THE BACK PAGE: Heard at the show
by Charles Anderer
December 1, 2009
Last month’s G2E offered insights and updates on a whole host of key industry issues. After a week of tuning in, here’s a sampling.
Wall
Street and the capital game: The M&A market may be stirring after a sleepy
2009. Thomas Steinhauer, CFO of Ameristar, said Wall Street was pushing his
company to look at deals. His interest level was not quite there. One reason:
“The cost of capital is still 50 percent higher than it
was.”
Scott Schweinfurth, CFO of WMS Gaming, said he
was peppered with questions about consolidation on the supplier side of the
industry at the Investment Forum on Day 1 of the show.
For new projects capital is still only
available on a very limited basis, with 50 percent equity as a baseline and
money not priced lower than the low teens, with the SugarHouse deal in Philadelphia standing as
a model. “In two or three years 30 percent or 40 percent equity might be
possible,” said Matthew Sodl of Innovation Capital, “but it’s 50 percent for
the foreseeable future.”
IPOs in Hong Kong
will continue, with MGM Mirage probably next.
“Asian investors still like the quality U.S. brands in gaming, and Macau is part of the China consumer
play for investors,” said Brian Ng of JPMorgan. Operators such as Melco, SJM
and Galaxy are “nice companies,” he said, but they cap out at US$1 billion,
whereas Wynn Macau and Sands China, with market caps of $7 billion and $10
billion, respectively, are more interesting.
Fontainebleau continues
to be a head-scratcher. Sodl estimated that it will take $1.5 billion to
complete and hazarded a guess that it will generate free cash flow of $100
million to $150 million per year, adding that getting financing for whoever
buys it will be “very problematic”.
Kevin Coyne of Goldman Sachs noted that
gasming consolidation on the operator side “never seems to take capacity out of
the market,” even though that could be what is needed in depressed markets such
as Laughlin and Atlantic City.
As for Las Vegas,
Andrew Zarnett of Deutsche Bank estimated that demand will be up 3 percent to 5
percent next year, but room capacity will be up 15 percent, as will competitive
pressure from California.
He hopes the industry will emphasize technology to enhance the entertainment
experience. “Change on the casino floor is more necessary than new rooms; we
don’t need any more new rooms right now.”
Server-based
gaming: Ryan Sprague of Ameristar is only buying
server-based-ready games right now. Fifteen percent of his floors are
server-based-capable. The number is 10 percent at The Venetian, according to
Tim Merrill, the property’s director of training and product development. The
main advantage of server-based gaming is speed of conversions, said Sprague.
Chuck Hickey of Barona said the ability to download peripheral updates is a big
plus.
The holy grail for server-based gaming,
however, remains benefits for the player.
“The technology we offer really has to drive
game performance and the cashbox at the end of the day,” said Nick Khin of
Aristocrat Technologies.
“We’d like to create an experience for players
at Barona that players can’t get anywhere else,” said Hickey. “We’re looking
for customizing games and experiences for players, and if that stuff might
actually be true” about server-based gaming.
Meantime, there are some organizational steps
everyone should be taking. Merrill said operators need to start looking at
back-room IT infrastructure as they get ready for server-based gaming, and
Hickey added that “getting to know your IT staff and to think of them more in
terms of casino operators than network guys who sit in a closet somewhere is an
important challenge.”
New
game sales: There are a number of factors getting in the
way of a robust new-game sales market, one of them being the enduring
popularity of older games with older players. Hickey noted the fanatical
devotion of many of his high-value players
to 78 SDG machines that don’t tie into anything more than a
slot system.
“Until the older players go away, they aren’t
going to play transmissive reels if they can still find a stepper product,”
said Merrill.
Sprague and Hickey each said about 30 percent
of the machines on their floors are five years or older, and Sprague said he
expects his S2000 machines to be around for another five years, so that
percentage might not change.
Then, of course, there’s money. Virginia
McDowell of Isle of Capri noted that the average price of a slot machine is now
around $20,000. She told one slot manufacturer that she could “buy one machine,
or take that money, buy chicken drumsticks for a year, put them at a bar and
elevate our customer experience.”
“What are we looking for?” said Keith Smith of
Boyd Gaming when questioned about new games at the show. “Price.”
Charles Anderer
is executive editor of BNP Media Gaming Group and also oversees content development, sales and marketing for the company’s trade shows and conferences, which include Bingo World, Southern Gaming Summit, Gaming Technology Summit, New York Gaming Summit and Casino Marketing. He can be contacted at andererc@bnpmedia.com.
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