Penny games are holding their own. Are they a sign of the times or here to stay when better days return?



In the salad days before the economic meltdown, you’d hear the grumbles of some slot executives now and then about penny slots, as they made it known they preferred more lucrative higher-denom games.

Today, however, these penny games are gaining more respect and making more “cents”  to casinos. That’s because penny gaming machines are holding their own during the recession. Players, feeling the economic pinch, are turning to lower-denomination games, hoping to get more time on device with less pinch in their wallets.

A recent Associated Press article noted penny games produced about one-fourth of all slot machine revenue in Nevada in 2008. In Missouri, a state where gambling revenue actually increased in 2008, more than half of all casino revenue came from penny slots. In Illinois, penny slot revenue jumped from 6 percent in 2006 to 12 percent in 2008, and that percentage is still growing.

The term “penny slots” is somewhat of a misnomer, because players’ bets are generally much higher, with some as high as $2.50 or up to $10. They also offer some of the best holds in the industry, making them more profitable than many games.

The Associated Press article cited the experience of a man who recently lost his job and his wife. The loss of income crimped their lifestyle, but penny games enabled them to still enjoy regular casino visits, playing $20 or $30 each on those slots.

Some of the comments in this issue’s Forum (See Page 30) underscore the phenomenon. One slot executive in New Mexico notes that nearly 70 percent of the casino’s slot business comes from penny slots and that all 100 new slot machines currently budgeted to add to the slot floor this year will be penny slots. Even higher-end casinos have seen the phenomenon of players moving down the denomination scale. While dollar slot play remained strong, players of lower denomination slots were dialing down to even lower denominations, one California slot executive said.

It will be interesting to see whether those folks return to the higher-denom games once the economy starts coming back. It might be awhile before we have that answer.

With the economy tanking and casino players cutting back their spending, casinos are pulling back on ordering new slot machines.

One gaming analyst David Bain of Sterne Agee recently reduced slot replacement forecasts for several casino equipment suppliers after WMS Industries reported lower-than-expected units sold.

Slot machine sales totaled $114 million with the average selling price rising 18 percent to an average of $14,854 on the 6,431 new games shipped during the quarter ending March 30. In the third quarter of 2008, WMS shipped 7,793 slot machines, but their average price was $12,579 per game.

Still, WMS had increased revenues of $180.8 million in the third quarter, a jump of 4.6 percent compared with $172.8 million a year ago. The company had net income of $24.4 million, or earnings of 43 cents a share, compared with net income of $18.8 million in the third quarter of 2008, or earnings of 32 cents per share.

While not projecting when the replacement cycle will improve, WMS Chairman and CEO Brian Gamache noted that WMS will continue to push to capture a larger share of the pie.

“Slot floors are at their oldest levels in many years, and we’ve proven firsthand the competitive and economic benefits of fresh, high-performing content. While we cannot project when the replacement cycle will begin to improve based upon the earnings performance of our product portfolio, the customer demand for our new products and the test results of new games in development, we believe that we will continue to increase our ship share,” he said.