gaming reporting unit could lead to additional future goodwill impairments, which could be material.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value. Cost is determined on the first-in, first-out or weighted moving average method. Our inventory primarily consists of gaming machines and table products for sale and related parts, instant products for our Participation and PPU arrangements. We review our inventory levels each reporting period and adjust the value of our inventory to the extent we determine that inventory cost is in excess of its net realizable value. To estimate obsolete and excess inventory, we consider a number of qualitative and quantitative factors, including product strategy and product lifecycles, estimates of future demand, current pricing, historical sales trends, market trends, and economic conditions. Any changes in these factors could result in material inventory charges which would increase our cost of products and decrease our gross margin, and such charges could be material.

During the three and nine months ended September 30, 2020, we recorded $15 million and $45 million, respectively, in charges related to inventory in our Gaming business segment. These charges are primarily due to the COVID-19 disruption impacting future demand combined with a continuing reassessment of our Gaming products strategy by the new Gaming business segment leadership and is expected to continue through the remainder of the year. The total Gaming business segment net inventory as of September 30, 2020 was $142 million.

Allowance for Credit Losses

Following the adoption of ASC 326 on January 1, 2020, the receivables allowance for credit losses are recognized based on our best estimate of the amount of expected credit losses in our existing receivables over the contractual term. Such an estimate requires consideration of any relevant available information, which begins with historical credit loss experience, consideration of current and expected conditions and market trends (such as general economic conditions, other microeconomic and macroeconomic considerations (including foreign currency impacts), etc.) and reasonable and supportable forecasts that could impact the collectability of such receivables over the contractual term individually or in the aggregate. Any changes in circumstances relating to these factors could result in material increase or decrease to our receivables allowance for credit losses and such changes could be material, particularly impacting our Gaming segment receivables.

Unfavorable economic conditions caused by COVID-19 impacted and could continue to impact the timing and amount of cash receipts from our Gaming customers. Additionally and as described in Note 5, we have certain concentrations of outstanding Gaming segment receivables, primarily in the LATAM region where we historically provided extended payment term financing for product purchases. These factors (including any future changes) collectively may increase our collection risks and materially impact our estimate of receivables allowance for credit losses. We increased our allowance for credit losses by $1 million and $41 million for the three and nine months ended September 30, 2020, respectively. This increase was

primarily related to Gaming customers in LATAM as those customers were particularly affected by COVID-19 closures of gaming operations establishments generally and credit deterioration from macroeconomic conditions, including foreign currency impacts.

We had a total of $422 million in Gaming segment receivables, net as of September 30, 2020 of which $75 million relates to the LATAM region. See Note 5 (Receivables, Allowance for Credit Losses and Credit Quality of Receivables) for additional information.

Other than our updates to the goodwill impairment assessment, inventory valuation and allowance for credit losses above, there have been no significant changes in our critical accounting estimate policies or the application or the results of the application of those policies to our condensed consolidated financial statements from those presented in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2019 10-K.

LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL

Cash and Available Liquidity

As of September 30, 2020, our principal sources of liquidity, other than cash flows provided by operating activities, were cash and cash equivalents, including SciPlay cash and cash equivalents (for our SciPlay business segment), and amounts available under the SciPlay Revolver (for our SciPlay business segment) discussed below under “Credit Agreement and Other Debt”.

Cash and Available Revolver Capacity


(in millions)	Cash and cash equivalents		Revolver capacity		Revolver capacity drawn or committed to letters of credit		Total
SGC (excluding SciPlay)	$	835	$	650	$	(647)	$	838
SciPlay	210		150		—		360
Total as of September 30, 2020	$	1,045	$	800	$	(647)	$	1,198

SGC (excluding SciPlay)	$	202	$	650	$	(207)	$	645
SciPlay	111		150		—		261
Total as of December 31, 2019	$	313	$	800	$	(207)	$	906

On April 9, 2020, we borrowed $480 million under SGI’s revolving credit facility, which was substantially all of the remaining availability thereunder.

On May 8, 2020, the Company and the requisite lenders under SGI’s revolving credit facility entered into the Credit Agreement Amendment that, among other things, implements a financial covenant relief period through the end of the “Covenant Relief Period”, as a result of which SGI is not required to maintain compliance with the consolidated net first lien leverage ratio covenant during the Covenant Relief Period, imposes a minimum liquidity requirement (excluding SciPlay) of at least $275 million during the Covenant Relief Period, and further restricts our ability to incur indebtedness and liens, make restricted payments and investments and prepay junior indebtedness during the Covenant Relief Period, subject to certain exceptions and further subject in some instances to maintaining minimum liquidity (excluding SciPlay) of at least $400 million. The Covenant Relief Period was extended for an additional three quarters on October 8, 2020 when SGC and the requisite lenders under SGI’s revolving credit facility entered into the Credit Agreement Extension Amendment. See Note 1 for additional details regarding the Credit Agreement Amendment and Credit Agreement Extension Amendment.

On July 1, 2020, we completed the issuance of $550 million in aggregate principal amount of 8.625% senior unsecured notes due 2025 in a private offering and on July 17, 2020 we redeemed all $341 million of our outstanding 2021 Notes (see above and Note 11).

On October 9, 2020, we made a voluntary payment of $100 million against the balance drawn on the revolving credit facility.

Total cash held by our foreign subsidiaries was $154 million and $112 million as of September 30, 2020 and December 31, 2019, respectively. We believe that substantially all cash held outside the U.S. is free from legal encumbrances or

similar restrictions that would prevent it from being available to meet our global liquidity needs.

Our Gaming operations and Lottery systems businesses generally require significant upfront capital expenditures, and we may need to incur additional capital expenditures in order to retain or win new contracts. Our ability to make payments on and to refinance our indebtedness and other obligations depends on our ability to generate cash in the future. We may also, from time to time, repurchase or otherwise retire or refinance our debt, through our subsidiaries or otherwise. In the event we pursue significant acquisitions or other expansion opportunities, we may need to raise additional capital. If we do not have adequate liquidity to support these activities, we may be unable to obtain financing for these cash needs on favorable terms or at all. For additional information regarding our cash needs and related risks, see “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q and under Part I, Item 1A in our 2019 10-K.

In addition, Lottery customers in the U.S. generally require service providers to provide performance bonds in connection with the relevant contract. As of September 30, 2020 our outstanding performance bonds totaled $251 million. Our ability to obtain performance bonds on commercially reasonable terms is subject to our financial condition and to prevailing market conditions, which may be impacted by economic and political events. Although we have not experienced difficulty in obtaining such bonds to date, we cannot assure that we will continue to be able to obtain performance bonds on commercially reasonable terms, or at all. For additional information regarding our surety or performance bonds in connection with our contracts, see “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q and under Part I, Item 1A in our 2019 10-K.

As described in Note 1 in our 2019 10-K, on May 7, 2019 we received $312 million in net proceeds from the SciPlay offering (excluding $30 million used by SciPlay to pay the initial public offering related expenses with the balance being retained by SciPlay for general corporate purposes). The ability of SciPlay to pay dividends or make other distributions to us, or to amend the agreements between SciPlay and us and our other subsidiaries, may be limited by the terms of the SciPlay Revolver or the terms of any future indebtedness that SciPlay may incur. For additional details see “Liquidity, Capital Resources and Working Capital” section in our 2019 10-K.

Cash Flow Summary


	Nine Months Ended September 30,				Variance
($ in millions)	2020		2019		2020 vs. 2019
Net cash provided by operating activities	$	312	$	403	$	(91)
Net cash used in investing activities	(134)		(190)		56
Net cash provided by (used in) financing activities	587		(11)		598
Effect of exchange rate changes on cash, cash equivalents and restricted cash	1		(1)		2
Increase in cash, cash equivalents and restricted cash	$	766	$	201	$	565

Cash Flows from Operating Activities


	Nine Months Ended September 30,				Variance
($ in millions)	2020		2019		2020 vs. 2019
Net loss	$	(464)	$	(81)	$	(383)
Adjustments to reconcile net loss to cash provided by operating activities	665		597		68

Changes in working capital accounts, net of effects of acquisitions	101		(120)		221
Changes in deferred income taxes and other	10		7		3

Net cash provided by operating activities decreased primarily due to a $315 million decrease in earnings (after adjustments to reconcile net loss to cash flows from operations) due to the impacts of the COVID-19 disruptions, which was partially offset by a $224 million favorable change in working capital accounts and other. Changes in working capital accounts for the nine months ended September 30, 2020 were primarily driven by lower billings after the closures as a result of the COVID-19 pandemic, collections on pre-COVID-19 receivables and disciplined cash flow management in conjunction with our efforts to reduce operating costs, achieve better vendor terms and preserve liquidity.

Cash Flows from Investing Activities

Net cash used in investing activities decreased primarily due to lower capital expenditures and the proceeds from the sale of certain properties in Chicago, which was partially offset by SciPlay’s acquisition of Come2Play. Capital expenditures are composed of investments in systems, equipment and other assets related to contracts, property and equipment, intangible assets and software.

Cash Flows from Financing Activities

Net cash provided by financing activities increased primarily due to the second quarter 2020 $480 million draw on SGI’s revolving credit facility, while the prior year comparable period included $342 million in proceeds from the sale of SciPlay common stock, which were partially offset by $253 million in net payments on long-term debt and $23 million in debt issuance, deferred financing and offering costs. Additionally, in the third quarter 2020, we received net proceeds of $543 million from the issuance of 2025 Senior Unsecured Notes partially offset by $1 million in debt issuance and offering costs and $341 million in net payments for the redemption of the 2021 Notes.

Credit Agreement and Other Debt

For additional information regarding our credit agreement and other debt, interest rate risk and interest rate hedging instruments, see Notes 15 and 16 and Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our 2019 10-K and Item 3 below.

Off-Balance Sheet Arrangements

As of September 30, 2020, we did not have any significant off-balance sheet arrangements.

Contractual Obligations

Other than the private offering of $550 million of 2025 Unsecured Notes and redemption of the 2021 Notes that occurred during the three months ended September 30, 2020, (see Note 11) there have been no material changes to our contractual obligations disclosed under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity, Capital Resources and Working Capital — Contractual Obligations” in our 2019 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign exchange rates and commodity prices. The following are our primary exposures to market risks:

Interest Rate Risk

As of September 30, 2020, the face value of long term debt was $9,487 million, including $4,705 million of variable-rate obligations. Assuming a constant outstanding balance for our variable-rate long term debt, a hypothetical 1% change in interest rates would decrease/increase interest expense by approximately $47 million. All of our interest rate sensitive financial instruments are held for other than trading purposes.

We currently use interest rate swap contracts to mitigate interest rate risk associated with a portion of our variable rate debt instruments. The objective of our interest rate swap contracts, which are designated as cash flow hedges of the future interest payments, is to eliminate the variability of cash flows attributable to the LIBOR component of interest expense to be paid on a portion of our variable rate debt.

Cross-Currency Interest Rate Swaps

In connection with the February 2018 Refinancing (see Note 15 in our 2019 Form 10-K), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460 million of our fixed-rate U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. We have designated these cross-currency interest rate swap agreements as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar.

As of September 30, 2020, if these cross-currency interest rate swap agreements were ineffective, the fluctuations in the exchange rates between the Euro and the U.S. Dollar would impact the amount of U.S. Dollars that we would require to settle the Euro-denominated debt at maturity of these agreements. A hypothetical 10% change in the U.S. Dollar in comparison to the Euro exchange rate upon inception of the cross-currency interest rate swap would have increased/decreased our obligation to cash settle the exchanged principal portion in U.S. Dollars by approximately $46 million.

Net Investment Non-derivative Hedge - 2026 Secured Euro Notes

In February 2018, we designated a portion of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar.

Fluctuations in the exchange rates between the Euro and the U.S. Dollar will impact the amount of U.S. Dollars that we will require to settle the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes at maturity. A hypothetical 10% change in U.S. Dollar in comparison to the Euro as of September 30, 2020, would have increased/decreased our obligation to cash settle the principal portion of the 2026 Secured and Unsecured Euro Notes in U.S. Dollars by approximately $67 million.

For additional information regarding interest rate swap contracts, cross-currency interest rate swaps and net investment non-derivative hedges, see Note 12.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of September 30, 2020.

There were no changes in our internal control over financial reporting during the three months ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our legal proceedings, see Note 16 in this Quarterly Report on Form 10-Q and Note 21 in our 2019 10-K.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed under Item 1A “Risk Factors” included in our 2019 10-K, except as noted below.

The recent COVID-19 pandemic and similar health epidemics, contagious disease outbreaks and public perception thereof, significantly disrupted our operations and adversely affected our business, results of operations, cash flows or financial condition.

The recent outbreak of a novel strain of coronavirus, COVID-19, and public perception thereof, have contributed to consumer unease and decreased discretionary spending and consumer travel, which have had, and will continue to have, a negative effect on us, especially in our Gaming and Lottery businesses. Other future health epidemics or contagious disease outbreaks could do the same. We cannot predict the ultimate effects that the outbreak of COVID-19, any resulting unfavorable social, political and economic conditions and decrease in discretionary spending or travel would have on us, as they would be expected to impact our customers, suppliers and business partners in varied ways in different communities. In our Gaming business, especially our Participation gaming business, our Digital business, and our Lottery business, our revenue is largely driven by players’ disposable incomes and level of gaming activity and lottery purchases. The recent outbreak of COVID-19 has led to economic and financial uncertainty for many consumers and has reduced, and may continue to reduce, the disposable incomes of players across all of our business units. This resulted in fewer patrons visiting casinos and fewer players purchasing lottery products, whether land-based or online, and lower amounts spent per casino visit or lottery purchase and may result in, reduced spend on online gambling activities, which negatively impact the results of operations, cash flows and financial condition of our casino customers, their ability to purchase or lease our products and services, revenues to lotteries and, therefore, our Lottery business revenue, and revenues to our online casino and sportsbook partners and, therefore, our Digital business revenue.

The outbreak of COVID-19 and the resulting unfavorable economic conditions have also impacted, and could continue to impact, the ability of our customers to make timely payments to us. These unfavorable conditions have caused, and could continue to or may cause, some of our Gaming and Lottery customers to temporarily close gaming venues and lottery operations, decrease spending on marketing of or purchases of Lottery products or declare bankruptcy, which would adversely

affect our business. In recent years, our Gaming business has expanded the use of extended payment term financing for gaming machine purchases, and we expect to continue to provide a higher level of extended payment term financing in this business until demand from our customers for such financings abates or our business model changes. These arrangements may increase our collection risk, and if customers are not able to pay us, whether as a result of financial difficulties, bankruptcy or otherwise, we may incur provisions for bad debt related to our inability to collect certain receivables. In addition, both extended payment term financing and operating leases result in a delay in our receipt of cash, which reduces our cash balance, liquidity and financial flexibility to respond to changing economic events. We have also seen a negative impact on future demand of certain Gaming products as a result of COVID-19, which has resulted and could continue to result in material inventory charges, which could increase our cost of products and decrease our gross margin. During the three and nine months ended September 30, 2020, we recorded $15 million and $45 million, respectively, in charges related to inventory in our Gaming business segment. The recent outbreak also resulted in significant volatility in both the credit and equity markets, potentially leading to an economic downturn. The difficulty or inability of our customers to generate or obtain adequate levels of capital to finance their ongoing operations may reduce their ability to purchase our products and services. In our Lottery business, we believe that difficult economic conditions have contributed, or may contribute, to reductions in spending on marketing by our customers and, in certain instances, less favorable terms under our contracts, as many of our customers face budget shortfalls and seek to cut costs. In our Digital business, the suspension or cancellation of sporting events which has and could continue to negatively impact the financial condition of our sportsbook customers, their ability to purchase development and other services, their risk of payment default, or their spending levels as they seek to reduce costs, each of which could negatively impact our Digital business revenue. In addition, suppliers to our Digital business may suffer financial difficulties and may not be able to offer their services and products, which could restrict the provision of our services and negatively impact our business, results of operations, cash flows or financial condition.

