Thursday, September 26, 2002
Copyright © Gaming Wire
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Growth foreseen for slot machine sales 

New markets, shorter shelf lives expected to help slot expansion 
By ROD SMITH 
GAMING WIRE 



New slot machine sales in the United States could more than double to nearly 250,000 from this year's approximate 100,000 sales, industry insiders said. 

"The slot machine business will be one of the best in the American economy," Bear, Stearns & Co. analyst Jason Ader said. 

The main reasons are the fact that a substantial portion of the business is based on recurring earnings, an acceleration of the machines' replacement cycle and the opening of new gaming markets, he said. 

Pro-gaming initiatives across the country are the primary market maker, a report released earlier this month by Bear, Stearns shows. 

Key states that could add gaming options include: Florida, Kentucky, Maryland, Nebraska, Ohio and Pennsylvania. And Bear, Stearns estimates the total market for new slots in these states could top 100,000 units. 

Great Britain also is expected to emerge as a potential 40,000-slot machine market, Dresdner Kleinwort Wasserstein analysts said. 

And there is also potential for further rollbacks of restrictions in states that already have legalized gaming. 

Other market drivers include the popularity of cashless slots, the opening of new casinos in established markets, the introduction of multigame machines and the possibility of easing the limits on slot machines in California Indian casinos. 

"Cashless is an evolution, not a revolution," Ader said. "It will evolve over the next five years. Steve Wynn has indicated that (Le Reve) will be 100 percent (cashless slots) so the other industry leaders will want to keep up." 

IGT Marketing Vice President Ed Rogich said: "Today, ticket-in/ticket-out technology accounts for 10 percent of the market with about 60,000 machines in operation." 

The enthusiastic response to ticketing systems has led some casinos such as the Hard Rock Hotel in Las Vegas to plan a transition to 100 percent ticket-in/ticket-out technology across their floors. 

In addition, the Borgata in Atlantic City and Le Reve in Las Vegas are expected to open cashless. 

"We think we're in the beginning of what we think will be a very fruitful expansion of ticket-in/ticket-out," Rogich said. 

"Ticket-in/ticket-out is driving replacement sales," Rogich said. "The second factor is the design of the games themselves," where IGT has "a depth of resources no one can compete with." 

Slot machine vendors previewed 400 new designs at the recent Global Gaming Expo. 

"Pity the poor slot-machine buyer," said Tom Nieman, gaming vice president of Hall Communications. 

Bear, Stearns estimates that casinos replace 15 to 20 percent of their slots each year. With an installed base of 600,000 slots, that amounts to between 90,000 and 120,000 replacement machines each year. 

The replacement cycle likely will shrink as cashless machines drive sales, with the shelf life of new participation games falling rapidly toward nine months from the 2001 average of two years, Dresdner analysts said. 

The replacement rate for slot machines, however, is expected to surge since retrofitting older machines to cashless slots is considered cost-prohibitive or impossible, analysts said. 

The immediate market impact of opening the Borgata and Le Reve are not expected to be as significant as the other factors. 

"Actually, the impact of California recalculating the tribal compacts which limit tribes to 2,000 devices could also be huge. That opens up in April when the governor of California is scheduled to revisit the interpretation," Nieman said. 

Based on the volume of play, it has been estimated that the number of slots in California's Indian casinos could be doubled or more without diluting the market. 

Such a developments could have significant market fallout for some operations, Nieman said. 

"The Strip is pretty much insulated from it. So are locals casinos markets. However, secondary Nevada markets like Reno and, certainly Laughlin, are vulnerable," he said. 

Slots contribute the lion's share of gaming revenues and are arguably the most profitable casino game because of low labor costs, analysts said. 

In 2001, slot revenues were $28 billion in the 14 states where large-scale casinos are legal. That amounted to 75 percent of total gaming revenues. 

Reno-based International Game Technology is the dominant gaming equipment company, Dresdner analysts said. 

Its overall market share is estimated at 65 percent to 70 percent. 

IGT, with 4,000 employees and annual sales of $1.3 billion, is expected to maintain its leading position because of its research and development budget of $80 million compared with $28 million for its largest competitor, analysts said.