MGM Grand may sell key slot patent

David Strow

Friday, June 9, 2000 | 10:47 a.m.

A Las Vegas gaming analyst says International Game Technology is in talks to acquire a powerful new "coinless" slot machine technology from an unlikely source -- MGM Grand Inc.

The patent IGT may bid for, "Coinless slot machine system and method," was formally awarded to MGM Grand in April. Citing "usually reliable confidential sources," Las Vegas Investment Advisors Chairman Dave Ehlers wrote in a report that IGT had offered MGM Grand $30 million for the patent.

Moreover, Ehlers said, the proposed deal would include a cut of future revenue streams from the sale of coinless slot systems incorporating the MGM Grand patent.

Other sources familiar with the talks, however, indicated the IGT offer was well below the $30 million figure, but did confirm that revenue participation was being discussed.

By securing the patent, Ehlers said, IGT could strengthen and protect its market position in coinless slot technology.

"(MGM Grand's) patent threatens to derail IGT's plans to require (casino) operators to purchase the new EZ Pay (coinless) slots while charging other manufacturers a fee to access the system technology," Ehlers wrote. "(We) would expect that IGT's offer would have to be exceptionally attractive in terms of recurring licensing and fee revenue for it to be seriously considered by (MGM Grand)."

Assuming a $1,200 per year licensing fee per slot -- and the conversion of 100,000 slots in Nevada -- a 25 percent royalty could result in $30 million in recurring revenues per year for MGM Grand, Ehlers said.

"The recurring revenue stream could be huge," Ehlers said.

A spokesman for MGM Grand confirmed the company does hold the patent, but didn't specifically mention IGT as a buyer.

"We are in discussions, both internally and with others, about how to maximize the value of that patent for our company," said MGM Grand spokesman Alan Feldman.

Ed Rogich, vice president of marketing for IGT, said he could not comment on the possibility of a buyout of the MGM Grand patent at this time.

Robin Farley, gaming analyst with PaineWebber, said she wasn't aware of the sale talks, but said it would make sense, given MGM Grand's efforts to reduce debt in the wake of its $6.4 billion buyout of Mirage Resorts Inc.

"They're not in the business of manufacturing slots," Farley said. "If they do have a patent, if it's something they own and they're not using like other assets they have, it makes sense to try to monetize it. It's clearly better to sell some things and participate in revenues."

Records filed with the U.S. Patent & Trademark Office indicate that the MGM Grand patent is, at least on its face, very similar to IGT's EZ Pay system. The machine works by accepting either paper currency, preprinted coupons or "cash-out slips."

The cash-out slips are a bar code produced when a player cashes out on a slot machine. This bar code would be produced by a random number generator, protecting the slot operator from counterfeit tickets.

Since tickets, not coins, are involved, the system is designed to allow much more flexibility for slot operators by eliminating the need for fixed denominations.

"By use of the subject system, it is possible to change the wager limits of any or all of the individual slot machines," the MGM Grand patent reads. "Thus, the minimum wager of the slot machine can be changed at any time. It would also be possible to allow the player to select the wager limit."

IGT would be forced to look to the MGM Grand patent, Ehlers said, because MGM Grand applied for the patent in January 1993 -- and its patent would take precedence over other coinless systems on the market now. But it could also create a dangerous situation for IGT, the dominant manufacturer of slots, Ehlers said.

"WMS (Industries) has already sued IGT for antitrust violations," Ehlers said. "There are those that believe that patent pooling for the purposes of controlling market share would be illegal."