Various gambling regulators have implemented additional responsible and safer gambling measures relating to our Digital casino business as a result of the COVID-19 outbreak, including the implementation of bet limits, spin speeds, deposit limits and bonusing, which could negatively impact on our business, results of operations, cash flows or financial condition, particularly if additional gambling regulators follow suit.

Furthermore, this outbreak of COVID-19 has caused, and may continue to cause us and certain of our suppliers, to implement temporary adjustment of work schemes allowing employees to work from home and collaborate remotely. We have taken measures to monitor and reduce the impact of the outbreak, including putting in place a global crisis monitoring team, protocols for responding when employees are infected and enhanced cleaning procedures at all sites, but we cannot assure these will be sufficient to mitigate the risks faced by our and our partners’ work forces. We have also taken measures to reduce operating costs and ensure liquidity given the uncertain impact of COVID-19 on revenue, deferred all non-critical capital expenditures, have implemented a number of employee-related actions and are actively considering further actions. However, we have experienced and may still experience lower work efficiency and productivity, which may adversely affect our service quality, and our business operations have been and could be disrupted if and/or when any of our employees has been or is suspected of infection, since this has and may cause our employees to be quarantined and/or our offices to be temporarily shut down. We will continue to incur costs for our operations, and our revenues during this period are difficult to predict. As a result of any of the above developments, our business, results of operations, cash flows or financial condition for the full fiscal year of 2020, have been and will continue to be adversely affected by the COVID-19 outbreak. The extent to which this outbreak impacts our results of operations, cash flows and financial condition will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity and duration of this outbreak and the actions taken by governmental authorities and us to contain it or treat its impact. For more information on the impact of COVID-19 pandemic on each of our business segments and measures taken by us in response to COVID-19, see section captioned “Recent Events- Impact of COVID-19” in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Unfavorable U.S. and international economic conditions, or decreased discretionary spending or travel due to other factors such as terrorist activity or threat thereof, civil unrest, health epidemics, contagious disease outbreaks, or public perception thereof or other economic or political uncertainties, have adversely affected our business, results of operations, cash flows and financial condition.

Unfavorable economic conditions, including recession, economic slowdown, decreased liquidity in the financial markets, decreased availability of credit and relatively high rates of unemployment, have had, and may continue to have, a negative effect on our business. Socio-political factors such as terrorist activity or threat thereof, civil unrest or other economic or political uncertainties, or health epidemics, contagious disease outbreaks, or public perception thereof that contribute to consumer unease may also result in decreased discretionary spending or travel by consumers and have a negative effect on our businesses. We cannot fully predict the effects that unfavorable social, political and economic conditions, economic uncertainties and public health crises and any resulting decrease in discretionary spending or travel would have on us, as they would be expected to impact our customers, suppliers and business partners in varied ways. For a description of the impact of the outbreak of COVID-19 and other public health crises, see the risk factor captioned “The recent COVID-19 pandemic and

similar health epidemics, contagious disease outbreaks and public perception thereof, could significantly disrupt our operations and adversely affect our business, results of operations, cash flows or financial condition.”

In our Gaming business, especially our Participation gaming business, our revenue is largely driven by players’ disposable incomes and level of gaming activity. Unfavorable economic conditions have reduced, or may reduce, the disposable incomes of casino patrons and resulted, or may result, in fewer patrons visiting casinos, whether land-based or online, and lower amounts spent per casino visit. A further or extended decline in disposable income has resulted in reduced play levels on our Participation gaming machines, causing our results of operations and cash flows from these products to decline. Additionally, higher travel and other costs may adversely affect the number of players visiting our customers’ casinos. Adverse changes in discretionary consumer spending or consumer preferences, resulting in fewer patrons visiting casinos and reduced play levels, could also be driven by factors such as an unstable job market, outbreaks of contagious diseases or public perception thereof or fears of terrorism or other violence. A decline in play levels has negatively impacted the results of operations, cash flows and financial condition of our casino customers and their ability to purchase or lease our products and services.

Unfavorable economic conditions have also impacted, and could continue to impact, the ability of our Gaming customers to make timely payments to us. These conditions, and the concentration of certain outstanding Gaming segment receivables, may increase our collection risks and materially impact our estimate of receivables allowance for credit losses. We increased our allowance for credit losses by $1 million and $41 million for the three and nine months ended September 30, 2020, respectively. In addition, unfavorable economic conditions have caused, and could continue to cause, some of our Gaming customers to temporarily close gaming venues or ultimately declare bankruptcy, which would adversely affect our business. In recent years, our Gaming business has expanded the use of extended payment term financing for gaming machine purchases, and we expect to continue to provide a higher level of extended payment term financing in this business until demand from our customers for such financings abates or our business model changes. These financing arrangements may increase our collection risk, and if customers are not able to pay us, whether as a result of financial difficulties, bankruptcy or otherwise, we may incur provisions for bad debt related to our inability to collect certain receivables. In addition, both extended payment term financing and operating leases result in a delay in our receipt of cash, which reduces our cash balance, liquidity and financial flexibility to respond to changing economic events. Unfavorable economic conditions may also result in volatility in the credit and equity markets. The difficulty or inability of our customers to generate or obtain adequate levels of capital to finance their ongoing operations may reduce their ability to purchase our products and services. Refer to Note 6 for international locations with significant concentrations of our receivables with terms longer than one year.

In our Lottery business, we believe that difficult economic conditions have contributed, or may contribute, to reductions in spending on marketing by our customers and, in certain instances, less favorable terms under our contracts, as many of our customers face budget shortfalls and seek to cut costs.

In our Digital business based on a Participation model, our revenue is largely driven by disposable incomes and level of player activity. Unfavorable economic conditions has reduced and may continue to reduce the disposable incomes of end users consuming the services, which could negatively impact revenues for the Digital business. The outbreak of COVID-19 has resulted in the suspension or cancellation of sporting events which has and could continue to negatively impact the financial condition of our sportsbook customers, their ability to purchase development and other services, their risk of payment default, or their spending levels as they seek to reduce costs, each of which could negatively impact our Digital business revenue. In addition, suppliers to our Digital business may suffer financial difficulties and may not be able to offer their services and products, which could restrict the provision of our services and negatively impact our revenues. Various gambling regulators have implemented additional responsible and safer gambling measures relating to our Digital casino business as a result of the COVID-19 outbreak, including the implementation of bet limits, spin speeds, deposit limits and bonusing, which could negatively impact on our revenues, particularly if additional gambling regulators follow suit.

There are ongoing concerns regarding the debt burden of certain countries, particularly in Europe and South America, and their ability to meet their future financial obligations, which have resulted in downgrades of the debt ratings for these countries. We currently operate in, and our growth strategy may involve pursuing expansion or business opportunities in certain of these jurisdictions, such as Argentina, Brazil, Greece, Italy, Puerto Rico, Turkey and Ukraine among others. These sovereign debt concerns, whether real or perceived, could result in a recession, prolonged economic slowdown, or otherwise negatively impact the general health and stability of the economies in these countries or more broadly. In more severe cases, this could result in a limitation on the availability or flow of capital, thereby restricting our liquidity and negatively impacting our results of operations, cash flows and financial condition.

Our future results of operations may be negatively impacted by slow growth or declines in the replacement cycle of gaming machines and by the slow growth of new gaming jurisdictions or slow addition of casinos in existing jurisdictions.

Demand for our Gaming products and services is driven by the replacement of existing gaming machines in existing casinos, the establishment of new jurisdictions, the opening of additional casinos in existing jurisdictions and the expansion of existing casinos. Slow growth or declines in the replacement cycle of gaming machines have reduced and will continue to reduce the demand for our products and negatively impact our results of operations, cash flows and financial condition, and have resulted and could continue to result in material inventory charges, which could increase our cost of products and decrease our gross margin. We recorded charges related to inventory of $15 million and $45 million in the three and nine months ended September 30, 2020, respectively, in our Gaming business segment primarily due to the COVID-19 disruption impacting future demand combined with a reassessment of our Gaming product strategy.

The opening of new casinos, expansion of existing casinos and replacement of existing gaming machines in existing casinos fluctuate with demand, economic conditions, regulatory approvals and the availability of financing and have been negatively affected by the recent COVID-19 pandemic. In addition, the expansion of gaming into new jurisdictions can be a protracted process. In the U.S., U.K. and other international jurisdictions in which we operate, governments usually require a public referendum and legislative action before establishing or expanding gaming. Any of these factors could delay, restrict or prohibit the expansion of our business and negatively impact our results of operations, cash flows and financial condition.

We heavily depend on our ability to win, maintain and renew our customer contracts, including our long-term Lottery contracts, and we could lose substantial revenue if we are unable to renew certain of our contracts on substantially similar terms or at all.

Generally, our Lottery contracts contain initial multi-year terms, with optional renewal periods at the discretion of the customer. Upon the expiration of any such contract, including any extensions thereof, a new contract may be awarded through a competitive bidding process. Conversely, in some instances, Lottery customers are authorized to extend contracts beyond the term initially agreed in the applicable contract without subjecting the contract to competitive bidding, thereby eliminating the possibility of obtaining that new business.

We cannot assure that our current contracts will be extended or that we will be awarded new contracts as a result of competitive bidding processes or otherwise in the future. In addition, it is common for competitors to protest the award of Lottery contracts to us. For example, there is a pending third-party protest against the renewal of the LNS concession to operate the Italian instant games lottery. Such protests could delay or prevent our ability to enter into a new contract. In addition, the recent outbreak of COVID-19 has caused some lotteries to delay the competitive bidding process, which in turn has delayed awards of new contracts. The termination, expiration or failure to renew one or more of our contracts could cause us to lose substantial revenue, which could have an adverse effect on our ability to win or renew other contracts or pursue growth initiatives. We cannot assure that new or renewed contracts will contain terms that are as favorable as our current terms or will contemplate the same scope of products and services as our current contracts, and any less favorable contract terms or diminution in scope could negatively impact our results of operations, cash flows and financial condition. For example, we are currently in negotiations with the Pennsylvania Lottery, our largest Lottery customer, on both the Lottery Systems and Instant Products – Participation SGEP contracts, and we cannot assure that these contracts will be renewed or will be renewed with terms that are as favorable as our current terms; the termination or renewal on less favorable terms could negatively impact our results of operations, cash flows and financial condition. For additional information regarding the potential expiration dates of certain of our more significant Lottery contracts, see the table in “Lottery Segment” in Part I, Item 1 of our Annual Report on Form 10-K.

We are also required by certain of our customers to provide surety or performance bonds in connection with our contracts. As of September 30, 2020, we had $251 million of outstanding performance bonds. We cannot assure that we will continue to be able to obtain surety or performance bonds on commercially reasonable terms or at all. Our inability to provide such bonds would materially and adversely affect our ability to renew existing, or obtain new, Lottery contracts.

A substantial portion of our Gaming revenue depends on repeat customers. In certain regions, our business may be concentrated with a small number of customers, such as our U.K. LBO business. We cannot assure that our current contracts will be extended or that we will be awarded new contracts.

Given the increased competition in the sports wagering landscape in the U.S., it is crucial that we remain innovative in this field in order to preserve our first-mover advantage, maintain current contracts and gain new contracts.

We have incurred, and may continue to incur, restructuring costs, the benefits of which are unpredictable and may not be achieved.

In the past, we have implemented various business improvement, optimization and restructuring initiatives in an effort to streamline our organization, leverage our resources more efficiently, and reduce our operating costs. These initiatives encompassed a combination of headcount reductions, facilities streamlining, and reductions in other operating costs. We have engaged, and may continue to engage, in similar or additional restructuring initiatives, including in response to the COVID-19

pandemic and in the future. Because we are not able to predict with certainty when we will reorganize portions of our business, we cannot predict the extent, timing and magnitude of additional restructuring charges. We may also not realize the anticipated reduction in operating costs.

We may incur additional impairment charges.

We review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. We test goodwill and other indefinite-lived intangible assets for impairment at least annually. Factors that may indicate a change in circumstances, such that the carrying value of our goodwill, amortizable intangible assets or other non-amortizing assets may not be recoverable, include a decline in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in industry segments in which we participate. We may be required to record a significant charge in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined, which would negatively affect our results of operations. For example, during the first quarter of 2020 we recorded a charge of $54 million, in 2016 we recorded a charge of $69 million and in 2015 we recorded charges of $935 million and $68 million for the impairment of goodwill. In light of the COVID-19 pandemic and the resulting unfavorable social, political, economic and financial conditions, during the first quarter of 2020 we performed an interim goodwill impairment assessment, which resulted in a $54 million goodwill impairment charge for our legacy U.K. Gaming reporting unit further discussed below. For all of our reporting units, we concluded that as of September 30, 2020 it was not more likely than not that the fair value of these reporting units is below their carrying values and that the COVID-19 disruptions do not trigger an impairment. However, this could change in the future depending on prevailing conditions that could result in additional impairment charges. For more information on the assessment and the goodwill impairment charge, see section captioned “Goodwill Impairment Assessment Update- COVID-19 Impact” in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 8.

As discussed above and further detailed in Note 8, the COVID-19 disruptions resulted in the widespread closures of LBO shops across the U.K., which, along with global economic uncertainty, contributed to further deterioration in business conditions from our 2019 annual goodwill test date, which resulted in a goodwill impairment charge of $54 million during the first quarter of 2020. Any future adverse changes to our projections, could negatively impact the recoverability of the remaining carrying value of our goodwill and other assets for our legacy U.K. Gaming reporting unit, which might result in additional material impairment charges.

We believe there to be an elevated risk of goodwill impairment for the unimpaired Gaming segment reporting units if the adverse impact of the COVID-19 disruptions or overall recovery of the casino industry globally sustains over an extended period of time. The remaining goodwill balance for our legacy U.K. Gaming reporting unit as of September 30, 2020 was $119 million. Any future adverse changes in projections for future operating results or other key assumptions, such as projected revenue, profit margin, capital expenditures or cash flows associated with investments included in our estimation of fair value for our legacy U.K. Gaming reporting unit could lead to additional future goodwill impairments, which could be material.

Moreover, application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We cannot predict the occurrence of impairments, and we cannot assure that we will not have to record additional impairment charges in the future.

We depend on our suppliers and contract manufacturers, and any failure of these parties to meet our performance and quality standards or requirements could cause us to incur additional costs or lose customers.

Our production of instant lottery products, in particular, depends upon a continuous supply of raw materials, supplies, power and natural resources. Our operating results could be adversely affected by an interruption or cessation in the supply of these items or a serious quality assurance lapse, including as a result of the insolvency of any of our key suppliers.

