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Best of Ken Adams

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Quick-takes: The month's trends in a glance - September 2008

1 October 2008

A war may be brewing – a slot machine war. The slot machines themselves will not be dueling; instead the management of slot companies and the management of casino companies will be the duelists. We all know that casino revenues are down and operators are doing everything they can to reduce expenses and preserve their margins. At the same time, slot sales are also down because the economy has slowed casino expansions and game replacement and because no new jurisdiction has opened this year.

In years when slot machine sales have been off, the major manufacturers have depended on revenue from participation games, euphemistically called recurring revenues on their income statements. The casinos have always resisted the charges by seeking to reduce specific game fees or by containing or reducing the number of participation games on the casino floor. That has been the status quo for years, but now with increased economic pressures and some changes in ownership the status quo is being challenged.

Harrah's has fired the first shot in what may be this war of giants. Harrah's is taking IGT participation games off its casino floors. Times are bad for IGT right now. Sales are down and participation revenue is also down simply because all slot revenue is down. Harrah's has more slot machines that any other casino company, so when Harrah's makes a request people listen, and when Harrah's makes a change the industry feels it. So far only analysts are saying it is a war of the two most powerful companies in their respective sectors; Harrah's has not said what it is doingand IGT has not commented, but something is clearly happening.

A rift may be growing between two gaming industry giants. Some observers, however, downplayed any conflict involving casino operator Harrah's Entertainment and slot machine maker International Game Technology… The issue is over participation slot machines, games in which the casino operator shares the winnings with the manufacturer, sometimes up to 20 percent of the revenues. Sources said Harrah's, which reported a net loss of $97.6 million in the second quarter, wanted to reduce the gaming revenues flowing out of its casinos and into the hands of slot makers. Dozens of participation slot machines have disappeared in past weeks from Harrah's-controlled casino floors, most notably at Bally's. The games are all IGT-owned devices and some of the company's more popular titles, including Wheel of Fortune. Harrah's filled the empty spaces with nonparticipation slot machines, allowing the casino operator to keep all of the revenues. Analysts thought Harrah's would return the games to the casino floor in exchange for a revenue share reduction. Wachovia gaming analyst Brian McGill told investors Harrah's also removed participation slots in its Atlantic City casinos. (Howard Stutz, Inside Gaming, Las Vegas Review-Journal, 8-18-08)

IGT and Harrah's are tussling,probably because both are struggling financially. IGT sold 16,000 fewer slot machines in the last quarter than in the same period the previous year, down about 40 percent. Aristocrat, Multimedia Games, and some others are also experiencing the same downturns.

International Game Technology blamed the slowing economy and an "unprecedented" decline in casino play for lower third-quarter earnings. Net income for the quarter ending June 30 dropped to $108.3 million, or 35 cents a share, compared with $136.4 million... Revenue declined to $677.4 million from $706.5 million. (Sandra Chereb, Associated Press, 7-17-08)

Aristocrat Leisure Ltd said first-half profit slumped 44 percent as U.S. casinos cut purchases and a rising Australian dollar lowered the value of overseas sales. Earnings before interest and tax from North America, the company's biggest market, fell 30 percent to A$78.7 million. Net income fell to A$70.4 million ($60 million) in the six months ended June 30 from A$125.9 million… Australian earnings fell 37 percent to A$25.2 million… Japanese earnings rose eightfold to A$26.6 million from a year ago… Earnings from the rest of the world, which includes Macau, Europe and South Africa, fell 63 percent to A$16.5 million. (Robert Fenner, Bloomberg, 8-28-08)

Multimedia Games for the fiscal 2008 third quarter reported revenue of $30.3 million, compared with revenue of $30.9 million in the comparable period of fiscal 2007. The year-over-year revenue decline primarily reflects a 39% decline in Class II revenue and a 24% decline in revenue derived from the charity bingo market, offset in part by a 33% improvement in revenue from games played under the compact in Oklahoma, a 109% increase in revenue derived from the electronic bingo market in Mexico, and a 19% revenue gain related to Multimedia's New York Lottery operations. (Business Wire, 8-6-08)

