Total gaming is the new game for suppliers: A friend (who would know) told me after the sale of International Game Technology (IGT) to GTECH that Big Blue used to manufacture and ship 110,000 machines a year out of its facility in Reno. Now, a dozen or so manufacturers are fighting it out over a U.S. replacement market that could shrink to as low as 50,000 machines next year, per Brian McGill of Buckingham Research. The American casino industry has absorbed a lot of blows, going back to late 2007 when revenues in mature jurisdictions started to take a hit from an economy that was already beginning to list. The addition of new gaming supply in places like Pennsylvania, Maryland and Ohio were something akin to one-time items on the balance sheet. Manufacturers would win, for a while, but growth would inevitably slow and business would dive in neighboring, mature markets. In hindsight, it’s hard not to think that the leading slot manufacturers held on as long as they could in the face of replacement cycles that were headed for the low single digits. With new brick-and-mortar projects drying up and casinos taking 20 years or so to replace floors, the logic of joining forces with leading lottery companies and positioning yourself to sell gaming content into the broadest possible range of markets grows pretty strong.
Government relations will be altered: All gaming runs through government, the lottery industry even more so. Whenever new gaming legislation would come up in a particular jurisdiction, be it brick-and-mortar casinos, video gaming terminals or online gaming, casino industry suppliers and lottery companies often competed for legislator and regulator mindshare. Coming from the casino industry side, the company with the best lobbying organization, for many years at least, was IGT. With their perspective (and Bally Technologies’) being merged into lottery companies, brick-and-mortar operators might take a hit from a political standpoint in many jurisdictions. Elected officials, in their hunt for revenue, really can’t afford to be too strategic. If Illinois-style video gaming offers a new path to revenue they will take a close look at it, even if it hurts brick-and-mortar operators, many of which have fallen short of expectations the last few years. With the leading vendors perhaps less invested in the brick-and-mortar side than they were pre-merger, the public sector will have powerful potential partners on the vendor side who are looking at things from a total gaming perspective, not a predominantly brick-and-mortar casino perspective. This is a change.
The lottery and casino segments share common challenges: The AP ran an article last month that would have read the same if you have just substituted the word “casino” for “lottery.” The headline was, “Lotteries Nationwide Try to Bring in Young Adults.” Here’s an excerpt:
Madi Williams, 21, spends her days selling lottery tickets at TAZ’s Supermarket One convenience store in downtown Raleigh. She sees a steady stream of customers daily, but she’s not one of them.
“Everyone who’s above 40 comes in every day and spends like $80 on lottery tickets. It’s ridiculous,” she said. “Never really young people, I’m not interested either and I’ve never thought about why.”
Getting younger adults interested in a 40-year-old industry—where arguably the biggest product innovation was the advent of the scratch card in 1987—is a challenge for lottery leaders worldwide.
In the U.S., state lotteries are trying to engage 20- and 30-somethings with new phone apps, websites and altruistic cause-based campaigning. But it’s a gradual evolution…
This is where the potential power of the IGT/Bally mergers comes through. The casino industry doesn’t have a young player problem; the entire gaming industry does. I’m not one of those who believe that a switch goes off when we hit a certain age and for-money gambling becomes an obvious outlet for many people. Not to be trite, but times change. We didn’t see the likes of Daniel Colman, the reluctant $15.3 million World Series of Poker champ until now, who, after avoiding interviews, said as much as about the darkness of competitive gambling as he said about his love for strategy. Not to make too much of one young man’s comments, but complexity is here, and fully integrated total gaming suppliers just might be better at figuring it all out.