Frank Neborsky, principal and vice president, Power Strategies, and former head of slots at Mohegan Sun, asked the questions and led the discussion. Panelists were: Warren Davidson, director of slots for Louisiana-based Coushatta Casino Resort; Steve Ellis, vice president of slots, Caesars Entertainment, Las Vegas; Ron Nesbitt, vice president of gaming for Wind Creek Hospitality, the authority that operates three tribal casinos for the Poarch Band of Creek Indians in Alabama; Tarzan Treadway II, slot operations manager, Hard Rock Hotel & Casino Biloxi; and Allen Vermeulen, slot manager, Golden Nugget Biloxi. Here’s what they had to say:
Let’s start with game pricing. What sort of an impact do manufacturer discounts have on your decision making process?
Davidson: It does have an impact for me but not a huge one. When I’m looking for new games I’m always looking to get the most bang for the buck, however much capex I have. Before I’m ready to buy I pretty much know the specific segments I’m going after; and which manufacturers have the products that are most likely to succeed in those segments. So it has to be a pretty extreme discount to make me change my game plans and if it does change it’s pretty small.
Ellis: We do a lot of large purchases now, which is new. Up until a few years ago we had 40 properties making 40 different decisions. Since then we have aggregated these decisions and now we’ll do very large purchases; one decision for 40 places, and yet the decisions are still very similar. When you’re talking 400 machines, an extra percentage point is a lot of money. It adds up really quick, but it still isn’t enough to change our decision. The games are not commodities in my mind that can be easily interchanged. Price is important but it’s not ultimately what drives our purchasing decision.
Nesbitt: Discounts are nice but there are certain vendors on all floors that are trending up and trending down. If a vendor is trending down, they could offer me a pretty big discount but it’s not going to really entice me to buy their game. At Poarch Creek, because we’re a Class II facility, we revenue share a lot of games and may only own about 50 percent of them. If I’m not too sure about a particular vendor or they’re trending down, I may lease as opposed to own. If it’s a pretty strong game and they’re trending up I’m willing to spend the money it takes to own the game. Last year, we opened a new property so I went out and bought almost 2,000 games and did a big RFP. Prices ran from $15,000 to about $19,000 all-in for the game. I’m looking to see if the vendor is going to have the legs to support their game with a game library and what kind of segment I’m going to hit by buying that game and putting it on the floor.
Treadway: The discount can affect my decision if there’s a similar product that may work. Probably more than anything it can affect the order quantity. If it’s a big enough discount, I might buy, say, eight games instead of six.
Does a more expensive game necessarily mean you’re going to either make more money or provide a better experience to the player?
Vermeulen: Not necessarily. In the first phase of our development [at the newly renovated Golden Nugget Biloxi] we had to utilize discounts and went heavier with some vendors than others. In the second phase we were more about percentages, meeting the denom and everything else you need to meet the needs of the guests.
Ellis: These boxes are over-engineered right now. Thinking back five or seven years, when we all started buying cabinets that were server-based capable, none of us are on a server-based system yet and we’ve actually moved and sold some of those units. Some of these newer products are also over-engineered. We’ve built these Cadillacs, but maybe we just need a Kia that still gets the same performance. Manufacturers will give you a base price, but then they throw a couple of progressives on there and it’s a premium price. Five progressives give you a double-premium price. But the performance isn’t necessarily different between the three versions. That becomes very frustrating; often times we will just skip the whole premium piece.
Looking at locals markets, do new games really drive a true ROI when you look at the pricing and the cost of ownership including maintenance versus something that you are able to refresh and put a new game in?
Treadway: When you look at some of the new cabinets the prices are knocking on $30,000 before you get the discounts and I can get the same performance and results out of a product that costs me $16,000. Some of the new technology is great; we want some of that stuff and move forward without having to retrofit things. But some manufacturers try to push what they think the industry should be doing rather than consult with how the guests respond to some of the new technology.
An example for me is multi-denomination; not really a lot of value in the cases that I’ve been able to track, and multi-games; sometimes it works, sometimes it detracts from the value to the player. Sometimes “keep it simple” works.
Nesbitt: In the Class II side, most of our games seem to have a service life of five years before they are obsoleted by the manufacturers. That’s not too terrible if the theme conversions are there to support that particular cabinet that may be aging and to keep performing at a level that we’re happy with. It does get frustrating when a manufacturer has their cabinet out there and they have introduced a new cabinet for a year or so and a lot of their new themes are only available on the new technology. Then you might have older themes that players like and are not available on the new cabinet. Things like that are upside down; manufacturers need to look at the games that people are actually playing so when they introduce something new they don’t disenfranchise their player base.
What about reliability and maintenance and the cost of sustaining some of these games?