That does not mean that all slot manufacturers are suffering the same decreases. Williams and Bally are both up over last year. In fact, Bally reported an increase of 1 percent in games sold, but a 30 percent increase in revenue profit and nearly 70 percent in profit. Bally only sells about 30 percent of the games that IGT sells, but that is up from 20 percent in the previous year. Bally has some new leadership, and a new mission – eat into IGT's market share. Three years ago it seemed as if Bally was going to fade into history, but now Bally is growing and offering an alternative to casinos that disagree with IGT pricing and policies. One would suspect that Harrah's will leverage the growing strength of Bally to force some changes in the way IGT does business.

Bally reported strong gains in revenue and profit in its fiscal fourth quarter and the year. Net income for the three months ended June 30 rose 69 percent to $31.3 million compared with profit of $18.5 million in last year's fourth quarter. Revenue rose 22 percent to $247.4 million, up from $202.4 million…For the year, net income was $107.2 million compared with $22.3 million for fiscal 2007. Revenue jumped to $899.7 million, up nearly one-third from $682.3 million in 2007. (Associated Press, 8-21-08)

Slot machine maker WMS Industries Inc said its quarterly net income rose 29 percent as it shipped more units and revenue increased. Fiscal fourth-quarter profit rose to $21.6 million…from $16.7 million…revenue for the quarter rose 17 percent to $185.6 million…gaming operations revenue rose 33 percent in its fourth quarter, while worldwide new unit shipments rose to 8,180 gaming machines.

(Reuters, 8-6-08)

Gavin Isaacs has seen far more of the United States than his native Australia… Isaacs spent 12 years as a corporate lawyer in Sydney, Australia, before a headhunter asked him whether he had any desire to join the slot machine industry in 1999. Within a month, he became the head of the legal department for Australian gaming equipment giant Aristocrat Leisure Ltd… As the head of the games side for Bally Technologies since September 2006, Isaacs spends a lot of time visiting the slot maker's customers throughout the United States and Canada… Isaacs joined Bally Technologies after serving as the president of the American division for Aristocrat for three years. The company ran into trouble soon after moving into the American market in 2001. Isaacs, who had been running Aristocrat's European division, was dispatched by the corporate offices to right the listing ship. "We talk as if it's all gloom and doom and no one is buying. Some of the big guys aren't buying and some of them are. The American Indian casinos are still buying. On the East Coast and in Pennsylvania, with all those expansions, people are buying. The new product is still going out and there's still a good demand for it." (Howard Stutz, Las Vegas Review-Journal, 8-18-08)

There is another trend in the world of slot machines and casinos this month that indicates some very fundamental and very significant changes are taking place. And it is not the long-awaited server-based gaming; IGT – and to some degree the other manufacturers – has been preaching the coming of server-based gaming as the next major change in gaming. IGT may be right, but so far it is hard to see any major – or for that matter minor – movement toward server-based gaming.

There is, however, movement toward automation of traditional table games. PokerTek announced approval from Nevada gaming to test their automated poker games in Nevada. Within two days a second announcement followed: Excalibur is converting its poker room to fully automated tables. In Atlantic City there are games in several casinos and dealers are attempting to keep some control over the process. But they concede that poker dealers may be looking at the end of their trade. The technology and the games have been around for a long time, but it appears as if their time has come. The downturn in the economy puts pressure on every casino to find ways to reduce expenses and increase revenues, and these tables seem to promise both.

PokerTek Inc. has received approval to test its automated poker tables and related software in Nevada. The technology division of the Nevada Gaming Control Board has authorized the field trial of the company's PokerPro system… PokerTek is a software-development company that makes electronic tables for up to 10 players of Texas Hold 'Em. The system deals cards, displays them on private screens to the players and displays general information on a large screen. It also allows customers to set up accounts for betting and keeps statistical information on games. (Charlotte Business Journal, 8-19-08)

