Survey: Slot makers face lean times ahead

Mar 22, 2005 7:33 AM

Slot machine sales over the next couple of years are expected to flatten as current casino inventories reach peak levels and new markets fail to develop.

Those are two of the findings of Goldman Sachs’ fifth annual slot manager survey released earlier this month.

"We are seeing increased evidence that the replacement cycle (of slot machines) is slowing ”¦ and expansion markets in Pennsylvania, Florida, California and New York are taking longer to open," said Goldman Sachs analyst Steve Kent.

Kent added that his firm has projected "lower profits across the board" for slot makers over the next two years, at least "until a new technology sparks another wave of demand."

The advent of cashless gaming — also known as ticket-in, ticket-out technology — has been a driving force in increasing the number of newer machines on slot floors.

"Over the past three years, there has been a dramatic increase in cashless penetration," said Kent, who added that the aggressive replacement of inventory with cashless machines is "winding down."

As slot floors are generally newer than in the past, there is little reason to replace machines, which typically have a useful life of five years, Kent said.

The survey also revealed that slot managers believe downloadable slot games will be the new technology that could "spark" a new wave of demand.

"Slot managers are very excited about downloadable gaming," Kent said. "Operators in general like the idea of switching out their slot floors with the flick of a button."

Downloadable slot technology, also called server-based gaming, allows slot managers to download a library of games, including a variety of denominations, bonus configurations and payback percentages, from a central computer into "generic" slot machines on the casino floor.

The technology isn’t available in the U.S. because of concern over issues such as security, computer hacking and susceptibility to cheating.

Kent said that, while 63 percent of slot managers said they would use downloadable games, 57 percent said they thought the technology was still two years away.

Although operators would embrace downloadable slots, Kent believes slot players may not.

"Customers may be resistant to the idea," Kent said. "Many players are superstitious about their slots. They keep track of which ones hit and which ones haven’t hit. Thus, it’s not likely those players would want a ”˜new’ game every time they sit down.

"Also, some players may be suspicious of the odds being changed while they are playing," he continued. "It’s no guarantee that there will be end-user acceptance of downloadable games."

The Goldman Sachs survey was conducted at 150 casinos in 23 states. Slot managers at those casinos oversee 161,000 slots, or 22 percent of the U.S. market.