Slot makers eye ‘racinos’ as next frontier

Jan 15, 2002 8:23 AM

Without new casinos scheduled to open this year, slot manufacturers are beginning to mine the “racino” market ”” casinos at racetracks ”” as a potential source of new business.

“We’ve been receiving inquiries from racetracks about our products,” Steve Romeo, director of marketing at Mikohn Gaming, told GamingToday. “We want to investigate that market.”

The market is worth investigating. With no major casino openings in North America, and the California market built-out at about 45,000 machines purchased last year, racetrack casinos will be the best source of business for slot makers over the next two years, according to Wall Street analysts.

William Schmitt, gaming analyst at CIBC World Markets, said growth opportunities for manufacturers such as gaming giant IGT have been spurred by states such as New York, which last year approved slot machines at five Thoroughbred and harness racetracks.

“Assuming there could be 1,500 to 2,000 (slot machines) per track, that could be huge for IGT for two to three years,” Schmitt said, pointing out that states such as Delaware have raked in millions of dollars from slot machines at their tracks.

New York officials said new machines could be installed by this spring or summer.

Other manufacturers, including Mikohn, would like to cut into IGT’s slice of the slot pie, which accounts for about 70 percent of all machines sold in North America.

There should be enough business to warrant manufacturers’ interest. Other states, including Pennsylvania, Florida, New Hampshire, Maryland and Ohio, will consider the possibility of adding slots at their racetracks, according to David Anders, a gaming analyst with Merrill Lynch.

“Because they are installed in establishments that already offer an accepted form of gaming, devices at the racetracks have come to be viewed as more acceptable than riverboat or land-based gaming,” Anders wrote in a report on the subject.

Another state that holds the potential for thousands of slot machines is Kentucky, which could approve slots at its racetracks this year.

A 2001 study by Penn State University concluded that putting 6,000 slot machines in the state’s four racetracks would result in $236 million in state and local tax revenue.

Moreover, a Pricewaterhouse-Coopers study estimated that by 2010, revenue from slot machines could reach $820 million.

Although slot machines at Kentucky tracks have been taboo for decades, racetrack operators have suffered declining pari-mutuel handle while riverboat casinos in nearby Indiana rake in billions of dollars.

“Under siege” by nearby casinos, Kentucky’s signature industry appears ready to finally embrace slot machines as a means to increase revenue.

And why shouldn’t they? Slots have proved to be a Godsend for virtually every racetrack that installs them.

In the state of Iowa, Prairie Meadows Racetrack and Casino led all 13 of the state-regulated casinos (that also includes riverboats) with $71.4 million in revenue for the six months ended Dec. 31, an 8 percent increase compared with 2000.

What’s even more impressive is the fact that Prairie Meadows went bust a couple of years ago. Its turnaround is attributed directly to slots.

West Virginia racetracks have also hit the slot motherlode. Wheeling Downs is expanding its facilities to the tune of $68 million, which would include adding 674 slot machines, bringing its total to 2,400 machines. Mountaineer Race Track and Gaming Resort is the state’s largest slot machine operator with 2,500 machines.

Analysts predict continued growth in West Virginia, despite a failing economy. “Growth continues to be strong and trends are good at (MTR Gaming’s) West Virginia facility,” said Ryan Worst, gaming analyst with Dresdner Kleinwort Wasserstein. “Shareholders are looking to 2002 when there is an opportunity to post good earnings.”

Rhode Island greyhound tracks have also reaped slot benefits. Lincoln Park is expanding its facility to accommodate an additional 1,300 video slot machines, which would bring its total to 3,000. And Newport Grand Jai Alai’s 15,000-square-foot expansion calls for an increase in slot machines from 776 to 1601.

The potential for slot income at racetracks hasn’t gone unnoticed by casino operators. Boyd Gaming last year purchased Delta Downs racetrack in Louisiana for $125 million from Shawn Scott, who two years earlier bought the failing track for $10 million.

The racetrack’s value skyrocketed after voters in Delta Downs parish approved slot machines at the racetrack. Boyd subsequently made about $35 million in improvements to the property, and is currently installing about 1,700 slot machines, which it hopes to switch on later this month.