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Long-Term Trends

Macau, slots, technology, internet and more

Long-Term Trends

During these dog days of summer, it’s worth taking some time out to think longer-term about where the gaming industry is headed.

Here are several potential trends:

 

International giants emerge. The Chinese Communist government probably didn’t intend it, but it helped usher in the era of giant international casino operators by opening Macau to competition.
 

That allowed Las Vegas Sands, Wynn and MGM Mirage to open their mega-resort concepts outside the United States, and, no doubt, helped inspire Singapore that even greater resorts could be its engine of tourism development.
 

The early results in Singapore are lending credence to Sheldon Adelson’s oft-stated belief that Asia can support a half-dozen or so casino capitals on the scale of Macau and Las Vegas. Now, other Asian countries are expected to follow Singapore’s lead.

While a number of casino operators will play in that space, including perhaps some not even in existence, we think there are three emerging giants among today’s public companies—Las Vegas Sands, Wynn and Genting.

 

Slots are proliferating, and so are the competitors.

A few years ago, there were basically four Class III slot machine companies competing in North America—IGT, with 70 percent of the market; with Bally, Aristocrat and WMS splitting what remained.

Today, IGT has come back to the pack with share ranging from 30 percent to 50 percent in new casinos. And the competition is getting more intense. Consider: Konami has become a major player. Aruze promises to be. Multimedia Games, Cadillac Jack and other Class II slot-makers are entering Class III. Ainsworth is expanding. Lottery companies are competing in the space. Game-maker Incredible Technologies is entering the industry. Privately held American Gaming Systems has hired former Bally CEO Bob Miodunski as it intends to become aggressive.

That’s a lot of competition, and some of those companies aren’t going to be around a half-dozen years from now.

Meanwhile, the market is growing. Mark Strawn of Morgan Stanley calculates 36,400 more slot machines over the next couple of years from approved projects, and 200,000 more machines depending on new jurisdictions coming online.

That number could be greater if other states follow Illinois’ example and allow slots at all liquor-licensed establishments. Already, there are proposals to do just that in Arizona, Ohio and Pennsylvania.

But the really big growth could be overseas. Italy is opening a 57,000-machine VLT market. Mexico might have 50,000 Class III machines. Some observers believe Brazil will be a 100,000-machine market growing to more than 250,000. And all of those Asian casinos will need slot machines.

 

Technology is changing every aspect of a casino.

Systems aren’t merely for player tracking and back-office accounting anymore. And tables aren’t just 19th century felt games.

Today, systems promise to integrate gaming positions with every aspect of the resort, to become promotional engines, to provide sophisticated business data.

Technology is bringing live dealers to the internet and mobile betting to the casino floor.

Table games are in the early stages of a revolution that brings bonusing, side bets and electronics to traditional games, and entirely new games to the table pits.

The internet and bricks-and-mortar casinos will integrate, much as the World Series of Poker has revealed that potential, and as companies such as Harrah’s move into the space.

Inevitably, internet gaming will be legal in the U.S., whether on a state-by-state basis or nationally. A reasonable bet: It will start with poker.

One of the hallmarks of today’s non-gambling electronic gaming is peer-to-peer games evolving and pools of multiple players. And those players play differently. They want to be interactive and in charge. Gambling games will evolve in that direction.

That opens unimaginable opportunities, once regulators become comfortable with the concept.

The question we always must address in this space is the investing implications.

It’s hard to pick winners and losers, or even to identify which technologies or trends will play out.

But one good suggestion is to follow where the money goes. Enormous sums will flow through
gaming companies.

Consider: The most successful casino in U.S. history, Bellagio, enjoyed peak cash flow of under $500 million. There are a lot of observers who think that Las Vegas Sands’ new Singapore casino alone will do more than $1 billion a year.

Now, multiply that by all the potential resorts Sheldon Adelson envisions in an increasingly affluent Asia of billions of people.

If states throughout the United States follow the Illinois VLT model, the base of slot machines could grow many hundreds of thousands beyond today’s projected 1 million. Interestingly, much of the revenue pouring through the slots would not be new, merely legalized by replacing the gray machines found in bars and fraternal organizations throughout the country.

The legalization of internet wagering would obviously open huge revenue possibilities, both online and in driving business to brick-and-mortar casinos through incentives and loyalty programs.

And, though legalizing sports betting in the United States might be a longshot, it has the potential to capture tens of billions of dollars now being wagered illegally.

The future is a big and unknown place about which entire books are written.

Suffice it here to say that it has extraordinary potential for a prosperous tomorrow.

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