Sigma’s new slot signals truce to revenue wars

Mar 5, 2002 10:29 AM

Casinos and slot manufacturers have been sparring over leased revenues for nearly a decade and, while their differences remain clear, one manufacturer has introduced a slot game that it feels is the olive branch the industry has been seeking.

This spring, Sigma will debut its Game of Life slot line under a “brand for purchase” arrangement in which casinos can purchase the machine, pay a daily fee for the brand license, and retain all of the game’s profits.

Until now, premium brand name machines such as Monopoly and others have been only available on a lease or revenue sharing (participation) basis, with the manufacturer keeping the title to the machine and collecting a percentage of the daily winnings.

That never set well with some operators, especially the major Strip operators who deal in thousands of machines and have the resources to purchase the games. They have complained that leased or participation machines ultimately cost them more than seven times what they pay for a comparable model outright.

At the same time, many of the tribal casinos especially in California have embraced the leased machines because they don’t have to invest the capital, at about $10,000 per machine, and can enjoy an income stream without any significant investment.

Nevertheless, it’s the major operators ”” Harrah’s, Park Place and MGM Mirage ”” that the manufacturers want to placate, and they are the target of the new Sigma machine.

“For some time casino operators have been asking the manufacturers for an opportunity to own branded slot games,” said Jim Jackson, Sigma’s president and CEO. “Until now, they’ve really had no other choice but the straight participation arrangement. We’re excited to be the first to offer this innovative pricing model to our customers.”

So far, the brand for purchase slot has been welcome news to some operators.

“We are thrilled with Sigma’s and Hasbro’s willingness to listen to the industry and provide this exceptional game with this new price model,” said Bruce Rowe, Harrah’s corporate vice president of slot operations research and development.

Sigma is hoping that the new game’s higher profit margin potential will bring other operators on board.

“With the unique combination of a first-class brand, strong interactive game play and a favorable pricing model, we are confident that the Game of Life will earn a premium place on the operators’ floors,” Jackson said.

Harrah’s favorable assessment of Sigma’s brand for purchase slot machine comes on the heels of its announcement to reduce the number of participation games it operates on the casino floor.

Earlier this year, Harrah’s pulled about 600 of the machines from its 20-plus casinos. Even though the number was a fraction of Harrah’s nearly 42,000 machines, it sent a signal that the gaming giant wants to change the way it does business with slot makers.

“We feel we can’t manage the profitability of the company by continuing to put more and more of these (revenue sharing) games on the floor,” Bruce Rowe told Reuters.

Rowe estimated that the average fixed-price slot machine costs about $11 a day to operate, compared with $75 a day for a revenue-sharing machine.

Besides Harrah’s, Station Casinos began cutting back on its revenue-sharing machines two years ago, citing the fact that it spends millions creating the casino and should be allowed to purchase the machines and not give away its revenue.

“The primary reason (players) are coming is for the entertainment complexes we’ve built,” said Stations CFO Glenn Christenson. “A couple of years ago, we had substantially more profit-sharing machines than we do now. This has been a focus of ours for some time.”

Christenson said that of the 20,000 games now in Station’s casinos, only a “very low single digit” percentage are of the revenue-sharing variety.

Like Rowe, he estimated the average revenue-sharing machine costs substantially more for a casino to operate than one that can be bought outright. Whereas the average machine for sale costs about $10,000, casinos can pay more than $14,400 a year for a profit-sharing model.