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Harrah's reducing participation slots

Harrah’s Entertainment has begun an experiment in which they are removing large portions of their stock of slot games that require participation, or revenue sharing, with the manufacturer.

The experiment is reportedly a move on the part of Harrah’s to cut costs in the face of sinking revenues-the operator logged a net loss of $97.6 million in the second quarter.

The experiment to reduce reliance on participation games-slots, usually carrying high-profile themes, that are leased by the casino in exchange for a cut of the profits to the manufacturer-started at Bally’s and Paris in Las Vegas. In July, a student gaming writer, Alex Ruehle, tipped Global Gaming Business that Bally’s and Paris had removed Wheel of Fortune, one of the most popular slot games in the industry. A slot supervisor told Ruehle it was an experiment by Harrah’s to remove participation games from the floor and replace them with slots purchased on a traditional business model.
 
Harrah’s officials would not confirm or deny our inquiries concerning the “experiment.” However, last month, a Harrah’s spokesman confirmed to the Las Vegas Review-Journal that, in fact, the operator is experimenting with removal of high-profile, recurring-revenue games that were leased on a participation basis.

For the past half-decade, some of the highest-earning slot games on the typical casino floor have been leased in revenue-sharing arrangements. Games like IGT’s Wheel of Fortune, Star Wars and other well-known titles are joined by games such as WMS’ Monopoly series, Wizard of Oz, Star Trek and other games in the typical casino’s inventory of revenue-sharing games.

Early this decade, revenue sharing was among the subjects of greatest contention between operators and slot manufacturers, who insisted that the high-profile brands being sought out by players required huge research and development budgets-which could only be supported by recurring revenue from participation games.

Eventually, operators came to accept participation, not only because the games typically earned twice or more the house average-easily paying for the extra cost of offering them-but because they were not stuck with non-earning titles. Participation deals typically provide assurance that games can be switched out by the manufacturer on the operator’s request.

Analysts are saying that Harrah’s is going to do a comprehensive study of earnings with participation games versus non-participation games, and perhaps seek more favorable revenue-sharing arrangements with the slot-makers.

Investors on the manufacturing side are watching the development closely-participation has provided a good portion of revenues for most of the top slot manufacturers, and if other operators follow the lead of Harrah’s-the largest operator in the business-the revenue crunch affecting the industry could begin to seriously affect bottom lines in the manufacturing sector.

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