Ellis: The reality is we’re keeping cabinets for up to 12 years now as opposed to five years. If you look at the buying trends the past few years, the 10-12 year replacement cycle is pretty solid industry-wide. The new cabinets are very reliable; we don’t have units out as much as we used to. Games stay up a lot longer than they used to, but when they go down it’s expensive. Monitors are ridiculously expensive; sometimes we’re paying $3,000 or $4,000 to replace them and you don’t know if it’s going to last a month or a year. One monitor might be necessary for a video game, but three monitors might not be necessary.
How did this work at the Golden Nugget, as far as the balance between newer and older games for a new property?
Vermeulen: We had quite a backlog of older games in the warehouse that we purchased for the transition from Isle to the Golden Nugget. I did have some cabinets I could fall back on; S2000s and things like that. If you bring them out with the right themes, they will do well [but] you’ll reach a saturation point. When they offer you the old themes that still work in the older cabinet to get you to buy a newer cabinet it just doesn’t work for me.
What do you think is driving some of the changes in popularity that we’re seeing in either video, reels or even the electronic table game segment including video poker?
Treadway: The advantage that video has had in the past few years is in bonusing. Something I thought worked really well a few years ago were several Barcrest games that had three reels and a nice top-box. You didn’t need multiple monitors. They gave the guest something a little bit different with the bonus action; something to watch for and look forward to. When the video came out, you could do flashier stuff with the monitors up top. Then you started integrating the touch screens on the monitors up top and the expense kept going up. I’m starting to see some of that new technology on the reel product, which players seem to trust more. If you give them a little bonusing, free spins or whatever it is, they’re biting on it.
Davidson: We saw a big shift to video from reels and it’s slowing down now. About 35 percent of our floor is reel, with quarter, dollar and even five-dollar denominations. Video always has that step you can take with bonusing. Some of the newer games—like the Bally Curve and some of the IGT NLDs—might be giving you the best of both worlds, giving people the stepper experience that they like and bonus video screens at the same time. We’ve had good luck with both of those games.
Ellis: I think things have stabilized; quarter reels aren’t core product anymore and I don’t think I saw that coming. Dollar and above reel play has stabilized, but we have seen more dollar play in the video segment.
Do you think manufacturers put too much emphasis on participation or daily fee games when it comes to driving new technology or putting product on the floor?
Treadway: A lot of times those leases are associated with the brand, so I get that they have to recover those costs. But it seems in most cases they save their best cabinets and what they feel will be their most successful math models for their lease and participation product and then we kind of get what’s left over. Sometimes it’s worth it, but even though manufacturers are doing their best to put a successful product on the floor, they still aren’t that great at picking out which games will be the best.
Nesbitt: In Class II, 50 percent of our floor is participation. Additionally, we try to keep 5 to 7 percent of our floor premium or wide-area progressive. Do those games really perform better? Not consistently. To protect ourselves with one vendor we put in a clause that if their premium games don’t perform at a higher average than their standard games, then I have the right to pull them off even if the lease term isn’t up or I can just convert them to standard pricing. Being a Class II casino competing with our friends down here in Biloxi, I do need to put some of those premium or WAP themes on the floor so that when people walk into our new facility in Wetumpka people say, “Hey, this is a real casino; I see familiar product.”
Ellis: Slot revenues are still on the decline nationally and slot manufacturers are still making more money. That doesn’t make sense to me; it’s coming off participation games. Focusing on WAPs, it’s a business model that’s based on volume only and I don’t think it’s sustainable. Whether we win or lose, they get paid. That doesn’t work for us.
We did this really interesting study where, in the higher denoms in the three- and five-coin WAP product, 90 percent of the players were not max-betting the games. Megabucks is a category killer and you’ve got to have it. But then you drop into this penny segment of WAP product, 90 percent of the people are not even eligible for the WAP. And it’s not to say these game themes weren’t popular; they were. People weren’t playing them for the WAP; it was just the manufacturers way to get more money out of the brand quicker by charging us WAP fees. That’s not something that’s going to work for us in the lower-denom product.
Vermeulen: The manufacturers pour more and more money into WAP and licensed themes, but you’re not getting exponentially larger returns. The games don’t do better than some of the games from smaller vendors that are keeping it simple and putting basic products out there that have a good bonusing feature and driving them at a lower rate that gives me a better return. I lean more towards them even though you’re a little apprehensive; they’re not proven, but the proven manufacturers are struggling to put something out there that’s really compelling other than some of the staples.
Davidson: My first question to a vendor when they’re showing me a leased game is, is this a flat fee or a wide area? Invariably, the answer that comes back is wide area, because that’s where they make more money. It’s very frustrating to me because it’s going to cost me three to four times more than a flat fee game. The other thing that some of the manufacturers are just starting to realize is there comes a time where some of these daily fee games are good to own but no longer viable to lease.
What are some of the trends that you are seeing in the area of player bankrolls and bet limits?