Similarly, the operation of our instant ticket printing presses and the manufacture and maintenance of our gaming machines and gaming and lottery systems are dependent upon a regular and continuous supply of raw materials and components, many of which are manufactured or produced outside of the U.S. Certain of the components we use are customized for our products. The assembly of certain of our products and other hardware is performed by third parties. Any interruption or cessation in the supply of these items or services or any material quality assurance lapse with respect thereto could materially adversely affect our ability to fulfill customer orders, results of operations, cash flows and financial condition. We may be unable to find adequate replacements for our suppliers within a reasonable time frame, on favorable commercial terms or at all. The impact of the foregoing may be magnified as we continue to seek to streamline our gaming supply chain by reducing the number of our suppliers. Further, manufacturing costs may unexpectedly increase and we may not be able to successfully recover any or all of such cost increases.

In our Lottery systems business, we transmit certain wagering data using cellular technology and satellite transponders, generally pursuant to long- term contracts. The technical failure of any of these cellular or satellite services would require us to obtain other communication services, including other cellular or satellite access. In some cases, we employ backup systems to limit our exposure in the event of such a failure. While these networks are inherently highly redundant, we cannot assure access to such other cellular services or satellites or, if available, the ability to obtain the use of such other cellular services or satellites on favorable terms or in a timely manner. While cellular and satellite failures are infrequent, the operation of each is outside of our control.

In addition, in all of our businesses, we rely upon a number of significant third-party suppliers and vendors delivering parts, equipment and services on schedule in order for us to meet our contractual commitments. Furthermore, we outsource the manufacturing of certain of our sub-assemblies to third parties in the U.S., Europe, Central America and Asia. The willingness of such third parties to provide their services to us may be affected by various factors. Changes in law or regulation in any jurisdiction in which we operate may make the provision of key services to us unlawful in such jurisdictions. To the extent that third parties are unwilling or unable to provide services to us, this may have an adverse impact on our operations, financial performance and prospects. Failure of these third parties to meet their delivery commitments could result in us being in breach of, and subsequently losing, the affected customer orders, which loss could have a material adverse effect on our results of operations, cash flows and financial condition. We rely on network and/or telecommunications services for certain of our products. For instance, any disruption to our network or telecommunications could impact our linked or networked games, which could reduce our revenue.

In our Digital sports business, we rely on providers of third party sports data feeds. The outbreak of COVID-19 has resulted in the suspension or cancellation of a number of sporting events which has and could continue to negatively impact the financial condition of our sportsbook customers, their ability to purchase development and other services, their risk of payment default, or their spending levels as they seek to reduce costs, each of which could negatively impact our Digital business revenue.

In our Lottery, SciPlay and Digital businesses, we often rely on third-party data center providers to, among other things, host our remote game servers. Our Lottery, SciPlay and Digital businesses could be adversely impacted by breaches of or disruptions to these third-party data centers, including through disruptions in our RMG and lottery businesses, potential service level penalties with respect to our customers, reputational harm, the disclosure of proprietary information or the information of our customers or the theft of our or our customers assets, and to the extent any such data center provider was unable or unwilling to continue to provide services to us.

In certain regions, we enter into agreements with local distributors for the distribution of our land-based gaming products to one or more customers. Changes to these distributor relationships, including modification or termination of our agreements or difficulties with any such distributor could prevent us from delivering products or services to our customers on a timely basis, or at all, and could negatively impact our business. Additionally, the outbreak of COVID-19 and any resulting unfavorable social, political and economic conditions have negatively impacted our suppliers and contract manufacturers in varied ways in different communities, which could lead to interruption or cessation of services provided to us. For more information on the impact of the outbreak of COVID-19, see the risk factor captioned “The recent COVID-19 pandemic and similar health epidemics, contagious disease outbreaks and public perception thereof, could significantly disrupt our operations and adversely affect our business, results of operations, cash flows or financial condition.”

We depend on our key employees and rely on skilled employees with creative and technical backgrounds.

We depend on the continued performance of our executive officers and key personnel, including Barry Cottle, our President and Chief Executive Officer. Our ability to recruit and retain our key employees and skilled technical workers has been impaired due to the recent COVID-19 pandemic (see Note 1). If we lose the services of any of our executive officers or key personnel and cannot find suitable replacements for such persons in a timely manner, it could have an adverse impact on our business. Our ability to expand is dependent on our ability to recruit and retain talented employees in the U.S. and internationally who are capable of leading our employees to achieve our strategic objectives.

We also rely on our highly skilled, technically trained and creative employees to develop new technologies and create innovative products. Such employees, particularly game designers, engineers and project managers with desirable skill sets are in high demand, and we devote significant resources to identifying, hiring, training, successfully integrating and retaining these employees. A lack of skilled technical workers could delay or negatively impact our business plans, ability to compete, results of operations, cash flows and financial condition.

Our level of indebtedness could adversely affect our results of operations, cash flows and financial condition.

We are a highly leveraged company. As of December 31, 2019 and September 30, 2020, we had total indebtedness of $8,725 million and $9,378 million, respectively, consisting primarily of borrowings under our credit agreement, and Senior

Notes, net of unamortized discounts and deferred financing costs. As of September 30, 2020, our total available liquidity (excluding our SciPlay business segment) was $838 million, which included $3 million of undrawn availability under SGI’s revolving credit facility. On July 1, 2020, we completed the issuance of $550 million in aggregate principal amount of 2025 Unsecured Notes and on July 17, 2020 we redeemed all $341 million of our 2021 Notes (see Note 11).

Our level of indebtedness could affect our ability to obtain financing or refinance existing indebtedness; require us to dedicate a significant portion of our cash flow from operations to interest and principal payments on our indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures and other general corporate purposes; increase our vulnerability to adverse general economic, industry or competitive developments or conditions; and limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate or in pursuing our strategic objectives. In addition, we are exposed to the risk of higher interest rates as a significant portion of our borrowings are at variable rates of interest. If interest rates increase, the interest payment obligations under our non-hedged variable rate indebtedness would increase even if the amount borrowed remained the same, and our results of operations, cash flows and financial condition would be negatively impacted. All of these factors became more severe given the unfavorable economic conditions and uncertainties and decrease in discretionary spending and consumer travel as a result of the outbreak of COVID-19 and could place us at a competitive disadvantage compared to competitors that may have less debt than we do.

Certain of our variable rate debt, including debt under our credit agreement and the SciPlay Revolver, relies on LIBOR as a benchmark for establishing the interest rate. The U.K. Financial Conduct Authority announced in 2017 that it intends to phase out LIBOR by the end of 2021. In addition, other regulators have suggested reforming or replacing other benchmark rates. The discontinuation, reform or replacement of LIBOR or any other benchmark rates may have an unpredictable impact on contractual mechanics in the credit markets or cause disruption to the broader financial markets. Uncertainty as to the nature of such potential discontinuation, reform or replacement may negatively impact the cost of our variable rate debt. We may in the future pursue amendments to the agreements underlying this debt to provide for a transition mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our lenders on any such amendments. As a result, additional financing to replace our LIBOR-based debt may be unavailable, more expensive or restricted by the terms of our outstanding indebtedness.

We may not have sufficient cash flows from operating activities, cash on hand and available borrowings under our credit agreement to finance required capital expenditures under new contracts and meet our other cash needs or satisfy our minimum liquidity covenant. These obligations require a significant amount of cash, which would reduce our available liquidity.

Our Gaming operations and Lottery systems businesses generally require significant upfront capital expenditures for gaming machine or lottery terminal assembly, software customization and implementation, systems and equipment installation and telecommunications configuration. In connection with a renewal or bid of a Gaming operations or Lottery systems contract, a customer may seek to obtain new equipment or impose new service requirements, which may require additional capital expenditures in order to retain or win the contract. In connection with the renewal of LNS’ exclusive concession to operate the Italian instant games lottery, we paid our pro rata share, or €160 million (€10 million paid in 2017 and the remaining €150 million paid in 2018), of the €800 million payment LNS was required to make to obtain the concession.

Historically, we have funded these upfront costs through cash flows generated from operations, available cash on hand and borrowings under our credit agreement. In addition, we have seen an increase in lottery RFPs, some involving PMAs, which include economic terms that expose us to increased risk, such as requiring the guarantee of specific income thresholds or significant upfront payments. In addition, to the extent we are compensated under any of our contractual arrangements based on a share of our customers’ revenue rather than payment for our expenses and services, we may incur upfront costs (which may be significant) prior to receipt of any revenue under such arrangements. Our ability to generate revenue and to continue to procure new contracts will depend on, among other things, our then present liquidity levels or our ability to obtain additional financing on commercially reasonable terms, which are negatively affected by the recent COVID-19 pandemic.

If we do not have adequate liquidity or are unable to obtain financing for these upfront costs and other cash needs on favorable terms or at all, we may not be able to bid on certain contracts, which could result in our losing business or restrict our ability to grow, which could have a material adverse effect on our results of operations, cash flows and financial condition. Moreover, we may not realize the return on investment that we anticipate on new or renewed contracts due to a variety of factors, including lower than anticipated retail sales or amounts wagered, higher than anticipated capital or operating expenses and unanticipated regulatory developments or litigation. We may not have adequate liquidity to pursue other aspects of our strategy, including bringing our products and services to new customers or new or underpenetrated geographies (including through equity investments) or pursuing strategic acquisitions. In the event we pursue significant acquisitions or other expansion opportunities, conduct significant repurchases of our outstanding securities, or refinance or repay existing debt, we may need to raise additional capital either through the public or private issuance of equity or debt securities or through additional borrowings under our existing financing arrangements, which sources of funds may not necessarily be available on

terms acceptable to us, if at all, especially under the current unfavorable economic conditions and uncertainties as a result of the COVID-19 pandemic.

On May 8, 2020, the Company and the requisite lenders under SGI’s revolving credit facility entered into the Credit Agreement Amendment that, among other things, imposes a minimum liquidity requirement (excluding SciPlay) of at least $275 million during the Covenant Relief Period and further restricts our ability to incur indebtedness and liens, make restricted payments and investments and prepay junior indebtedness during the Covenant Relief Period, subject to certain exceptions and further subject, in some instances, to maintaining minimum liquidity (excluding SciPlay) of at least $400 million. The Covenant Relief Period was extended for an additional three quarters on October 8, 2020 when SGC and the requisite lenders under SGI’s revolving credit facility entered into the Credit Agreement Extension Amendment. See Note 1 for additional details regarding the Credit Agreement Amendment and Credit Agreement Extension Amendment. Therefore, even if we do have liquidity available to support our current cash needs, we may not be able to access that liquidity while still remaining in compliance with the minimum liquidity covenant. We cannot assure that we will be granted waivers or amendments to the minimum liquidity covenant, or will be able to obtain additional liquidity to cure such a violation, if for any reason we are unable to comply with that obligation.

We may not have sufficient cash flows from operating activities to service all of our indebtedness and other obligations, and may be forced to take other actions to satisfy our obligations, which may not be successful.

Our ability to make payments on and to refinance our indebtedness and other obligations depends on our results of operations, cash flows and financial condition, which in turn are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness and our other obligations. Our results of operations and general economic and financial conditions have been negatively affected by the recent COVID-19 pandemic, which made it more difficult for us to meet our debt obligations from cash flows from operating activities.

We are required to make scheduled payments of principal on the term loans borrowed under our credit agreement, and our credit agreement requires that a portion of our excess cash flow be applied to prepay amounts borrowed under our credit agreement. We are also required to repay the entire principal amount of our Senior Notes at their maturity (see Note 11). We have also, from time to time, repurchased or otherwise retired or refinanced our debt, through our subsidiaries or otherwise and may continue to do so in the future. Such activities, if any, will depend on prevailing market conditions, contractual restrictions and other factors, and the amounts involved may or may not be material. If we need to refinance all or part of our indebtedness at or before maturity, we cannot assure that we will be able to obtain new financing or to refinance any of our indebtedness on commercially reasonable terms or at all, especially under the current unfavorable economic conditions and uncertainties as a result of the COVID-19 pandemic.

Our lenders, including the lenders participating in our revolving credit facility under our credit agreement or in the SciPlay Revolver, may become insolvent or tighten their lending standards, which could make it more difficult for us to borrow under our revolving credit facility or the SciPlay Revolver or to obtain other financing on favorable terms or at all. Our results of operations, cash flows and financial condition would be adversely affected if we were unable to draw funds under our revolving credit facility or the SciPlay Revolver because of a lender default or to obtain other cost-effective financing. Any default by a lender in its obligation to fund its commitment under our revolving credit facility or the SciPlay Revolver (or its participation in letters of credit) could limit our liquidity to the extent of the defaulting lender’s commitment. If we are unable to generate sufficient cash flow in the future to meet our commitments, we will be required to adopt one or more alternatives, such as refinancing or restructuring our indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. We cannot assure that any of these actions could be completed on a timely basis or on satisfactory terms or at all, or that these actions would enable us to continue to satisfy our capital requirements. Moreover, our existing debt agreements contain, and our future debt agreements may contain, restrictive covenants that may prohibit us from adopting these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt.

Agreements governing our indebtedness impose certain restrictions that may affect our ability to operate our business. Failure to comply with any of these restrictions could result in the acceleration of the maturity of our indebtedness and require us to make payments on our indebtedness. Were this to occur, we would not have sufficient cash to pay our accelerated indebtedness.

Agreements governing our indebtedness, including our credit agreement and the SciPlay Revolver and the indentures governing our Senior Notes, impose, and future financing agreements are likely to impose, operating and financial restrictions on our activities that may adversely affect our ability to finance future operations or capital needs or to engage in new business activities. Subject to certain exceptions, our credit facilities and/or indentures restrict our ability to, among other things:

•declare dividends or redeem or repurchase capital stock;

•prepay, redeem or purchase other debt;

•incur liens;

•make loans, guarantees, acquisitions and investments;

•incur additional indebtedness;

•engage in sale and leaseback transactions;

•amend or otherwise alter debt and other material agreements;

•engage in mergers, acquisitions or asset sales;

•engage in transactions with affiliates;

•enter into arrangements that would prohibit us from granting liens or restrict our subsidiaries’ ability to pay dividends, make loans or transfer assets; and

•alter the business we conduct.

