In today’s economic environment, it appears there is one six-letter mantra universally shared by all businesses: growth.
This should not come as a surprise; after all, most businesses are now corporately run and rely heavily on Wall Street for money and leadership, and the only thing these entities usually care about are the figures on the bottom line. The best way to stay in the good graces of most stock analysts and shareholders is to show steady year-over-year growth.
For the operator side of the slot marketplace, this dynamic means more and more people need to churn through the slot floor and operations must be run as efficiently as possible, which creates bottom line revenue figures that grow at a consistent yearly rate. Under this scrappy business formula, it makes sense to avoid large capital expenditures and hold onto existing equipment as long as possible, which may explain why the slot replacement cycle has slowed over the last decade. Money is better spent on marketing systems to bring more people though the door, and ancillary products that make all devices run at peak efficiency.
One result of this type of business approach has been a total transformation of the manufacturer side of the casino industry. Under the same pressure to grow at a good yearly clip but faced with less operator demand for new slot product, the slot-dependent vendor community contracted, with larger venders buying out smaller ones and then merging to form large mega-suppliers, creating economies of scale and pricing that, hopefully, better appeal to the operator community and thereby generate more overall sales. So far results appear mixed, judging by recent game supplier financial results.
Meanwhile, many of these suppliers are opting for product diversification as an additional way to goose the bottom line. The strategic goal is to acquire companies or items that not only offer entrée into new markets, but are also complimentary to existing product lines and potentially attractive to the gaming operator. Indeed, there have been a number of such deals over the past few months:
- AGS has acquired Rocket Gaming Systems’ installed base of approximately 1,600 Class II gaming machines, expanding its recurring revenue machine total to 23,600 units. According to a press release, the move reinforces AGS’ commitment to the Class II business while accelerating its yield-management strategy to partner with casino operators to upgrade their platforms and content over the next several years.
- Scientific Games has snatched up a number of companies with the goal of improving its digital gaming business. It bought Spicerack Media, creator of the Bingo Showdown social bingo game app, to complement Scientific Games' stable of social casino games and mobile offerings. Red7Mobile was acquired to provide Scientific Games with access to a large portfolio of mobile and interactive game titles, including slot games, instant win/scratch cards and table games. The company is also in the process of acquiring NYX Gaming Group, a provider of digital gaming and sports betting platforms that already has an expansive distribution network.
- Aristocrat Technologies has acquired the complete source code and hardware design for a promotional kiosk solution developed by Phi Gaming. Additionally, the two parties entered into a development agreement to further acceleration of Aristocrat’s Oasis 360 Loyalty Kiosk.
My guess is that we will see many similar such announcements over the upcoming year as significant vendors continue to seek out companies, large and small, that will provide them with any kind of competitive edge, bottom line boost and shareholder peace.