Can you play poker with no cards, no chips and no dealers? Poker players at Excalibur are about to find out. When they wander in the casino's poker room on Friday, they will find a fully automated poker room. Resort officials have decided to equip the casino's poker room with electronic poker tables to boost interest in the game. North Carolina-based PokerTek is providing 12 of its PokerPro tables to the Excalibur for a six-month trial run. PokerTek received approval from Nevada gaming regulators last week to field test the system. The company placed 12 games in the Trump Plaza in Atlantic City in June and has more than 230 machines worldwide. The company's largest automated poker room is at the Casino du Montreal, which has 25 tables. (Howard Stutz, Las Vegas Review-Journal, 8-19-08)

Kathy Bresan, a poker dealer at Caesars Atlantic City, recently received a raise of 12 cents per hour. That's cents, not dollars… Bresan and thousands of other Atlantic City casino dealers survive on tips, the lifeblood of many jobs in the service-oriented gaming industry. Dealers estimate two-thirds of their earnings are in tips… Now they are worried an emerging trend in the casino business may cost them their tips and livelihood. The introduction of automated poker games this summer at Trump Plaza Hotel and Casino reflects the growing popularity of electronic gambling across the country. Electronic poker machines don't require human dealers – and they certainly don't need to be tipped… The arrival of electronic poker coincides with an effort by United Auto Workers to unionize casino dealers… The electronic poker machines automatically shuffle and deal the cards, which appear on a large video screen in the middle of the table. Gamblers have a small display screen in front of them equipped with touch controls to place their bets, call or fold. Winners are automatically identified after each round. (Donald Wittkowski, Press of Atlantic City, 8-19-08)

How is this for a throwback? Binion's famous Horseshoe casino in downtown Las Vegas is trying to regain its former glory under a new owner with an old idea. The Horseshoe was famous for, among other things, a display of a million dollars in cash; however, in bad times, Becky Binion, the daughter of legendary Benny Binion, cashed the cash. Now a new owner trying to recapture some Benny's magic is bringing it back. Times and casinos were simpler in 1964 and Benny's publicity-grabbing ideas are not likely to gain the same attention in 2008; still, what else is a person to do to revive a much worn out reputation? After Benny died and Jack left the Horseshoe to his sister things started to go downhill, quickly. Harrah's bought the casino, but really only wanted the name and the World Series of Poker, another of Benny's ideas. MTR took the casino from Harrah's and then sold it to the new owner. But he doesn't have the Horseshoe name, the WSOP, the ideas, or I would guess the will or nerve to risk everything and take any and all bets.

The casino floor of Binion's Gambling Hall & Hotel is once again home to a stack of cash worth $1 million that is on display to lure tourists into the once-rollicking joint. Binion's newest owner is bringing back a renowned tradition at the downtown Las Vegas casino, and it isn't swift and thorough beatings for people dumb enough to get caught cheating at cards. The appearance of a $1 million display similar to the one that entertained millions of Las Vegas tourists from the 1950s until 2000 is the latest gimmick by Binion's Gambling Hall & Hotel owner Terry Caudill to revive some of the spirit from the casino's heyday. The money is encased in an acrylic pyramid on top of a poker table in the middle of the casino. Casino workers brought it out last week to the surprise of tourists who happened to be there when they installed the display. The million-dollar display first appeared in the 1950s at the Horseshoe under ownership by Joe W. Brown. In 1964 then-owner Benny Binion assembled $1 million in $10,000 bills and re-created the attraction. (Benjamin Spillman, Las Vegas Review-Journal, 8-22-08)

The gaming results across the country were mixed. States that added casinos or slot machines saw revenues increase, while same store sales were generally down. States that lacked something new or faced new competition saw revenues decrease; but none of that is new; it is the story of 2008 repeated over and over, month after month.