In addition, prior to the Credit Agreement Amendment and the Credit Agreement Extension Agreement, the SGI credit agreement contained a covenant that was tested at the end of each fiscal quarter and required us to not exceed a maximum consolidated net first lien leverage ratio of 5.00x Consolidated EBITDA (as defined in the credit agreement), with this ratio stepping down to 4.75x beginning with the fiscal quarter ending December 31, 2020 and 4.50x beginning with the fiscal quarter ending December 31, 2021. On May 8, 2020, SGC and the requisite lenders entered into the Credit Agreement Amendment to (a) implement a financial covenant relief period through the “Covenant Relief Period”, as a result of which SGI is not required to maintain compliance with the consolidated net first lien leverage ratio covenant during the Covenant Relief Period, (b) reset the consolidated net first lien leverage ratio covenant following the Covenant Relief Period, (c) impose a minimum liquidity requirement (excluding SciPlay) of at least $275 million during the Covenant Relief Period, (d) further restrict our ability to incur indebtedness and liens, make restricted payments and investments and prepay junior indebtedness during the Covenant Relief Period, subject to certain exceptions and further subject in some instances to maintaining minimum liquidity (excluding SciPlay) of at least $400 million and (e) establish a LIBOR floor of 0.500% on borrowings under the revolving credit facility during the Covenant Relief Period. The revised consolidated net first lien leverage ratio will be 6.00x Consolidated EBITDA beginning with the fiscal quarter ending June 30, 2021, stepping down as follows (1) 5.75x beginning with the fourth quarter of 2021, (2) 5.25x beginning with the second quarter of 2022, (3) 4.75x beginning with the fourth quarter of 2022 and (4) 4.50x beginning with the second quarter of 2023 and thereafter. The revised consolidated net first lien leverage ratio will be based on Consolidated EBITDA (as defined in the Credit Agreement Amendment) as follows: (1) for the testing period ending June 30, 2021, Consolidated EBITDA for the fiscal quarter ending June 30, 2021 multiplied by 4, (2) for the testing period ending September 30, 2021, Consolidated EBITDA for the fiscal quarters ending June 30, 2021 and September 30, 2021 multiplied by 2, (3) for the testing period ending December 31, 2021, Consolidated EBITDA for the fiscal quarters ending June 30, 2021, September 30, 2021 and December 31, 2021 multiplied by 4/3 and (4) for all subsequent testing periods, Consolidated EBITDA for the previous twelve months including the quarter for the which the test is performed.

On October 8, 2020, SGC and the requisite lenders under SGI’s revolving credit facility entered into the Credit Agreement Extension Amendment to extend the Covenant Relief Period for an additional three quarters. The revised consolidated net first lien leverage ratio will be 6.00x Consolidated EBITDA beginning with the fiscal quarter ending March 31, 2022, stepping down as follows: (1) 5.75x beginning with the third quarter of 2022, (2) 5.25x beginning with the first quarter of 2023, (3) 4.75x beginning with the third quarter of 2023 and (4) 4.50x beginning with the first quarter of 2024 and thereafter. The revised consolidated net first lien leverage ratio is based on Consolidated EBITDA (as defined in the Credit Agreement Extension Amendment) as follows: (1) for the testing period ending March 31, 2022, Consolidated EBITDA for the fiscal quarter ending March 31, 2022 multiplied by 4, (2) for the testing period ending June 30, 2022, Consolidated EBITDA for the fiscal quarters ending March 31, 2022 and June 30, 2022 multiplied by 2, (3) for the testing period ending September 30, 2022, Consolidated EBITDA for the fiscal quarters ending March 31, 2022, June 30, 2022 and September 30, 2022 multiplied by 4/3 and (4) for all subsequent testing periods, Consolidated EBITDA for the previous twelve months including the quarter for the which the test is performed. Under the SciPlay Revolver, SciPlay is required to maintain a maximum total net leverage ratio not to exceed 2.50x and maintain a minimum fixed charge coverage ratio of no less than 4.00x. Future financing arrangements may impose similar requirements.

Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. The recent outbreak of COVID-19 has had, and will continue to have, a negative effect on us, especially in our Gaming and Lottery

businesses. Accordingly, we cannot assure that we will continue to maintain liquidity sufficient to satisfy our current obligations or comply with the minimum liquidity requirement set forth in SGC’s credit agreement or return to compliance with the consolidated net first lien leverage ratio covenant following the Covenant Relief Period.

We also cannot assure that we will be granted waivers or amendments to the agreements governing our indebtedness if for any reason we are unable to comply with these obligations or that we will be able to refinance our debt on terms acceptable to us, or at all.

Changes in tax laws or tax rulings, or the examination of our tax positions, including in light of recent stockholder transactions, could materially affect our financial condition and results of operations.

Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. Our existing corporate structure and intercompany arrangements have been implemented in a manner that we believe is in compliance with current prevailing tax laws. However, the tax benefits that we intend to eventually derive could be undermined due to changing tax laws. In addition, the taxing authorities in the U.S. and other jurisdictions where we do business regularly examine our income and other tax returns and we expect that they may examine our income and other tax returns. The ultimate outcome of these examinations cannot be predicted with certainty.

Certain of our U.S. federal, state, and foreign tax attributes may be subject to annual limitations under Internal Revenue Code Section 382 (“Section 382”) (or comparable provisions of state or foreign law) in the event that certain changes in ownership were to occur. Tax attributes that exceed the Section 382 limitation in any year continue to be allowed as carry forwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. Given the Company’s significant U.S. tax attributes, we continuously monitor potential ownership changes under Section 382 and are currently assessing whether we experienced a Section 382 ownership change as a result of recent stockholder transactions. In the event that we determine that ownership changes create a Section 382 limitation, we do not believe that the limitation would cause tax attributes to expire unutilized based on current law.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There was no stock repurchase activity during the three months ended September 30, 2020.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit Number						Description
3.1(a)						Articles of Merger filed with the Secretary of State of the State of Nevada on January 10, 2018 (incorporated by reference to Exhibit 3.3 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).

3.1(b)						Certificate of Merger filed with the Secretary of State of the State of Delaware on January 10, 2018 (incorporated by reference to Exhibit 3.4 to Scientific Games Corporation's Current Report on Form 8-K filed on January 10, 2018).

3.1(c)						Amended and Restated Articles of Incorporation of Scientific Games Corporation, filed with the Secretary of State of the State of Nevada on January 10, 2018 (incorporated by reference to Exhibit 3.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).

3.2						Amended and Restated Bylaws of Scientific Games Corporation, effective as of January 10, 2018 (incorporated by reference to Exhibit 3.2 to Scientific Games Corporation’s Current Report on Form 8-K filed on January 10, 2018).

4.1						Indenture, dated as of July 1, 2020, among Scientific Games International, Inc., as issuer, Scientific Games Corporation, the other guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee, relating to the 8.625% Senior Unsecured Notes due 2025 (incorporated by reference to Exhibit 4.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on July 1, 2020).

10.1						Scientific Games Corporation Change in Control Protection Plan, adopted as of August 25, 2020 (incorporated by reference to 10.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on August 25, 2020).*

10.2						Letter Agreement, dated as of September 11, 2020, by and between Scientific Games Corporation and MacAndrews and Forbes Incorporated.(†)

10.3						Letter Agreement, dated as of September 11, 2020, by and between Scientific Games Corporation and Pivot Buyer LLC.(†)

10.4						Consulting Agreement, entered into as of July 1, 2020, by and between Scientific Games Corporation and Michael Quartieri. (incorporated by reference to Exhibit 10.5 to Scientific Games Corporation’s Quarterly Report on Form 10-Q filed on July 23, 2020).*

10.5						Amendment to Employment Agreement, dated as of July 30, 2020, by and between Scientific Games Corporation and James Sottile.*(†)

10.6						Amendment to Employment Agreement, dated as of July 24, 2020, by and between Scientific Games Corporation and Matthew Wilson.*(†)

10.7						Consulting Agreement, entered into as of July 3, 2019, by and between Scientific Games Corporation and Antonia Korsanos.*(†)

10.8						Amended and Restated Consulting Agreement, entered into as of August 20, 2019, by and between Scientific Games Corporation and Antonia Korsanos.*(†)

10.9						Amendment to Consulting Agreement, dated as of March 26, 2020, by and between Scientific Games Corporation and Antonia Korsanos.*(†)

10.10						Amendment to Consulting Agreement, dated as of June 30, 2020, by and between Scientific Games Corporation and Antonia Korsanos.*(†)

10.11						Amended and Restated Consulting Agreement, dated as of October 1, 2020, by and between Scientific Games Corporation and Antonia Korsanos.*(†)

10.12						Consulting Agreement, entered into as of May 16, 2019, by and between Scientific Games Corporation and Jamie Odell.*(†)

10.13						Amendment to Consulting Agreement, dated as of March 26, 2020, by and between Scientific Games Corporation and Jamie Odell.*(†)


10.14						Amendment to Consulting Agreement, dated as of June 30, 2020, by and between Scientific Games Corporation and Jamie Odell.*(†)

10.15						Amended and Restated Consulting Agreement, dated as of October 1, 2020, by and between Scientific Games Corporation and Jamie Odell.*(†)

10.16						Amendment No. 7, dated as of October 8, 2020, among Scientific Games International, Inc., as the borrower, Scientific Games Corporation, as a guarantor, the several banks and other financial institutions or entities from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, issuing lender and swingline lender, which amended and restated the Credit Agreement, dated as of October 18, 2013 (as amended, supplemented, amended and restated or otherwise modified from time to time, including without limitation, by that certain Amendment No. 1, dated as of October 1, 2014, Amendment No. 2, dated as of February 14, 2017, Amendment No. 3, dated as of August 14, 2017, Amendment No. 4, dated as of February 14, 2018, Amendment No. 5, dated as of November 20, 2019, and Amendment No. 6, dated as of May 8, 2020) (incorporated by reference to Exhibit 10.1 to Scientific Games Corporation’s Current Report on Form 8-K filed on October 8, 2020).

31.1						Certification of the Chief Executive Officer of Scientific Games Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)

31.2						Certification of the Chief Financial Officer of Scientific Games Corporation pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (†)

32.1						Certification of the Chief Executive Officer of Scientific Games Corporation pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2						Certification of the Chief Financial Officer of Scientific Games Corporation pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Label Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

(†) Filed herewith.

** Furnished herewith.

*Management contracts and compensation plans and arrangements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SCIENTIFIC GAMES CORPORATION
		(Registrant)

		By:	/s/ Michael C. Eklund
		Name:	Michael C. Eklund
		Title:	Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary







		By:	/s/ Michael F. Winterscheidt
		Name:	Michael F. Winterscheidt
		Title:	Senior Vice President and Chief Accounting Officer
Dated:	November 4, 2020

Exhibit 10.2

AGREEMENT

This Agreement (this “Agreement”), dated as of September 11, 2020, is entered into by and between Scientific Games Corporation, a Nevada Corporation (the “Company”), and MacAndrews & Forbes Incorporated (“M&F”) (each a “Party”, and collectively, the “Parties”).

RECITALS

WHEREAS, Pivot Buyer LLC (the “Buyer”) and affiliates of M&F are entering into a Stock Purchase Agreement on the date hereof (the “Purchase Agreement”) in respect of the purchase and sale of shares of common stock, par value $0.001 per share, of the Company (the “Company Common Stock”) representing no more than 34.9% of the issued and outstanding Company Common Stock (the “Stock Purchase”) (capitalized terms used but not defined herein have the meanings ascribed to them in the Purchase Agreement as in effect on the date hereof); and

WHEREAS, effective as of the Initial Closing, each of Ronald O. Perelman, Barry F. Schwartz and Frances F. Townsend has resigned from his or her role as a director on the Board of Directors of the Company (the “Board”).

NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the Parties hereby agree as follows:

1.Board Observer Effective as of and conditioned upon the occurrence of the Initial Closing, Barry F. Schwartz (the “M&F Designee”) will be appointed by the Board as a non-voting Board observer with a term of service extending until the consummation of the Fourth Closing; provided that if the Fourth Closing is not consummated by the initial Outside Date of November 10, 2020, exclusive of any extensions, the Board will appoint the M&F Designee as a director on the Board to serve until the Fourth Closing or the M&F Designee’s earlier death, resignation or removal. M&F agrees to cause the M&F Designee to resign as a director or Board observer, as applicable, effective as of and conditioned upon the occurrence the Fourth Closing. In the event of the incapacity or inability of the M&F Designee to serve as provided in this paragraph, M&F shall have the right to designate a replacement individual who is reasonably acceptable to the Board as the M&F Designee. In his or her capacity as a Board observer, the M&F Designee or his or her replacement shall be entitled to attend all meetings of the Board and any committees of the Board (except the Special Committee of the Board referred to in paragraph 5 below) and the Company shall provide such individual with copies of all notices, minutes, consents and other materials and information that it provides to members of the Board and committees of the Board (except the Special Committee of the Board referred to in paragraph 5 below), and such individual shall be required to adhere to any Board or Company policies with respect to confidentiality and use of such materials which are applicable to members of the Board.

2.Replacement Directors. M&F hereby waives its rights to appoint any directors to the Board during the term of this Agreement, except as provided in paragraph 1.

3.Termination of Stockholders’ Agreement. The Parties agree that the Company Stockholders’ Agreement, other than Section 5 of the Company Stockholders’ Agreement (which shall be assigned to the Buyer in accordance with the Purchase Agreement), shall be terminated effective as of and conditioned upon the occurrence of Fourth Closing. During the term of this Agreement, the Company shall not propose any other amendments to the Company Stockholders’ Agreement or take any actions that would adversely affect M&F’s rights under the Company Stockholders’ Agreement, except with the prior written consent of M&F.

4.Termination. This Agreement shall terminate automatically in the event that the Purchase Agreement is terminated for any reason without the consummation of the Fourth Closing.

5.This Agreement may be amended, supplemented or otherwise modified only by a written instrument signed by M&F and the Company, with the approval of the Special Committee of the Board comprised of Peter A. Cohen, Michael J. Regan and Kneeland C. Youngblood (or any successors thereto who are disinterested and independent as it relates to the Buyer, M&F, and their affiliates and associates under applicable law).

[The remainder of this page intentionally left blank]

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized signatories of the Parties as of the date hereof.

SCIENTIFIC GAMES CORPORATION

By: /s/ James Sottile

Name: James Sottile

Title: Chief Legal Officer

MACANDREWS & FORBES INCORPORATED

By: /s/ Jeffrey A. Brodsky

Name: Jeffrey A. Brodsky

Title: Chief Financial Officer

Exhibit 10.3

AGREEMENT

This Agreement (this “Agreement”), dated as of September 11, 2020, is entered into by and between Scientific Games Corporation, a Nevada Corporation (the “Company”), and Pivot Buyer LLC (the “Buyer”) (each a “Party”, and collectively, the “Parties”).

RECITALS

WHEREAS, the Buyer and affiliates of MacAndrews & Forbes Incorporated (“M&F”) are entering into a Stock Purchase Agreement on the date hereof (the “Purchase Agreement”) in respect of the purchase and sale of shares of common stock, par value $0.001 per share, of the Company (the “Company Common Stock”) representing no more than 34.9% of the issued and outstanding Company Common Stock (the “Stock Purchase”) (capitalized terms used but not defined herein have the meanings ascribed to them in the Purchase Agreement as in effect on the date hereof);

WHEREAS, the Stock Purchase will be effected through four separate Closings, and at no Closing shall the Buyer (or any of its designees, it being understood that any references to Buyer herein shall include any such designees) acquire shares of Company Common Stock representing more than 9.9% of the issued and outstanding Company Common Stock;

WHEREAS, the Buyer intends to effect the Closings and/or transfer the shares of Company Common Stock in a manner such that neither the Buyer (together with its affiliates or associates) nor any other Person receiving such shares (together with its affiliates or associates) will beneficially own, directly or indirectly, more than 9.9% of the issued and outstanding Company Common Stock;

WHEREAS, the Buyer intends that at no time shall the Buyer, together with its affiliates or associates, be required to file a Schedule 13D under the Exchange Act in respect of the Company;

WHEREAS, the Company confirms that, effective as of the Initial Closing, each of Ronald O. Perelman, Barry F. Schwartz and Frances F. Townsend has resigned from the Board of Directors of the Company (the “Board”) and each of Jamie Odell and Toni Korsanos has been appointed as a director on the Board; and

WHEREAS, no later than the Fourth Closing, the Board intends to appoint a new independent director to the Board, who is not affiliated with the Buyer, and to consult, subject to any applicable limitations under Gaming Laws, in good faith with the Buyer regarding the selection of such new independent director.

