Will Light and Wonder Face More Litigation?

Almost exactly a year after Light and Wonder was hauled into the US District Court in Nevada, rumors are once again swirling regarding potential changes to that lawsuit. In all fairness, this might really be considered just an addendum to that first trial, as the company's Jewel of the Dragon slots were definitely included in that first filing in February 2024.

The crux of the issue at hand is two top game designers who once worked for Aristocrat Gaming and were hired away by Light and Wonder in 2021. Emma Charles and Lloyd Sefton went on to design two of L&W's biggest hits of 2023, Dragon Train and Jewel of the Dragon. Unfortunately, these games had a striking resemblance to some of Aristocrat's biggest games, Dragon Link and Lightning Link, as well as Autumn Moon, all of which the pair had a hand in designing. 

In September 2024, Judge Gloria Navarro, acting for the District Court, took the rather extraordinary step of pulling Dragon Train from the market. She cited her belief that Aristocrat was likely to be successful in demonstrating that the two game designers had breached trade secrets, even going so far as to say Light and Wonder "misunderstands trade secrets law."

This meant the company had to pull not only more than 2,200 already installed slots but also the rollout of several more slots in the series, including Dragon Train Sun Shots and Dragon Train Forever Emperor, had to be canceled.

This would send the company stock down more than 20% in the first weeks of October 2024. Q3 earnings in November of that year would show only a slight impact from the ongoing litigation, with a $64 million profit and their gaming division seeing a 15% jump in revenue. 

That was not the takeaway this past week, however, as rumors swirled of ongoing discussion between Aristocrat, Light and Wonder, and the District Court Judge about an amended filing late last week, which apparently finally circles back to the other titles in all this: Jewel of the Dragon, as well as newer slots Double Dragon and one yet to be released. 

Once again, the company's stock was down over 20% in only two days as investors weighed Light and Wonder's exposure to any more injunctions or judicial relief, with some speculation that the company was already moving forward with plans to pull Jewel of the Dragon off slot floors as well.

Most analysts continued to point out that Jewel of the Dragon already has a much smaller install than Dragon Train, and even Dragon Train's removal had minimal impact on the company's $3.19 billion in revenue last year. Still, a company with over $7 billion in market cap is unlikely to drop 20% over a few days on idle speculation, so it definitely bears watching. 

The US is not the only country where Light and Wonder and Aristocrat are facing off at the courthouse. Australian courts are also in on the action, with more than 10,000 Dragon Train installs down under. But Australian courts have not yet ordered the machines off the slot floor. And, of course, Light and Wonder is involved in more than a dozen other pieces of litigation involving its business practices. 

From a two-man table game design team that claims Light and Wonder sold electronic versions of its land-based baccarat game without paying them, to a class action suit for anti-competitive behavior in the table game shuffler market, which has seen more than 100 of the company's former clients sue, to a drawn-out fight with Evolution Gaming over whether Light and Wonder stole the idea for Lightning roulette, the company legal team has been kept busy with a bevy of bruising court battles. 

Whether this says anything about the company's modus operandi or, more importantly, its stock price going forward is anyone's guess.