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Description of the Business and Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2021
Accounting Policies [Abstract] |
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 in our continuing operations primarily includes supplying game content and gaming machines, CMSs and table game products and services to licensed gaming entities; providing social casino and other mobile games to retail customers; and providing a comprehensive suite of digital RMG, distribution platforms, content, products and services to various gaming entities. Our portfolio of revenue-generating activities in the discontinued operations primarily includes providing instant and draw‑based lottery products, lottery systems and lottery content and services to lottery operators along with providing sports wagering solutions to various gaming entities. On September 27, 2021, we entered into a definitive agreement to sell our Sports Betting business to Endeavor in a cash and stock transaction. Under the terms of the agreement, we will receive $1 billion in cash, subject to customary purchase price closing adjustments, and approximately 7.6 million shares of Endeavor Class A common stock (valued at approximately $200 million as of the purchase agreement date), subject to customary purchase price closing adjustments. On October 27, 2021, we entered into a definitive agreement to sell our Lottery business to Brookfield for total consideration of $6.05 billion consisting of $5.825 billion in cash and an earn-out of up to $225 million based on the achievement of certain EBITDA targets in 2022 and 2023, subject to customary purchase price closing adjustments. The divestiture of the Lottery business is now expected to close by the end of March 2022 while the sale of the Sports Betting business is on track to be completed in the second quarter of 2022, both subject to applicable regulatory approvals and customary conditions. The intended sale of our Sports Betting and Lottery businesses is defined herein as the “Pending Divestitures.” We have reflected the financial results of these businesses as discontinued operations in our consolidated statements of operations and reflected the assets and liabilities of these businesses as held for sale in our consolidated balance sheets, for all periods presented. These businesses held for sale are included in our covenant compliance requirements until disposed of and all of their related cash flows are available to the Company without restriction. Refer to Note 2 for further information. We report our results of continuing operations in three business segments—Gaming, SciPlay and iGaming (former Digital business segment excluding Sports Betting)—representing our different products and services. Unless otherwise noted, amounts and disclosures included herein relate to our continuing operations. Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. The accompanying 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. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Impact of COVID-19 COVID-19 disruptions continue to impact our results of operations and particularly certain aspects of our Gaming business segment operations due to the closures of gaming operation establishments and restricted reopening of a substantial number of gaming operation establishments coupled with global economic uncertainty. While most gaming establishments reopened globally and have begun to operate at full capacity, there is a continued risk of future COVID-related developments impacting Gaming business segment results. We continue to see fluctuations in infection rates and regulations for various regions along with ongoing domestic and international travel restrictions or warnings, social distancing measures, reduced operating capacity and an overall economic and general uncertainty regarding the magnitude and length of time that these disruptions will continue. These circumstances may change in the future and such changes could be material. We continue to assess the situation jurisdiction by jurisdiction, actively managing our cash flows and continuing to evaluate additional measures that may reduce operating costs and conserve cash to preserve liquidity as we execute on our strategic initiatives. As of December 31, 2021, our total available liquidity (excluding our SciPlay business segment, but including cash and cash equivalents totaling $44 million of the businesses held for sale) was $903 million, which included $638 million of undrawn availability under SGI’s revolving credit facility. SciPlay Initial Public Offering and Noncontrolling Interest In May 2019, SciPlay completed an initial public offering for an 18.0% minority interest in our Social gaming business representing 22,720,000 shares of Class A common stock which is traded on The NASDAQ Global Select Market under the symbol “SCPL,” and issued Class B common stock, which is wholly owned by SGC and as of December 31, 2021 represents approximately 80.8% of SciPlay’s total outstanding shares of common stock and approximately 97.7% of the combined voting power of both classes of SciPlay’s outstanding common stock. Accordingly, we continue to control shares representing a majority of the combined voting power in SciPlay and continue to have a controlling financial interest in and consolidate SciPlay. In connection with the IPO, we consummated a series of organizational and other transactions, including an Intercompany Services Agreement, under which SGC provides to SciPlay certain corporate level general and administrative services that are charged to SciPlay and settled in cash and an intellectual property license agreement (“IP License Agreement”), pursuant to which SciPlay acquired certain licenses from a restricted subsidiary of SGC for a one-time payment of $255 million. Additionally, we entered into a tax receivable agreement (“TRA”), which provides for the payment by SciPlay to SGC of 85% of the amount of tax benefits, if any, that SciPlay actually realizes (or in some circumstances is deemed to realize) in connection with increases in the tax basis of assets of SciPlay Parent Company, LLC (“SciPlay Parent LLC”), over which SciPlay Corporation is the sole manager, in connection with the SciPlay IPO, redemption or exchanges of membership interests or certain distributions and other tax benefits related to SciPlay’s making of payments under the TRA. The corporate structure of the above transaction is commonly referred to as an “Up-C” structure, which allows us to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “passthrough” entity, for U.S. income tax purposes. One of these benefits is that future taxable income of SciPlay Parent LLC that is allocated to us will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the SciPlay Parent LLC entity level. Additionally, because the Company may exchange or redeem our LLC Interests for newly issued shares of SciPlay’s Class A common stock on a one-for-one basis or, at SciPlay’s option, for cash, the Up-C structure also provides us with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded. As a result of these transactions, in 2019 we received $312 million in net proceeds from the offering (net of $30 million used by SciPlay to pay the offering fees and balance retained by SciPlay for general corporate purposes). The noncontrolling interest