1.Termination of Stockholders Agreement. The Parties agree that, and M&F has agreed in the Purchase Agreement to procure that, the Company Stockholders’ Agreement, other than Section 5 of the Company Stockholders’ Agreement (which shall be assigned to the Buyer), shall be terminated effective as of the Fourth Closing.

2.Press Release. The Parties shall jointly issue a mutually agreeable press release (the “Press Release”) announcing certain terms of the Purchase Agreement. Neither Party shall make or cause to be made any public announcement or statement with respect to the subject of this Agreement or the Purchase Agreement that is contrary to the statements made in the Press Release, except as required by law or the rules of any stock exchange (in each case, following reasonable consultation with the other Party) or with the prior written consent of the other Party.

3.Cooperation. Each Party agrees to use commercially reasonable efforts to carry out the purposes and intent of this Agreement, including the recitals hereto applicable to it. Each Party shall also cooperate with the other Party and use (and shall cause their respective subsidiaries to use) their respective reasonable best efforts to promptly (a) take, or cause to be taken, all actions, and do, or cause to be done, and assist and cooperate with the other Party hereto in doing, all things necessary, proper or advisable to cause any applicable Gaming Approval to be obtained as promptly as reasonably practicable and (b) execute and deliver any additional instruments necessary, proper or advisable in respect of any applicable Gaming Approval.

4.Tax Matters. At any such time reasonably requested by Buyer, the Company shall promptly deliver to Buyer (a) a duly completed and executed certificate in such form and substance conforming to the requirements of Sections 1.897-2(h)(1) (without regards to any exceptions thereto), 1.897-2(g)(1)(ii), and 1.1445-2(c)(3)(i) of the U.S. Treasury regulations and (b) evidence in form and substance satisfactory to Buyer that the Company has delivered to the U.S. Internal Revenue Service the notification required under Section 1.897-2(h)(2) of the U.S. Treasury regulations; provided that, notwithstanding anything to the contrary herein, the Company shall not be required to make such deliveries if it reasonably determines that it is a “United States real property holding corporation” (as defined in Section 897(c)(2) of the Code) at the time of the request or as of any other relevant date or period of time specified in the Code or U.S. Treasury regulations.

5.Termination. This Agreement shall terminate automatically in the event that the Purchase Agreement is terminated for any reason without the consummation of any Closing thereunder.

6.Certain defined terms. As used in this Agreement, (a) “beneficial ownership”, “beneficial owner” and “beneficially own” shall have the meanings ascribed to such terms under Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (b) “affiliate” and “associate” shall have the meanings ascribed to such terms under Rule 12b-2 of the Exchange Act.

7.This Agreement may be amended, supplemented or otherwise modified only by a written instrument signed by the Buyer and the Company, with the approval of the Special

Committee of the Board comprised of Peter A. Cohen, Michael J. Regan and Kneeland C. Youngblood (or any successors thereto who are disinterested and independent as it relates to the Buyer, M&F, and their affiliates and associates under applicable law).

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized signatories of the Parties as of the date hereof.

SCIENTIFIC GAMES CORPORATION

By: /s/ James Sottile

Name: James Sottile

Title: Chief Legal Officer

Pivot Buyer LLC

By: Caledonia (Private) Investments Pty Limited, its Managing Member

By: /s/ Matthew Moses

Name: Matthew Moses

Title: General Counsel

Exhibit 10.5

Amendment to Employment Agreement

This Amendment to Employment Agreement (this “Amendment”) is made on July 30, 2020 by and between Scientific Games Corporation, a Nevada corporation, (the “Company”) and James Sottile (“Executive”).

WHEREAS, the Company and Executive entered into an Employment Agreement dated as of September 4, 2018, which was then amended on March 24, 2020 and June 30, 2020 (as amended, the “Agreement”); and

NOW THEREFORE, in consideration of the premises and the mutual benefits to be derived herefrom and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Increase in Base Salary. The Agreement is hereby amended by adding the following sentence to the end of Section 3(a):

“Effective as of August 1, 2020, Executive’s base salary is increased to seven hundred thousand U.S. dollars ($700,000) per annum.”

2. Except as set forth in this Amendment, all terms and conditions of the Agreement shall remain unchanged and in full force and effect in accordance with their terms. All references to the “Agreement” in the Agreement shall refer to the Agreement as amended by this Amendment. Any defined terms used in this Amendment and not defined herein shall have the meaning as set forth in the Agreement.

3. This Amendment may be executed in counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. Delivery of an executed counterpart of a signature page of this Amendment by electronic transmission shall be effective as delivery of a manually executed counterpart of this Amendment.

IN WITNESS WHEREOF, each of the parties hereto has duly executed this Amendment as of July 30, 2020.

SCIENTIFIC GAMES CORPORATION

By: /s/ Barry Cottle

Name: Barry Cottle

Title: President and Chief Executive Officer

/s/ James Sottile

James Sottile

Exhibit 10.6

Amendment to Employment Agreement

This Amendment to Employment Agreement (this “Amendment”) is made on July 24, 2020 by and between Scientific Games Corporation, a Nevada corporation, (the “Company”) and Matthew Wilson (“Executive”).

WHEREAS, the Company and Executive entered into an Employment Agreement dated as of July 6, 2019, which was then amended as of March 24, 2020, and then amended as of June 30, 2020 (as amended, the “Agreement”); and

WHEREAS, the amendment to the Employment Agreement dated as of March 24, 2020 decreased Executive’s annual base salary of seven hundred fifty thousand ($750,000) by one hundred seventy-eight thousand, seven hundred and sixty-seven U.S. dollars ($178,767), representing the portion of his annual base salary attributable to the period from April 5, 2020 through June 30, 2020; and

WHEREAS, the amendment to the Employment Agreement dated as of June 30, 2020 decreased Executive’s annual base salary by an additional thirty-one thousand, eight hundred and forty-nine U.S. dollars ($31,849), representing a portion of his annual base salary attributable to the period from July 1, 2020 through July 31, 2020; and

WHEREAS, the Company has agreed, subject to the approval of the Compensation Committee of the Company’s Board of Directors, to pay Executive 50% of the portion of his annual base salary attributable to the period from April 5, 2020 through June 30, 2020 (totaling eighty-nine thousand, three hundred and eighty-three U.S. dollars ($89,383)), which had been withheld pursuant to the amendment to the Employment Agreement dated as of March 24, 2020;

1.Increase in Base Salary. The Agreement is hereby amended by adding the following sentence to the end of Section 3(a):

“Subject to the approval of the Compensation Committee of the Company’s Board of Directors, and effective as of August 1, 2020, Executive will be paid an additional eighty-nine thousand, three hundred and eighty-three U.S. dollars ($89,383) of base salary, said amount representing 50% of the portion of his annual base salary attributable to the period from April 5, 2020 through June 30, 2020, which had been withheld pursuant to the amendment to the Employment Agreement dated as of March 24, 2020. Said amount will be payable in accordance with the Company’s normal payroll practices, in the period from August 1, 2020 through October 31, 2020.”

3. This Amendment may be executed in counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. Delivery of an

executed counterpart of a signature page of this Amendment by electronic transmission shall be effective as delivery of a manually executed counterpart of this Amendment.

IN WITNESS WHEREOF, each of the parties hereto has duly executed this Amendment as of July 24, 2020.

SCIENTIFIC GAMES CORPORATION

By: /s/ James Sottile

Name: James Sottile

Title: Executive Vice President and Chief Legal Officer

/s/ Matthew Wilson

Matthew Wilson

Exhibit 10.7

CONSULTING AGREEMENT

This Consulting Agreement (this “Agreement”) is entered into as of 3 July, 2019 (the “Commencement Date”) by and between SCIENTIFIC GAMES CORPORATION, with offices located at 6601 Bermuda Road, Las Vegas, NV 89119 (the “Company”), and Toni Korsanos Pty Ltd as trustee for Toni Korsanos Trust, 1 Duff Street, Burwood NSW 2134, Australia (the “Consultant” and, together with the Company, the “Parties”).

RECITALS

WHEREAS, the Company seeks to engage the Consultant as an independent contractor in a manner consistent with the Company’s commitment to ethics and in compliance with all applicable Laws (as defined below); and

NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and intending to be legally bound, the Parties hereto agree as follows:

Section 1Interpretation

1.1Certain Terms. As used herein, the following terms have the following meanings:

“Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.

“Governmental Authority” means any national, supranational, foreign, federal, state, provincial, tribal, peripheral, regional, municipal or local government or any agency, instrumentality or political subdivision thereof, including any legislative, executive, judicial, regulatory or other governmental board, department, agency, authority, commission, administration, court or other body, or any official of any of the foregoing (including any gaming- or lottery-related Governmental Authority).

“Law” means any order, writ, injunction, decree, judgment, law, ordinance, decision, opinion, ruling, policy, statute, code, rule, regulation or administrative or other requirement of any Governmental Authority, in each case, as may be amended from time to time.

“Person” means any individual (including the heirs, beneficiaries, trusts, executors, legal representatives or administrators thereof), corporation, partnership, joint venture, trust, limited liability company, limited partnership, joint stock company, unincorporated association or other entity. For the avoidance of doubt, the term includes a Governmental Authority.

“Principal” means Antonia Korsanos, who is the sole shareholder and director of the Consultant.

“Representative” means, with respect to any Person, any director, officer, employee, partner, member, manager, owner, agent, lawyer, accountant, auditor, professional advisor, consultant or other representative.

1.2Incorporation. Annex A to this Agreement is incorporated by reference into, and forms an integral part of, this Agreement.

Section 2Engagement

2.1Services. Upon the terms and subject to the conditions of this Agreement, the Company hereby engages the Consultant, and the Consultant hereby accepts such engagement, as an independent contractor to provide the services set forth in Annex A (collectively, the “Services”). Unless otherwise expressly specified in Annex A, the Consultant shall furnish, at Consultant’s own expense, any equipment, supplies and other materials necessary or advisable to perform the Services. Subject to the provisions of this Agreement, the Company shall not control the manner or means by which the Consultant performs the Services.

2.2Relationship of Parties. The Consultant is an independent contractor of the Company, and this Agreement shall not be construed to create any association, partnership, joint venture, employee or agency relationship between the Consultant and the Company (or any of its Affiliates) for any purpose. Except to the extent specifically authorized in advance by the Company in writing, the Consultant and Principal (a) shall have no authority (and shall not hold itself or herself out as having authority) to bind or act on behalf or in the name of the Company or any of its Affiliates, (b) shall not make any agreements or representations on behalf of the Company or any of its Affiliates and (c) without limiting the generality of the foregoing, shall not represent the Company or any of its Affiliates as a lobbyist or agent to any Governmental Authority.

Section 3Compensation

3.1 Fees. As consideration for the provision of Services and the rights granted to the Company under this Agreement, the Company shall pay the Consultant $25,000.00 (the “Initial Project Fee”) for the Services provided hereunder, subject to and in accordance with the terms of this Agreement. The Initial Project Fee will be paid to Consultant within thirty (30) days after Commencement Date.

3.2Expense Reimbursement. The Company agrees to reimburse the Consultant for reasonable and appropriately documented out-of-pocket expenses actually incurred and paid by the Consultant or Principal but only to the extent (a) directly related to the Consultant’s or Principal’s performance of the Services, and (b) incurred in accordance with the Company’s expense reimbursement policies. Expenses in excess of $500 require advance written approval prior to the expense being incurred.

3.3Withholding, etc. Amounts payable under this Agreement shall be without deduction or withholding of any kind other than any tax or other deduction or withholding determined by the Company to be required by Law. Consultant and Principal shall be responsible for, and shall indemnify the Company against, any taxes or contributions, including penalties and interest, owed by Consultant or Principal.

3.4Taxes. The Company makes no representations or warranties and shall have no responsibility regarding the tax implications of the compensation and benefits to be paid to the Consultant under this Agreement.

Section 4Certain Agreements

4.1Confidentiality. Principal and the Company entered into a Non-Disclosure Agreement dated June 4, 2019 (the “Non-Disclosure Agreement”). The Parties agree that the terms of the Non-Disclosure Agreement will apply to all activities performed by Consultant and Principal under this Agreement, including the receipt of any confidential, proprietary or trade secret information of the Company to which Consultant or Principal has access. The Parties hereby agree to amend the definition of “Disclosure

Period” set forth in Section 11 of the Non-Disclosure Agreement so that the Disclosure Period runs concurrently with the “Term” (as defined in Section 5.1 of this Agreement).

Additionally, Principal agrees that she will not, and that Company specifically directs her not to, disclose to Company or use for Company’s benefit any trade secret or confidential information she may possess belonging to any of Principal’s former employers or other third party.

4.2Regulatory Compliance. The Consultant and Principal acknowledge that the Company and/or its Affiliates are subject to gaming, lottery or similar licensing requirements of various jurisdictions. The Consultant and Principal shall cooperate fully with the Company and its Affiliates in providing to them any information of whatever nature that any of them deems necessary or appropriate in assuring itself that the Consultant and Principal possess the good character, honesty, integrity, and reputation applicable to those engaged in the gaming and lottery industries and represent that any such information shall be complete and accurate. If, during the Term, the Company (or any of its Affiliates) is notified (formally or informally) by any Governmental Authority that the engagement of, or conducting business with, the Consultant or Principal may or will jeopardize any license or ability to be licensed of the Company (or any of its Affiliates) or if the Company (or any of its Affiliates) concludes that the Consultant or Principal may fail to meet the above criteria (or the compliance committee of the Company or any of its Affiliates otherwise raises an objection with respect to the Consultant or Principal), the Company may immediately terminate this Agreement upon written notice to the Consultant.

Furthermore, the Consultant and Principal represent, warrant and covenant to the Company that they (1) will maintain complete and accurate books and records, (2) will comply with all applicable laws, rules and regulations, including, but not limited to, those relating to anti-corruption, anti-money laundering, competition, licensing and registration, (3) have not offered or paid, and will not offer or pay, directly or indirectly, (a) anything of value to any public official or candidate for political office, or any relative or agent thereof, for purposes of obtaining any official action or benefit relating in any way to this Agreement, or (b) any commission or finder’s or referral fee to any person or entity in connection with this Agreement or any activities on behalf of the Company, and (4) acknowledge receipt of a copy of the Company’s Code of Business Conduct and that they will abide by such Code of Business Conduct.

Section 5Termination

5.1Term of Agreement; Early Termination after Expiration of Initial Term. The term of this Agreement shall commence on the Commencement Date and shall continue until December 31, 2019, unless earlier terminated by the Company in accordance with Section 5.2 (the “Term”). At the end of the Term, the Term shall automatically extend without further action by either party by six (6) additional months (added to the end of the Term), and then on each succeeding six (6) month anniversary thereafter; provided however, after December 31, 2019, either Party may elect to terminate the Agreement for any reason by providing sixty (60) days written notice to the other Party.

