IGT on a roll with new video slots

David Strow and Richard N. Velotta

Friday, Jan. 12, 2001 | 11:29 a.m.

While Las Vegas gaming operators have fallen out of favor with many investors, the same can't be said for the slot machine manufacturing industry.

Strengthening sales have helped boost the sector's stocks this year. International Game Technology, for example, now trades above $45 per share; last March, it traded below $20.

And the picture continues to look bright for gaming manufacturers, executives of manufacturing companies said Thursday at the American Gaming Summit.

Tom Baker, president and chief executive of IGT, said growth has been spurred by a number of drivers, not the least of which has been IGT's emergence as a leader in video slot machines.

Two years ago, Baker said, 90 percent of IGT's video-based slot machines were video poker machines.

"The games just weren't as good as they needed to be," Baker said.

IGT responded by focusing on the development of new video slots to compete. In 1999, it introduced 30 new video-based slots -- and about six months later, the company began noticing the results.

In the quarter ending Sept. 30, Baker said IGT sold just over 10,000 video-based slots, up from 3,573 in the year-ago quarter, and up from 6,627 in the June quarter. Two of its top video slots, "Little Green Men" and "Texas Tea," are averaging more than $320 in daily win per machine, Baker said.

With 60 new video slots introduced in October 2000, "we expect our success to continue and we believe we can dominate this market for the foreseeable future," Baker said.

Another factor that will help IGT continue growing is the replacement of older slots, Baker said. IGT estimates there are 550,000 slots now in operation across North America, with an average life cycle of nine years.

But the introduction of new video-based slots, combined with the successful roll-out of so-called "cashless" slot machine technology, should help boost slot machine sales through 2002, as casinos replace older slots with better performing slots that can use cashless technology, Baker said.

"The demand for cashless machines will drive the replacement cycle for machines for several years to come," Baker said. "That's good for our company, and it's good for our industry."

The rapid roll-out of IGT's cashless technology, a ticket-pay system called "EZ Pay," has helped spur earnings growth as well, Baker said. Currently, IGT has 6,000 EZ Pay slots installed in 20 casinos, including 2,000 at the Suncoast near Summerlin.

Sales are also being helped by the introduction of Indian gaming in California -- something often viewed as a negative for Nevada operators. But IGT estimates those tribes could, at some point, be operating as many as 45,000 slots -- and Baker said the company currently enjoys a market share exceeding 60 percent in California.

In the year ending Sept. 30, 2000, Baker said IGT shipped 4,900 machines to California casinos, including 3,000 in the last three months of the fiscal year.

Finally, Baker said IGT's earnings were getting a boost from vastly improved results at its Australian operations. In the September 2000 quarter, IGT recorded its first profit from Australia in years, Baker said.

"I believe this will be a factor for IGT in 2001," Baker said. "We will make money in Australia."

With its financial performance improving, Baker said IGT will continue to look at acquisition opportunities.

"We look at everybody in the industry," Baker said. "As soon as their (financial reports) are out, it goes into our model.

"If it makes strategic sense ... and it's accretive (to earnings), we might do something."

Meanwhile, two other game-making companies outlined their growth strategies for 2001.

WMS Industries Inc. of the Chicago area plans to capitalize on its popular series of machines based on family board games and on the Jumble word puzzle, featured in more than 600 newspapers.

And Las Vegas-based Casino Data Systems will continue to develop its game division as well as its player-tracking OASIS software product.

Brian Gamache, president and chief operating officer of WMS, said gaming's growth in California will drive additional placement of participation games like Monopoly, which now has more than 4,000 units installed, including 1,800 in Nevada.

Gamache said company officials have been pleasantly surprised by the positive response Jumble has received. Last month, more than 1,000 Jumble machines -- the first of three games in a series called Puzzle Pays -- were installed.

Gamache said WMS would distribute games based on the Scrabble board game in March and Pictionary in the summer. Another 500 Jumble games also are expected to be rolled out in 2001.

The company's announcement last week that it has completed the relocation of corporate headquarters to Waukegan, Ill., is another step in WMS' efforts to focus exclusively on the slot industry.

"We've gotten out of some of the other businesses, the hotels and the casinos, and are now working on what we do best, game development," Gamache said.

The corporate headquarters and manufacturing operation is now at Waukegan, about 30 miles north of Chicago. The company's old Chicago operation is being redesigned as a research and development facility. The company plans a 50 percent increase in its research and development budget and plans to bring on 70 game designers.

Gamache also said work would begin this year on the development of a new game software platform, a long-range project that could take four or five years.

While WMS is specializing exclusively on games, Casino Data Systems is using a more diversified strategy, with 40 percent of its revenue coming from games, 40 percent from the OASIS tracking system, 10 percent from recurring revenues from games and 8 percent from signs.

OASIS -- Online Accounting and Slot Information System -- tracks players' gambling and spending patterns through the use of casino slot club cards.

Ronald Rowan, chief financial officer for CDS, said in the third quarter of 2000, the most recent figures the company has available, sales of the OASIS system were on track for a 25 percent to 30 percent growth over 1999 -- when the company reported $30.1 million in sales.

Rowan said growth would continue in the company's game division, which opened in 1997. The company has only about 3 percent of the slot machine market share and is developing multisite linked progressive slots like Jackpot Bingo, which was released in the third quarter of 2000.

CDS is expected to have 2,000 multisite linked progressive machines on the market by the end of 2001, with the first quarter release of Bingomatic planned.

The company's strategy is to develop and distribute slot machine "boxes" that can use interchangeable software programs. Rowan said that because the lifespan of the popularity of many games is around two years, CDS plans to offer a library of different titles that fit the box's format.

CDS recently acquired 30 titles from the Canadian manufacturer Gametronics to offer new games to casinos that own the company's boxes.