share of equity in SciPlay is reflected as a component of the noncontrolling interest in the accompanying consolidated balance sheets and was $150 million and $129 million as of December 31, 2021 and 2020, respectively. The legal entities that comprise SciPlay are unrestricted subsidiaries under our credit agreement and the indentures governing the Senior Notes. Significant Accounting Policies Additional accounting policy disclosures are provided within the applicable Notes. Cash and cash equivalents Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less. We place our temporary cash investments with high credit quality financial institutions. At times, such investments in U.S. accounts may be in excess of the Federal Deposit Insurance Corporation insurance limit. Restricted cash We are required by gaming regulations to maintain sufficient reserves in restricted cash accounts to be used for the purpose of funding payments to WAP jackpot winners. These restricted cash balances are based primarily on the jackpot meters displayed to slot players or for previously won jackpots and vary by jurisdiction. Compliance with maintaining adequate restricted cash balances and complying with appropriate investment guidelines for jackpot funding is periodically reported to gaming authorities. Minimum guarantees under licensing agreements We enter into long-term license agreements with third parties in which we are obligated to pay a minimum guaranteed amount of royalties, typically periodically over the life of the contract. These license agreements provide us with access to a portfolio of major brands to be used across our business segments in building our strong brand presence across multiple channels of distributions. We account for the minimum guaranteed obligations within accrued and other long-term liabilities at the onset of the license arrangement and record a corresponding licensed asset within intangible assets, net. The licensed intangible assets related to the minimum guaranteed obligations are amortized over the term of the license agreement with the amortization expense recorded in D&A. The long-term liability related to the minimum guaranteed obligations is reduced as royalty payments are made as required under the license agreement. We assess the recoverability of license agreements whenever events arise or circumstances change that indicate the carrying value of the licensed asset may not be recoverable. Recoverability of the licensed asset and the amount of impairment, if any, are determined using our policy for intangible assets with finite useful lives. Amortization expense related to these licenses and recorded in D&A for the years ended December 31, 2021, 2020 and 2019 was $40 million, $60 million and $68 million, respectively. The following are our total minimum guaranteed obligations for the periods presented:
|  | As of December 31,
|  | 2021 |  | 2020
Current liabilities |  | $ | 35 |  |  | $ | 40 |
Other long-term liabilities |  | 70 |  |  | 104 |
Total minimum guarantee obligations |  | $ | 105 |  |  | $ | 144 |
Weighted average remaining term (in years) |  | 4 |  | 4
The following are our remaining expected future payments of minimum guarantee obligations:
| Year Ending December 31,
| 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | After 2026
Expected future payments | $35 |  | $23 |  | $23 |  | $23 |  | $1 |  | $—
Other assets We capitalize debt issuance costs associated with long-term line-of-credit arrangements and amortize such amounts ratably over the term of the arrangement as an adjustment to interest expense. We assess the recoverability of our other long-term assets whenever events arise or circumstances change that indicate the carrying value of the asset may not be recoverable. Advertising costs The cost of advertising is expensed as incurred and totaled $124 million, $123 million and $125 million in 2021, 2020 and 2019, respectively. R&D R&D relates primarily to software product development costs and is expensed as incurred until technological feasibility has been established. Employee-related costs associated with product development are included in R&D. Foreign currency translation We have significant operations where the local currency is the functional currency, including our operations in the U.K., Europe, Australia and Canada. Assets and liabilities of foreign operations are translated at period-end rates of exchange and results of operations are translated at the average rates of exchange for the period. Gains or losses resulting from translating the foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive loss in stockholders’ deficit. Gains or losses resulting from foreign currency transactions are included in Other (expense) income, net. Comprehensive income (loss) We include and classify in comprehensive income (loss) unrealized gains and losses from our foreign currency translation adjustments, the effective portion of derivative financial instruments designated as hedging instruments, net investment non-derivative hedge of our investments in certain of our international subsidiaries and for our discontinued operations certain gains or losses associated with pension or other post-retirement benefits, including prior service costs or credits and transition assets or obligations. New Accounting Guidance - Recently Adopted The FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments, on July 19, 2021. The new guidance requires the lessor to classify a lease with variable lease payments that do not depend on an index or a rate as an operating lease at lease commencement if classifying the lease as a sales-type lease or direct financing lease would result in the recognition of a selling loss. We adopted this standard during the third quarter of 2021 on a prospective basis. 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 and subsequently ASU No. 2021-01, Reference Rate Reform (Topic 848) in March 2020 and January 2021, respectively. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, including derivative instruments impacted by changes in the interest rates used for discounting cash flows for computing variable margin settlements, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued, in 2022 or potentially 2023 (pending possible extension). The ASUs establish certain contract modification principles that entities can apply in other areas that may be affected by reference rate reform and certain elective hedge accounting expedients and exceptions. The ASUs may be applied prospectively. Based on our preliminary assessment completed to date, we do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements. We do not expect that any other recently issued accounting guidance will have a significant effect on our consolidated financial statements.

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- Definition The entire disclosure for the business description and accounting policies concepts. Business description describes the nature and type of organization including but not limited to organizational structure as may be applicable to holding companies, parent and subsidiary relationships, business divisions, business units, business segments, affiliates and information about significant ownership of the reporting entity. Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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