5.2Early Termination for Cause. Additionally, the Company may terminate this Agreement (a) effective upon written notice to the Consultant, in the event the Consultant or Principal breaches this Agreement and such breach is incapable of cure or, with respect to a breach capable of cure, the Consultant or Principal fails to cure such breach to the Company's reasonable satisfaction within ten (10) days after receipt of written notice of such breach, or (b) effective upon written notice to the Consultant as contemplated by Section 4.2 or in the event the Consultant or Principal provided any false or misleading information in connection with any background or security checks.

5.3Effect of Termination. Notwithstanding the foregoing, (a) Sections 1, 2.2, 4, 5 and 6 and any other Sections of this Agreement that expressly or by implication are intended to continue in effect after the expiration or earlier termination of this Agreement, shall continue in effect after the expiration or earlier termination of this Agreement in accordance with their terms, and (b) any termination of this Agreement shall not affect any accrued rights or liabilities of either Party.

5.4Payments Upon Early Termination. In the event that the Company terminates this Agreement, all future payments of consulting fees due hereunder shall cease as of the date of such termination.

Section 6Miscellaneous

6.1Notice. All notices, approvals and other communications required or contemplated under this Agreement shall be in writing and shall be deemed to have been duly given (a) when received if delivered personally, (b) when sent by cable, telecopy, telegram or facsimile (which is confirmed by the intended recipient), and (c) when sent by overnight courier service or when mailed by certified or registered mail, return receipt requested, with postage prepaid, to the Parties at the following addresses:

In the case of Consultant: to the address set forth in the preamble of this Agreement, Attn: Principal

In the case of the Company: Scientific Games Corporation

6601 Bermuda Road

Las Vegas, NV 89119

Attention: Chief Legal Officer

or such other persons or addresses as either Party may from time to time designate by notice to the other.

6.2Assignment; Binding Effect. No Party shall assign or transfer or purport to assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the other Party; provided, however, that the Company shall be permitted to (a) assign or transfer any of its rights or obligations hereunder to any Affiliate of the Company and (b) pledge its rights or interest under this Agreement. This Agreement shall inure to the benefit of the Parties and their respective permitted successors and assigns and is binding upon the Parties and their respective successors and assigns.

6.3Amendment; Waiver. This Agreement may be amended, changed or supplemented only by a written agreement executed and delivered by the Parties. Any waiver of, or consent to depart from, the requirements of any provision of this Agreement shall be effective only if it is in writing and signed by the Party giving it, and only in the specific instance and for the specific purpose for which it has been given.

6.4Entire Agreement. This Agreement (including the Annexes) constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, negotiations, discussions and understandings, written or oral, between the Parties with respect to such subject matter.

6.5Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. The Parties shall negotiate in good faith to amend this Agreement to give effect to the purpose and intent of the provision found to be invalid, illegal or unenforceable.

6.6Governing Law; Dispute Resolution. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada applicable to agreements made and to be wholly performed within that State, without regard to its conflict of laws provisions. The parties agree that any controversy or claim not resolved by the Parties arising out of or relating to this Agreement shall be settled by arbitration in accordance with the Rules of the American Arbitration Association. Venue for the conduct of the arbitration shall be Las Vegas, Nevada, except that, at the direction of the arbitral tribunal or with the consent of the Parties, particular hearings in aid of such arbitration may be held in other places. Judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction there. The Parties agree that the factual findings of the arbitral tribunal shall be final absent manifest or material error and rulings on questions of Law or mixed questions of fact and Law shall be reviewed under the “clearly erroneous” standard of review and not under a “manifest disregard of the law” or other standard, notwithstanding any Law concerning such standard to the contrary. Except for injunctive or other equitable relief necessary to enforce the Agreement, the remedies expressly provided herein shall constitute the parties’ sole and exclusive remedies, and all other remedies which might be otherwise available under the Law of any jurisdiction are hereby waived by both parties.

6.7Costs. Except as otherwise provided in this Agreement, each Party is responsible for its own costs and expenses incurred in connection with performing and observing its obligations and covenants under this Agreement.

6.8Counterparts. This Agreement may be executed in any number of counterparts which, taken together, constitute one and the same agreement.

6.9No Third Party Beneficiaries. Except as expressly contemplated by this Agreement, nothing in this Agreement shall confer any rights upon any Person other than the Parties and their respective successors and permitted assigns.

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IN WITNESS WHEREOF, the Company and the Consultant have each caused this Agreement to be duly executed pursuant to due authorization, all as of the day and year first above written.

SCIENTIFIC GAMES CORPORATION

By: /s/ Michael Quartieri

Name: Michael Quartieri

Title: EVP & CFO, Treasurer & Corporate Secretary

Toni Korsanos Pty Ltd as trustee for Toni Korsanos Trust

By: /s/ Antonia Korsanos

Name: Antonia Korsanos

Title: Director

I acknowledge the terms and conditions of this Consulting Agreement and that I am bound by them in my individual capacity as the principal of the Consultant:

PRINCIPAL:

/s/ Antonia Korsanos

ANTONIA KORSANOS

Annex A

Services

In consideration for payment of the Initial Project Fee, the Consultant will provide the following Services:

•Consult and advise on the Company’s Supply Chain project (the “Initial Project”)

In addition to the Initial Project, the Consultant may provide consulting services on additional projects at the request of the Company’s Chief Executive Officer. The Parties will agree in writing on the fee to be paid to the Consultant by the Company for any additional projects for which Consultant provides consulting services after the Initial Project.

Exhibit 10.8

AMENDED AND RESTATED CONSULTING AGREEMENT

This Amended and Restated Consulting Agreement (this “Agreement”) is entered into as of August 20, 2019 (the “Commencement Date”) by and between SCIENTIFIC GAMES CORPORATION, with offices located at 6601 Bermuda Road, Las Vegas, NV 89119 (the “Company”), and Toni Korsanos Pty Ltd as trustee for Toni Korsanos Trust, 1 Duff Street, Burwood NSW 2134, Australia (the “Consultant” and, together with the Company, the “Parties”).

RECITALS

WHEREAS, the Company and Consultant entered into a Consulting Agreement dated July 3, 2019 (the “Prior Agreement”) for the purpose of the Company engaging the Consultant as an independent contractor in a manner consistent with the Company’s commitment to ethics and in compliance with all applicable Laws (as defined below);

WHEREAS, the Company and Consultant wish to expand Consultant’s consulting arrangement by entering into this Agreement, which will supersede and replace the Prior Agreement;

WHEREAS, the Prior Agreement is terminated effective as of the Commencement Date; and

NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and intending to be legally bound, the Parties hereto agree as follows:

Section 1Interpretation

1.1Certain Terms. As used herein, the following terms have the following meanings:

“Principal” means Antonia Korsanos, who is the sole shareholder and director of the Consultant.

1.2Incorporation. The Annexes to this Agreement are incorporated by reference into, and form an integral part of, this Agreement.

Section 2Engagement

Section 3Compensation

3.1 Fees. As consideration for the provision of Services and the rights granted to the Company under this Agreement, the Company shall pay the Consultant $29,167.00 every month for the Services provided hereunder, subject to and in accordance with the terms of this Agreement.

Additionally, the Company will make an equity award to Principal (the “Sign-On Equity Award”) as described in the Equity Award Notice and Terms and Conditions of Equity Awards to Consultants form (“Sign-On Equity Award Agreement”) attached as Annex B. The grant of the Sign-On Equity Award will be made within ten (10) days after the Commencement Date if the Company is not in a blackout period on the Commencement Date. If the Company is in a blackout period on the Commencement Date, the Sign-On Equity Award will be made within three (3) trading days after the Company’s next trading window opens.

Additionally, the Consultant acknowledges receipt of payment from the Company in the amount of $25,000.00 in connection with the Prior Agreement.

3.3Withholding, etc. Amounts payable under this Agreement shall be without deduction or withholding of any kind other than any tax or other deduction or withholding determined by the Company

to be required by Law. Consultant and Principal shall be responsible for, and shall indemnify the Company against, any taxes or contributions, including penalties and interest, owed by Consultant or Principal.

Section 4Certain Agreements

4.2Restrictive Covenants. The Consultant and Principal acknowledge that they are bound by the restrictive covenants set forth in Sections 14-19 of the Sign-On Equity Award Agreement and that compliance with those restrictive covenants is a material term of this Agreement. Notwithstanding the foregoing, the Company acknowledges that (a) Principal's status as a shareholder in Aristocrat Technologies, Inc. does not violate such restrictive covenants as long as Principal does not increase her ownership interest in Aristocrat Technologies, Inc. without prior written approval from the Company's Chief Executive Officer, (b) Principal or Consultant's involvement with Ellerston JAADE Private Assets Growth Fund does not violate such restrictive covenants as long as Principal and Consultant do not personally invest in any "Competing Business" (as defined in Section 14(a) of the Sign-On Equity Award Agreement) without prior written approval by the Company's Chief Executive Officer, and (c) Principal’s status as a non-executive director of Crown Resorts Limited and Crown Melbourne Pty Limited, her engagement with related entities of Crown Resorts Limited (in her capacity as a non-executive director), and her status as a shareholder in Crown Resorts Limited, does not violate such restrictive covenants as long as Principal, except for any shares she receives directly in connection with her director position, does not increase her ownership interest in Crown Resorts Limited without prior written approval from the Company's Chief Executive Officer.

4.3Regulatory Compliance. The Consultant and Principal acknowledge that the Company and/or its Affiliates are subject to gaming, lottery or similar licensing requirements of various jurisdictions. The Consultant and Principal shall cooperate fully with the Company and its Affiliates in providing to them any information of whatever nature that any of them deems necessary or appropriate in assuring itself that the Consultant and Principal possess the good character, honesty, integrity, and reputation applicable to those engaged in the gaming and lottery industries and represent that any such information shall be complete and accurate. If, during the Term, the Company (or any of its Affiliates) is notified (formally or informally) by any Governmental Authority that the engagement of, or conducting business with, the Consultant or Principal may or will jeopardize any license or ability to be licensed of the Company (or any of its Affiliates) or if the Company (or any of its Affiliates) concludes that the Consultant or Principal

may fail to meet the above criteria (or the compliance committee of the Company or any of its Affiliates otherwise raises an objection with respect to the Consultant or Principal), the Company may immediately terminate this Agreement upon written notice to the Consultant.

Section 5Termination

5.1Term of Agreement; Early Termination after Expiration of Initial Term. The term of this Agreement shall commence on the Commencement Date and shall continue for two (2) years, unless earlier terminated by the Company in accordance with Section 5.2 (the “Term”). At the end of the Term, the Term shall automatically extend without further action by either party by six (6) additional months (added to the end of the Term), and then on each succeeding six (6) month anniversary thereafter; provided however, after the one year anniversary of the Commencement Date, either Party may elect to terminate the Agreement for any reason by providing ninety (90) days written notice to the other Party.

5.2Early Termination for Cause. Additionally, the Company may terminate this Agreement (a) effective upon written notice to the Consultant, in the event the Consultant or Principal breaches this Agreement and such breach is incapable of cure or, with respect to a breach capable of cure, the Consultant or Principal fails to cure such breach to the Company's reasonable satisfaction within ten (10) days after receipt of written notice of such breach, or (b) effective upon written notice to the Consultant as contemplated by Section 4.3 or in the event the Consultant or Principal provided any false or misleading information in connection with any background or security checks.

5.4Payments Upon Early Termination. In the event that the Company terminates this Agreement, all future payments of consulting fees due hereunder shall cease as of the date of such termination.

5.5Effect of Termination on Sign-On Equity Award. The terms of the Sign-On Equity Award Agreement will govern the treatment of the Sign-On Equity Award in the event of the termination of this Agreement.

Section 6Miscellaneous

6.1Notice. All notices, approvals and other communications required or contemplated under this Agreement shall be in writing and shall be deemed to have been duly given (a) when received if delivered

personally, (b) when sent by cable, telecopy, telegram or facsimile (which is confirmed by the intended recipient), and (c) when sent by overnight courier service or when mailed by certified or registered mail, return receipt requested, with postage prepaid, to the Parties at the following addresses:

In the case of Consultant: to the address set forth in the preamble of this Agreement, Attn: Principal

In the case of the Company: Scientific Games Corporation

6601 Bermuda Road

Las Vegas, NV 89119

Attention: Chief Legal Officer

or such other persons or addresses as either Party may from time to time designate by notice to the other.

injunctive or other equitable relief necessary to enforce the Agreement, the remedies expressly provided herein shall constitute the parties’ sole and exclusive remedies, and all other remedies which might be otherwise available under the Law of any jurisdiction are hereby waived by both parties.

6.8Counterparts. This Agreement may be executed in any number of counterparts which, taken together, constitute one and the same agreement.

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IN WITNESS WHEREOF, the Company and the Consultant have each caused this Agreement to be duly executed pursuant to due authorization, all as of the day and year first above written.

SCIENTIFIC GAMES CORPORATION

By: /s/ Michael Quartieri

Name: Michael Quartieri

Title: EVP & CFO

Toni Korsanos Pty Ltd as trustee for Toni Korsanos Trust

By: /s/ Antonia Korsanos

Name: Antonia Korsanos

Title: Director

I acknowledge the terms and conditions of this Amended and Restated Consulting Agreement and that I am bound by them in my individual capacity as the principal of the Consultant:

PRINCIPAL:

/s/ Antonia Korsanos

ANTONIA KORSANOS

Annex A

Services

The Principal will serve as Advisor to the CEO and in that role she will provide Services to the Company during the Term, as requested by the Company’s CEO. Such Services will include, but not be limited to, consulting and advising on the Company’s Supply Chain project and other projects and strategic initiatives as requested by the CEO.

Annex B

Sign-On Equity Award Agreement

See attached.

Exhibit 10.9

Amendment to Consulting Agreement

This Amendment to Consulting Agreement (this “Amendment”) is made on March 26, 2020 by and between Scientific Games Corporation, a Nevada corporation, (the “Company”) and Toni Korsanos Pty Ltd. as Trustee for Toni Korsanos Trust (“Consultant”).

WHEREAS, the Company and Consultant entered into an Amended and Restated Consulting Agreement dated as of August 22, 2019 (the “Agreement”);

1.Decrease in Monthly Fees. The Agreement is hereby amended by adding the following sentence to the end of the first paragraph of Section 3.1:

“Effective as of April 5, 2020, and until and through June 30, 2020, Consultant will be paid fourteen thousand, five hundred and eighty-three U.S. dollars ($14,583) each month for the Services provided to the Company pursuant to this Agreement.”

IN WITNESS WHEREOF, each of the parties hereto has duly executed this Amendment as of March 26, 2020.

SCIENTIFIC GAMES CORPORATION

By: /s/ Michael Quartieri

Name: Michael Quartieri

Title: EVP, Chief Financial Officer

TONI KORSANOS PTY LTD. AS TRUSTEE FOR TONI KORSANOS TRUST

By: /s/ Antonia Korsanos

Name: Antonia Korsanos

Title: Director

I acknowledge the terms and conditions of this Amendment to Consulting Agreement and that I am bound by them in my individual capacity as the principal of the Consultant:

PRINCIPAL:

/s/ Antonia Korsanos

Antonia Korsanos

Exhibit 10.10

Second Amendment to Consulting Agreement

This Second Amendment to Consulting Agreement (this “Amendment”) is made on June 30, 2020 by and between Scientific Games Corporation, a Nevada corporation, (the “Company”) and Toni Korsanos Pty Ltd. as Trustee for Toni Korsanos Trust (“Consultant”).