Atlantic City July gaming revenue fell 6.6% to $438.7 million. (Gaming Industry Weekly Report, 8-25-08)

Colorado July gaming revenue fell 14% to $65.6 million. (Gaming Industry Weekly Report, 8-25-08)

Connecticut casinos' July slot revenue fell 9.4% in July. (Gaming Industry Weekly Report, 8-25-08 Weekly Report, 8-22-06)

Delaware July gaming revenue fell 0.9% with Dover Downs posting the only increase, up 5.8%. Delaware Park was down 5.5% while Harrington fell 3.1%. (Gaming Industry Weekly Report, 9-1-08)

Detroit July gaming revenue rose 2% to $115.5 million. (Gaming Industry Weekly Report, 8-25-08)

Florida racino slot revenue was down 5.7% in July to $17.4 million. Win per slot per day was $143; Pompano Park had a win per slot per day of $189. (Gaming Industry Weekly Report, 9-1-08)

Illinois July gaming revenue fell 20.2% to $138.5 million. (Gaming Industry Weekly Report, 8-11-08)

Indiana July gaming revenue rose 1.9% in July to $241.2 million. (Gaming Industry Weekly Report, 8-25-08)

Iowa July gaming revenue rose 1.5% to $126.7 million. (Gaming Industry Weekly Report, 8-11-08)

Louisiana July gaming revenue rose 1.6% to $232.1 million with same store revenue up 0.5%. (Gaming Industry Weekly Report, 8-25-08)

Macau July gaming revenue rose 42% year over year to $1.16 billion. (Gaming Industry Weekly Report, 8-11-08)

Maine: PENN's new permanent facility showed a 59.1% jump in revenue to $6.3 million. (Gaming Industry Weekly Report, 8-25-08)

Mississippi July gaming revenues decreased 6% to $222.7 compared to $237.6 million in 2005. (Associated Press, 8-16-06)

Missouri July gaming revenue rose 7.3% to $146.9 million with same store revenue down 3.1%. (Gaming Industry Weekly Report, 8-25-08)

Nevada June gaming revenue fell 1.1% to $949.3 million while LV Strip revenue was down 3% to $486.4 million. (Gaming Industry Weekly Report, 8-25-08)

New York racinos slot revenue rose 13.9% in July to $81.7 million with win per slot per day rising to $223 from $202 a year ago. (Gaming Industry Weekly Report, 8-11-08)

Pennsylvania Slot win rose 42.1% in July with same store revenue up 9.9%. Average slot win per day was $301, down 12.5% year over year. (Gaming Industry Weekly Report, 8-11-08)

Ken Adams

Ken Adams is the principal in the gaming consulting firm, Ken Adams and Associates. Formed in 1990, Ken Adams and Associates specializes in information, analysis, and strategic planning for Indian tribes, casino operations and gaming manufacturers.

Ken spent over 20 years in the hotel-casino industry, prior to founding Ken Adams and Associates. He held the positions of: Director of Casino Operations, Casino Manager, and Keno Department Manager. During this time, he developed numerous innovative marketing and customer development programs and systems for evaluating casino performance. Some of those programs, such as slot clubs and tournaments, have become industry standards.

Ken is also actively involved in gathering and disseminating information that is important to the gaming industry. He is editor and publisher of and the Adams' Report, a monthly newsletter specializing in identifying trends in casino gaming, regulation and manufacturing, the Adams Daily Report, an electronic newsletter that provides electronic links to the key gaming stories of the day, and the Adams Review, a special report distributed by Compton Dancer Consulting that provides editorial commentary on gaming trends.
Ken Adams
Ken Adams is the principal in the gaming consulting firm, Ken Adams and Associates. Formed in 1990, Ken Adams and Associates specializes in information, analysis, and strategic planning for Indian tribes, casino operations and gaming manufacturers.

Ken spent over 20 years in the hotel-casino industry, prior to founding Ken Adams and Associates. He held the positions of: Director of Casino Operations, Casino Manager, and Keno Department Manager. During this time, he developed numerous innovative marketing and customer development programs and systems for evaluating casino performance. Some of those programs, such as slot clubs and tournaments, have become industry standards.

Ken is also actively involved in gathering and disseminating information that is important to the gaming industry. He is editor and publisher of and the Adams' Report, a monthly newsletter specializing in identifying trends in casino gaming, regulation and manufacturing, the Adams Daily Report, an electronic newsletter that provides electronic links to the key gaming stories of the day, and the Adams Review, a special report distributed by Compton Dancer Consulting that provides editorial commentary on gaming trends.