Nesbitt: In our Class II facilities, vendors are required to and able to track every spin and we’ve seen the average bet creep up over the last four years. It has gone up about 17 percent. We asked vendors for more detail and there actually was a shift between lower- and higher-limit betting. In 2011, in one game that does 30 percent of our revenue, about 66 percent of the bets were between 0 and 100 credits. In 2013, that number dropped to 62 percent. People were betting on the lower limits a little bit less. At the higher limits, between 150 and 200 credits, it went up from 32 percent to 38 percent. So we are seeing a shift to higher limit and bet amounts but it is manufacturer-specific to a certain extent.
Davidson: We’ve seen a slight increase in bet amounts. With lower bankrolls, it’s really about getting smarter about free play offers, looking at your data base differently and trying to drive more trips from more people.
At Caesars, has free play helped in offsetting lower bankrolls and has there been a change in player behavior with lower denom games?
Ellis: We’re putting a lot of free play offers out there; a giant increase in the last 16 to 18 months. In a lot of cases, at the end of the day, we didn’t make any more money. It’s a lot of reinvestment, but it’s clearly what the customer wants; it’s the form of reinvestment that is most favored by them. We’re trying to figure out how to balance things. We don’t want to keep throwing more at them, because I think in some cases it’s a replacement to the bankroll. I think it is helping toward the time-on-device piece generally.
That’s a significant issue right now; people aren’t getting as much perceived entertainment value now as they did a few years ago. Average bet has creeped up and you’ve got a lot of forced minimums now that you didn’t really have in the past. We’ve got to find a way to address that. Maybe it’s not through game play but through a secondary peripheral or a side bet that is a break-even proposition for the casino that gives back to the player, not necessarily for us to make more money but for them to have a more enjoyable experience.
Treadway: You’ve got to keep an eye on your marketing team. They’re good people and they mean well, but they will absolutely kill your hold percentage. The guests really are victims of their own desires in this. They demand free play and we listen, in a tight market like this in Biloxi, and you can expand that to Alabama. They’re looking at offers from five or 10 different casinos within a couple of hours drive. But it hurts their experience on the game because it forces us to make changes that we as slot operators may not want to make. You’ve got to make sure that your marketing and finance teams have a grip on the bottom-line effect that free play has, and you have to be able to pull your own numbers because sometimes they just don’t understand and, the next thing you know the GM is knocking on your door and asking you what’s wrong with our hold percentages.
Are manufacturers being responsive to player trends are or they more focused on creating new niches for themselves?
Treadway: It’s a little bit of both. What I do like is the smaller manufacturers that have newer, fresher ideas. They can move quickly to make things happen, and they are willing to work with you if you have an idea. They will check with their engineers, whereas the big guys, they might have the best of intentions but it’s like trying to turn the Titanic.
Davidson: I welcome the smaller manufacturers to help create a more diverse mix. I think we’re all testing the waters all the time, trying to create new things and see what works. I don’t think manufacturers are trying to push things; they’re reacting. For a while, penny video was where all the development was and the core reel product was neglected. But now there are some great new products coming out to revisit that segment.
I look at slot ROI and you can make the case that you’re shifting money around from an old game to the new one. But it’s all about creating compelling experiences and new game launches create excitement that keeps people coming back for more.
Nesbitt: I think a lot of our customers are getting their gambling fun playing on their iPads at home. I know my wife is; I see her playing slot-type games. That type of thing scares me and I think manufacturers have to wake up to it. I can spend $20,000 on a box, but if you can go out and buy a Nexus 7 tablet on Amazon for $250 or an iPad for a little bit more…people are gravitating toward that. How many slot games are in the app store now? Five or six hundred at least. People are finding some pleasure in those things. Over time, manufacturers will have to decide what they’re going to put in that box on the floor and how they’re going to deliver themes to it. We see a lot of things now, like i5 Gaming writing stuff for IGT and others, and Caesars buying Buffalo Studios a while back. I think the industry will have to move in the open development direction. There are many manufacturers out there in Class II that have been writing themes for other people; I would like to see more of that.
Ellis: We’ve been focused on the last few years on how we can attract the younger customer who won’t be caught dead in front of a slot machine. It might not be the content but the form factor; put it on a tablet and it’s a fun game. That’s one piece, but we’re even seeing declines with the 55-year-old customers and that’s really a concern. Now we’re starting to lose our core customer. It may not even be gaming; it might be Netflix. Everyone I know is watching marathon runs of TV shows that you wouldn’t normally have watched before.
It’s hard to fault the manufacturers. We’ll say, ‘Go build something new an unique,’ they build it, we put it on the floor and it won’t do as well as a typical slot machine. So then we pull it because it’s all about win-per-day. That’s where we need to evolve as operators, because if the revenue [on that new game] was just being cannibalized from other slot machines, then it didn’t succeed. But if 50 percent of that money was brand-new money, that’s a successful cabinet. Maybe we need a new metric that starts rewarding manufacturers for being innovative because right now we often punish them.