WHEREAS, the Company and Consultant entered into an Amended and Restated Consulting Agreement dated as of August 22, 2019, which was then amended as of March 26, 2020 (as amended, the “Agreement”); and

WHEREAS, the amendment to the Consulting Agreement dated as of March 26, 2020 provided that effective as of April 1, 2020, and until and through June 30, 2020, Consultant would be paid fourteen thousand, five hundred and eighty-three U.S. dollars ($14,583) each month for the Services provided hereunder for that period of time.

1.Decrease in Monthly Fees. The Agreement is hereby amended by adding the following sentence to the end of the first paragraph of Section 3.1:

“Effective as of July 1, 2020, and until and through July 31, 2020, Consultant will be paid fourteen thousand, five hundred and eighty-three U.S. dollars ($14,583) each month for the Services provided hereunder for that period of time.”

IN WITNESS WHEREOF, each of the parties hereto has duly executed this Amendment as of June 30, 2020.

SCIENTIFIC GAMES CORPORATION

By: /s/ James Sottile

Name: James Sottile

Title: Executive Vice President and Chief Legal Officer

TONY KORSANOS PTY LTD. AS TRUSTEE FOR TONI KORSANOS TRUST

By: /s/ Antonia Korsanos

Name: Antonia Korsanos

Title: Director

I acknowledge the terms and conditions of this Amendment to Consulting Agreement and that I am bound by them in my individual capacity as the principal of the Consultant:

PRINCIPAL:

/s/ Antonia Korsanos

Antonia Korsanos

Exhibit 10.11

AMENDED AND RESTATED CONSULTING AGREEMENT

This Amended and Restated Consulting Agreement (this “Agreement”) is entered into as of October 1, 2020 (the “Commencement Date”) by and between SCIENTIFIC GAMES CORPORATION, with offices located at 6601 Bermuda Road, Las Vegas, NV 89119 (the “Company”), and Toni Korsanos Pty Ltd as trustee for Toni Korsanos Trust, 1 Duff Street, Burwood NSW 2134, Australia (the “Consultant” and, together with the Company, the “Parties”).

RECITALS

WHEREAS, Consultant is party to that Amended and Restated Consulting Agreement dated August 20, 2019 with the Company (as amended through the date hereof, the “Prior Agreement”) under which Consultant provides consulting services to the Company;

WHEREAS, Pivot Buyer LLC, an affiliate of Caledonia (Private) Investments Pty (“Caledonia”), entered into a Stock Purchase Agreement on September 11, 2020, pursuant to which Caledonia agreed to purchase shares of the Company’s common stock held by MacAndrews and Forbes Incorporated and its affiliates in four separate tranches (the “Caledonia Purchase”);

WHEREAS, following the Caledonia Purchase, the level of consulting services that Consultant provides to the Company is expected to increase substantially;

WHEREAS, in order to properly reflect, and compensate Consultant for, such increased level of services, following, and apart from, the Caledonia Purchase, the Company and Consultant have engaged in discussions regarding an appropriate arrangement to supersede and replace the Prior Agreement;

WHEREAS, the Company and Consultant, in the case of the Company, following review and analysis by the independent compensation consultant to the Compensation Committee of the Board (as defined below), agree that this Agreement appropriately reflects, and compensates Consultant for, such increased level of services;

WHEREAS, the Company and Consultant wish to enter into this Agreement, which will supersede and replace the Prior Agreement;

WHEREAS, the Prior Agreement is terminated effective as of the Commencement Date; and

NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and intending to be legally bound, the Parties hereto agree as follows:

Section 1Interpretation

1.1Certain Terms. As used herein, the following terms have the following meanings:

“Board” means the Board of Directors of the Company.

“Principal” means Antonia Korsanos, who is the sole shareholder and director of the Consultant.

1.2Incorporation. The Annex to this Agreement is incorporated by reference into, and form an integral part of, this Agreement.

Section 2Engagement

2.3Relationship to Role as Director. For the avoidance of doubt, Consultant’s engagement hereunder to provide the Services shall be separate and distinct from Principal’s role and duties as Executive Vice Chair and as a member of the Board generally (the “Director Role”). Principal’s “Executive Vice Chair” title is intended to indicate that the Services under this Agreement are substantially broader than her Director Role.

Section 3Compensation

3.1 Fees. As consideration for the provision of Services and the rights granted to the Company under this Agreement, effective as of the Commencement Date, the Company shall pay the Consultant $50,000.00 every month (i.e., $600,000.00 per annum) for the Services provided hereunder, subject to and in accordance with the terms of this Agreement.

Additionally, Consultant acknowledges that, as additional compensation for the Services, Principal has received (a) the Sign-on Equity Award (as defined in the Prior Agreement) in accordance with the Prior Agreement and (b) an equity award consisting of 662,933 stock options granted on September 28, 2020 (the “Option Grant”).

Section 4Certain Agreements

Consultant or Principal may share information that is covered by the Non-Disclosure Agreement with James Chin subject to Mr. Chin having first executed and returned the Company’s standard non-disclosure agreement.

4.2Restrictive Covenants. The Consultant and Principal acknowledge that they are bound by the restrictive covenants set forth in any award agreement relating to the Sign-On Equity Award or the Option Grant (together, the “Award Agreements” and that compliance with those restrictive covenants is a

material term of this Agreement. Notwithstanding the foregoing, the Company acknowledges that (a) Principal's status as a shareholder in Aristocrat Technologies, Inc. does not violate such restrictive covenants as long as Principal does not increase her ownership interest in Aristocrat Technologies, Inc. without prior written approval from the Company's President and Chief Executive Officer, (b) Principal or Consultant's involvement with Ellerston JAADE Private Assets Growth Fund does not violate such restrictive covenants as long as Principal and Consultant do not personally invest in any "Competing Business" (as defined in the applicable Award Agreement) without prior written approval by the Company's President and Chief Executive Officer, and (c) Principal’s status as a non-executive director of Crown Resorts Limited and Crown Melbourne Pty Limited, her engagement with related entities of Crown Resorts Limited (in her capacity as a non-executive director), and her status as a shareholder in Crown Resorts Limited, does not violate such restrictive covenants as long as Principal, except for any shares she receives directly in connection with her director position, does not increase her ownership interest in Crown Resorts Limited without prior written approval from the Company's President and Chief Executive Officer.

Section 5Termination

5.1Term of Agreement; Early Termination after Expiration of Initial Term. The term of this Agreement shall commence on the Commencement Date and shall continue until the third anniversary of the Commencement Date, unless earlier terminated by the Company in accordance with Section 5.2 (the “Term”). At the end of the Term, the Term shall automatically extend without further action by either party by one (1) additional year (added to the end of the Term), and then on each succeeding annual anniversary thereafter; provided however, after the one year anniversary of the Commencement Date, either Party may elect to terminate the Agreement for any reason by providing ninety (90) days written notice to the other Party.

5.2Early Termination for Cause. Additionally, the Company may terminate this Agreement (a) effective upon written notice to the Consultant, in the event the Consultant or Principal breaches this Agreement and such breach is incapable of cure or, with respect to a breach capable of cure, the Consultant or Principal fails to cure such breach to the Company's reasonable satisfaction within ten (10) days after receipt of written notice of such breach, or (b) effective upon written notice to the Consultant as contemplated by Section 4.3 or in the event the Consultant or Principal provided any false or misleading information in connection with any background or security checks.

5.4Payments Upon Early Termination. In the event that the Company terminates this Agreement, all future payments of consulting fees due hereunder shall cease as of the date of such termination.

5.5Effect of Termination on Sign-On Equity Award and Option Grant. The terms of the Award Agreements will govern the treatment of the Sign-On Equity Award and the Option Grant, as applicable, in the event of the termination of this Agreement.

Section 6Miscellaneous

In the case of Consultant: to the address set forth in the preamble of this Agreement, Attn: Principal

In the case of the Company: Scientific Games Corporation

6601 Bermuda Road

Las Vegas, NV 89119

Attention: Chief Legal Officer

or such other persons or addresses as either Party may from time to time designate by notice to the other.

6.3Amendment; Waiver. This Agreement may be amended, changed or supplemented only by a written agreement executed and delivered by the Parties. Any waiver of, or consent to depart from, the

requirements of any provision of this Agreement shall be effective only if it is in writing and signed by the Party giving it, and only in the specific instance and for the specific purpose for which it has been given.

6.4Entire Agreement. This Agreement (including the Annex), the Non-Disclosure Agreement and the Award Agreements constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, negotiations, discussions and understandings, written or oral, between the Parties with respect to such subject matter, including the Prior Agreement (except as it relates to the Sign-On Equity Award); provided that, for the avoidance of doubt, the Parties acknowledge and agree that entry into this Agreement shall not result in a termination of the Prior Agreement for purposes of the Sign-On Equity Award, which shall remain outstanding in accordance with its terms with this Agreement substituted for the “Consulting Agreement” thereunder.

6.8Counterparts. This Agreement may be executed in any number of counterparts which, taken together, constitute one and the same agreement.

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IN WITNESS WHEREOF, the Company and the Consultant have each caused this Agreement to be duly executed pursuant to due authorization, all as of the day and year first above written.

SCIENTIFIC GAMES CORPORATION

By: /s/ James Sottile

Name: James Sottile

Title: Executive Vice President and Chief Legal Officer

Toni Korsanos Pty Ltd as trustee for Toni Korsanos Trust

By: /s/ Antonia Korsanos

Name: Antonia Korsanos

Title: Director

I acknowledge the terms and conditions of this Amended and Restated Consulting Agreement and that I am bound by them in my individual capacity as the principal of the Consultant:

PRINCIPAL:

/s/ Antonia Korsanos

Antonia Korsanos

Annex A

Services

The Principal will serve as Advisor to the Company’s President and Chief Executive Officer and in that role she will provide Services to the Company during the Term, as set forth below and as requested by the Company’s President and Chief Executive Officer.

These Services will include, and for the avoidance of doubt, will be in addition to the Director Role:

•Principal will consult regularly with and provide advice and guidance to the Company’s President and Chief Executive Officer and senior leadership team, including the Company’s Chief Financial Officer and the Chief Financial Officers of the Company’s business units.

•Principal will provide advice and guidance related to:

◦The Company’s corporate strategy, business strategy and key cultural initiatives

◦Strategic projects and other strategic initiatives

◦Mergers, acquisitions, divestitures and other similar transactions

◦Mentoring senior members of the Company’s leadership team

◦Supporting recruitment activities for senior roles

◦Activities related to managing and optimizing the Company’s and its Affiliates’ capital structure, including debt and equity financing transactions, acquisition financing, refinancings, extensions and amendments.

The Parties acknowledge and agree that it is their expectation that the level of the Services will increase substantially following the Calendonia Purchase, commensurate with the increased compensation provided for under this Agreement.

Exhibit 10.12

CONSULTING AGREEMENT

This Consulting Agreement (this “Agreement”) is entered into as of 16 May, 2019 (the “Commencement Date”) by and between SCIENTIFIC GAMES CORPORATION, with offices located at 6601 Bermuda Road, Las Vegas, NV 89119 (the “Company”), and Jamie Odell Pty Ltd., 17 Holmwood Avenue, Brighton, Victoria, Australia 3186 (the “Consultant” and, together with the Company, the “Parties”).

RECITALS

NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and intending to be legally bound, the Parties hereto agree as follows:

Section 1Interpretation

1.1Certain Terms. As used herein, the following terms have the following meanings:

“Confidential Information” means all non-public information concerning the Company or any of its Affiliates or their respective equity investments (whether prepared by the Company or otherwise, whether oral or written, in whatever form or data storage medium and whether or not specifically identified as “confidential”), including financial and accounting information, product-related information, plans and strategies, computer programs, code and software, technical drawings and schematics, technical expertise, know-how, processes, ideas, inventions (whether patentable or not), agreements and reports (together with all analyses, compilations, forecasts, studies, summaries, notes, data and other documents and materials, in whatever form maintained and whether prepared by the Company, the Consultant or other Persons, which contain or reflect, or are based on or generated from, in whole or in part, any such information).

company, limited partnership, joint stock company, unincorporated association or other entity. For the avoidance of doubt, the term includes a Government Authority.

“Principal” means Jamie Odell, who is the sole shareholder and director of the Consultant.

1.2Incorporation. The Annexes to this Agreement are incorporated by reference into, and form an integral part of, this Agreement.

Section 2Engagement

2.2Relationship of Parties. The Consultant is an independent contractor of the Company, and this Agreement shall not be construed to create any association, partnership, joint venture, employee or agency relationship between the Consultant and the Company (or any of its Affiliates) for any purpose. Except to the extent specifically authorized in advance by the Company in writing, the Consultant and Principal (a) shall have no authority (and shall not hold itself or himself out as having authority) to bind or act on behalf or in the name of the Company or any of its Affiliates, (b) shall not make any agreements or representations on behalf of the Company or any of its Affiliates and (c) without limiting the generality of the foregoing, shall not represent the Company or any of its Affiliates as a lobbyist or agent to any Governmental Authority.

Section 3Compensation

3.1 Fees. As consideration for the provision of Services and the rights granted to the Company under this Agreement, the Company shall pay the Consultant $50,000.00 every month for the Services provided hereunder, subject to and in accordance with the terms of this Agreement.

3.2Expense Reimbursement. The Company agrees to reimburse the Consultant for reasonable and appropriately documented out-of-pocket expenses actually incurred and paid by the Consultant or Principal but only to the extent (a) directly related to the Consultant’s or Principal’s performance of the Services, and (b) incurred in accordance with the Company’s expense reimbursement policies. Expenses in excess of $5,000 require advance written approval prior to the expense being incurred.

Section 4Certain Agreements

4.1Restrictive Covenants. The Consultant and Principal acknowledge that they are bound by the restrictive covenants set forth in Sections 14-19 of the Sign-On Equity Award Agreement and that compliance with those restrictive covenants is a material term of this Agreement. Notwithstanding the foregoing, the Company acknowledges that (a) Consultant’s status as a shareholder in Aristocrat Technologies, Inc. does not violate such restrictive covenants as long as Consultant does not increase his ownership interest in Aristocrat Technologies, Inc. without prior written approval from the Company’s Chief Executive Officer, and (b) Consultant’s involvement with Ellerston JAADE Private Assets Growth Fund does not violate such restrictive covenants as long as Consultant does not personally invest in any “Competing Business” (as defined in Section 14(a) of the Sign-On Equity Award Agreement) without prior written approval by the Company’s Chief Executive Officer.

4.2Confidentiality. The Consultant and Principal shall (and, if applicable, shall cause their employees to) (a) hold the Confidential Information in confidence and protect it in accordance with the same degree of care with which they protect their own confidential information of like importance which they do not wish to disclose, but in no event less than reasonable care, (b) use the Confidential Information solely to the extent necessary in the performance of the Services and not for any other purpose, (c) not disclose any Confidential Information to any Person (other than the Company and its Affiliates), (d) upon the request of the Company, promptly return all Confidential Information to the Company (or, at the election of the Company, destroy such Confidential Information) without retaining any copies thereof (and provide certification of its and his compliance with this clause (d)) and (e) not reverse engineer, decompile, test or analyze the Confidential Information without the prior written consent of the Company. In the event that the Consultant or Principal is requested or required by law, judicial or governmental order, deposition, interrogatory, request for documents, subpoena, civil investigative demand or other legal process to disclose any of the Confidential Information, the Consultant or Principal must first provide the Company with prompt written notice of such requirement so that the Company (or any of its Affiliates) may seek an appropriate protective order, unless, as confirmed by the opinion of the Consultant’s or Principal’s counsel, providing such notice would itself constitute a violation of law. If the Consultant or Principal is nevertheless legally required (as confirmed by the opinion of the Consultant’s or Principal’s counsel) to disclose Confidential Information, then the Consultant or Principal shall only disclose that portion of the Confidential Information that is legally required to be disclosed (as confirmed by the opinion of the Consultant’s or Principal’s counsel). In such an event, the Consultant or Principal shall take reasonable efforts to obtain assurance that confidential treatment will be accorded to that portion of the Confidential Information being disclosed. In no event shall the Consultant or Principal oppose action by the Company (or any of its Affiliates) to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information.

Additionally, Principal agrees that he will not, and that Company specifically directs him not to, disclose to Company or use for Company’s benefit any trade secret or confidential information he may possess belonging to any of Principal’s former employers or other third party.

Consultant or Principal may share Confidential Information with Antonia Korsanos subject to the following requirements being met: (i) she execute and return the Company’s standard non-disclosure agreement; and (ii) written pre-approval by the Company’s Chief Executive Officer for each topic in connection with which a disclosure of Confidential Information will be made.

Section 5Termination

5.1Term of Agreement. The term of this Agreement shall commence on the Commencement Date and shall continue until May 15, 2021, unless earlier terminated by the Company in accordance with Section 5.2 (the “Term”). At the end of the Term, the Term shall automatically extend without further action by either party by one (1) additional year (added to the end of the Term), and then on each succeeding annual anniversary thereafter; provided however, after the one year anniversary of the Commencement Date, either party may elect to terminate the Agreement for any reason by providing ninety (90) days written notice to the other party.

5.2Early Termination. Additionally, the Company may terminate this Agreement (a) effective upon written notice to the Consultant, in the event the Consultant or Principal breaches this Agreement and such breach is incapable of cure or, with respect to a breach capable of cure, the Consultant or Principal fails to cure such breach to the Company's reasonable satisfaction within ten (10) days after receipt of written notice of such breach, or (b) effective upon written notice to the Consultant or Principal as

contemplated by Section 4.3 or in the event the Consultant or Principal provided any false or misleading information in connection with any background or security checks.

5.4Payments Upon Early Termination. In the event that the Company terminates this Agreement, all future payments of consulting fees due hereunder shall cease as of the date of such termination.

Section 6Miscellaneous

In the case of Consultant: to the address set forth in the preamble of this Agreement, Attn: Principal

In the case of the Company: Scientific Games Corporation

6601 Bermuda Road

Las Vegas, NV 89119

Attention: Chief Legal Officer

or such other persons or addresses as either Party may from time to time designate by notice to the other.

6.4Entire Agreement. This Agreement (including the Annexes) constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements,

negotiations, discussions and understandings, written or oral, between the Parties with respect to such subject matter.

6.8Counterparts. This Agreement may be executed in any number of counterparts which, taken together, constitute one and the same agreement.

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IN WITNESS WHEREOF, the Company and the Consultant have each caused this Agreement to be duly executed pursuant to due authorization, all as of the day and year first above written.

SCIENTIFIC GAMES CORPORATION

By: /s/ Michael Quartieri

Name: Michael Quartieri

Title: EVP, CFO

Jamie Odell Pty Ltd.

By: /s/ Jamie Odell

Name: Jamie Odell

Title: Proprietor

I acknowledge the terms and conditions of this Consulting Agreement and that I am bound by them in my individual capacity as the principal of the Consultant:

PRINCIPAL:

/s/ Jamie Odell

Jamie Odell

Annex A

Services

The Principal will serve as Advisor to the CEO & Chairman and in that role he will provide Services to the Company during the Term, as requested by the Company’s Chief Executive Officer or Chairman.

These Services will include:

•If requested by the Company, Principal will attend (in person or via video/audio call) meetings of the Company’s Board of Directors in an advisory role.

•Principal will travel to the US twice a year (each visit for a week) for meetings and/or US tradeshows.

•Principal and senior management from the Company will meet in other locations throughout the year for meetings or tradeshows as agreed upon by the Parties.

•Principal will attend regular calls with the Company’s CEO and senior Gaming leadership team.

•Principal will provide additional guidance related to:

◦The Gaming division’s business strategy and key cultural initiatives

◦Game development strategy and direction

◦Mentoring senior members of the Company’s Gaming division

◦Supporting recruitment activities for senior roles

◦Other topics as agreed by the Parties

Annex B

Sign-On Equity Award Agreement

See attached.

Exhibit 10.13

Amendment to Consulting Agreement

This Amendment to Consulting Agreement (this “Amendment”) is made on March 26, 2020 by and between Scientific Games Corporation, a Nevada corporation, (the “Company”) and Jamie Odell Pty Ltd. (“Consultant”).

WHEREAS, the Company and Consultant entered into a Consulting Agreement dated as of May 16, 2019 (the “Agreement”);

1.Decrease in Monthly Fees. The Agreement is hereby amended by adding the following sentence to the end of the first paragraph of Section 3.1:

“Effective as of April 5, 2020, and until and through June 30, 2020, Consultant will be paid twenty-five thousand U.S. dollars ($25,000) each month for the Services provided to the Company pursuant to this Agreement.”

IN WITNESS WHEREOF, each of the parties hereto has duly executed this Amendment as of March 25, 2020.

SCIENTIFIC GAMES CORPORATION

By: /s/ Michael Quartieri

Name: Michael Quartieri

Title: EVP, Chief Financial Officer

JAMIE ODELL PTY LTD.

By: /s/ Jamie Odell

Name: Jamie Odell

Title: Proprietor

I acknowledge the terms and conditions of this Amendment to Consulting Agreement and that I am bound by them in my individual capacity as the principal of the Consultant:

PRINCIPAL:

/s/ Jamie Odell

Jamie Odell

Exhibit 10.14

Amendment to Consulting Agreement

This Amendment to Consulting Agreement (this “Amendment”) is made on June 30, 2020 by and between Scientific Games Corporation, a Nevada corporation, (the “Company”) and Jamie Odell Pty Ltd. (“Consultant”).

WHEREAS, the Company and Consultant entered into a Consulting Agreement dated as of May 16, 2019, which was amended as of March 26, 2020 (as amended, the “Consulting Agreement”); and

WHEREAS, the amendment to the Consulting Agreement dated as of March 26, 2020 provided that effective as of April 1, 2020, and until and through June 30, 2020, Consultant would be paid twenty-five thousand U.S. dollars ($25,000) each month for the Services provided hereunder for that period of time.

1.Decrease in Monthly Fees. The Agreement is hereby amended by adding the following sentence to the end of the first paragraph of Section 3.1:

“Effective as of July 1, 2020, and until and through July 31, 2020, Consultant will be paid twenty-five thousand U.S. dollars ($25,000) each month for the Services provided to the Company pursuant to this Agreement.”

2. Except as set forth in this Amendment, all terms and conditions of the Consulting Agreement shall remain unchanged and in full force and effect in accordance with their terms. All references to the “Agreement” in the Consulting Agreement shall refer to the Consulting Agreement as amended by this Amendment. Any defined terms used in this Amendment and not defined herein shall have the meaning as set forth in the Consulting Agreement.

IN WITNESS WHEREOF, each of the parties hereto has duly executed this Amendment as of June 30, 2020.

SCIENTIFIC GAMES CORPORATION

By: /s/ James Sottile

Name: James Sottile

Title: Executive Vice President and Chief Legal Officer

JAMIE ODELL PTY LTD.

By: /s/ Jamie Odell

Name: Jamie Odell

Title: Proprietor

I acknowledge the terms and conditions of this Amendment to Consulting Agreement and that I am bound by them in my individual capacity as the principal of the Consultant:

PRINCIPAL:

/s/ Jamie Odell

Jamie Odell

Exhibit 10.15

AMENDED AND RESTATED CONSULTING AGREEMENT

This Amended and Restated Consulting Agreement (this “Agreement”) is entered into as of October 1, 2020 (the “Commencement Date”) by and between SCIENTIFIC GAMES CORPORATION, with offices located at 6601 Bermuda Road, Las Vegas, NV 89119 (the “Company”), and Jamie Odell Pty Ltd., 17 Holmwood Avenue, Brighton, Victoria, Australia 3186 (the “Consultant” and, together with the Company, the “Parties”).

RECITALS

WHEREAS, Consultant is party to that Consulting Agreement dated May 16, 2019 with the Company (as amended through the date hereof, the “Prior Agreement”) under which Consultant provides consulting services to the Company;

WHEREAS, following the Caledonia Purchase, the level of consulting services that Consultant provides to the Company is expected to increase substantially;

WHEREAS, the Company and Consultant wish to enter into this Agreement, which will supersede and replace the Prior Agreement;

WHEREAS, the Prior Agreement is terminated effective as of the Commencement Date; and

NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and intending to be legally bound, the Parties hereto agree as follows:

Section 1Interpretation

1.1Certain Terms. As used herein, the following terms have the following meanings:

“Board” means the Board of Directors of the Company.

“Principal” means Jamie Odell, who is the sole shareholder and director of the Consultant.

1.2Incorporation. The Annex to this Agreement is incorporated by reference into, and forms an integral part of, this Agreement.

Section 2Engagement

Principal (a) shall have no authority (and shall not hold itself or himself out as having authority) to bind or act on behalf or in the name of the Company or any of its Affiliates, (b) shall not make any agreements or representations on behalf of the Company or any of its Affiliates and (c) without limiting the generality of the foregoing, shall not represent the Company or any of its Affiliates as a lobbyist or agent to any Governmental Authority.

2.3Relationship to Role as Chairman of the Board and Director. For the avoidance of doubt, Consultant’s engagement hereunder to provide the Services shall be separate and distinct from Principal’s role and duties as Chairman of the Board of Directors of the Company, as provided for under the Company’s Amended and Restated Bylaws, and as a member of the Board of Directors of the Company generally (together, the “Director Role”). Principal’s “Executive” Chair title is intended to indicate that the Services under this Agreement are substantially broader than his Director Role.

Section 3Compensation

3.1 Fees. As consideration for the provision of Services and the rights granted to the Company under this Agreement, effective as of the Commencement Date, the Company shall pay the Consultant $75,000.00 every month (i.e., $900,000 per annum) for the Services provided hereunder, subject to and in accordance with the terms of this Agreement.

Section 4Certain Agreements

4.1Restrictive Covenants. The Consultant and Principal acknowledge that they are bound by the restrictive covenants set forth in any award agreement relating to the Sign-On Equity Award or the Option Grant (together, the “Award Agreements”) and that compliance with those restrictive covenants is a material term of this Agreement. Notwithstanding the foregoing, the Company acknowledges that (a) Consultant’s status as a shareholder in Aristocrat Technologies, Inc. does not violate such restrictive covenants as long as Consultant does not increase his ownership interest in Aristocrat Technologies, Inc. without prior written approval from the Company’s President and Chief Executive Officer, and (b) Consultant’s involvement with Ellerston JAADE Private Assets Growth Fund does not violate such restrictive covenants as long as Consultant does not personally invest in any “Competing Business” (as

defined in the applicable Award Agreements) without prior written approval by the Company’s President and Chief Executive Officer.

Consultant or Principal may share Confidential Information with James Chin subject to Mr. Chin having first executed and returned the Company’s standard non-disclosure agreement.

Section 5Termination

5.1Term of Agreement. The term of this Agreement shall commence on the Commencement Date and shall continue until the third anniversary of the Commencement Date, unless earlier terminated by the Company in accordance with Section 5.2 (the “Term”). At the end of the Term, the Term shall automatically extend without further action by either party by one (1) additional year (added to the end of the Term), and then on each succeeding annual anniversary thereafter; provided however, after the one-year anniversary of the Commencement Date, either party may elect to terminate the Agreement for any reason by providing ninety (90) days written notice to the other party.

5.4Payments Upon Early Termination. In the event that the Company terminates this Agreement, all future payments of consulting fees due hereunder shall cease as of the date of such termination.

Section 6Miscellaneous

In the case of Consultant: to the address set forth in the preamble of this Agreement, Attn: Principal

In the case of the Company: Scientific Games Corporation

6601 Bermuda Road

Las Vegas, NV 89119

Attention: Chief Legal Officer

or such other persons or addresses as either Party may from time to time designate by notice to the other.

6.4Entire Agreement. This Agreement (including the Annex) and the Award Agreements constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, negotiations, discussions and understandings, written or oral, between the Parties with respect to such subject matter, including the Prior Agreement (except as it relates to the Sign-On Equity Award); provided that, for the avoidance of doubt, the Parties acknowledge and agree that entry into this Agreement shall not result in a termination of the Prior Agreement for purposes of the Sign-On Equity Award, which shall remain outstanding in accordance with its terms with this Agreement substituted for the “Consulting Agreement” thereunder.

6.8Counterparts. This Agreement may be executed in any number of counterparts which, taken together, constitute one and the same agreement.

IN WITNESS WHEREOF, the Company and the Consultant have each caused this Agreement to be duly executed pursuant to due authorization, all as of the day and year first above written.

SCIENTIFIC GAMES CORPORATION

By: /s/ James Sottile_________________________

Name: James Sottile

Title: Executive Vice President and Chief Legal Officer

Jamie Odell Pty Ltd.

By: /s/ Jamie Odell

Name: Jamie Odell

Title: Proprietor

I acknowledge the terms and conditions of this Amended and Restated Consulting Agreement and that I am bound by them in my individual capacity as the principal of the Consultant:

PRINCIPAL:

/s/ Jamie Odell

Jamie Odell

Annex A

Services

The Principal will serve as Advisor to the Company’s President and Chief Executive Officer and in that role he will provide Services to the Company during the Term, as set forth below and as requested by the Company’s President and Chief Executive Officer.

These Services will include, and for the avoidance of doubt, will be in addition to the Director Role:

•Principal will consult regularly with and provide advice and guidance to the Company’s President and Chief Executive Officer and senior leadership team.

•Principal will provide advice and guidance related to:

◦The Company’s corporate strategy, business strategy and key cultural initiatives

◦Strategic projects and other strategic initiatives

◦Mergers, acquisitions, divestitures and other similar transactions

◦Game development strategy and direction

◦Mentoring senior members of the Company’s leadership team

◦Supporting recruitment activities for senior roles

◦Other topics as agreed by the Parties

Exhibit 31.1

Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Barry L. Cottle, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Scientific Games Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2020


/s/ Barry L. Cottle
Barry L. Cottle
Chief Executive Officer

Exhibit 31.2

Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael C. Eklund, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Scientific Games Corporation;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2020


/s/ Michael C. Eklund
Michael C. Eklund
Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Scientific Games Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barry L. Cottle, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


			/s/ Barry L. Cottle
			Barry L. Cottle
			Chief Executive Officer
			November 4, 2020

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Scientific Games Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael C. Eklund, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


			/s/ Michael C. Eklund
			Michael C. Eklund
			Chief Financial Officer
			November 4, 2020